3D Systems Corp (DDD) 2010 Q4 法說會逐字稿

Good morning and welcome to the 3D Systems conference call and audio webcast to discuss the results of the fourth quarter and full year of 2010.

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

(Operator Instructions) At this time it is my pleasure to turn the floor over to your host, Stacey Witten, with 3D Systems.

Good morning and welcome to 3D Systems Conference Call.

I'm Stacey Witten and with me on the call are Abe Reichental, our CEO, Damon Gregoire, our CFO, and Bob Grace, our 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 the presentation may do so via the web at www.3dsystems.com/ir.

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 here on slide 3.

The phone numbers are also provided in the press release we issued this morning.

For those who have access to the streaming portion of the webcast, please be aware 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'd like to mention a statement regarding forward-looking information that appears on slide 4.

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 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 Managements current expectations concerning future events and trends and are necessarily subject to uncertainties, many of which are outside the control of the Company.

Please also see forward-looking statements and risk factors that appear in the Company's periodic filings with the Securities and Exchange Commission.

At this time I'd like to introduce Abe Reichental, 3D Systems President and CEO.

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

As you know, earlier today we released our operating results for the fourth quarter and full year 2010 and filed our Form 10-K with the SEC.

This morning, Damon and I will review and discuss these operating results with you.

We're very pleased with our continued strong performance and record fourth quarter and full year results.

We delivered record revenue with growth from all of our revenue categories fueled by increased demand for our personal, professional and production 3D printers.

For the full year, revenue growth included 27% of organic growth and acquisitions made up the balance of our 42% revenue increase.

What's more, we exceeded the first revenue goal post of our long term operating model and achieved our operating and net income targets, reflecting continued P&L leverage.

Now, for a more detailed look at our financial performance for the fourth quarter and full year 2010, a comparison to our operating model, and the introduction of a revised long term model at higher revenue goal posts, I will turn the presentation over to Damon Gregoire, our Chief Financial Officer.

Damon?

Thank you, Abe.

Good morning.

We delivered significant revenue growth from all revenue buckets for the quarter and year.

Annual growth was lead by a 79% increase in total printer sales driven by strong demand for our high end SLA and SLS production printers, and accelerated adoption of our ProJet professional printers and our personal printers category that now includes V-Flash and Bits from Bites printers and kits.

Service revenue for the year grew some 46% and included $18.3 million of 3D Pro Parts revenue.

For the year, print materials revenue increased by 16% absent some $1.2 million of service provider print material purchases that was included in our comparable 2009 revenue period, but excluded this year as a result of acquiring these entities into our 3D Pro Parts business.

As a reminder, materials supplied to our 3D Pro Parts operations are treated as inter company transfers and not included in revenue.

As Abe noted earlier for the full year 2010, revenue grew 42% over 2009 with a strong 27% organic growth rate underpinning our total revenue expansion.

In addition to strong organic growth, we believe that our revenue distribution across parts, printers, and prints materials illustrates the quality of our business model and that our solid revenue growth validates the credibility of our long term operating model.

We ended the year with approximately $7.6 million of backlog, compared to $7 million of backlog for the third quarter of 2010.

Although production and delivery of our printers and services is generally not characterized by long lead times, the current higher quarterly backlog included a multiple production printer order that was placed in Q3 of 2010 for partial delivery in Q4 of 2010, with additional printers designated for delivery in 2011.

Current backlog also includes $1.9 million of 3D Pro Parts orders that are scheduled for future delivery.

Fourth Quarter revenue also increased 42% over the 2009 quarter and 24% sequentially.

This increase was lead by a $6.2 million improvement in sequential personal, professional and printer sales.

For the quarter, gross margin expanded 400 basis points to 48.2% on a gross profit increase of $8.8 million as compared to the 2009 quarter.

We also reported operating expenses of $15.2 million, bringing our operating expenses as a percentage of revenue down to 29% from 32% in Q4 of 2009.

This is in line with our long term operating model.

As a result of our record revenue, expanded gross profit, and solid operating expense management, we generated net income of $9.4 million and earned $0.40 per share.

This is inclusive of a $0.05 per share benefit from the partial release of our valuation allowance on deferred tax assets.

For the year, revenue increased 42% over 2009 lead by a $24.2 million improvement in personal, professional and production printer sales.

Gross margin expanded 220 basis points to 46.3% on a gross profit increase of $24.2 million as compared to 2009.

We also reported that our operating expenses totaled $53.1 million, bringing our operating expenses as a percentage of revenue down to 33% from 41% in 2009.

Net income for the year rose to $19.6 million resulting in earnings per share of $0.83, inclusive of the same $0.05 per share benefit from the valuation release mentioned earlier.

I'd like to take a few moments to comment on key factors that affected our earnings per share for the quarter and full year.

As we already noted, we reported $0.40 per share for the fourth quarter and $0.83 per share for the full year.

Consistent with prior guidance on these items for the fourth quarter, EPS was negatively impacted by $0.02 per share due to our planned V-Flash ramp up and by $0.08 per share for the legal costs due to litigation expenses.

For the full year, EPS was negatively impacted by $0.07 from V-Flash and by $0.25 per share from legal costs.

For both the fourth quarter and full year of 2010, EPS benefited by $0.05 per share from the partial release on the valuation allowance on our deferred tax assets.

Given our improved cumulative performance over the past 12 quarters, we determined that a partial release was indicated at this time and we expect that future performance may result in the release of additional portions of the valuation allowance on our deferred tax assets.

As required, we plan to periodically reevaluate the timing and amounts of future releases for valuation allowances.

For the year, our higher margin recurring revenue, which included $18.3 million from 3D Pro Parts services, amounted to 66% of our total revenue.

Total printer revenue increased by $24.2 million compared to the 2009 period.

For the full year, production printers contributed $32.4 million to revenue, and personal and professional printers $22.3 million, underscoring healthy growth in both categories lead by sales to healthcare, automotive, and motor sports customers.

Fourth quarter revenue composition mirrored the full year composition percentages.

For the quarter, gross profit improved some 54% over the 2009 quarter to $24.9 million.

Our gross profit margin for the quarter increased 400 basis points to 48.2% over the comparable 2009 quarter.

Our services gross profit of 36.4% included both core services and 3D Pro Parts.

Gross profit margin of our core services, excluding 3D Pro Parts, increased 520 basis points over the comparable 2009 period to 46.6%.

We are pleased that our gross profit margin expansion trend continued during the fourth quarter and that for the full year 2010, gross profit margin increased 220 basis points to 46.3%.

During the fourth quarter, we were able to deliver gross profit margin expansion on adverse revenue mix as recurring revenue, which represents our highest margin component made up of smaller proportion of our total revenue.

Consistent with our expectations in previous guidance, operating expenses increased $3.5 million during the quarter as compared to the fourth quarter of 2009 on higher sales commissions that we incurred on record revenue and on the incremental operating costs we absorbed from the newly acquired companies.

Higher legal costs of $1.8 million for the quarter contributed to this increase and were driven primarily by the timing and concentration of litigation activities associated with the DSM litigation.

Notwithstanding this increase, operating expenses as a percent of revenue decreased to 29% of revenue from 32%, consistent with our long term operating model.

And for reference, we have highlighted our fourth quarter and full year results in relation to our long term operating model.

As you can see clearly on slide 15, we have exceeded the first revenue goal post of $150 million by nearly $10 million, achieving our operating and net income targets.

We believe that our fourth quarter and full year 2010 results validated our long term operating model.

Notwithstanding the fact that our revenue mix for the quarter and year represented lower than target recurring revenue portion.

The negative drag from V-Flash and increased litigation cost and acquisition integration expenses that adversely impacted SG&A.

Consistent with our prior discussions, we have met the first goal post of our long term operating model and have updated our long term model.

Slide 10 depicts our revised long term operating model with higher revenue goal posts at $200 million and $300 million, recognizing that our current revenue mix reflects a lower percentage of recurring revenue components than we previously expected.

We revised our $200 million revenue model ratios to reflect a slightly lower margin.

We believe that a shift in revenue mix towards lower price personal and professional printers indicates early success of our strategy to democratize access to printers.

Accelerating the growth of our install base with printers that use high margin materials get us faster to a more evenly distributed profitable revenue mix.

And at our new revenue goal post, we expect to continue to benefit from increased operating leverage on higher revenue and enjoy continued margin expansion opportunities.

With that said, at the $200 million revenue goal post, we expect to expand gross profit margins some 800 basis points from the fourth quarter of 2010 to 56% and generate net income of 18%.

And at the $300 million goal post, gross profit margin is expected to reach 62% and net income 22%.

This target operating model assumes that our recurring revenue will represent 70% of total revenue for $200 million and 75% for $300 million, and the expected net income reflects an estimated fully burdened tax rate.

I would also like to call to your attention that our current NOLs reduce the cash taxes to the portion related to non-US obligations only.

On a cautionary note, I'd like to remind you that reaching these operating ratios may not be linear or sequential.

Our results may be impacted from time to time by the cost of integrating additional acquisitions, timing of additional margin expansion initiatives, and the potential drag on margin from accelerated growth of our personal printers, as well as actual revenue mix achieved in each reporting period.

And I'd also like to remind everyone that our long term operating model is not intended to constitute financial guidance related to the companies performance.

Our revised model is based upon Managements current expectations concerning future events and trends and is necessarily subject to uncertainties.

That concludes my comments.

Abe?

Thanks, Damon.

As you all know, during 2010, we extended our 3D Pro Parts services organically and through acquisitions.

During the fourth quarter, we acquired Provel, located in Italy, our largest acquisition to date.

And with this acquisition, we're able to extend and enhance our 3D Pro Parts offerings in Europe, adding both capability and capacity.

Early in October we also acquired Bits from Bytes, a game changing move designed to extend our personal and professional 3D printer reach and technology breadth.

Since September of 2009, we completed self-funded and successfully integrated 11 acquisitions, including NRPS early this January.

We believe this is our demonstrated ability to sustain this pace positions us well for continued revenue growth and free cash generation.

During 2010, we grew or healthcare solutions revenue and install base year-over-year and received orders for production printers for delivery in future periods.

We extended our reseller channel and increased personal and professional printers revenue 103% over the comparable 2009 quarter.

We enter the first quarter of 2011 with a strong sales funnel and we expect revenue growth year-over-year for the first quarter of 2011.

Specifically, we expect strong demand for our personal, professional and production printers helped by our expanding channel and product portfolio.

We expect services to benefit from higher 3D Pro Parts revenue, reflecting continued organic growth and additional acquisitions.

We also expect healthcare solutions revenue to grow, benefiting from our expanding solutions portfolio and growing install base.

While we expect our gross profit margin to improve over time, it may be susceptible in any reporting period to potential adverse printers mix in favor of lower margin personal printers.

As Damon mentioned previously, we expect the remaining negative quarterly drive from V-Flash to decrease and end all together by the second quarter of 2011.

We also expect the potential integration cost of acquired businesses may adversely impact gross margin profit margin during the integration period.

For the full year 2011 we expect SG&A expenses to be in the range of between $47 million to $50 million, inclusive of higher litigation expenses as we currently understand them.

This range also anticipates increased operating costs associated with acquisitions we've made thus far and anticipates litigation expenses as we currently understand them.

We expect R&D expenses for 2011 to be in the range of $11.5 million to $13.5 million, reflecting our extending print engine portfolio and our planned new product introductions throughout the year.

Finally, our sales funnel remains robust and our backlog reflects the strength of our business model.

We expect that our extended portfolio personal, professional and production printers and part services will generate increased customer demand.

And we believe that our business model is built on continuity from our growing recurring revenue components that help generate improved margins.

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

With that, we will gladly take your questions.

Stacey?

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 to the teleconference portion of this call.

The telephone numbers are provided again on this slide.

If you are calling inside the US, the number is 1-888-626-7452 and if you're calling outside the US, the number is 1-201-604-5102.

Thank you, Stacey.

(Operator Instructions)

Our first question comes from Tim Mulrooney from William Blair.

Good morning.

My question revolves around V-Flash.

I was just curious on if you could quantify how much that impacted gross margins in the fourth quarter and how much you expect that to impact gross margins in the first and second quarters of 2011 when I think then it drops off?

Damon?

For the fourth quarter it had reduced, as we had said it was going to, down to negative impact of 0.4% and it was up above 1.2% for Q3 and up in the 2%s for the quarters before that.

We said that even in Q1 it's going to continue to reduce and fully eliminate by Q2.

Our next question comes from Jim Bartlett from Bartlett Investors.

First, congratulations on your strategy and your execution.

Thank you, Jim.

Could you give us a little idea on B for B, Bits from Bytes, what kind of shipment mix are they seeing or are you seeing now between the kits and the 3000?

Jim, we have not disclosed any mix within a category.

What we basically said is that our personal and professional category for the fourth quarter increased 103% over the 2009 period.

In terms of expectations, I can tell you that we're very pleased with the performance of Bits from Bytes and expect them to perform in accordance with our plans and expectations.

It's well received in the market.

It's the right product at the right price, and the mix between kits and printers is not trending in any direction that would indicate anything meaningful one way or the other.

While I have you, Damon, could you give us some guidance on the tax rate for 2011 and then going forward?

Yeas, well as we said, we made a partial release of our valuation allowance on the DTA that amounted to $0.05 a share this year.

It is based on the requirements and our reading of the requirements.

We have said that over the next year and future periods, we would have to continue to look at when and if more releases would be indicated.

We did put in there that if we were fully-- if we didn't have any valuation allowances for the year, our tax rate would have been 33.8%, so that's the rate it would have been at fully indicated.

And if you look at our long term operating model we put out at $200 million and $300 million, it does include what we would expect our fully burdened tax rate to be at that point, so that is the fully burdened tax rate built in.

It's not the cash tax rate, because we pay out a lot less taxes in cash on that point.

But it's a good point, Jim, that in the revised target operating model at the new goal post, we put out our expected fully burdened tax rate.

So, that could give you an indication of our expectations as the Company reaches those revenue goal posts.

Our next question comes from Jay Harris from Goldsmith and Harris.

You made what, 8 acquisitions in 2010.

What were the revenue contributions of those 8 acquisitions and on an annualized basis, what was not reflected in 2010?

Well, we have not -- I don't believe that we disclosed, specifically, revenue from the acquisitions, have we?

We did disclose where we finished with 3D Pro Parts for the year, which was at $18.3 million.

Obviously, some of these acquisitions have not fully lapped a full period, so you only see partial contribution from those.

I don't know, Damon, if we disclosed any more than that.

Yes, the only thing that we had done and if you look at our filings and our acquisition footnote, we do have some additional information.

One thing, we listed all our acquisitions except for the Italian one we had done that we said were-- the periods they were completed were not, by definition, significant to our bottom line results at that point.

Provel, the Italian one was and we do have some information in there that it did provide, I believe it was just over $1 million in Q4 in revenue, which wasn't the full quarter.

We bought it after the quarter.

And then what the results would have been for the year if that acquisition had occurred at January 1.

That information is in the filing.

And another way for you, Jay, to look at it is, year-over-year the Company grew 42% in revenue.

Organic growth was 27%.

The remainder, between 27% growth and 42% growth, came through acquisitions.

Our next question comes from Bill Gibson from Anderson Strudwick.

Could you share a little more color on what's going on in Europe?

Specifically, Europe grew a lot year-over-year, but it mainly came away from Germany which was the strongest country there.

Well, for us, growth from Germany means also growth into Central Eastern Europe, and into Russia, and even a little bit into India, because Germany is our distribution point for those countries.

So, one shouldn't take growth from Germany literally.

It represents really Central Eastern Europe, including Russia and some small elements of India in it.

And our next question comes from Bob Sales from LMK Capital Management.

Hello, nice quarter.

Thank you.

Two questions I have is you broke out the organic and total growth for the year.

Do you have that available for Q4 specifically?

We didn't put it out for Q4.

We do.

We just didn't include it in this.

I don't have that right in front of me what it was, but I believe that you could take that-- it's a somewhat similar number to what it would have been.

We've been sort of tracking that way for the year.

Okay, understood.

And then looking at the 10-K, and thank you very much for publishing that before the call, that was helpful.

I'm by no stretch of the imagination am I a tax expert, but it looks to me like if you stay as profitable as you are for the whole year, would you be -- let me ask you, which year would you become fully tax paying?

Well I think that doesn't result just in what your past performance is, but what some future expectations are and everything.

So, it's hard to say at this point, but that's why we've just tried to put out the information.

We do put in the K and we have been putting in the Q's, what our fully burdened tax rate was so people could use that as some comparisons.

Right.

The reason I ask the question is the release on your valuation allowance, it looked light relative to the profitability that you established for 2011.

There's a lot of different results that you look at.

One is it's the cumulative three-year revenue, not just your current year's revenue that you-- your past three-year revenue that you have to look at, so it's not just your current numbers.

Okay, fair enough.

Thank you very much.

And the only other maybe point of interest here is that the overall value here of the tax asset is about $65 million.

Moving on to our next question from Jim Gentrup from Discovery Investment.

Your growth was about $20 million in new products and services under printers and other products.

I just wanted to know if you could give more color on those areas?

And then also not just product specific, but also the verticals that impact it as well.

Well, we've enjoyed a great deal of growth from our production printers, which include our SLA and SLS printers.

Those grew year-over-year by 74%.

From our personal and professional printers, which include our ProJet, V-Flash and Bits from Bytes models, we enjoyed year-over-year growth of 88%.

As Damon mentioned in his remarks, this growth came from healthcare, automotive, and motor sports applications; primarily, specifically to healthcare.

Our healthcare solutions revenues has it's own category which includes printer, materials and services sold into healthcare, that vertical grew some 38% from $15.7 million in 2009 to $21.6 million in 2010.

Okay, our next question comes from Andy Schopick from Nutmeg Securities.

Thank you.

Abe, you just answered part of my question, it concerned the extent or amount of the deferred tax asset which I heard you say $65 million remaining?

That's correct.

How much of that would be applicable to US versus non-US operations?

The majority is, for all intents and purposes, is all US.

When I say majority, there's a couple hundred thousand dollars in foreign jurisdictions.

Okay, thank you.

Our next question comes from Jay Harris from Goldsmith and Harris.

With the valuation allowance that you've put back on the balance sheet, assuming you're not going to do anymore, what does that make your reported tax rate look like?

Well, it obviously makes it lower.

We would say if you look at and say we were at, for this past period, a 0.9% tax rate with the adjustment we had, normally we would have been at a 10 to 12.

If you take that out of there, and then if we said we would have been at a 33.8% if we were fully taxed.

So, that's the way its been running in the past and a lot of it does have to do with that we are taxable in foreign jurisdictions and we have our transfer pricing policies, which allocate revenue to those, or allocate profit to those areas, so that's what's driving that number.

Well, without any further change, aren't you in a position to give us a somewhat precise tax rate range as you start 2011?

Well, I just said that I think it's about, it would be about that same range unless things change.

If our mix changes of where we're selling items between tax and jurisdictions, that could change that number a lot.

But as it stands now, it remains relatively constant; it's that 12% range.

Alright, thank you.

Our next question comes from Jim Bartlett from Bartlett Investors.

Yes, on the materials, in the past you've given a percentage of integrated materials.

Do you have that number?

I believe we do.

It's in the 10-K and if you give us a minute, we'll report it to you.

Okay, I didn't realize it was in the K.

I can certainly get it.

No, it's in the K and we'll find it for you and mention it in connection with the next question.

Okay.

Just on materials, certainly the reduction in the gain of $1.2 million from Pro Parts, is that sort of the-- going forward, will that number continue to increase, sort of reducing--

Well it could only increase as we make more acquisitions or decrease because this was compared to the 2009 period.

So, going forward, in 2010 we didn't have that revenue and certainly in 2011 we aren't going to have that revenue.

So, to the extent we're foregoing material revenues as a result of additional acquisitions, we will report this.

The reason that we mentioned it is because this $1.2 million represents about another 4 percentage points to our material growth.

So, it was noteworthy and it's also important to note that our total material sales now surpassed $58 million, $58.5 million almost.

Which on that base, we're very pleased with the progress that we're making.

And Jim, the numbers are for 2009 it was 31% and for 2010 it jumped up to 34% integrated materials.

And are you going to continue to provide -- I did not see the break out of large frame, mid frame?

We have -- what we're doing now is we just, not reclassified, but renamed these categories as production printers and personal and professional printers.

Production printers include what we used to refer to as large frames.

Personal and professional include all other printers.

And we will continue to give the break down on that basis.

Yes.

Okay, I thought production included all SLS and SLA machines.

Correct.

The large frames.

Well, there was some of those in mid frame as well, right?

Well, mid frames and large frames are now included in production.

And when you introduce the 6,000, that will not be in production printers--?

That will be in personal printers.

Sorry, professional.

Thank you.

Okay, our next question comes from Andy Schopick from Nutmeg Securities.

Thank you.

As a follow-up, Abe, I'd like to ask you if you can put some additional color around the business, both in terms of geographies and what you're seeing and what you hope to see going forward, and in terms of some of the customer base that you're addressing.

You're addressing some specialty and niche markets that have proven to be quite interesting.

I wonder if you just care to put anymore color around the outlook in 2011 versus what you've seen in 2010.

Well, as I've said in my prepared remarks, we've entered 2011 with a strong sales funnel of opportunities.

And given that we are continuing to execute on our three growth initiatives, which is to continue to build our 3D Pro Parts business globally, continue to extend our 3D printing channel and product, and continuing to leverage our healthcare solutions core competencies into revenue growth.

We expect, as I said in our prepared remarks, we expect continued growth in all of these categories going forward.

We think that the conditions in the marketplace are favorable.

We believe our products and services will continue to enjoy demand.

And unless we see adverse economic conditions as a result of some new geopolitical shift or events, our expectation is to continue to benefit from favorable product offerings, market conditions, and sales channels.

Not just in North America and Europe, but we also said publicly that we plan to expand geographically and do more in China and India.

Abe, one other one.

How much of your revenue in 2010 was direct versus indirect?

Well, most of our personal and professional printers are sold through a reseller channel and that would be indirect and most of our production printers are sold directly.

There are some exceptions.

And within materials, I would say that three quarters of it was probably direct and the remainder through our reseller channel.

Alright, thank you.

(Operator Instructions)

Our next question comes from Jim Gentrup from Discovery Investment.

Yes, gentlemen, your recurring revenue was 66% from 2010 I believe?

Correct.

That's correct.

And that includes service of about, I think it was 29% or something like that.

The gross margin goal that you have, I'm just kind of curious, right now services is 36%.

It seems to me that it might be kind of tough.

Just add a little more color I guess as to how you're going to reach the 56%.

I realize materials is a big part of it, but the service revenue would seem like-- to bring that down to more.

So, if you could just talk a little bit more about that?

And also if I could sneak in a question about competitive factors going forward as well.

Sure.

So, let's start in terms of margin expansion.

We believe that we have identified margin expansion opportunities in our services business.

If you look at core services, Damon mentioned that earlier, core services gross profit margin was what-- 46.6% and that was improved from 41% and change.

Similarly, as we make these 3D Pro Parts acquisitions, we have the opportunities for vertical integration and harmonization of facilities and capacities and in labor.

We see opportunities to continue to improve our total services gross profit margin.

In addition to that, as a whole across the entire products and services that we sell, we identified and intend to continue to work on ongoing margin expansion opportunities as it relates to our overall cost of goods component.

And obviously, revenue mix, between the different revenue buckets, will influence ultimate gross profit margin results, which is why we said that while we are optimistic about our ability to continue to expand margins, it may not happen linearly or sequentially.

Some of it will depend on actual revenue mix in any reporting period and some of it will depend on our actual success as we continue to execute gross profit margin expansion initiatives.

Of course, with higher revenue, we will enjoy better absorption and that will contribute as well.

I don't know Damon if you want to add anything to that?

I think you covered it well, except recurring revenue was 66% for the year, but we've also improved margins throughout the year.

So, you look more of saying we achieved 48% in the fourth quarter with 60% recurring revenue.

So, if we get more to that goal of 70%, I think it pushes us in that direction also.

Yes, there is a lot of leverage there.

That's an excellent point because in the fourth quarter, we achieved 48.2% gross profit margin and only 60% of revenue was recurring for the quarter.

Okay, and our next question comes from Andy Schopick from Nutmeg Services.

Damon, just looking at the balance sheet very closely here, I see the goodwill and intangibles around $77 million, of which about $18 million is subject to amortization.

What would be the anticipated amortization of intangibles that you would incur in 2011?

Those intangibles have different lives all the way from 1 year--

I understand, I'm just looking for a number for that bracket.

If you have it?

I don't have it on me.

I don't have that at my finger tips.

We didn't report that there either, so I can't answer that right now, sorry.

Will you consider breaking that out as a line item on the income statement?

Well, we wouldn't consider it breaking it out as a line item on the income statement.

What I believe we would be doing in the future is looking in the footnotes or the MD&A to have it broken out with some estimated lives and what it is in the future.

Okay.

Our next question comes from Jim Gentrup from Discovery Investments.

You've made a lot of acquisitions lately in the service bureau area.

Just curious some of these companies were, I would consider them former customers of yours.

How much in the longer term basis will that cannibalize your printer and material revenue?

Well, we reported the material revenue that was foregone as a result of these acquisitions, about $1.2 million for the year.

As it pertains to future printer sales, we have gone now for several years without any significant or material investments from the entire service bureau category of customers.

And we've done pretty well for ourselves, notwithstanding the ability to invest.

I'm not just talking about companies that we acquired and are no longer buying.

I'm talking about the whole category.

So, we believe our strategy and focus on growth markets and verticals, including the strategy to acquire service bureaus have worked well for us and that, both in terms of revenue growth contributions and margin expansions, it has worked well and we can expect it to continue to work well.

So, would the CapEx requirements going forward change?

As you look at our revised target operating model, which is on slide 16 of this webcast, you'll see that in terms of depreciation and amortization, it's staying within a percentage point of where we are for the full year 2010.

So, that should tell you.

Also you can see that capital expenditures, we indicated at 2 percentage points for the $200 million revenue goal post and at 1 percentage point for the $300 million goal post, which tells you that we expect the business to continue not to be capital intensive.

Thank you.

And thank you.

There are no other questions at this time.

I'd like to turn the call back over to Stacey Witten for closing remarks.

Stacey?

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/ir.

Thank you.

This does conclude today's teleconference.

We thank you for your participation.

You may disconnect your lines at this time and have a great day.