3D Systems Corp (DDD) 2012 Q2 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 second quarter and first six months of 2012.

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

At this time all participants are in listen-only mode.

We will conduct a question-and-answer session toward the end of this conference.

(Operator Instructions) As a reminder, this call is being recorded for replay purposes.

At this time I would like to turn the call over to Stacey Witten with 3D Systems.

Good morning and welcome to the 3D Systems conference call.

I'm Stacey Witten and with me on the call are Abe Reichental, our CEO; Damon Gregoire, our CFO; and Andrew Johnson, 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 this presentation may do so via the Web at investor.

3dsystems.com.

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 that we issued this morning.

For those who have access to the streaming portion of the webcast, please be aware that there is a 5-second delay and that you will not be able to pose questions via the Web.

Before we begin our discussion, I'd like to mention our statement regarding forward-looking information that appears on slide 4. The presentation contains forward-looking statements as defined by federal and state securities laws.

Forward-looking statements include statements concerning plans, objectives, goals, strategies, expectations, intentions, projections, developments, future events, performance of products, underlying assumptions and other statements which are statements other than statements of historical facts.

All such forward-looking statements, whether written or oral, and whether made by us or on our behalf, are expressly qualified by the cautionary statements described on this slide.

Forward-looking statements are only a prediction that relate to future events or future performance and are subject to known and unknown risks, certainties, assumptions and other factors, many of which are beyond our control.

As a result, we cannot guarantee future results or performance and past performance is not necessarily indicative of future results.

These forward-looking statements are based on current expectations, estimates, forecasts, and projections, as well as the beliefs and assumptions of Management.

We undertake no obligation and do not intend to update these forward-looking statements.

Further, we encourage you to review the risks that we face and other information about us in our filings with the SEC, including our Annual Report on Form 10-K which was filed on February 23, 2012 and our Form 10-Q which we filed this morning.

At this time, I would 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.

We are very pleased to report another record revenue quarter, driven by doubling printer units and balanced organic and acquisition growth.

This morning Damon and I will recap our quarterly highlights and share with you several key accomplishments.

We will go over our financial results in more depth, update you on our progress, and provide an outlook for the third quarter.

Quarterly revenue increased 52% over last year to a record $83.6 million on a 20% organic growth.

We were able to extend our revenue leadership position further on strong growth from all our revenue categories, that was led by 111% (sic - see Press Release) increase in our sold printer units.

We exited the quarter with $12.3 million of backlog, representing a 28% sequential backlog increase that reflects continued across-the-board strong demand for our printers, materials, and on-demand parts services, and the growing effectiveness of our sales channels.

We grew our gross profit by 71% and expanded our gross profit margin up to 51.4%, driven by significant year-over-year sequential improvements to our on-demand parts services and printers gross profit margin.

We generated $21.4 million of cash from operations during the first half of this year.

Our cash generation capacity during the second quarter was strong and sequentially comparable.

Our uses of cash for the quarter included a total of $13.5 million comprising of our semiannual interest payment on our convertible notes, annual employee performance bonuses, and an increase to inventory to support our new product launches and increased backlog.

During the second quarter of this year we launched several flagship professional 3D printers and completed a few acquisitions in support of our growth initiatives.

At the end of May we began commercial shipments of Cube, the first-ever home 3D printer.

Since its launch, Cube 3D printer orders topped the upper range of our expectations.

And Cube consumables orders exceeded our expectations some threefold.

While we don't expect revenue from Cube to be material to our results for the remainder of this year, we're very pleased with the overall marketplace reception and have already increased capacity to stay ahead of growing demand.

During the quarter we delivered on all of our identified cost synergies from the acquisition of ZCorp and Vidar and put in place the required building blocks for the future growth.

In fact, during the second quarter we successfully reversed printer unit declines from these acquired businesses and delivered 25% total revenue growth compared to the second quarter of 2011.

On a quarterly basis, all of our revenue categories contributed to our growth.

Printer units grew 112%, resulting in another record quarter, as we continued to benefit from the timely and strategic realignment of our entire printers portfolio mix toward lower-priced units, from the addition of new and acquired printers, and from the increased effectiveness and productivity of our expanded channels.

For clarity, our reported 112% printer unit growth for the quarter excluded Cube units sold.

Revenue from print materials increased 60% to $26.2 million for the quarter on a healthy printer unit sales increase, underscoring the power of our growing installed base and the effectiveness of our unmatched printer portfolio performance and price points.

Service revenue for the quarter increased by 39% to $31.3 million, and included $20.5 million of on-demand parts revenue, representing 43% growth over last year and 16% growth sequentially.

Healthcare revenue, our fastest growing vertical, grew some 87% over 2011 from both organic and acquired growth.

For the first half of this year, revenue grew 57%, reflecting significant growth from all of our revenue categories on 130% increase in printer units, excluding Cube units sold.

Printer revenue increased 71% on solid unit growth, and revenue from print materials increased 59% to $50.9 million.

Services revenue increased 45% to $59.9 million, and included $38.2 million of on-demand parts revenue.

Healthcare revenue nearly doubled, to $24.2 million, and included $4.5 million of Vidar revenue.

Consistent with our plans, we increased our R&D spending for the first six months of this year by $4 million in support of our portfolio expansion and diversification.

For the first half of this year our effective R&D investments resulted in the introduction of 9 new products.

We are thrilled this revenue from new products grew 60% to $52.5 million.

As a reminder, we track new product revenue only by the first -- only for the first 3 years of this -- of product commercial life.

Let me say that again -- as a reminder, we track new product revenue only for the first 3 years of product's commercial life.

Of greater significance, our integrated materials revenue grew 91% over last year and amounted to 62% of total print material revenue for the first six months of this year.

We believe that our sustained integrated materials growth, coupled with the fact that materials, at 32% of total revenue, contributed 42% of our gross profit, validates our strategic direction.

Recurring revenue amounted to 69% of total revenue for the first six months of this year, even with the 71% increase in printers revenue.

By comparison, revenue from acquisitions grew to $35 million, reflecting the fact that within our balanced growth strategy new products in integrated materials continue to fuel our organic growth and underscore the effectiveness of our R&D investments.

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

Damon?

Thanks, Abe, and good morning, everyone.

Our second-quarter revenue increased 52% over the 2011 quarter, with a gross profit improvement of 71%, primarily driven by increased revenue across all categories, with a larger portion of revenue from higher-margin print materials and a substantial improvement in gross profit margin of our on-demand parts services and printers.

On a non-GAAP basis our total operating expenses increased to $24.3 million, or only 240 basis points, to 29% over 2011.

The favorable impact from synergies cost-downs that we put in place during the first quarter were enough to keep our sequential expenses flat for the second quarter, not withstanding our much higher sales cost from revenue growth; $1.9 million higher R&D expenses in support of new products and portfolio expansion; and the incremental costs we incurred from the acquisition of new start-ups that increased our costs without any near-term revenue benefits.

As a result of our strong revenue growth and expanded gross profit, we generated non-GAAP adjusted net income of $13.9 million and earned $0.27 per share tax-effected.

On a GAAP basis we earned $0.16 a share for the quarter.

Revenue for the first six months of 2012 increased 57% over the 2011 period, with a gross profit improvement of 69%, primarily driven by the increased revenue across all categories, combined with a larger portion of revenue from higher-margin print materials and an improvement in gross profit margin of our on-demand parts services and our printers.

On a non-GAAP basis our total operating expenses increased to $47.1 million, but only increased 80 basis points over the 2011 period to 29%, primarily reflecting a rise in compensation costs, driven by sales commissions from increased revenue, and the operating costs of the newly acquired businesses.

Specifically, our six months 2012 operating expenses included a $12 million increase in compensation costs, primarily from higher commissions on increased revenues and from the higher concentration of new acquisitions; a $2.7 million of acquisition, integration, and restructuring costs.

We expect these costs to translate to future annual cost savings of $5 million to $5.5 million, which reaches the level of our guidance on estimated combined revenue and cost savings synergies.

Our first six months 2012 expenses also included a $4 million increase in R&D expenditures that were primarily driven by new product development and acquisition-related activities.

And as a result of our strong revenue growth and expanded gross profit, we generated non-GAAP adjusted net income of $27.1 million and earned $0.52 per share, tax-effected.

On a GAAP basis, we earned $0.28 a share for the first half of 2012.

As a reminder, we report non-GAAP adjusted results that exclude the impact of amortization of intangibles, noncash interest expense, nonrecurring acquisition and severance expenses, stock-based compensation, and any release of a portion of the valuation allowance on deferred tax assets.

Please note that our total depreciation costs and our senior convertible note cash interest expense in connection with these acquisitions are appropriately included in our non-GAAP presentation.

For your convenience, a reconciliation of GAAP to non-GAAP results is provided on this slide, as well as in our 10-Q filed this morning.

As mentioned previously, on a non-GAAP basis we generated adjusted net income of $13.9 million, or $0.27 per share, for the quarter.

The excluded items aggregated to $4.9 million tax-effected adjustment to GAAP net income, or $0.11 per share.

For the six months we generated non-GAAP adjusted net income of $27.1 million, or $0.52 per share.

The excluded items aggregated to $12.6 million, or $0.24 per share.

We also want to note that we have $27.2 million of NOLs and $5 million valuation allowance remaining on our net deferred tax assets.

We continue to evaluate the timing and amounts of future releases of valuation allowances, as required.

Our reported tax rate was 19% for the quarter and 17% for the six months of 2012.

Consistent with our previous guidance, we expect our cash taxes to remain in the range of 3% to 5%, notwithstanding the fact that we expect our annualized effective tax rate for the full year to be in the range of 20% to 22%.

For clarity, these rates are already reflected in our annual guidance, which I'll cover in more detail shortly.

Reflecting on our continued strong revenue growth, we believe that our results are consistent with our strategy to remix and diversify our revenue streams, and are in line with our expectations.

In fact, both our quarterly and six months recurring revenues amounted to 69% of total revenue, with print materials contributing over $50 million and services at almost $60 million for the six months.

Quarterly printers revenue increased by $9.9 million, reflecting production printers revenue of $8.2 million and personal and professional printers revenue of $17.4 million.

Personal and professional printer revenue increased 138% over the comparable quarter, including revenue from ZCorp and Vidar, which contributed $14.4 for the quarter.

Production printer revenue decreased 12% over last year's quarter and increased 11% sequentially.

For the first six months, production printer revenue decreased some 10%, reflecting the impact of the ongoing printer price point realignment across our entire portfolio, with lower price point printers which are capable of producing comparable annual materials consumption to that our of our higher priced production printers.

On a unit basis, production printer units sold were comparable in both years and personal and professional printer units, excluding the Cube, increased 135%.

Despite ongoing regional economic uncertainties, we experienced growth in all geographic regions, with sustained performance from our European and Asia-Pacific regions, which remained at similar percentages of total revenue, amidst some substantial increase in our North American revenue, benefiting from acquisition concentration that was skewed in favor of the US.

Sales into Germany and other EMEA countries remained strong, with revenue and income from operations for the second quarter up over the 2011 quarter and sequentially.

As a reminder, our foreign income from operations is a function of transfer pricing and there has been no changes to this methodology.

For the quarter, gross profit improved some 71% over the 2011 quarter, to $43 million from increased revenue and expanded gross profit margin in all categories.

Our gross profit margin expanded 570 basis points to 51.4% primarily from 840 basis point expansion to our services gross profit margin and some 620 basis point improvement to our printers gross profit margin compared to the 2011 quarter.

Our printers gross profit margin expansion is being driven by our realigned portfolio, which includes more profitable, lower priced printers that are capable of consuming materials levels of our higher priced printers, combined with continuous operational improvements and improved overhead absorption.

Our services gross profit of $14.5 million included printer services, on-demand parts services, and consumer solution services.

Services gross profit margin expansion was driven by an impressive on-demand parts gross profit margin expansion of 1,240 basis points year over year, and 630 basis points sequentially, even with the negative impact on gross profit margin from the acquisition of Paramount during the quarter.

As we've previously said, over time we expect that our on-demand parts gross profit margin will mirror our consolidated gross profit margins.

For the first six months of 2012, gross profit improved some 69% over 2011 period to $81.8 million from increased revenue and expanded gross profit margin in all categories.

Our gross profit margin expanded 370 basis points to 50.7% for the first six months, driven by expanding services gross profit margin of some 550 basis points and printers and other products and print materials gross profit margins of some 620 basis points, each compared to the 2011 period.

Consistent with our previous comments, we continue to make steady progress towards our target gross profit margins.

So far, as a result of our strategy and execution, consolidated gross profit margin has improved some 600 basis points from 45% in 2010 up to 51% for the second quarter of this year.

Operating expenses increased $11.8 million for the quarter compared to last year.

For the second quarter of 2012 SG&A expenses increased $9.8 million, including a $5.1 million increase in compensation costs, primarily from higher commissions on higher revenue and increased headcount that came with acquired businesses.

SG&A expenses also included a $1.8 million in amortization expense from acquired intangibles.

Legal costs improved by $1.2 million for the quarter, primarily driven by reduced litigation activity and costs.

Consistent with our plans and comments, we increased our R&D expenses by $1.9 million compared to the second quarter of 2011.

This is primarily related to activities in support of our expanded portfolio of products and services into our healthcare and consumer growth initiatives.

For the first six months operating expenses increased $24.9 million compared to the 2011 period, primarily due to a $12 million increase in compensation expenses from higher sales commissions, from increased revenue and higher staffing from acquisitions, and bonuses associated with 2012 acquisitions and integration activities.

SG&A expenses also included $2.7 million of acquisition and restructuring costs from which, consistent with what we have said previously, we expect to realize annual savings of $5 million to $5.5 million.

R&D expenses increased by $4 million in the first six months of 2012 compared to 2011, primarily from increased costs from acquisitions and increased development of new products and consumer solutions.

As a reminder, we do not capitalize any R&D or other development costs.

Rather, we expense these costs as they are incurred.

The favorable impact from synergies cost-downs that we put in place during the first quarter were enough to keep our sequential expenses flat for the second quarter, not withstanding our much higher sales costs from revenue growth; $1.9 million higher R&D expenses in support of new products and portfolio expansion; and the incremental costs we incurred from the acquisitions of new startups that increased our costs without any near-term revenue benefits.

We generated $21.4 million of cash from operations in the six months of 2012, with some $5.6 million generated during the second quarter.

Our cash generation capacity during the second quarter was strong and sequentially comparable.

Our uses of cash for the quarter included a total of $13.5 million, comprising of $8.1 million of our semiannual interest payment on our convertible notes and annual employment performance bonuses, and a $5.4 million increase to inventory to support our new product launches and increased backlog.

We expect inventory to decline and normalize as we ship the portion of backlog that is associated with this inventory.

We ended the quarter with $158.5 million of cash, a decrease of $20.6 million since the end of 2011.

The December balance included $145.5 million from our senior convertible notes issuance, from which we paid $141.3 million of that for the acquisition costs of ZCorp and Vidar during the first quarter of 2012.

The June 30, 2012 balance also includes $106.9 million of proceeds from our common stock offering completed in June.

Excluding the senior convertible note proceeds and common stock issuance proceeds from the cash balances, cash increased $17.9 million since the end of 2011, after paying $12.6 million for acquisitions in the second quarter.

As a reminder, we accrue interest expense each quarter for the senior convertible notes and cash interest is paid semiannually, in June and December.

Although we expect to continue to report strong cash generation from operations, the quarterly amount may fluctuate from time to -- from period to period.

Working capital decreased by $2.9 million, primarily due to the change in cash; a $12.7 million increase in accounts receivable [due to] higher revenue; and the revenue mix shift towards products sold through resellers and on credit terms.

Our inventory increased some $14.7 million, primarily due to the addition of acquired ZCorp and Vidar products; the timing of additional inventory purchases that we fully paid for to support the concentration of significant new products during the quarter; and the sequential 28% backlog expansion.

Our accounts payable increased some $8.3 million, primarily from incremental payables that we acquired with ZCorp and Vidar, and the timing of inventory purchases and vendor payments.

Based on our performance to date, we affirm the 2012 guidance that we previously announced.

Notwithstanding the incremental R&D and SG&A costs from acquisitions of Bespoke, Viztu, and My Robot Nation, three startups that altogether aren't expected to contribute materially to revenue for the balance of this year, Management expects revenue to be in the range of $330 million to $360 million for the full year, and non-GAAP adjusted earnings per share to be in the range of $1.00 to $1.25 per share.

Management believes that these ranges correspond to adjusted net income of between 16% of revenue and 18% of revenue, which depicts earnings power expansion potential in the range of 25% to 55% over our 2011 non-GAAP adjusted results, reflecting our expected continued P&L leverage consistent with our long-term targets.

Our non-GAAP adjusted earnings estimate is fully tax-effected.

It includes Management's anticipated incremental expenditures related to Cubify and the recent acquisition of Bespoke Innovations and our expected litigation costs as we understand them.

As a reminder, our non-GAAP earnings exclude acquisition and severance expenses, noncash interest expenses related to our outstanding senior convertible notes, noncash stock-based compensation expense, intangibles amortization, and any releases of the valuation allowance on deferred tax assets.

I'd also like to remind you that this guidance is based on current plans and assumptions and subjects to risks and uncertainties more fully described in the Company's reports filed with the SEC.

That concludes my comments today.

Thanks, Damon.

During the second quarter we made several significant new product introductions, including the ZPrinter 850, eight models of the ProJet 3500, a new crossover ProJet 7000, and a new Vidar NDT PRO scanner.

We expect these products to contribute materially during the second half of this year.

Since its launch, our Cube 3D printer continues to enjoy fantastic marketplace reception.

In fact, Cube orders topped expectations and Cube consumables exceeded our estimates some threefold.

While we don't expect revenue from Cube to be material to our revenue for the remainder of this year, we are very pleased with the overall marketplace reception and have already increased production capacity to stay ahead of growing demand.

During the second quarter we made two acquisitions in support of our rapidly growing healthcare solutions business.

We acquired Bespoke Innovations, a San Francisco startup with proprietary scan-to-print technology for individualized prosthetics, orthotics, and orthopedic devices.

We integrated Bespoke Innovations into our healthcare solutions business and are leveraging its technology and knowhow to develop and commercialize a full range of individualized, ventilated, lightweight, custom-fit prosthetics, orthotics, and orthopedics that we expect to begin to launch during the first half of 2013.

We also acquired and integrated Paramount Industries, an on-demand parts provider that is specifically focused on medical device and aerospace manufacturing.

To expand our consumer business we acquired My Robot Nation, a consumer technology platform that provides intuitive game-like content that we already integrated into Cubify.

We also acquired Fresh Fiber, which delivers 3D printed accessories for consumer electronics.

This past Monday we acquired Viztu Technologies, the developer of Hypr3D, an online platform that allows anyone to turn pictures and videos into printable 3D creations.

We plan to integrate Viztu into Cubify, adding intuitive and fun scan-to-print and create-to-print apps.

These acquisitions bring significant technology building blocks for our consumer initiative.

And earlier this week we launched Cubify Invent, the first 3D CAD program developed specifically with 3D printing in mind, empowering users to turn their ideas into reality for just $49.

Cubify Invent combines the power of professional design tools with intuitive free tutorials that make learning fun and easy.

People new to CAD and those familiar with basic programs like SketchUp can quickly advance to create and making 3D transforming even their most complex designs into 3D printables.

During the second quarter we also completed the common stock offering that resulted in net proceeds of $107 million for acquisitions and general corporate purposes, providing us with enhanced financial strength and flexibility to continue to execute on our focused growth initiatives.

As we have previously discussed, we expect to continue our balanced growth strategy that includes acquisition opportunities that are accretive to our business model and deliver meaningful value to our stockholders.

We enter the third quarter with positive sales momentum, reflecting continued strong demand and record backlog of $12.3 million.

Our June 30th backlog is well distributed across all our revenue categories, including personal, professional, and production printers, as well as print materials and on-demand parts, indicating continued strong demand for our entire portfolio.

While we may face lingering economic uncertainties in parts of the world, we expect to continue to benefit from robust R&D spending by our customers worldwide.

Accordingly, we expect continued strong organic and acquired growth and expanding gross profit margins.

We believe that the marketplace for our professional and consumer 3D content-to-print products and services remains underdeveloped and underpenetrated.

And we expect that our portfolio diversification, growing geographic presence and focused growth initiatives will deliver continued success.

Finally, we believe that we are extremely well positioned to benefit from the expanding rapid manufacturing and emerging maker and consumer opportunities.

And with that, we will now gladly now 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 through the teleconference portion of this call.

The telephone numbers are provided again on this slide.

If you are calling outside the US, the number is 1-617-614-3450 and from inside the US is 1-800-510-0178.

The conference ID is 52293909.

(Operator Instructions) Jim Ricchiuti; Needham & Co.

Question regarding the geographic composition of the revenues and what you're seeing in the market.

You showed what appears to be pretty good sequential growth, particularly in the markets that I think people are more concerned with, notably Europe.

Can you talk a little bit about how the business tracked during the quarter?

And is there any color you could provide on how business is trending thus far in Q3?

Thanks a lot.

Thanks, Jim.

Good morning.

As you noted, we indicated good sequential growth in Europe and in Asia-Pacific, for that matter.

Within the countries in Europe, Damon also commented that not only did we grow sales, we also grew our operating income from these regions.

And our expectation is that we continue to benefit from robust R&D spending by customers.

And we have not seen -- when we compare this period to last year we have not seen any discernible difference.

Notwithstanding all the economic uncertainties related to specific countries in Europe, we have not seen any discernible difference in the behavior of our customers.

Our customers continue to invest and their own R&D spending remains robust.

And we believe generally that our growth is much more linked to global and regional R&D spending trends than to any other macroeconomic or GDP performance.

Thanks.

I'll jump back in the queue.

Ben Reitzes; Barclays.

It's Matt Markezin-Press on for Ben.

I was wondering if you guys could give a little bit more color on ZCorp and Vidar's contribution to your revenue segments, like printers and products materials and services.

Yes.

Absolutely.

First, we noted on the call that we reversed the historical decline in these businesses and were pleased to report revenue increase of some 25% during the second quarter year over year.

We also can tell you that, excluding Vidar and ZCorp, we had good growth amongst our core businesses.

So for example, if you excluded those, our units still grew by some 198% on year-to-date basis for the first six months that included these two acquisitions in the mix.

What we can also tell you is that as a result of having ZCorp and Vidar in the channels, it contributed favorably to our own unit growth, because in many instances, as we predicted, the ability to sell the combined portfolio into the combined channel resulted basically in the second quarter in doubling of the units altogether.

And we benefited beyond just the jumpstarting these two product lines growth; our other product lines benefited from the availability of the channel.

So all in all, it has been enormously successful.

All right, thanks.

And then, with the higher share count following your offering and you guys maintaining your guidance, I was wondering how you (inaudible) the higher share count?

Is this coming from some enhanced margins or is this coming from elsewhere?

Well, it's coming from us delivering on the schedules that we put out there.

And it is increasing margins.

As you can see, we're over 51% in gross profit margin this quarter and it is from other cost containments, which was somewhat overshadowed by some of the cost adds we talked about with the startup costs, from the startup companies that we added this quarter, even though we were able to keep our operating costs flat with Q1, even with those costs added.

So to summarize that, we basically see that our fundamentals are very strong.

And the fundamentals that we projected in our guidance earlier in the year strengthened sufficiently to a point where we can absorb additional incremental investments, such as Bespoke and Viztu and My Robot Nation, that add to our operating expenses and not generate any near-term revenue and still deliver because of our margin expansion, because of our other synergies and cost-downs, we can still achieve the guidance which we affirmed today.

And so we're basically saying today our fundamentals have strengthened.

The demand is strong as far as we can see it.

And the business can afford to make these additional investments today without changing the guidance.

All right.

Thanks a lot.

I'll hop back in the queue.

Tim Mulrooney; William Blair.

This is actually Brian Drab at William Blair.

The first question, just trying to sort through some of the growth rates here on an organic basis, given all the acquisitions growth that you've had in the last year here.

And year-over-year numbers by segment are interesting on slide 7, but it would be really useful if you could give us an idea what organic growth was, by segment.

Could you do that?

Well, we can do a little bit of it.

Organic growth overall was 20% as we reported.

Sure.

Within that if you look at materials, excluding the acquisitions of materials from Huntsman and ZCorp, materials was up much higher.

It was 28.3% for the quarter, 26.4% for the full year.

Okay.

And on-demand parts growth year over year was 43%.

Most of it -- since we haven't had that many recent acquisitions, most of it was attributed to organic growth.

On units I don't have it in front of me, so we can get back to you on that one.

How about on the printers and other products side then?

It's 61% total growth.

Is that (multiple speakers) --

Do you have that broken out, Damon?

Hang on one second, Brian.

We'll see if we have it at our fingertips here.

Okay.

Well, actually, why don't you go ahead and ask your next question and we'll see if we get it for you.

What was your sequential growth in Europe?

Or said another way, did acquisitions have a material impact on sequential growth from first to second quarter?

Acquisitions in Europe did not have a material impact in any regard in Europe sequentially from Q1 to Q2.

So the growth is --

So the growth is basically organic.

And if you noted, Damon talked about the fact that acquisitions skewed favorably results in North America versus Europe.

Okay, thanks.

And then, on the professional/personal printer growth, if I heard this correctly, great growth, excluding the Cube, of 135%.

Can you give us an idea how that breaks down between professional and personal, given personal I assume has some outstanding growth probably from bits from bytes type of machines?

Actually, between personal and professional, there was more growth in professional on weighted basis than personal, if you look in terms of the percentage of units growth, although both have grown substantially.

And within personal we have had very, very strong reception of our new 3500.

And, in fact, a portion of the increase in backlog is attributable to professional printers materials and on-demand parts.

Okay.

And then if I could, just one more.

Regarding your guidance, the revenue guidance implies second half of 2012 revenue growth of between 32% and 56% year over year.

And I'm just wondering why such a wide guidance range?

And do you have a sense for where you might be in terms of lower end to higher end?

We look at this and we saw that it is the range that we feel comfortable with.

Certain activities can move revenue from just one quarter to another.

But, I mean, it's sort of hard to really narrow that.

Please remember, though, too, this guidance does not include if we do any future acquisitions; we would update guidance again.

So it's only based on our current activity as we have it, so.

Yes, I understand that.

Okay.

Thank you very much.

Jim Ricchiuti; Needham & Co.

I wonder if you could talk a little bit about the healthcare market.

You continue to show very strong growth and I wonder if you could talk a little bit about the components of that growth and to what extend you see the Bespoke acquisition and activity in the prosthetic market being a driver next year?

So, as you note, Jim, for the first six months, if you look at the meaningful period, our healthcare nearly doubled versus the first half of last year.

And it comprises today of revenue from hearing aid activities, a variety of dental restoration activities and liners, a variety of medical modeling in support of surgical procedures, some new activity in support of what's called computer-aided surgical procedures.

And more recently, with Bespoke as part of 3D Systems, we're now setting our sights on a variety of orthopedic, orthotic devices.

And we're very excited about the Bespoke Innovations acquisition.

It brings some really unique and proprietary technology in the scan-to-print -- at the point of [equipment] that could substantially transform complete brace and cast and prosthetic-type devices looking into the future and significantly alter the quality of treatment and outcomes.

Our expectation is that for the remainder of this year we're going to be in an R&D and pre-commercial phases, so we're going to be in an investment mode for the remainder of this year and into early next year, but that in the first half of next year we'll begin to commercialize some products that we would view as disruptive and transformative.

And certainly the second half of next year we expect revenue from the Bespoke acquisition to begin to add and contribute to our healthcare segment.

Okay.

But -- thanks, Abe.

That's helpful.

Just looking at the performance year to date, my impression was that markets like the hearing aid market is a more established market for you.

In terms of the growth, is it coming -- is the real strength in the growth that you're seeing coming from the relatively new market like dental?

Or is something like the hearing aid market --

Yes.

-- a big driver?

You're correct that hearing aid is a bit more developed, although there are new applications within hearing aid that will contribute to growth on an ongoing basis.

You're also correct, Jim, in pointing out that dental is growing very rapidly.

And within dental both dental restoration and liners are growing very, very well.

But we're also enjoying quite a bit of growth in the whole area of implant surgical kits and other surgical kits in support of computer-aided surgical procedures.

That's a very fast growing field and it's contributing very favorably to our growth.

Okay.

Thank you.

Paul Coster; JPMorgan.

Abe, you talked about growth being fueled in part by expanding channel.

Can you share with us any stats regarding the dealer and distributor network and how that's expanding, and also, in passing, how you intend to expand the channel for Cube moving forward?

So in regards to the channel, as you know we entered the year with roughly 330 channel members, effectively doubling our channel and geographical coverage through channel with the acquisition of ZCorp.

And we have been focusing all of our efforts to basically make the channel productive and effective by selling the combined portfolio through the combined channel.

That has been enormously successful.

We completed all the training and the rollout.

And the increase in units on a year-to-date basis and the increase in overall printer revenue, which is up some 71%, which included very healthy growth of the core 3D Systems printers and the reversing of the decline of the ZCorp printer units is the ultimate indication of how successful the channel integration and productivity has been.

We also added some additional channel members, but not too many, because our primary purpose for the first half was to get maximum productivity from the combined channel.

In terms of Cube channel, at the moment we largely are doing it online through Cubify.com.

And we have been extremely pleased with the response and the effectiveness of the online channel.

In fact, we had to already increase capacity because since the launch the order influx rate exceeded the top range of our expectations.

So we are in a bit of a ramp-up in terms of production capacity to cope with the demand and to be prepared for increased rates before we begin to more formally promote Cube.

And so our expectations for Cube for the foreseeable future is that the channel is going to be primarily Cubify.com.

It has been enormously effective.

So just a quick follow-up.

A lot of new products in the ProJet lineup this quarter; does that reflect sort of the intensity of the competition in that Pro professional printer space?

And is that the most competitive sort of subset of your landscape at the moment?

No.

It [affects] leadership and attunement to customers' needs and wants.

We believe that within our professional printers we set the benchmark in terms of accuracy, functionality, feature detail and overall range of material performances across many, many segments and applications.

And we have had this in our plan and we continue to push the envelope in terms of what technology can deliver for the benefit of our customers.

The fact that we could do it across so many models concurrently I think speaks volumes about not only our technology capabilities, but our execution.

And what is even more gratifying is the incremental backlog that these new products (inaudible) generated, which, again, I think validates how the market is viewing these technological improvements.

I should also add that all of this is consistent with our multi-quarter realignment and remixing of our entire printers portfolio, which is really moving in a direction of more professional printers and more personal printers as we continue to converge the production and professional into one category that is priced more in the middle, increases our unit placements year over year and sequentially, and represents lower-priced printers that are capable of generating just as much consumable revenue as the higher priced printers.

Thank you very much.

(Operator Instructions) Troy Jensen; Piper Jaffray.

Just a quick question, or a point of clarification, first.

Did you guys say production printers were down 10% year over year and units were flat?

We said that production printers were up 11% in the second quarter over the second quarter of last year, flat for units, and down six months 10%.

And we also said that that is largely because we are continuing the migration from the production category to the professional category.

Can you explain that a little bit?

Units that you previously classifying as production are now moving into your professional --

As we introduce new printers, like the ProJet 6000 and the ProJet 7000, those increasingly are all falling in the professional category, where their predecessors that we have retired belonged in the production category.

The professional category over time in terms of print format and consumable generation capability and price point is going to become the category for the high end.

Okay.

And that category is growing by leaps and bounds.

Can I go to -- I think Brian was asking the question about organic growth rates and you gave him the materials at 28% and on-demand at 43%.

Yes, yes.

We have it now.

We can provide it.

The unit, the printer units grew at 47% organically versus the 61% in total.

How about revenues, though?

Because I think the 20% organic number you're quoting was a revenue number and I thought that was what materials and on-demand was.

Yes, the 47% is the unit number.

And the revenue number is close to that.

It's about 35%.

Okay.

Can I ask you how can you have three categories -- 28%, 43%, and 35% organic growth -- but then the total organic growth is only 20%?

For -- well, you have -- under services we look at this as services in total, if you look at the (multiple speakers) on-demand parts, but if you take out the traditional break/fix warranty services, that is actually flat to last year to slightly down.

Okay.

Yes.

For clarification, Troy, the 43% that we cited on services was completely attributable to our on-demand parts services.

On-demand parts services have grown 43%.

Traditional break/fix printer services and warranties remained flat.

All right.

I see.

And this is more than one, but if I could just get a last one in, just about direct digital manufacturing, is there any way that you guys can measure traction you are getting in that industry?

And then, what systems best play into that for you?

Yes.

So to a large extent, almost 100% of our healthcare business is directly attributable to direct manufacturing.

And in addition to that, about 50% of our units for quite some time in the professional/production category are also attributable to direct manufacturing.

And most of that is in connection with aerospace, automotive, and defense, in addition to healthcare.

And [is it] SLA and SLS systems you think are best positioned?

Well, it depends on the application.

Certainly in certain applications SLA and SLS print engines have unique advantages.

On the other hand, our ProJet 3500 and 5000 wax printers are also extremely well positioned on the production floor of foundries to generate thousands of patterns daily for a variety of applications.

All right.

Well, thanks for taking my questions and good luck in the second half.

We have no further questions; therefore, that concludes your Q&A session for today.

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, investor.

3dsystems.com.

Thank you for your participation in today's conference.

And that concludes the presentation.

You may now disconnect.

Have a good day.