3D Systems Corp (DDD) 2012 Q4 法說會逐字稿

Good during and welcome to the 3D Systems conference call and audio webcast to discuss the results of the fourth quarter and full year 2012.

My name is Alex and I will be your facilitator on 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 towards the end of today's 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 of 3D Systems.

Good morning and welcome to 3D Systems conference call.

I'm Stacey Witten and with me on all 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 phones who wish to access the slide 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 that have accessed 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 the discussion, I would like to mention the statement regarding forward-looking information that appears on slide 4.

This 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, or products, underlying assumptions and other statements which are other than statements of historical fact.

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 predictions that relate to future events or our future performance and are subject to known and unknown risks, uncertainties, assumptions and other factors, many of which are beyond our control.

As a result we cannot guarantee future performance or results 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 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 us morning.

Let me first say that we are very pleased to report our best-ever quarterly and annual results on accelerated printer sales.

This morning, Damon and I will recap our quarterly and annual 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 a fairly comprehensive outlook for the whole year of 2013.

Quarterly revenue grew 45% to a record $101.6 million on a 93% surge in printers and other products revenue and 18.8% organic growth.

But, importantly, stronger printer demand bolstered our quarterly quarter-end backlog up to $11.4 million at year-end, representing a 23% sequential increase and included $3.2 million of current printer sales.

We grew our gross profit some 60% and extended our gross profit margin 460 basis points to 51.7%, contributing to non-GAAP net income improvement of 64% over 2011 quarter on continue to P&L leverage.

For the full year of 2012, our revenue grew 54% to a record $353.6 million on a 90% boost in printers and other product revenue, and 22.4% organic growth.

Gross profit increased 66% and gross profit margin increased 3.9 percentage points over 2011 to 51.2% despite adverse product mix on surging printer sales that overshadowed higher gross profit margin material contributions.

Successful new products, key acquisitions, and expanded channels contributed favorably to our quarterly and annual results.

We believe that our performance is in line with our plans and expectations, and reflects the potency of our diversified portfolio, the productivity of our channels, and the effectiveness of our strategic growth initiatives.

For the full year, all of our revenue categories contributed to growth.

3D printers and other product revenue nearly doubled to $126.8 million on stronger demand as a result of our effective portfolio and price point realignment, channel cross-selling and expansion, and the continued successful convergence of our professional and production printers' capabilities.

As expected, print materials revenue rebounded during the fourth quarter, and for the full-year grew 46% to $103.2 million on stronger printer sales that drove a 76% increase in our integrated materials revenue.

Services revenue increased some $30.5 million or 33% over 2011 to $123.7 million and included $79.2 million of on-demand parts.

Our fastest-growing vertical, healthcare solutions, including Vidar, delivered revenue growth of 77% for the year and contributed $49.3 million to our total revenues or 14% compared to $27.9 million and only 12% for our 2011 total revenue.

Throughout 2012, consistent with our plan, we increased our annual R&D spending by 62% to a total of $23.2 million support of our portfolio expansion and diversification efforts.

Our effective R&D investments resulted in the introduction of 16 new products, including eight new printers spanning four print engines.

We are thrilled that revenue from new product grew 70% to $131.9 million.

And just as a reminder, we track new product revenue only for the first three years of the product's commercial life.

Now for a detailed look at our financial performance for the fourth quarter and full year of 2012, I will turn the presentation over to Damon Gregoire, our Chief Financial Officer.

Damon?

Thanks Abe and good morning everyone.

Fourth quarter revenue increased 45% to a record $101.6 million on a 93% jump in printers and other product revenue.

For the quarter, materials revenue increased 33% and services were up 18%.

Gross profit improved 60% and our gross profit margin expanded 460 basis points to 51.7%, contributing to non-GAAP net income improvement of 64% over the 2011 quarter.

On a non-GAAP basis, our total operating expenses increased to $28.2 million or 28% of revenue on higher sales costs from much higher revenue, incremental costs from acquisitions, and $3.2 million higher R&D expenses in support of our expanded portfolio and diversified business model.

As a result of our strong revenue growth and expanded gross profit, we generated non-GAAP adjusted net income of $22.6 million, a 64% improvement over the 2011 quarter and earned $0.39 per share tax-effected.

On a GAAP basis we earned $0.19 per share for the quarter.

Revenue for the full-year 2012 increased 54% to a record $353.6 million on a 90% boost in printers and other product revenue.

Gross profit increased 66% and gross profit margin expanded 390 basis points to 51.2% from 47.3% in 2011.

Consistent with our expectations, gross profit margin increased in 2012 despite adverse product mix on a surge in printer sales that diluted higher gross profit print materials contribution.

On a non-GAAP basis, our total operating expenses increased to $99.8 million or 28% of revenue, reflecting an $18.4 million rise in compensation costs that was primarily driven by higher sales commissions from increased revenue, incremental operating costs of newly acquired businesses and $5.1 million of acquisition integration and restructuring costs.

Importantly, full-year expenses also included an $8.9 million increase in R&D expenditures that were primarily driven by our expanded portfolio and diversification initiatives.

For the full-year we generated non-GAAP net income of $67.9 million, representing a 66% improvement over last year and earned $1.25 per share tax-effected.

On a GAAP basis we earned $0.71 per share for the year.

Our GAAP net income included a $7 million non-cash loss on the conversion of our 5.5% convertible notes by note holders, which we'll discuss in more detail later.

Our quarter-end backlog increased to $11.4 million at year-end on strong demand, representing a 23% sequential increase and included $3.2 million of current printer sales and $5.9 million of on-demand parts sales.

Consistent with our methodology, our organic growth was 18.8% for the fourth quarter of 2012 and 22.4% for the full year.

For comparison, in 2011, our organic growth was 8.8% for the fourth quarter and 19.2% for the full year.

As a reminder, we count newly acquired business revenue from the date of acquisition until its 12-month anniversary as acquired revenue.

From its 12-month anniversary forward, we add the actual total first-year revenue to our total base and count only the incremental revenue growth going forward on our total base as organic growth.

While the timing and concentration of new acquisitions and anniversary dates of prior acquisitions understated our fourth-quarter organic growth progress two years in a row, we believe that the 10 percentage point step-up in organic growth rate for the fourth quarter of 2012 compared to the 2011 quarter, on a much larger total revenue base, reflects the potency of our organic growth engine.

By revenue category for the full-year 2012, printers grew organically by 40%.

Total materials grew organically by 17% and services grew organically by 13%.

We report non-GAAP adjusted results that exclude the impact of amortization of intangibles; non-cash interest expense; nonrecurring acquisitions and severance expenses, including gain or loss on acquisitions; the impact of litigation settlements; stock-based compensation; non-cash loss on conversion of convertible debt; and any net impact of releases of portions of the valuation allowance on deferred tax assets.

Please note that our total depreciation costs and our senior convertible notes' cash interest expense are appropriately included in our non-GAAP net income.

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

As mentioned previously, on a non-GAAP basis we generated adjusted net income of $22.6 million or $0.39 per share for the quarter.

The excluded items aggregated to an $11.7 million tax-effected net increase to GAAP net income, or $0.20 per share in the fourth quarter.

For the year 2012 we generated non-GAAP net income of $67.9 million or $1.25 per share.

The excluded items aggregated to $28.9 million tax-effected net increase or $0.53 per share.

Our 2012 non-GAAP net income was impacted significantly by the loss on conversions of our 5.5% convertible notes.

I'd like to take a moment to discuss what this means.

As holders convert the notes into shares of our common stock, the costs that we would have recognized over the life of the notes are accelerated and are reflected in our P&L in interest and other expenses.

And they are recognized as a non-cash loss on conversion.

Absent these conversions in 2012, our GAAP net income would've been approximately $5.7 million higher, or an additional $0.10 per share.

And conversions continued since last December, and as of February 15, we are pleased that approximately two-thirds of our $152 million of convertible notes have been converted, resulting in future reduction of annual interest expense from approximately $8 million per year to approximately $5.2 million per year.

The combined effect of our improved performance over the last three years, and our financial outlook as reflected by our guidance this morning, led to the release of the remainder of our valuation allowance on our net operating losses resulting in a reported tax rate of negative 15% for the fourth quarter of 2012 and 10% for the full year.

We have $42.2 million of NOLs reflected on our current deferred tax assets, and consistent with our guidance for 2013, we expect our cash taxes to remain in the range of 10% to 15%.

Based on the geographic distribution of our income through the end of 2012, we expect our annualized effective tax rate for the full-year 2013 to be in the range of 35% to 38%, which is consistent with our previous expectations.

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

Importantly, I'd like to point out that with the release of the remainder of our valuation allowance behind us, and as balances of our convertible notes may be converted, we expect our non-GAAP earnings to begin to converge with our GAAP earnings several years ahead of our earlier estimates.

Reflecting on our continued strong revenue growth, we believe that our annual 2012 results at $353.6 million revenue and $1.25 non-GAAP EPS are fully in line with our raised 2012 guidance and expectations, and consistent with our strategy to expand and diversify our portfolio, our sales channel, and our geographical presence.

Our revenue is well distributed across our portfolio categories, geographies, customers, and applications and we do not have any 10% customers.

So we do not depend on any one customer or industry for our revenue.

For the full-year 2012, all of our revenue categories contributed to growth.

But printers and other products' growth outpaced materials and services, resulting in 64% recurring revenue for 2012.

3D printers and other products revenue grew 90% to $126.8 million.

In fact, despite the discontinuation of sales of some acquired products earlier in 2012, our combined professional and production printers' revenue increased 83%, and our personal printers' revenue increased 87% over 2011.

Print materials grew 46% to $103.2 million, and services revenue increased some $30.5 million or 33% over 2011 to $123.7 million, and included $79.2 million of on-demand parts.

For the year, revenue from US operations increased 67% to $196.4 million on higher volume, and revenue from non-US operations expanded 40% to $157.2 million and amounted to 44.5% of our consolidated revenue.

Revenue from European operations grew 21% to [$100.7 million] in 2012, reflecting a $28 million increase in volume partially offset by a $6.6 million unfavorable effect of foreign currency translation and a $4 million combined unfavorable impact of price mix.

Revenue from Asia Pacific operations increased 93% to $56.5 million, primarily due to a $34.3 million increase in volume and a $0.5 million favorable foreign currency translation, which is partially offset by a $7.5 million unfavorable combined effect of price and mix.

Reflecting on these results, it is evident that despite ongoing regional economic uncertainties, we experienced growth in all our geographic regions with sustained performance from both our European and Asia-Pacific regions.

North America delivered the strongest growth, benefiting from acquisition concentration that was skewed in favor of the US.

Sales into Germany and other EMEA countries remains strong.

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

For the quarter, gross profit improved some 60% over the 2011 quarter to $52.5 million from increased revenue and expanded gross profit margin in all categories.

Although we generated a higher portion of our revenue from lower margin categories, driven primarily by the step-up in printer sales, we managed to expand our gross profit margin a full 460 basis points over the 2011 period to 51.7% and give up only 10 basis points sequentially.

This increase was driven by a 690 basis point expansion to our printers and other products gross profit margin to 43.1% and a 550 basis point improvement to our materials gross profit margin compared to the 2011 quarter to 71%.

Our printers gross profit margin expansion continues to benefit from our realigned portfolio, which includes more profitable lower-priced printers that are capable of consuming comparable materials levels to our higher-priced printers, combined with continuous operational improvements and better overhead absorption.

For the full-year 2012, gross profit improved some 66% over the 2011 period to $181.2 million from increased revenue and expanded gross profit margin in all categories.

Our gross profit margin expanded 390 basis points to 51.2% for the full-year, driven by a 540 basis point gross profit margin expansion from printers and other products, and a 340 basis point gross profit margin expansion from print materials, and a 470 basis point expansion from on-demand parts services compared to 2011.

Consistent with our previous comments, we believe that we are closing in on our targeted gross profit margin of 56% at a $400 million revenue run rate.

For the fourth quarter, non-GAAP operating expenses increased to $28.2 million or 28% of revenue on much higher sales costs from revenue growth, incremental costs from acquisitions, and $3.2 million higher R&D expenses in support of our expanded portfolio and diversified business model.

For the fourth quarter of 2012, non-GAAP SG&A expenses increased $8.1 million including a $2.6 million increase in compensation costs, primarily from higher commissions on higher revenue and increased operating costs from acquired businesses.

Legal cost improved $600,000 for the quarter, primarily driven by a reduced litigation activity and costs, including the third quarter settlements of two of the ongoing litigation cases which were excluded from our non-GAAP earnings.

Consistent with our plans, we increased our R&D spending by $3.2 million compared to the fourth quarter of 2011, primarily related to activities in support of our expanded portfolio of products and services, as already reflected by the number of new product introductions we announced.

The combination of the surge in our printers sales and the planned increase in R&D spending has temporarily slowed our progress on expanding our operating margins at this point.

On a non-GAAP basis, our total operating expenses for the year increased to $99.8 million or 28% of revenue, reflecting an $18.4 million rise in compensation costs that was primarily driven by higher sales commissions from increased revenue, incremental operating costs and acquired businesses, and a $5.1 million of acquisition integration and restructuring costs.

Importantly, full-year expenses also included an $8.9 million increase in R&D expenditures that were primarily driven by our expanded portfolio and diversification initiatives.

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

Rather we expense those costs as they are incurred.

For the full year, we generated $53 million of net cash from operating activities with some $9 million provided during the fourth quarter.

We entered the year with $155.9 million of cash on hand, representing a $23.2 million decrease versus the end of 2011, after raising $106.9 million of proceeds from our common stock offering in June of 2012 and paying $183.7 million for acquisitions.

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

As we have said, although we expect to continue to report strong cash generation from operations, the quarterly amounts may fluctuate from period to period.

Accounts Receivable increased as a result of our record revenues for 2012 and a higher portion of sales through resellers.

This is reflected in the increase in days sales outstanding to 72 days in 2012 from 67 days in 2011.

Inventories increased in support of our expanded portfolio and due to the timing of orders and delivery of finished goods materials and raw materials, which are -- they are purchased in large quantities.

To help you better reconcile our cumulative cash generation capacity, it's worth noting that since September 2009, when we commenced with our acquisition activities, our cash on hand increased $117.1 million after excluding $314.3 million of net proceeds from capital market transactions and $299.7 million cash paid for acquisitions.

As you may recall, in November 2011 we issued senior convertible notes due in 2016 in an aggregate principal amount of $152 million at a fixed rate of 5.5% per annum, payable in June and December of each year while they are outstanding.

Interest payments began June 15, 2012 and the net proceeds of the notes were used to fund the acquisition of Z Corp and Vidar and for general corporate purposes.

We subsequently announced that conditions for conversion have been satisfied and the notes are convertible.

During 2012, note holders converted $61 million of notes into approximately 2.8 million shares of common stock.

In connection with this accelerated note conversion, we recognized a $7 million non-cash loss in other expenses net.

As of December 31, 2012, the aggregate amounts of notes outstanding was $91 million.

And as of February 15 of this year, an additional $34.6 million of notes have been converted, leaving an outstanding balance of $56.4 million.

Consequently, we expect to record an additional non-cash loss of these incremental conversions of $4.8 million in the first quarter of 2013.

As additional conversions occur, we expect to recognize non-cash losses on these conversion in interest and other expense and anticipate that our interest expense going forward will be further reduced.

In fact, with the amounts converted to date, our interest expense will be reduced from the original approximately $8 million per year to approximately $5.2 million per year.

I'd also like to point out that the non-cash loss on conversions is a result of accelerating loan costs, original issue discount and debt accretion associated with the amounts converted.

So I'd like to take a moment to reflect on our multiyear performance, which we believe to be consistent with our strategic plan and in line with our targets, guidance, and expectations.

As you can see on this slide, since the end of 2009 we tripled our annual revenue, expanded our gross profit margin 710 basis points from 44.1% in 2009 to 51.2% in 2012 in spite of unfavorable mix, and we delivered significant value to our customers and stockholders.

For the full year 2012, indicative of our continued P&L leverage, we improved our performance and productivity further by delivering a 66% improvement in non-GAAP operating net income on a 54% revenue growth that was driven by 125% boost in printer units sold.

And notwithstanding our increased headcount in support of growth initiatives in activities that did not bear revenue during 2012, we were able to improve net income per employee by 17% over 2011, underscoring the effectiveness of our execution.

So, as a backdrop to our 2013 guidance, I'd like to review our overall growth expectations and underlying trends.

As indicated on slide 19, over the past four years, our topline growth was driven by printers and other product sales at a CAGR of 61%.

With continued strong demand on robust R&D and advanced manufacturing spending by our customers, and enhanced channel effectiveness, we expect printers and other product sales to continue to shape and drive our growth in 2013.

With the completion of the Geomagic acquisition later this week, we expect our 3D authoring solutions to become a more significant revenue category this year.

Print materials growth trailed printers growth over the past four years at a CAGR of 27%.

However, with the expected faster install based expansion and the higher growth rate of our integrated materials, we expect an uptick in our total print materials growth rate going forward on accelerated printer unit shipments.

Services have grown at a CAGR of 57% over the past four years, primarily through acquisitions.

As a reminder, services include a lower growth rate component of printers, field service and maintenance revenue as a result of improved overall product quality and reliability and the continued shifting of field service activities and corresponding revenue to our channel partners.

While this activity suppresses our overall service revenue growth rate, we believe that it's critical to our accelerated printer sales and material growth plans because it provides better local service and support to our customers, and enhanced value proposition for our resellers and improved profitability for us.

Within our on-demand parts services, we have been gradually shedding less profitable activities from acquired businesses and replacing those with higher value services.

This multi-quarter initiative was temporarily -- slowed down net growth for this category as we expand margins.

Accordingly, we expect our total services growth moderate growth rate to moderate somewhat this year.

So, all told, with some categories growing faster than others, we expect overall revenue growth to be in the range of 24% to 37% for the full year of 2013, excluding any unannounced future acquisitions.

I'd like to point out that our annual revenue growth expectations for 2013 primarily reflect organic growth.

Currently, the only acquired revenue contributions for 2013 are 3D authoring revenue from Rapidform and Geomagic and the residual inorganic revenue from Paramount Industries.

Based on our historical seasonality increased revenue throughout the year, I suggest that you place greater emphasis on our annual guidance as the actual quarterly amounts may fluctuate period to period, and trends are only meaningful over several periods.

Now that we have covered our topline growth expectations, I'd like to go over the underlying drivers for expected continued earnings expansion.

As shown on slide 20, integrated print materials as a percentage of total materials continued to increase from 30% in 2009 to 63% of total materials in 2012, even after the inclusion of acquired open-source materials.

Print materials already contributed nearly 40% of our corporate gross profit.

And within this category, integrated materials deliver the highest gross profit margin.

As our overall materials category grows and mix within it tips decisively towards integrated materials, we expect continued consolidated gross profit margin expansion.

Case in point, for 2012, materials revenue made up 29% of our total revenue but contributed 39% of our total gross profit.

We believe that the combined impact of growing integrated material sales at higher gross profit margins, together with growing 3D authoring solution tools at software gross profit margins, which we expect to become more meaningful this year, will drive our corporate margins higher and support our earnings expectations.

Based on the progress that we have been making, our sales momentum and the favorable marketplace trends that we are observing, management expects full-year 2013 revenue to be in the range of $440 million to $485 million, and full-year 2013 non-GAAP earnings-per-share to be in the range of $1.00 to $1.15 per share, adjusted for our recent stock split and inclusive of approximately $17 million of revenue that we expect from Geomagic, which we expect to close later this week.

For reference, if we had not completed the 3-for-2 stock split, our revenue guidance would've remained $440 million to $485 million.

But our EPS guidance would've been $1.50 to $1.73.

Our full-year 2013 non-GAAP earnings estimate is fully tax-effected.

It includes management's anticipated incremental revenue and expenditures related to all of our current growth initiatives, as well as our expected litigation costs as we understand them, and it excludes the impact of future unannounced acquisitions.

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

That concludes my comments.

Abe?

Thanks Damon.

We continued to expand our portfolio, extend our reach and diversify our business model.

In support of our rapidly growing 3D printer business, we launched eight models of our new ProJet 3510 3D professional printers, two models of the new ProJet 3500 MAX professional printers, and two new print materials, VisiJet Pearlstone dental material and VisiJet X ABS performance material.

In support of our consumer initiative, we launched the second-generation Cube and the new CubeX at CES this past January, winning a KAPi award and Best of CES in Emerging Tech.

We also acquired COWEB, startup in France with technology to customize 3D printed novelty items and collectibles.

In support of our on-demand parts growth initiative, we acquired TIM, a leading provider in the Netherlands, and expanded our QuickParts technology platform to Europe and Asia-Pacific.

And, in support of our 3D authoring solutions growth initiative we acquired Rapidform, a global provider of 3D scan-to-print and inspection software tools based in South Korea.

And we announced as we signed a definitive agreement to acquire Geomagic, a provider of design, sculpt and scan software tools which we expect to close later this week.

We entered 2013 with positive sales momentum and expect to benefit from growing demand from our newest product.

We believe that the level of interest in our products and services is at an all-time high, and the volume of C-level engagement across many industries in pursuit of joint development opportunities is unprecedented.

We believe that we are well-positioned to shape and serve the movement to re-localize manufacturing where the convergence of 3D printing, robotics, next-gen sensors, mobile devices, and cloud computing begins to really find advanced manufacturing.

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

And we expect our ongoing portfolio diversification, extending channels, and focused growth initiatives to deliver continued success.

Finally, we believe that we are extremely well-positioned to monetize the expanding events advanced manufacturing and health care opportunities and the emerging consumer opportunities.

We expect material revenue contributions from consumer solutions and commercialization of Bespoke personalized medical devices in the second half of this year.

And accordingly, we expect to be able to deliver continued topline strength and margin expansion as the benefits of scale and our solid M&A execution continues to manifest.

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

Stacy?

We will now open the call to questions.

We can only 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 1-800-295-3991.

And if you're calling outside the US, the number is 1-617-614-3924.

The conference ID is 68343877.

(Operator Instructions).

Jim Ricchiuti, Needham & Co.

I haven't had a chance to go through your 10-K yet.

But can you give some color on the growth in professional and personal printers in Q4?

And I'm assuming consumer is part of personal.

Do you plan to break that out at some point later this year?

Do you want to address that, Damon?

Yes, I mean right now it was -- we did break out some of the information, professional and production.

Personal is included in that personal and professional section right now.

We do expect this year to start talking a little bit differently about it and break out the personal portion from the two of those.

And as we've said all the way -- all along, that production printer -- professional and production printers is a blurred line between those, and it's getting difficult to differentiate between the two.

So we should be talking a little bit differently about that this year.

We did say, though, that if you look at professional and production printers as total -- as the total category now grew by 82% -- almost 83%, and the consumer and personal side grew by 87% for the -- for 2012.

And so Jim, to summarize what Damon said, for the fourth quarter, and for the full year, particularly for the fourth quarter, we experienced a surge in printers and other products in demand.

And we see continued demand into this year.

In fact, you can tell from our current backlog that some of our printer demand at the end of the year ended up in backlog for a variety of timing and recognition issues.

And in terms of our consumer activities, we expect revenue from our consumer activities to become significant in the second half of this year.

And at that point in time we expect to begin to break it out and report on it.

Okay thanks.

I'll jump back in the queue.

Troy Jensen, Piper Jaffray.

I guess I've got a two-part question here, maybe for Abe.

Specifically on the jetting products, I'd be curious to know if you plan on having a broader range of pricing.

Obviously your competitor in that category seems to have just a larger spectrum of products.

And then the second part here is on cross-licensing agreement with Objet.

Are you guys prevented at all from developing a Connex type of printer?

If you can just kind of touch on, within the cross-licensing agreement, what can you do, what can't you do versus what Objet currently offers?

Sure.

Let me start with our jetting products.

Our jetting products have enjoyed significant success, and in no small part are responsible for the surge in overall printer demand; some that translated into our fourth-quarter revenue, some that ended up in backlog.

And as you know, we just refreshed our jetting products and introducing new categories and expanded the price points and we expect to continue to do that.

With regards to cross-licensing and the freedom to operate, we obviously have a cross-license that covers a period of patents through the season that we signed that cross-license agreement.

And we have capabilities and technologies that will allow us to operate and to develop what we need to develop, not just within the cross-license agreement, but you know, within our ability to continue to innovate and to really practice lawfully what is available.

So in a nutshell, we believe that we have what we need to develop our products and our product roadmap in any direction that's within the market to demand, including multi-material capabilities, you know, if we determine that that's a lucrative market for us.

So, you can develop multi-material jetting products?

We believe that we can do it and we believe that we can do it in ways that would respect everybody else's IP.

Understood.

All right, good luck gentlemen.

Paul Coster, JPMorgan.

Yes, thank you; a couple of questions related to the guidance.

The first one is can you talk a little bit about the OpEx this year, and particularly R&D and where you're focusing your R&D proportionately.

And you said also that it's difficult to predict the quarters.

Is there anything, though, that you've learned from the accumulation of products, services and solutions here that gives you any sense of seasonality, or when we might see some kind of trend emerge from quarter to quarter?

Okay, so starting with R&D, and then I'll let Damon reflect on the expected trending in revenue from quarter to quarter.

Our expectation is to make sure that we are adequately spending on R&D.

And as you see for 2012, we increased our R&D spending some 62%.

And it's thoroughly evenly split between printer development, material developments and now increasingly 3D authoring solutions development and some of our consumer initiatives.

And our plan is to continue to push hard and decisively.

In fact we expect 2013 to be probably our best year ever in terms of new product introductions, both in the area of additional 3D printers and capabilities, exciting new materials and significant breakthroughs in authoring solutions and consumer apps and capabilities.

So we think that notwithstanding everything that we did in the last couple of years, and all the success that we have enjoyed from our R&D, this is poised to be our best year ever in terms of new products and services.

In terms of what's baked in the guidance in terms of seasonality, I'll let Damon address that.

Right.

Historically we've always looked at stair-stepping throughout the year in seasonality.

Prior to -- 2008 and prior was more of a hockey stick, but that sort of leveled out over these past years.

We expect to be increasing through the year.

One thing to be important to note, we talked about the Geomagic acquisition that we expect to add $17 million this year in revenue, and that's a prorated number for the remainder of the year.

If we close that at this week, you're basically talking one month out of this quarter that it's only in, so that has to be factored into that, too.

But definitely we have enjoyed sort of the stair-stepping as we moved along throughout the year.

With one exception in certain categories in Q3, materials -- materials and some other areas tend to be impacted in Q3 by the European shutdown and the shutdown in education, just like it had this year.

But we saw a rebound back in those categories of materials and other services in Q4.

And right now we're not seeing much different than that.

Thank you.

(Operator Instructions).

Brian Drab, William Blair.

I have a lot of questions.

Unfortunately I only have time for one.

First of all, one suggestion; I'm not sure what happened this morning.

But it would be much more helpful to the investment community if we could get fourth-quarter results more than 20 minutes before the conference call, because I have not had time to do my work that I would need to do to ask good questions, or at least the best questions on this call.

So, something to think about for the future; I'm sure everyone who is analyzing your numbers is thinking the same thing.

My question that I want to ask is around organic revenue growth, because I'm looking back to the fourth quarter 2011 transcript and looking at my model and the numbers that we entered in the fourth quarter 2011, and trying to reconcile the 19% organic revenue growth, Abe, that you mentioned as reported for the fourth quarter 2011.

And (multiple speakers) now you're saying that 8.8% for the fourth quarter.

And I've asked this in the past, but when there are discrepancies like that, it makes me feel uneasy about your ability to give us accurate organic revenue growth.

Well, I'm sorry Brian.

What I said is that in the fourth quarter of 2011, we had 8.8% and in the fourth quarter of this year we had 18.8%.

I'm looking back at the transcript from fourth quarter 2011 right now and you said business organically for both fourth-quarter and annually, 19%.

So that's confusing.

If those kind of discrepancies are out there, it would be great to find out after right after that call instead of a year later.

I've been modeling based on those numbers.

Well, I believe that all of our results were in our K's and Q's, and if something was misunderstood out of my transcript, I apologize.

I can't control how my transcript is transcribed.

But I believe that our results are our results and they are as we reported them.

And could I just squeeze in one more, then?

For Geomagic, what are you expecting for a contribution therefore 2013?

Damon just got done saying that for the balance of this year we expect them to add about $17 million to revenue, and it's already baked into our guidance for 2013.

Okay.

Sorry.

I missed that while I was running some numbers here.

I'll get back in line.

Thanks.

Jim Ricchiuti, Needham & Co.

If we look at your full-year revenue guidance, the range of revenues, can you talk a little bit about what gets you to the high end of the range?

Are there any specific areas?

Your healthcare business is growing, continues to grow very rapidly and I'm wondering if you are also factoring in a much stronger consumer business.

Just talk a little bit about the range of revenues and what gets you to that high end.

Okay.

What gets us to the high end is -- we are seeing unprecedented interest.

And I kind of touched on it in our remarks.

We are seeing unprecedented interest in the highest levels of the companies, at the C-level of companies, for a variety of business development and joint developments around advanced manufacturing.

To the extent that some of those materialize, that's going to get us to the higher end.

We believe that health care is going to continue to grow at a healthy rate.

And we expect that, including some of the Bespoke products that we are going to commercialize in the second half, to contribute to that.

And we certainly expect both our consumer solutions and our 3D authoring solutions to meaningfully contribute towards the second half of this year.

And there is another element, Jim.

With the additional Geomagic we are going to have another opportunity to add somewhere in the range of another 80 to 100 channel partners.

That gets us to now a channel of nearly 500 resellers.

And with that, we see that there is lots of opportunity for cross-selling and upselling, and opportunities to generate incremental growth rate very similar to the growth rate that we enjoyed in printers and other products in 2012, which was for the year 90%, for the quarter 93% and organically 40%.

That comes from those incremental cross-selling and upselling opportunities.

So, that's what gets us to the higher end of the guidance.

Okay thank you.

Brian Drab, William Blair.

Just one more question.

I'm wondering if you can -- this one for Damon.

If you could talk a little bit about what this noncash transfer line is in your financial statements in the cash flow.

Let me see.

Hold on.

I'm just pulling up our cash flow here.

So, which one did you ask for?

I'm sorry.

Again, I've got a lot of numbers here that I'm trying to sort through, but the non-cash transfers that you've been reporting.

And it looks like there is some shifting between PP&E and inventory and I want to see if you can explain that to me.

And if that's the case or if that's not the case, tell me that that's not the case.

That -- that is what the case is.

We do have different items.

If we place equipment into service from our inventory, that's what happens.

We also have some -- or not just into service in service bureaus but also as eval demos or into our showrooms.

That's what we have.

And there is other times where we actually have inventory that transferred back into inventory and is sold as used equipment after, you know, as we redeploy these assets or upgrade our showrooms and things to a new model that's come out.

So that's basically what that is.

What percentage of your sales in the printer products segment roughly is used equipment?

We haven't done that.

But it's not -- I don't have the number in front of me, but it's not a meaningful number.

It's not a big number at all.

It's not significant.

Okay, and would you ever see the same equipment move from inventory into PP&E and then back into inventory?

Well, obviously, it's coming back into inventory at one point it had been in inventory prior, yes.

But everything that we purchase that we manufacture ourselves starts out in inventory.

It doesn't go directly into an in-service product.

But if then it is put in there, it moves to whatever location and whatever service it's in, and if it comes back out and is redeployed somewhere else or sold, yes, it goes back into inventory

Yes, these movements are primarily related to demos in equipment that we deploy at our various facilities for sales demonstration purposes.

And every time when we change a model, like we did now with about eight different ProJets, we go out and we make sure that we replace all of this equipment in our showrooms with the latest models.

And then we typically would sell the demonstrators before we launch the new model.

How are your margins typically on something that -- on the sale of a demo piece of equipment versus (multiple speakers)

It's all reflected in our consolidated margins, which have been increasing in all categories.

Okay, I'll follow-up with you more later.

Thanks a lot.

Holden Lewis, BB&T.

Wanted to follow up a little bit on that last question; I'm sort of curious.

You had indicated that Geomagic will add a number of new resellers.

I was just sort of curious.

In your revenue forecasts, are you building in the expectation that you might be putting demo machines into the Geomagic resellers?

Or is that not sort of planned for that particular channel?

How should we view that?

And then I guess most of it is just make sure that all of your acquisitions, now that they've largely anniversaried, [typically, provide our note guys], do we feel like our reseller network with the possible exception of Geomagic is kind of full up with the necessary purchases of product?

Let's be, first of all, crystal clear.

The previous question has nothing to do with demos into our resellers.

It has to do with demos that we keep within our own showrooms worldwide.

We do not go back and forth and take reseller demos and put them back into our inventories, so I want to be crystal clear about that.

The previous answer had to do with our own wholly-owned equipment and how it's deployed, either in our own showrooms or in inventory for sale purposes.

With regards to did we factor anything in our guidance for incremental resales to Geomagic resellers?

No, we did not, because we don't view that as significant.

We believe that the only significant sales of printers through the channel are sales to end-users.

So, although there may be temporary incremental benefit from selling some initial units to Geomagic resellers, that's not built into our guidance.

And I'm sorry if I forgot your -- the last part -- oh, do we have all the products?

We've been very clear that our main focus is to continue to position ourselves at the heart of this value chain of content-to-print.

And that it's a combination of organic and inorganic efforts to get there.

Damon, in his remarks was also fairly clear that the vast majority of revenue growth that is included in our guidance for this year, which I believe is in the range for revenue growth between -- is it 24% to 37%?

Yes.

So we are projecting revenue growth of 24% to 37% for this year as part of our guidance.

The majority of it is going to be organic, with the exception of Rapidform Geomagic and some of the trail of Paramount Industries.

And Damon was very clear about that as well.

Okay.

And just to follow up on -- you know, you gave about $17 million prorated in revenues for Geomagic.

Did you suggest how much the non-GAAP EPS contribution from that transaction would be?

No.

We haven't yet.

We've said that it's included in our guidance, in our total guidance for 2013.

And once we close the deal later this week, we'll be at liberty to discuss some more of the details on that.

Okay, thank you.

Thank you.

There are no further questions at this time.

I would 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 our investor relations section of our website at investor.

3DSystems.com.

This concludes your conference call for today.

Thank you for joining.

Good day.