3D Systems Corp (DDD) 2014 Q1 法說會逐字稿

Good day and welcome to 3D Systems conference call and audio webcast to discuss the results of the first quarter of 2014.

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

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

Later we will conduct a question-and-answer session.

(Operator Instructions).

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

Please proceed.

Good morning and welcome to 3D Systems conference call.

I am Stacey Witten, and with me on the call are Avi 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 www.3DSystems.com/investor.

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 streaming portion of the webcast, please be aware that there is a five-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 a 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 of products, underlying assumptions, and other statements which are other than statements of historical fact.

Also 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 results and 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 February 28, 2014.

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

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

This morning Damon and I will go over our financial results in more depth, update you on our progress, and provide an outlook for the remainder of 2014.

We are pleased to report another strong quarter on robust demand for our design and manufacturing printers, on accelerated materials growth rate, and a substantial unit sales increase that altogether delivered 45% revenue growth from the prior year to $147.8 million on expanding overall organic growth of 28%.

We generated unit growth of 54%, including a 76% increase in design and manufacturing printers and an impressive 48% growth in our consumer unit, notwithstanding slowing demand for the current consumer printer models in anticipation of the commercial release of our new 2014 models.

Growing Direct Metal 3D printer sales again outstripped our manufacturing capacity during the first quarter, even as we continue to add capacity, and contributed to our increased total printers backlog.

Our gross profit margin shouldered the effects of continued unfavorable mix and the absorption of manufacturing an expansion costs that compressed gross profit margins some 130 basis points from the prior year's quarter to 51.1%.

All of our revenue categories contributed to record first-quarter sales, but 3D printers and other products continue to outpace all other categories, growing 53% to $60.8 million, primarily as a result of strengthening demand for our design and manufacturing printers.

Consistent with our expectations as placement and utilization of industrial printers continue to expand, our materials revenue growth rate accelerated to a record growth of 41%, contributing $40.4 million of revenue for the quarter.

Services revenue rose 38% to $46.6 million, primarily driven by Quickparts.

Revenue from our growing healthcare category increased 53% to $21.7 million as we deepened our reach into existing opportunities and expanded into new applications with new products, materials, and services.

With acquisition of Medical Modeling in April we expect to significantly expand our reach and expertise in this rapidly growing category while we continue to push 3D technologies to new levels and applications.

Consumer revenue increased 150% and contributed $9.7 million as we extended our consumer products and services beyond home-use printers into education, entertainment, and consumer goods.

Through our growing ecosystem we are extending our desktop design and prototyping reach by delivering more affordable offerings to engineers, students, makers, entrepreneurs, and home users.

And through acquisitions like Gentle Giant Studios we are extending services to the entertainment and toy industries.

We expect accelerated growth in our consumer category in the second half of this year as we begin shipping the recently announced Cube 3, CubePro and iSense scanners late in the second quarter and as we open completely new consumer and [prosumer] applications with ChefJet, CeraJet and CubeJet 3D printers that are slated for commercial shipment during the second half of this year.

We continue to see substantial organic and inorganic opportunities within the professional areas we are targeting, including personalized surgery, patient-specific medical devices, automotive, and aerospace, and expect rising demand for our design and manufacturing solutions to continue to drive our growth.

To better serve this growing opportunity and to multiplex our marketplace sales presence, during the first quarter we combine our direct sales organization with our channel sales organization into a unified salesforce and commenced selling all our design and manufacturing including our SLA, SLS and Direct Metal 3D printers and materials through our global reseller channel.

We are pleased that our unified sales channel delivered a 64% increase in revenue from design and manufacturing 3D printers with very little contribution as of yet from our recently announced new products.

Our growing installed base has already accelerated our materials growth rates and we expect further materials sales upside as more of our customers' manufacturing facilities come online.

During the first quarter of 2014, we increased our R&D expenditures some 165% to $17.2 million on continued accelerated product development and the addition of the Wilsonville team, which we believe catapults our R&D capabilities several years forward.

While we expect most of the benefits from this investment to accrue in later periods, we already announced nine new products in the first quarter of 2014.

And total new products revenue rose 71% to $65.4 million.

Just as a reminder here, products are considered new by us only for the first three years of a product's commercial life.

Based on marketplace feedback of our recent new products and our plans for future products, we fully expect our new products to accelerate our organic revenue growth later in the year.

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

Damon?

Thanks, Avi.

Good morning, everyone.

Our first-quarter revenue grew 45% from the prior year to $147.8 million.

[Mix] pressure held our gross profit margin to 51.1%.

And consistent with our prior comments, we more than doubled our quarterly R&D spending and continued to increase our sales, marketing, and infrastructure expenditures in support of our growth initiatives, the combination of our direct and reseller sales teams, and our strategic joint developments and alliances.

These expenditures and investments that aggregated to $66 million of operating expenses for the quarter are designed to increase our leadership position and enhance our portfolio.

Our strong revenue growth, combined with depressed gross profit margins and increased investments, resulted in net income for the first quarter of $4.9 million and earnings per share of $0.05.

On a non-GAAP basis we earned $0.15 per share for the quarter.

And as you know by now, we report non-GAAP adjusted results that exclude the tax-affected impact of amortization of intangibles; non-cash interest expense; nonrecurring acquisition, integration and severance expenses including gain on loss on acquisitions, impact of litigation settlements, and tax settlements; stock-based compensation; and non-cash loss on conversion of convertible debt.

Our total depreciation costs and our cash interest expenses 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-Q that we filed this morning.

On a non-GAAP basis we generated adjusted net income of $15.1 million or $0.15 per share.

The excluded items aggregated to a $10.2 million tax-affected net increase to GAAP net income or $0.10 a share in the first quarter.

Our non-GAAP net income was positively impacted by adding back $9.2 million of amortization expense, $1 million of acquisition and integration expenses, $7.3 million of non-cash stock-based compensation, and $0.1 million of non-cash interest expenses which were partially offset by a $7.4 million tax impact related to the adjustments just discussed.

In the first quarter 3D printers and other products revenue grew 53% to $60.8 million and made up 41% of total revenue.

3D printers alone contributed $50.7 million, growing some 60% over the 2013 quarter.

All our printer categories experienced strong demand and our effective sales and marketing Direct Metal printers campaign continue to produce greater demand, once again outpacing our manufacturing capacity even as we continue to add capacity.

Other products revenue includes software and perceptual devices.

For the first quarter of 2014, software products grew 38% to $5.8 million, reflecting new product traction, channel expansion, and the early impact that our new perceptual devices are generating.

Consistent with our expectations, as placement and utilization of industrial printers continue to expand, our materials revenue growth rate accelerated to a record growth of 41%, contributing $40.4 million of revenue for the quarter.

And integrated materials grew 48% over the first quarter of 2013 to $29.4 million.

Service revenue increased to $46.6 million and made up 32% of total revenue.

Quickparts revenue grew 38% over the first quarter of 2013, contributing revenue of $28.8 million, which made up 62% of services.

We continue to experience robust growth in all of our geographic regions during the year with 97% of revenue increase from Asia-Pacific, 66% revenue growth from Europe, and 19% revenue increase from the United States.

Gross profit for the quarter improved 41% to $75.5 million on higher revenue.

The higher gross profit margin contributions that we got from an accelerated materials growth rate and rising software sales, both at a much higher gross profit margin than our corporate average, were not enough to mitigate the impact of adverse product mix, lower service gross profit margin, and the heavy concentration of new product launches.

Even with the 200 basis point expansion in materials gross profit margin to 74.7% and a 140 basis point expansion in services gross profit margin, it was not enough to overcome the 510 basis point compression in printers and other products' gross profit margin and unfavorable mix of products.

It's important to note that while it's clear that our anticipated gross profit margin expansion was delayed as a result of our compressed new products transition period and mix, we are pleased that our 3D printers growth continues to surpass all other product categories.

And as we place more printers faster, we expect an overall gross profit margin expansion trend over the next few periods, driven by accelerated materials revenue growth as well as higher contributions from software sales and improving services gross profit margin.

For the first quarter, non-GAAP operating expenses amounted to $48.6 million or 33% of revenue.

Sequentially, non-GAAP operating expenses decreased by $1.4 million or 3%, signaling normalization of our stepped-up investments.

For the first quarter of 2014, non-GAAP SG&A expenses increased to $10 million, in large part due to the increased marketing and sales expenses in connection with our growing portfolio and expanding channel, and R&D spending for the first quarter rose $10.7 million, primarily related to the acquisition of the Wilsonville engineering team from Xerox and increased new product development activities across the board.

We ended the quarter with $306.7 million of cash on hand after we paid $2.1 million for acquisition and venture investments.

We generated $0.3 million of net cash from operations during the first quarter.

Cash from operations was impacted by our continued inventory buildup in anticipation of new product releases.

We believe that we concluded this buildup during the first quarter and expect to begin to liquidate a portion of our finished goods inventories as we commence commercial shipments of our new products later in the second quarter.

During the quarter, we also expanded our regional service support and logistics operations in Europe and Japan, adding local spare parts warehouses in these two important regions.

Timing of orders and customer and vendor payments as well as one-time increase in our prepaid expenses also impacted cash from operations.

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.

And as we mentioned earlier today, during the first quarter we combined our direct sales organization with our channel sales organization into a unified salesforce and immediately commenced selling all of our design and manufacturing products including our SLA, SLS and Direct Metals printers and material through our global reseller channel.

Even with this action in place, we estimate that revenue related to reseller inventory amounted to approximately 10% of total revenue for the quarter, notwithstanding the substantial increases in the volume of transactions to the channel.

DSO for the quarter was also partially impacted by our sales force reorganization, increasing seven days sequentially to 86 days from the first quarter.

With all of our printer sales and materials going through our global reseller channel we expect DSO to normalize around 77 days but fluctuate, depending on timing and concentration of sales.

We continue to focus on accelerating our growing and expanding our market share, prioritizing our initiatives and investments that are central to our plans to double revenue over the next couple years, and to deliver the full potential of our business model.

Accordingly, we expect our 2014 revenue to be in the range of $680 million to $720 million with greater growth during the second half of the year.

We expect our GAAP earnings per share to be in the range of $0.44 to $0.56 per share and our non-GAAP earnings per share to be in the range of $0.73 to $0.85 per share.

Please note that we expect a greater portion of our revenue and earnings to be generated during the second half of 2014 as the full impact of our new products and services materializes.

Our non-GAAP adjusted earnings estimates is fully tax effected and inclusive of our acquisitions completed to date.

For the quarter we reported tax rate of 42%, reflecting the absence of R&D tax credits that were not yet approved by the US government and applied.

Historically, such credits are approved after the first quarter and would result in a lower tax rate going forward as well as retroactive application to the previous 2014 periods.

Additionally, we expect greater US profitability for the remainder of 2014 that would affect other deduction allocations, resulting in an expected 2014 tax rate in the range of 32% to 35% and actual cash taxes to converge with that reported rate.

I would 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 reports filed with the SEC.

Given the marketplace opportunities in front of us, we are prioritizing initiatives and investments ahead of short-term earnings during this phase because we believe that the fundamentals of our business model remain intact, and because we fully expect to higher investments that we are currently making to favorably influence our results and competitive advantage in the coming periods.

We expect operating leverage to resume in the second half of 2015 and to be fully restored in 2016.

We firmly believe that the ultimate measure of our success will be in the sustainable value we create over the longer term and that through our current actions and strategic investments we believe that we set the stage to substantially compress the time it will take us to extend and solidify our leadership position and deliver greater value.

That concludes my comments.

Avi?

Thanks, Damon.

As the competitive landscape extensively mimics some of our earlier moves, we keep our focus on the growth initiatives and targeted investments that have already given us significant first mover and cost advantages, and we fully expect our current execution to extend our leadership position further and set us up for sustainable and more profitable growth in the long-term.

Additionally, during the first quarter we have strengthened and extended our strategic partnerships with leading global brands and taken steps to leverage the existing expertise and synergies in key markets.

In January, we began R&D operations at our acquired Wilsonville location with a fully assembled team of 100 engineers, chemists, and materials scientists using state-of-the-art labs and facilities to support the accelerated development of next-generation 3D printing technology.

During the first quarter, we have made significant strides in the development of the continuous fab-grade 3D printer platform and materials in support of Google's Project Ara, and we believe that this advanced manufacturing platform could serve to extend high-speed advanced manufacturing with 3D printing into many industrial and consumer goods applications.

Staples continues to expand its products and services offering and its commitment to 3D printing.

And in line with that, just launched two pilot in-store 3D printing experiences in New York and Los Angeles.

The Staples experience offers in-store drop-off and pickup of printables that are available in seven performance materials powered exclusively by 3D Systems technology.

We continue to expand manufacturing capacity across our portfolio including accelerated expansion of our Direct Metals manufacturing as demand from industrial companies continues to outpace our capacity.

Healthcare remains one of our fastest growing verticals as we continually focus on expanding our applications and reach.

In line with that, in April we acquired Medical Modeling, a living provider of 3D printing-enabled patient-specific medical devices and personalized surgical treatments including proprietary virtual surgical planning and clinical transfer tools.

Medical Modeling pioneered the field of 3D printing-centric personalized surgery and patient-specific medical device solution with FDA-cleared processes and world-class expertise that already delivered thousands of surgical planning tools, implants, and facial prosthetic devices annually.

This combination creates the largest 3D printing personalized surgery and patient-specific medical device service and product capability available on the market today.

Virtual surgical planning software tools provide surgeons with unprecedented precision and control in previously inoperable cases.

Integrated 3D planning and printing combine as the digital thread to create a virtual-to-actual operating room in which surgeries can be planned, tested, refined, and delivered economically.

Our healthcare platform now delivers integrated 3D modeling to printing capabilities available in both Direct Metals and via compatible plastics.

And we are already producing and delivering thousands of FDA-cleared treatment plans and devices.

A couple of weeks ago we also announced that we signed a definitive agreement to acquire Robtec.

Headquartered in Sao Paulo, Brazil, Robtec is the largest Latin American additive manufacturing service bureau and the leading 3D printing and scanning product distributor in the region.

The acquisition of Robtec, when completed, will create a strategic Latin American sales and service platform for us that will multiplex our reach channel activities in the region and provide local presence throughout Latin America with locations in Brazil, Argentina, Chile, Uruguay, and Mexico.

Robtec will bring significant in-region additive manufacturing service bureau capabilities, know-how, and customer relationships.

Upon closing, we will acquire 70% of Robtec with the remainder to be acquired on the fifth anniversary of closing.

Subject to customary closing conditions, we expect to close this acquisition over the next few months and for it to be immediately accretive to cash generation upon closing and to contribute to our non-GAAP earnings per share within 12 months of closing.

We entered the second quarter of 2014 with positive sales momentum and increased backlog, driven by continued strong demand for advanced manufacturing activities across all of our categories.

As our new, faster, and more advanced 3D printers and materials gain traction, we expect accelerating revenue growth through the second half of this year.

We continue to view Direct Metal printing as a very important and exciting manufacturing growth opportunity and plan to quadruple Direct Metal printer sales over the next 12 to 18 months.

Armed with our new, powerful products lineup, expanded channels, partnerships, and alliances, we believe that in the second half of this year consumer products and services could also represent a substantial upside.

We expect our growth initiatives and accelerated investments to continue to expand our first mover advantage and increase our market share, and we believe that our unified salesforce and channel focus can deliver continued success.

The 3D printing ecosystem we have created and continue to expand provides our customers with unmatched integrated content to print.

And as we continue to push 3D printing technology further and faster, we believe that the ultimate measure of our success will be the sustainable value we can create over the long-term.

We expect additional value creation as a direct result of our ability to extend and solidify our reach and depth in key applications and to expand our marketplace leadership, all translating to higher revenue and profitability.

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

Stacey?

We will now open the call to questions.

I would like to remind everyone that we have approximately 25 minutes for the Q&A session, and your line will be muted after your first question, as we kindly request that you ask one question at a time and 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 1-866-515-2909.

And if you are calling outside the US, the number is 1-617-399-5123.

The conference ID is 694733318.

(Operator Instructions) Jim Ricchiuti from Needham and Company.

The first question I had just relates to the revenue growth that you experienced in the US in the quarter.

It looks like revenues grew 19% year-over-year.

So I wonder if you can comment about the moderating growth in this portion of the business.

Yes.

Jim, we don't see it as moderating growth.

We had somewhat of a tough comparison in the US quarter over quarter.

But more importantly, we don't see any slowdown in the US.

We don't consider a single quarter to be a trend.

And just like we don't necessarily expect over 90% increase in Asia-Pacific or 66% increase in Europe in any given quarter, we expect higher growth in the US in subsequent quarters.

John Baliotti from Janney Capital Markets.

Avi or Damon, the view on gross margins progressing through the year -- is that -- should we look at that as a combination of the logical time lag of materials growing after strong printer growth last year and combined with the better absorption of your new capacity?

Is that how you would look at it?

Yes, you sort of nailed it there.

One of the things -- you look at the strong materials growth rate that we've had, which we have guided to starting in the middle of last year, and we keep expanding gross profit margins there up to about 74%.

And we believe that continues.

Those increases in the different areas have been shouldering the effect of our increased new product announcements and the costs associated with inventory buildups, getting new products out, and getting them through a manufacturing environment.

And we believe that as those become fully commercialized and the volumes pick up, that the margin there goes back to a normalized rate.

So overall our gross profit margin will continue to expand.

And then finally, we do expect that are services business gross profit margin will continue to expand over the next parts of the year, primarily driven by increases in gross profit margin in the parts business, our Quickparts business.

Ananda Baruah from Brean.

Please proceed.

Hi, guys.

Thanks for taking the question.

Just another one on the leverage, to follow on that one.

You guys in the last call and this call have talked pretty clearly about expecting -- we should expect leverage through the year as result of new product cycles and cost absorption.

And given you did 18.3% margins this quarter, if I just give you 100, 150 basis points expansion through the year, it gets to the high-end of your guidance.

So what I'm asking for is to get a little bit of context around the op margin expansion and the gross margin expansion commentary because if we give you [substance] expansion we get through the high-end of the EPS guidance.

But I know you are reiterating your guidance today.

Just some context around those two dynamics would be appreciated.

Thanks.

Our guidance does point to the areas where we think we're going to end up being, which is inclusive of some gross profit margin expansion and what would happen in our operating profit.

And we said it's the second half of 2015 that we really start to gain the operating leverage back.

We are going to take advantage in the short term of the opportunities that we have out there, but also look to say that you can see that our operating -- we believe our operating costs have started to moderate and normalize because sequentially our operating costs are actually down from the previous quarter.

And that's inclusive of having added the Wilsonville engineering team that we have out in Oregon, which was a cost for this quarter as opposed to last quarter, too.

I think this is important because, as Damon said, sequentially our non-GAAP operating expenses already decreased by $1.4 million, which begins to signal the normalization or moderation of our stepped-up investment.

And on the gross profit margin, although the -- we call it adverse mix.

It's not really adverse.

It's a change in mix that is more heavily weighted toward certain categories of printers.

And the change in mix we view in the interim as very positive because what it means is that 3D printers' sales continue to outpace all other product.

And to the earlier point, you can also see that materials sales are catching up very strongly.

And materials sales margins are expanding up to nearly 75% now.

And at a certain point in time we see those gross profit line crossing where materials begin to contribute a greater portion to our gross profit margin.

As well as software, because software sales are growing nicely and as well as continued expansion in our services gross profit margin which we have been experiencing as well.

Steve Milunovich from UBS.

I had a question, accounting question.

In the non-GAAP reconciliation your stock-based comp jumped from $2 million last year to $7 million in this quarter.

I thought you used mostly restricted stock for employees.

I was just curious where that comes from.

That is it.

It's all restricted shares.

And it's based on number of shares and what the stock price is at the grant date.

And throughout last year we had a very high stock price at certain points, which then you amortize that cost over the next three years as those vest.

You don't get to deduct a lesser amount if your stock price is different.

But it's all restricted shares; there's no options in that at all.

Troy Jensen from Piper.

Congrats on the results, gentlemen.

Maybe a couple questions for Avi on (technical difficulty).

Just curious if you could let us know visibility and leadtimes with respect to how much of this year's capacity do you think is already accounted for.

And can you just to touch on the ASP as a machine and what you think the material usage will be annually for these Metals machines?

Yes.

So as we said on the Metals machines, although our sales are increasing, we are unable to catch up, as of yet, even as we continue to add capacity on a quarterly basis, which we see as very positive.

And what is also very positive, Troy, on the anecdotal side of it is that over the last several periods we have made significant inroads into automotive applications and specifically tire manufacturing applications.

And I can share with you this morning that just over the last several periods we shipped over two dozen Direct Metals systems just into major tire design and manufacturing applications.

To the ASP question, ASPs range here from around $300,000 for our small Direct Metal printer that is specifically suited for medical and dental applications, all the way to the $700,000 and $800,000 for our ProX 300, which is our large-format production system for automotive, aerospace, and other large-format applications.

And as we said late last year and earlier this year, we are also fast tracking to the market a new product that will be much larger format, higher speed Direct Metal printer.

This will probably come into the market towards the end of this year -- this part of our R&D investments in Direct Metal.

And finally, material revenue is increasing on our Direct Metals systems.

And we expect it to increase further because some of the grades of metal powder, the particle size, the purity makes the materials that we can supply very proprietary and very specialized.

So, we see opportunities here for the material profile on our Direct Metal systems to mimic what we experienced on our plastics systems.

Holden Lewis from BB&T.

Mostly I wanted to get a little bit of color on how you expect the cash flow and the balance sheet to play out as maybe the next 12 months play through because you have obviously -- last quarter you talk about issues with regards to getting inventory in the channels ahead of a revenue boom.

Now you are talking about the effect of restructuring, perhaps, your reseller channel.

And I think that it somewhat -- conceivably could be perceived somewhat negatively, that cash flow is dried up and working capital continues to go up.

But I just want to get a roadmap, if you will, of when and how we get back to our good cash generation and better balance sheet metrics.

Thanks, Holden.

One of the issues that we talked about this morning was inventory.

Inventory has been up significantly over the last few periods.

And it really is in association with the new products that are coming out or being commercialized at the end of this quarter and into the second half of the year.

So as the raw materials are generated or produced into finished goods, we expect that inventory to come down because those deliveries are in anticipation of the sales and building the supply chain.

So we believe we have a substantial amount of cash that is tied up in inventory right now, but we want to be able to be able to supply it as these come out.

The second is we had a couple of things like a one-time prepayment that we expect to come back.

And our prepaid accounts are up, I think, over $4 million.

We expect that to come back for the year.

And then importantly, too, I will touch on -- it really drives, if you look at our DSO number, it's 86 days today.

But we believe that that's really affected by a short-term timing issue.

As you know, DSO is measured at the end of the quarter.

But if you looked at our cash receipts, just through the first week of April in computer DSO, we would be well down into the 70s, about 78 days.

So, we are very comfortable with how our cash generation will come back and be there.

And we've always said you've got to look at it over a number of periods as opposed to just even one period like this.

And Holden, to add to that, we clearly in the last few periods invested heavily in our ability to bring to the market 24 new products.

We invested heavily in our ability to consolidate our sales organization and to fully multiplex and leverage our global channel to be able to sell all of our products.

And our expectation now is that we concluded this buildup phase, and we are going to begin to liquidate portions of our finished goods inventory as we begin to commence commercial shipments of our new products, starting in the second quarter and into the second half of this year.

Remember that during the quarter we also expanded our original service support and logistics operation both in Europe and in Japan and added the local spare parts warehouses in these two regions.

And our expectation is that as we progress in this year we are going to return to strong cash generation from operations just from the obvious liquidation of the inventories and some other initiatives that we have in place.

So, we feel fairly confident about this.

Bobby Burleson from Canaccord.

Congratulations on the strong results.

Just a quick one on the Direct Metal machine -- in terms of your bill of materials there, do you guys have an opportunity to drive down the cost of the laser either through the higher-volume orders you guys are placing, obviously, with a specific supplier or moving to multiple suppliers?

Or what is the roadmap there to maybe get better pricing on lasers?

It's an excellent question, Bobby, not just on the laser components but across the board.

Clearly, as we increase the manufacturing volumes on Direct Metal printers and as we fully learn how to build this class of machines en masse, there are obvious opportunities to reduce the bill of materials and to extend profitability within this range or to decide to create some new price points that would accelerate adoption of this class of systems even faster.

Sherri Scribner from Deutsche Bank.

I know that you talked about seeing more revenue in the second half of the year.

I was wondering if you could update us on your thoughts about the linearity of revenue as we move through the year.

And then, also, I'm just a bit curious why you didn't pick guidance up a little bit based on the acquisitions.

Thanks.

We do expect that our growth is more -- will accelerate over the second half of the year.

And we've looked at it over the last couple years as being more of a stair step throughout the year and increasing as opposed to maybe hockey stick is it used to be, 2008 prior.

But definitely increases as we move along.

And it's really associated with a couple different factors.

First is, the commercialization of all the new products that we have recently announced.

And second is, we really believe and are showing that the materials growth rate continues to expand with those.

So that's what still gave us comfort to reiterate guidance, which, if you look at the first quarter and the guidance overall shows that you are going to have some future growth or higher growth rates in the next periods.

And to your question of why we didn't move guidance up on acquisitions, it's a little premature.

Remember that we haven't yet closed the Robtec acquisition.

And the time for us to consider relooking the guidance for the balance of the year will probably be once we conclude that acquisition.

That will be a good time to look at all the factors in the rest of the year with that company on board.

And that would be a time for us to probably re-look at our guidance.

Weston Twigg from Pacific Crest.

Thanks for taking the question.

This one is related to the Project Ara program.

Just wondering if you could give us some idea of whether your new printer platform and the new polymer formulations that you discussed at the event a few weeks ago, if those would be ready in time to support the Project Ara ramp in Q1 2015 and if those high-speed polymer formulations might be transferable to other printers in your lineup.

It's an excellent question.

The answer is yes to both of them.

We are pretty much on track and are cooperating and working very closely with the Google Ara team on a daily basis.

And in my earlier prepared comments this morning, I spoke about the fact that we believe that this high-speed continuous 3D printing platform and polymers would have a wide application into a variety of both industrial and consumer goods type manufacturing applications.

So, we are fortunate to have a sponsor like Google to push a development like this.

But the reality is that we probably would have developed something like this, anyway, at this point in time.

We are blessed to have Google sponsor this project and be the recipient of the first systems and products.

We will be on time.

We expect to be able to support the launch, and we expect to be able to apply the benefits of these developments into many, many other industrial and consumer [groups] applications.

Jay Harris from Goldsmith and Harris.

If you look at the materials revenues, is there a way of distinguishing between materials that are shipped with new printers year over year and materials that are associated with year-end installed base and the growth rates?

What we do, Jay, is we record overall material growth rates, which was, I believe, 41%.

And we also comment on integrated materials growth rate, which Damon commented on in his remarks, which was 48%.

So you clearly see that the newer systems that fall under the classification of integrated materials are growing faster than the overall installed base.

And that is an important factor because that represents, in our opinion, the real growth rates in materials after to take out the effects of the legacy installed base.

So again, to reiterate, total materials up 41% but integrated materials up 48%.

Amit Daryanani from RBC Capital Markets.

Just a question for Avi on this computative dynamics.

Can you maybe just talk about -- you are seeing Stratasys getting through the service bureau model, plus a couple of acquisitions.

Do you think that creates a headwind for you guys as they may actually acquire some of your service bureau customers?

Or do you think their entry in the business on the service side should not have a material impact at 3D?

And maybe if you can just also touch on some of the public comments made by HP and their intention to enter the 3D space.

Two very good questions -- look, moves by direct and adjacent competitors into the service bureau activities are late and expensive relative to the moves that we have made for the last few years.

So, we believe that we not only got a first mover advantage of several years, but we also got substantial cost advantage.

Secondly, in all these instances before today, the other companies that are acquiring service bureaus don't have the ability to vertically integrate in the way that we have the ability to vertically integrate because, by and large, those service bureaus were words using our SLA and SLS and now Direct Metals and other systems.

So, we had the ability to vertically integrate.

These other companies go have to create those capabilities over time if they want to really have not just the consolidation but the effect of vertical integration.

And finally, we have been fairly deliberate in what we target and fairly disciplined and how much we are willing to pay.

And we don't intend to substantially change that behavior.

As to the questions about HP, look, we think that companies like HP have unlimited resources and capabilities and technology.

But we also believe that entering in a meaningful way the 3D printing space requires multiple technologies and print engines.

We have been saying this for about five years.

In the last few years our competitors came to view this in the same way that we have, and they all transitioned themselves from pure play players to multiple print engines.

We have been saying this for about five years, and of course, we have seven print engines.

Again, a substantial first mover advantage and cost advantage in those areas.

And so, we take companies like HP very seriously.

We also don't underestimate the degree of complexity that they would have to position themselves as a relevant and meaningful player across the design and manufacturing marketplaces that are demanding these products.

Remember that today one needs biomedical materials to play in patient-specific.

One needs castable materials to play in aerospace and foundry applications.

One needs Direct Metals, ferrous and nonferrous, to play in automotive, aerospace, and tire manufacturing.

And when you look at the areas where we are enjoying the most growth, those are the areas where we have the least opposition and competition because the solutions that we provide today are unique, proprietary, differentiated, and in those particular verticals, largely uncontested.

Ken Wong from Citigroup.

If I recall, you guys were expected to release Cube 3 in this quarter.

Is that still the case?

And then any early demand trends from retail channel partners that you can potentially comment on?

Well, we are nearing within the next few days the announcement of beginning to take orders for Cube 3 and CubePro.

That will probably cross the wire in the next few days.

And there is a substantial interest and demand for the product, and we expect that the second half of this year will enjoy a significant uptick in demand for these classes of printers, not just for home use and for makers.

We see increasingly opportunities for these devices to end up as desktop design and engineering tools, especially with some of our new perceptual design tools like sense and touch and capture that are also being released in the next few months.

So we see significant demand, interest, and upside for this entire category during the second half of this year.

Peter Misek from Jefferies.

You have talked really clearly about how the metals opportunity is expanding.

Maybe we can broaden it a little bit, including metals and some of your other machines and technologies and compounds.

What percentage of your revenue now you feel is exposed to manufacturing and how that ramp is accelerating, and additionally on how your metals offering is helping you get into that manufacturing opportunity because we believe and others in the industry seem to believe that that's probably the largest long-term opportunity for you folks?

Thank you.

You're welcome.

Look, I can give you a couple of triangulation points.

One is we have been saying now for nearly two years that about half of the professional grade printers that we ship on a quarterly basis go into direct and indirect manufacturing applications.

We said this morning in our prepared remarks that our professional segment of design and manufacturing 3D printers grew -- the unit sales grew by 76%.

I can also tell you anecdotally that over the last several periods we have shipped more than 100 systems just into aerospace applications that were nonmetal related, into outright aerospace manufacturing applications that were nonmetal related.

And of course, then there is the metal opportunity on top of that.

So we feel that in certain manufacturing applications, be it patient-specific medical devices, be it certain aerospace manufacturing applications, be it certain aerospace-related foundry manufacturing applications, supplying the major foundries in the United States and other locations, and, of course, within our Direct Metal now in aerospace, automotive, and tire manufacturing, overall fab-grade manufacturing systems are becoming enormously important to us.

And, ladies and gentlemen, that is all the time we have for questions.

I would now like to turn the conference back over to Ms. Stacey Witten for any closing remarks.

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

A replay of this webcast will be made available after the call on the investor relations section of our website, www.3DSystems.com/investor.

Ladies and gentlemen, that will conclude today's conference.

Thank you for your participation.

You may now disconnect.

Have a great day.