3D Systems Corp (DDD) 2015 Q4 法說會逐字稿

Welcome to the 3D Systems conference call and audio webcast to discuss the results of the fourth quarter and full year of 2015.

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

(Operator Instructions)

As a reminder, today's call is being recorded.

At this time, I would like to turn the call over to Ms. Stacey Witten, Vice President Investor Relations with 3D Systems.

Thank you, Ms. Witten, you may now begin.

Good morning.

Welcome to 3D Systems' conference call.

I am Stacey Witten.

With me on the call are Andy Johnson, our interim President and CEO, and Chief Legal Officer; and Dave Styka, Executive Vice President and Chief Financial Officer.

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 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 on this slide.

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

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

The following discussion and responses to your questions reflect management's views as of today only, and will include forward-looking statements, as described on this slide.

Actual results may differ materially.

Additional information about factors that could potentially impact our financial results is included in today's press release and our filings with the SEC, including our most recent annual report on Form 10-K.

During this call, we will discuss certain non-GAAP financial measures.

In our press release, slides accompanying this webcast, and our filings with the SEC, each of which is available on our Investor Relations website, you will find additional disclosures regarding these non-GAAP measures, including reconciliations of these measures with comparable GAAP measures.

Finally, unless otherwise stated, all comparisons in this call will be against our results for the comparable period of 2014.

Now, I will turn the call over to Andy Johnson, our interim President and CEO, and Chief Legal Officer.

Thanks, Stacey.

Good morning, everyone.

Thank you for joining us today.

The last few months can be characterized by our progress towards goals that we have identified as critical to our organizational advancement, profitability, and long-term sustainable growth.

We are undertaking an extensive review of the Company and our strategy.

We are taking steps to better prioritize our resources and reduce costs.

We have taken targeted measures that include the consolidation of facilities, headcount reductions, and Company-wide synergies.

At the same time, we are investing in areas that we believe are meaningful opportunities in professional and industrial verticals.

In December, we made a significant step with our shift away from consumer activities including the end-of-life of the Cube 3 and the discontinuation of cubify.com.

This was a clear demonstration of our commitment to prioritize our resources towards meeting real customer demand in the marketplace.

Then, in January, we launched the ProX DMP 320, a high-precision, high-throughput printer designed for complex metal parts in titanium, stainless steel, and nickel superalloys.

The 320 is a powerful and reliable system.

We believe it gives us a strong foothold in key metals applications ranging from healthcare to industrial manufacturing to service center production.

We are also introducing additional new products that extend our price points and capabilities from the product design lab to the factory floor, including the ProJet MJP 3600 and the ProJet MJP 2500.

We showed our continued commitment to innovation through the demonstration of our Figure 4 SLA technology at CES earlier this year.

One of the features of Figure 4 is that it can be housed in discrete modules, allowing it to be integrated into an automated manufacturing environment at a scale of 1 up to a large array of hundreds.

It is also capable of manufacturing parts in hybrid materials that are tough, durable, temperature-resistant and elastomeric.

And just last week we celebrated the opening of our healthcare technology center in Denver, Colorado, a state-of-the-art facility that serves as a central hub for all of our healthcare activities, from surgical simulation to virtual surgical planning, to device design and manufacturing.

Maintaining a competitive product portfolio to meet evolving market demand is a top priority for us.

We are reviewing each of our product lines and business activities.

We believe that a comprehensive review of our Business and strategy is necessary to our success, particularly as we face continued uncertainty in the market.

We are currently in the midst of this extensive business review.

The Executive Management Committee, which, as a reminder, includes Chuck Hull, our Founder, Director and Chief Technology Officer, who chairs the Committee; Dave Styka, our Chief Financial Officer; Mark Wright, our Chief Operating Officer; and myself, continues to provide oversight and guidance in day-to-day operations and review of the Company's strategy.

Our leadership team and employees throughout the Company have stepped up and are contributing to delivering improvements while ensuring the effectiveness of our operations Companywide.

Our commitment to quality in our people, processes and products has been apparent internally for the last several months.

The Executive Management Committee has been building a culture based on transparency, accountability and collaboration within our Organization.

This is manifesting itself in continual business process improvement, and enhanced new product launches and overall customer experience.

We believe quality in people, business processes and products will help drive customer and employee satisfaction, and improve productivity and business results.

Additionally, we kicked off our comprehensive partner program, Partner XL, at a global partner summit in January.

Both Partner XL and the summit itself reflect the commitments and investments we are making in our partners and in our sales organization, as well as the commitments our partners are making in 3D Systems.

I believe our partners and our internal sales team walked away from this summit with a renewed sense of trust, appreciation and confidence in our partner model and in our Company.

Meanwhile, our Board of Directors is continuing the process to name a permanent CEO.

The search committee is pleased with the progress to date.

Although we are in a transitional period, we are not sitting still.

We recognize that developments in our industry have brought heightened competition and new challenges, but there are also significant and exciting opportunities.

We are taking steps to position ourselves to capitalize on those opportunities through a comprehensive review of our products, activities and strategy.

With that, I'd like to turn to an overview of fourth-quarter results.

Revenue decreased 2% from the fourth quarter of 2014 to $183.4 million.

We are pleased with our revenue in the fourth quarter of 2015, which benefited from the timing of orders from healthcare and industrial customers, as well as contributions from acquisitions.

Despite our 21% sequential improvement in revenue, industry conditions remain challenging.

We may continue to experience uneven demand in the coming periods.

Gross profit margin decreased to 32.8%, driven by the impact of charges related to our shift away from consumer.

Excluding those charges, gross profit margin was 47.7%, compared to 47.9% in the fourth quarter of 2014.

Cash operating expenses of $66.7 million remained flat sequentially.

We reported a fourth-quarter GAAP net loss of $596.4 million, a loss of $5.32 per share, and a non-GAAP net income of $20.9 million or $0.19 earnings per share.

Now, I'd like to turn the call over to our CFO, Dave Styka, for more details on these results.

Dave?

Thanks, Andy.

Good morning, everyone.

For the fourth quarter of 2015, our revenue decreased 2% to $183.4 million.

Operating expenses of $626.1 million include an impairment charge of $537.2 million, $22.4 million of R&D expenditures, and $66.5 million of SG&A expenses.

We reported a GAAP loss of $5.32 per share and non-GAAP earnings of $0.19 per share.

For the full year, we reported revenue of $666.2 million, an increase of 2% over 2014.

We reported a GAAP loss of $655.5 million or a loss of $5.85 per share.

For the full year, our GAAP net loss included $537.2 million of goodwill and intangibles impairment charges; a $27.4 million charge related to consumer inventory and purchase commitments; and an $11.3 million expense for an arbitration award; as well as $61.1 million of amortization expenses; $34.7 million of stock-based compensation expense; and $9.3 million of acquisition and severance expenses.

The consumer-related charges were comprised of an $18.6 million non-cash inventory write-down and $8.8 million of cash expenses to exit purchase commitments that both negatively impacted gross profit margin.

Excluding these charges, gross profit margin for the fourth quarter was 47.7%.

Non-GAAP operating expenses increased 33% to $280.5 million for the full year, resulting in non-GAAP earnings of $30 million or $0.27 per share for the year.

Challenging conditions continued into the fourth quarter, contributing to lower 3D printer sales compared to the fourth quarter of 2014.

This also negatively impacted sales of materials.

Professional industrial printer units decreased 41% for the year.

Printers' revenue decreased 26% for the year to $168.7 million.

Notwithstanding these pressures, there were some positive indicators in the fourth quarter.

Orders by healthcare and industrial customers supported printers and materials revenue.

Stronger SLA, SLS and DMT sales drove a 4% sequential increase in printer units and a 58% sequential increase in printers' revenue.

For the full year, revenue from healthcare and related applications contributed $141.1 million, an increase of 9% from 2014.

Healthcare revenue growth was driven by our broader range of products and services, as well as expansion by customers printing medical and dental devices.

Software contributed $78.1 million in 2015.

The addition of Cimatron in early 2015 drove a 121% increase in software revenue for the year.

Consumer revenue grew 7% for the year to $46.5 million, driven by the contribution from Gentle Giant and the 2014 backlog of Cube 3D printers that were shipped in 2015.

Revenue related to consumer products and services that are being discontinued comprised approximately $20 million of this revenue in 2015.

Going forward, since we have shifted away from the consumer category, we will no longer be providing a consumer revenue number.

Revenue from Cube Pro and Gentle Giant will be included in our overall products, materials and services categories.

For the full year, products' revenue decreased 9% and materials' revenue decreased 5%; both primarily as a result of lower printer sales in 2015.

Services' revenue increased 22% from growth in healthcare and software, including the contributions from acquisitions.

Revenue from the Americas increased 7%, EMEA revenue increased 2%, and revenue from APAC decreased 13%.

Revenue in global markets was negatively impacted by lower printer sales and foreign currency rates.

Gross profit margin for the quarter was 32.8% compared to 47.9% in the fourth quarter of 2014.

As we mentioned earlier, this decrease is primarily related to consumer, including charges for an inventory write-down and canceling purchase commitments that were recorded in the products category in the fourth quarter.

Without the impact of these charges, products' gross profit margin was 30.2% for the year.

Consolidated gross profit margin was 47.9% for the full year.

Excluding the total impact of discontinued consumer products and services, full-year gross profit margin was 50%.

In the fourth quarter, we recorded charges of $443.7 million related to goodwill and $93.5 million related to intangible assets.

Excluding these non-cash impairment charges, GAAP operating expenses increased $3.4 million compared to last year, from higher SG&A expenses.

Compared to the fourth quarter of 2014, SG&A increased from acquired expenses including higher compensation, depreciation and amortization expenses.

R&D remained flat at $22.4 million, inclusive of acquired business R&D expenditures.

Excluding the impairment charges, operating expenses decreased $16.7 million sequentially to $88.9 million, primarily related to the third-quarter $11.3 million non-cash arbitration award expense and lower amortization in the fourth quarter in connection with the impairment of intangible assets.

R&D expenses were flat sequentially.

Cash operating expenses of $66.7 million were flat sequentially, on higher revenue.

We have consolidated several facilities globally, and have begun to realize the cost reductions from these actions.

We are currently in the process of closing the Andover and Langhorne facilities in the US, consolidating these locations into Rock Hill, Tulsa and Wilsonville.

As a result of the impairment of intangible assets that we recorded in the fourth quarter, we expect a 42% reduction in amortization expense to $35.1 million in 2016.

During the quarter, we generated $7.5 million of cash from operations.

For the year, we used $3.1 million of cash in operations.

We exited the year with $155.6 million of cash on hand.

We have not used any of our $150 million revolving credit facility.

We ended the December quarter with $105.9 million in inventory, a $32.3 million, or 23%, reduction sequentially.

In addition to the $18.6 million inventory write-down related to our shift away from consumer, we have made improvements with our planning and procurement processes to reduce and better manage inventory.

We estimate that the inventory held by our channel partners at the end of the fourth quarter decreased sequentially to approximately 2% of fourth-quarter revenue.

Backlog decreased 5% sequentially to $38.4 million as of December 31, primarily due to timing of order placement and fulfillment across all categories.

We were pleased with our fourth-quarter revenue; however, we want to reiterate that industry conditions remain challenging, and demand may be uneven in the coming periods.

We are taking steps to reduce costs and better prioritize our resources through targeted measures that include the consolidation of facilities, headcount reductions, and Company-wide synergies.

At the same time, we are investing in products and service related to key verticals that we believe represent meaningful opportunities to us.

We shifted away from consumer products and services at the end of the year.

The discontinued consumer activities contributed approximately $20 million of operating expenses in 2015.

We are currently evaluating how much of this we will redeploy as investments into other areas.

As we continue our comprehensive review of our Business and strategy, we are committed to taking the necessary steps to foster long-term, sustainable growth and improved profitability.

Now I'd like to turn the call back to Stacey, who will open the floor for questions.

Stacey?

We will now open the call to questions.

(Caller Instructions)

(Operator Instructions)

Ben Hearnsberger, Stephens.

I wanted to ask one on non-GAAP OpEx.

It sounds like you're continuing to take out cost, drive efficiency in your organization.

Should we assume non-GAAP OpEx continues to trend lower from the number we saw in 4Q?

Hey, Ben, this is Dave Styka.

Yes, thanks for taking the time to kind of listen and call in.

Yes, I do believe that non-GAAP OpEx is going to be reduced.

As I've indicated to everybody previously, where we've seen cash OpEx is flat to down as we go through 2016.

I believe the non-GAAP portion as well is going to be declining throughout the period.

Sherri Scribner, Deutsche Bank.

I just wanted to get a sense of the demand environment.

I know you mentioned that it's challenging.

Can you give us some sense of where you're seeing the challenges?

Then in terms of the consumer business, do you think there's any impact to your industrial business from exiting the consumer?

Or do you see those as totally separate?

Thanks.

Sherri, this is Dave Styka.

I'll pick up the first part of that and some other guys might want to jump in.

But, yes, we do see demand right now -- the best way I would characterize Q3 to Q4 is a lot of volatility.

There's still unclearness and not great visibility into everything.

However, we do kind of believe that demand, as I kind of look out over 2016, I see it maybe up a little bit to flat.

But I don't see any big spikes in it, but I do still see a lot of unevenness and volatility in it.

Then on the consumer piece of it, as we said at the end of December, we shifted away from consumer.

We're currently in the process of combining the channel for desktop and professional and see some opportunities to achieve synergies and strengthen our channel management team through that.

It's another step in prioritizing our resources and really looking at where the real market opportunities are and our full product portfolio to address those.

Jim Ricchiuti, Needham & Company.

Just with respect to the quarter we're in right now, a couple of weeks from the end of the quarter, can you give us some better sense as to -- you talked about a challenging demand environment.

Would you anticipate that excluding the consumer business from last year that the business could be up versus year-ago or flat?

So the consumer business last year -- just a reminder, we actually saw the discontinued pieces were about $20 million of 2015 revenue.

Just last year, if you look back at Q1, consumer was a bigger piece in Q1 because of the backlog that we came in to 2015 with.

So we haven't really talked about Q1 expectations for this year, but a couple of things I guess put some color around where the differences are in the business today versus last year.

Bobby Burleson, Canaccord Genuity.

I was just curious in terms of the Q4 kind of sequential pop that you guys saw in demand, how much of that do you think was catch-up spending?

Customers that were waiting on some of the quality issues or just cautious on CapEx?

How much of that is kind of a real resumption of organic demand in your mind?

Yes.

So -- hey, Bobby, this is Dave again.

The fourth quarter -- Yes, we did see that there were some larger orders from healthcare and industrial customers is really where we saw some -- probably a little more robustness than we kind of had anticipated.

But overall, I think we would have saw meaningful improvement just kind of across the board.

We talked about our SLA, our SLS and our DMP technologies, all being up 21%.

So I think we saw some robustness across our platforms.

I don't think there was a lot of extra budget flush.

I do recognize in the fourth quarter, you do see some of that.

But I think we would have had a good quarter anyway even without the impact of all of those.

The other thing that I would say, though, is again, I think as we kind of said coming in Q3 to Q4, a lot of volatility, uneven demand.

I wouldn't want to say that we're kind of at a run rate.

I want everybody to kind of be clear on that.

But that there is a lot of unevenness going on in the marketplace and there's a lot of challenges still.

Hendi Susanto, Gabelli & Company.

Andy and David, I have a question.

So you mentioned that you will be combining channels for desktop and professionals.

Could you elaborate on that, maybe in terms of the time frame?

Then how many channels you have for desktop?

How many channels for professional?

Then some rough estimate what the number of combined channels would be?

Sure.

This is Andy.

I'll speak a little bit.

This sort of piggybacks off of what Stacey commented on a few moments ago.

We talked in the third quarter about the fact that we were focused on an engineering and educational go-to-market strategy.

We've talked for several months since then about the best way to do that.

While at one point, some of our thinking may have been to establish two separate channels, we've talked about bringing synergies across the Company.

We've done a lot of work under Mark Wright's guidance to actually take a go-to-market approach within our printers' channel.

So we're in the midst of enhancing the true printers' channel.

We're not going to establish a separate education channel.

We'll work to train our direct sellers as well as our resellers within the printers' channel on how to sell into engineering and educational applications, which we still see as an opportunity for near-term profitability.

In particular, our Cube Pro trio is an excellent product in the educational space.

We're seeing some real adoption there.

So, it's the core printers' channel.

We're working on some enhancements to the channel now.

Jay Harris, Axiom Capital Management.

In your formal remarks, you indicated that material sales were down because of the absence of new printer sales in the right quantity.

I'd like to hear you talk a little about the material sales from the installed base.

Obviously, they were down in 2016.

Were they up in any of the prior years?

Jim, materials utilization, there's a couple of things that go into that.

One is the printer sales levels.

Obviously Q3 there was a lot of impact from the lower printer sales.

Also, there was a pretty large FX impact.

If you look at over the year, I think it was about a $9 million to $10 million FX impact, which if you exclude that materials revenue would have been up.

So timing of materials sales fluctuate throughout the year.

We saw pretty consistent utilization across the installed base.

We saw some improvements in Q4 in healthcare and industrial customers, aerospace customers.

But fluctuating but we're seeing consistent utilization across the large customer base.

Patrick Newton, Stifel.

Number one, a clarification and then my question.

The clarification is, I wanted to hear -- make sure I heard this correctly.

Did you say that the loss in revenue from shutting down the entry level Cube platform and cubify was $20 million in revenue?

Then the associated cost was $29 million?

Then my question on the revenue side is, is it still right to think that the first half versus second half seasonality is kind of 46/54?

Is that the right way to look at revenue?

Then is it also right to think that barring any M&A that 2Q through 4Q of 2016 would be pure organic revenue as you lap the Cimatron purchase?

Thank you.

So to the consumer question first.

We said the discontinued consumer products contributed about $20 million of revenue to 2015.

On the expenses side, we said that there also was about $20 million of operating expenses.

Of those, we are looking at right now how much we want to redeploy to other investments and other areas and how much might be savings and cost reduction.

So that's --

So just to clarify, it was $20 million on the cost side, not $29 million, Patrick.

Yes.

So, then the next part with respect to your revenue question was your kind of breaking revenue.

I go back to the lack of visibility.

I think historically I wouldn't give you anything different than you've seen historically.

I think that's a fair way to kind of value it, Patrick.

Reasonably, the amounts are pretty similar anyway.

I think that's a reasonable way to look at it.

But I would say given the challenging environment and the lack of visibility, I wouldn't go out and say anything is significantly changed in the marketplace.

I don't have anything that would tell me -- give me any more visibility one way or the other.

The organic piece, you're right.

As we get into April is when everything lapses.

The China acquisition was early April of 2015.

Brian Drab, William Blair.

I just want to get a better sense if I could on revenue for fourth quarter and first quarter 2016.

The fourth quarter, can you talk anymore about the magnitude of these orders in healthcare and industrial that gave you the tailwind in the quarter, maybe was that more or less than, say, $15 million?

Then in the first quarter, you always have the seasonal down-tick.

I'm wondering if you can talk about or your expectations also given that we're 10-weeks into the quarter, are we going to see the kind of seasonal down-tick that we've seen in the past.

Last year, we were down 14% from fourth quarter to first quarter.

Thanks.

We haven't quantified what really the contribution was in Q4.

We just wanted to make sure that everybody understands that there was some benefit from some orders of healthcare and industrial customers.

No, it's not necessarily a new run rate of any kind.

There were a few pieces that played into that, some of the normal year end timing typically, some of the postponement that people had held on to some, held off on some purchases earlier in the year.

Then some healthcare and industrial customers expanding their operations and the timing there.

So can't really quantify it but trying to give a little color there.

As far as seasonality in Q1, I don't see that there's any reason that you would expect anything different than we've seen in past years.

As to the exact quantity or percentage, we haven't gotten into any of that.

Ken Wong, Citigroup.

So you guys mentioned a refocusing of efforts on key markets and products.

When I think about your recent announcement of the state-of-the-art healthcare technology center, is that what we should be expecting from you guys going forward on some of your other key verticals like aerospace, auto, dental?

Are you guys going to have centers of excellence for those particular verticals as well?

Thanks for the question.

This is Andy.

Absolutely, we view our foray into a true precision healthcare hub in Denver in healthcare as a template as we get deeper into a vertical applications.

There's no question that both the organic work as well as acquisition, we've established quite a strong vertical presence into healthcare.

When we talk about other verticals, we do talk regularly about aerospace and automotive.

As we get further into those, we'll look to what we've done in Denver as a format on how to build verticals.

So I think that's absolutely true.

We'll be doing a lot more of that as we position the Company more and more as a Company that is built on the importance of rapid prototyping, clearly we view our SLA technology as at the heart of a rapid prototyping.

But we will become more and more an end use manufacturing Company.

In order to do that, we're going to have to build more vertical expertise.

Wamsi Mohan, BMO.

This is Wamsi from Bank of America.

It's actually Ruplu filling in for Wamsi.

He's on travel today.

I have a quick question.

With respect to the services margins, there seems to have been a significant decline sequentially as well as year on year.

Could you just talk about some of the factors that went into that?

Sure.

So on the services side, what makes up the services piece is software services, printer services, medical services and then on-demand parts business.

There's I would say two of the pieces that are really pressuring margins there.

One is as we work through the quality issues on some of the printers this year, that warranty and maintenance work goes into that service margin category and on the parts side as we have really brought all the acquisitions together and looked at the types of customers and the jobs and the work that we're doing, there has been some areas where we have acquired lower margin business and it takes some time to work through.

Some of those contracts and those agreements are in place and really build out the kind of business that we want to have there.

Ananda Baruah, Brean Capital.

Andy, Dave and I guess even Stacey on this one.

I guess Andy, in the context of your question -- of your comment about sort of demand as we go through this year being flat to slightly up, albeit maybe a bit choppy, when would you guys expect to have I guess critical mass of a view on what you want to do -- what the cost structure looks like and the margin structure, such that you could provide some visibility to us that would allow us to kind of go ahead and think about what normalized could look like for you guys, not necessarily on the top line, but at least on the cost structure side?

I'm really just trying to get my arms around what kind of mechanics you guys are working with and when that whole thing kind of manifests for you.

Thanks.

Sure.

Thanks for the question.

I'll start.

This is Andy and I'll probably turn it to Dave to talk a little bit as well.

We talked about a strategic review that we're undertaking right now.

That began in earnest in the fall and continues.

We're in the midst of it.

It's been a very fruitful exercise.

We believe that we have several more months of analysis around our business, our strategy, our processes.

It's been a very beneficial exercise.

It's not yet complete.

As we complete it, we'll be talking much more about it and sort of how that impacts our view of the remaining part of the year.

That will go to margin.

That will go to operating expense, the sorts of things that we can control.

But we're in the midst of that exercise right now and as such, we're not providing any sort of guidance at this point.

But we'll be talking to you in the next couple periods as we reach our conclusions and make some decisions.

Yes.

Ananda, I guess the only thing that I would kind of highlight is as we kind of indicated, we are still actively working on managing our cash, our inventory levels.

Cash OpEx is a big metric that we're really looking at here.

One of the things that I want to call out to people is one of the things that we said we're going to do is facilities consolidation, headcount reductions, cost rationalization.

You're seeing that happen not only in our Andover facilities but our Langhorne facility.

So we're actually working through all of those as we go through it but holistically the big plan of any big strategic changes, that's a still to come but that's not prohibiting us from today being very aggressive and active in OpEx cash and inventory management.

(Operator Instructions)

Jason North, Jefferies.

I was wondering for the impact of the discontinued consumer business on the printer gross margins, add any general thoughts you had on the gross margins for the printer side going forward.

So on the gross margins, we haven't put any guidance or expectations necessarily around the future but if you look at where we were in 2015, the products gross profit margin if you exclude some of the consumer -- it's fairly consistent over the last couple of quarters.

We said on a consolidated basis, excluding the one-time consumer impact, it was a total of 47.7% for the quarter and 47.9% for the year.

So right in the same ranges as we have been.

Jim Ricchiuti, Needham & Company.

It looks like based on what you said, you did healthcare revenue of about $141 million I think I heard you say.

So based on that, your healthcare business down again for Q4, looks like around 3%.

So you've had two quarters now of year-over-year declines in the healthcare sector of the business.

Can you talk a little bit about that?

Is that competitive?

When would you anticipate that turning?

Thanks, Jim.

We've talked about the healthcare.

One of the drivers of that has really coincided with the printers and materials business and just the timing of some of the orders there and like we've seen in some of the other industrial areas, customers who are expanding end use applications, parts, implants, surgery guides, things of that nature are growing.

Others who are doing some of the modeling and prototyping aren't growing as much.

So that's all same kinds of things are playing into that healthcare business and we still believe that over the long term that it's a good growth area for us if you look at the year, it has grown.

We've obviously talked about the investments we're making and you see articles every day about healthcare customers making investments and the fit that 3D printing provides for all of their application.

The other thing, Jim, that I'd call out is I think the Denver facility is going to be a good launching point for us to tap the market in different ways, with a more holistic approach to be able to be more aggressive as we go to market in our healthcare area as well.

Thank you.

This does end the question-and-answer portion of today's conference.

I would like to turn the conference back over to Stacey Witten.

Stacey.

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

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

Thank you.

Ladies and gentlemen, this does conclude today's teleconference.

You may disconnect your lines at this time.

Thank you for your participation.