3D Systems Corp (DDD) 2016 Q1 法說會逐字稿

Good morning and welcome to the 3D Systems conference call and audio webcast to discuss the results of the first-quarter of 2016.

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.

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.

And with me on the call are Vyomesh Joshi, our President and Chief Executive Officer; Dave Styka, Executive Vice President and Chief Financial Officer; Andy Johnson, Executive Vice President and Chief Legal 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 and 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 are 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'm pleased to turn the call over to Vyomesh Joshi, our CEO.

VJ?

Thanks, Stacey, and good morning everyone.

Thank you for joining us today.

I'm very excited to be CEO of 3D Systems.

I joined because I believe that the Company had a strong technology base and a tremendous market opportunity.

And after just over one month on the job, I'm even more convinced in those beliefs.

At the end of this call, I will take a moment to reflect on my first month and share with you my top of mind thoughts and what you can expect under my leadership.

But first let me tell you toward today to cover our first quarter 2016 performance in detail.

Dave?

Thanks, VJ.

Good morning, everyone.

For the first quarter of 2016, we reported revenue of $152.6 million.

A decrease of 5% excluding the contribution of discontinued consumer products and services, revenue decrease 2% year over year.

The discontinuation of consumer producted benefitted gross profit margin which improved to 50.8% in the first quarter.

Operating expenses of $94.38 million included $20.3 million of R&D expenditures, $74 million of SG&A expenses.

We generated $18.1 million of cash from operations and $13.9 million of free cashflow.

We reported a GAAP loss of $0.16 per share and non GAAP earnings of $0.5 per share.

Non GAAP earnings includes adjustments of $8.8 million of amortization expense, $11.7 million of stock-based compensation expense, and $900,000 of acquisition and severance expenses resulting in $58.2 million of non GAAP net income or $0.5 cents earnings per share.

Excluding discontinued consumer products, 3D printer sales were $32.5 million, a 17% decrease from the first quarter of 2015.

We were pleased that several of our industrial customers reinvested during the first quarter to add capacity and expand their capabilities and added manufacturing.

This drove an 18% increase in production printer revenue on a 14% increase in units.

For professional printers, demand remains soft in the first quarter.

Revenue from professional printers excluding desktop decreased 23% on a 50% decrease in units with a higher mix of units from SLA.

The decrease in units was partially due to the availability gaps for new multi jet printers rolled out during the first quarter.

We believe that the addition of new printers as well as ongoing product quality and partner initiatives will help strengthen our position in printers.

Despite the negative impact of lower printer sales, materials revenue increased 4% or 6% excluding consumer materials, primarily due to higher orders from industrial customers.

On demand parts manufacturing services revenue decreased 15% year over year.

This softness was impacted by the consolidation of facilities in termination of certain less profitable contracts.

As part of our across the board quality initiative, we are focused on improving our customer experience and part quality within our on demand parts manufacturing services.

Software contributed $20.3 million of revenue, a 22% increase.

Including a partial quarter of acquired revenue contribution from Cimatron.

Revenue from healthcare related applications increased 12% from the period to $233.5 million.

We experienced growth across a broad range of our precision healthcare offerings, including printers and materials, surgical simulation and planning, and printing of devices and tools.

Taking into consideration the discontinuation of consumer sales, revenue from the Americas for the quarter increased 2%, EMEA revenue decreased 2%, and revenue from APAC decreased 15%.

Revenue across our global markets was negatively impacted by lower printer sales and macroeconomic factors.

We reported $77.5 million in gross profit for the quarter and gross profit margin of 50.8%.

Total margin benefited from the discontinuation of consumer products and from an increase in the gross profit margins for materials and services.

Materials gross profit margin expanded on a favorable sales mix and supply chain efficiency improvements.

Services gross profit margin improved on a higher contribution of healthcare and software services.

Operating expenses for the quarter decreased $2.2 million from the first quarter of 2015 to $94.3 million.

SG&A expenses remained flat at $74 million on lower amortization expenses and discontinued spending on consumer products and services, partially offset by higher compensation expenses.

R&D expenses decreased 9% to $20.3 million from the shift away from consumer products as well as seasonality and timing of new product launches.

During the first quarter, we generated $18.1 million of cash from operations and $13.9 million of free cash flow.

We exited the quarter with $169.8 million of cash on hand and we have not used any of our $150 million revolving credit facility.

We ended the March quarter with $114 million in inventory.

This $8.1 million sequential increase is primarily attributable to the timing of the new product launches of the project MJP 2500 and 3600.

We have implemented improvements within our planning and procurement processes to better manage inventory and we continue to target a lower inventory balance and improve velocity of inventory.

Backlog was flat sequentially at $38.4 million, and up slightly on a year-over-year basis from $37.8 million.

The current backlog was favorably impacted by the new product launches in the first quarter of 2016.

Now, I'd like to turn the call back to VJ for some concluding remarks.

VJ?

Thanks, Dave.

As a company, we recognize that we have a lot of work to do.

And that we have to do it fast.

I spent my first month listening to and learning from employees, customers and partners.

I'm now using that knowledge and working with the leadership team to create a clear strategy to drive profitable growth.

First and foremost, we will focus on improving quality, reliability and our supply chain to drive operational excellence.

Second, we will define a market-based strategy to identify areas where our industry-leading technology can deliver a sustained advantage for our customers.

We will organize the Company and define our operating model around this strategy.

Finally, we will develop and strengthen our culture to unify the organization and provide leadership for 3D Systems to become a truly phenomenal company.

Again, I'm excited and believe we have a tremendous opportunity ahead of us.

With that, I would like to turn the call back to Stacey who will open the floor for questions.

Stacey?

We will now open the call to questions.

I would like to remind everyone that your line will be muted after your first question as we kindly request that you ask one question at a time and then return to the queue thus allowing others to participate in the Q&A session.

As a reminder please direct all questions to the teleconference portion of this call.

The telephone numbers are provided again on the slide.

If you are calling inside the US.

The number is 1-877-407-8291.

And if you're calling outside the US.

the number is 1-201-689-8345.

Thank you.

Ladies and gentlemen, we'll now be conducting a question-and-answer session.

(Operator Instructions) Our first question is from Ben Hearnsberger of Stephens.

Please go ahead.

Hey, thanks for taking my question.

This is Brandon in for Ben.

Just focusing on the top line, kind of what you guys are expecting for the rest of the year.

Are we still kind of thinking in the flat to possibly slightly up for the full year?

So, what we are looking at right now is as our new products have launched, I think we are getting very good acceptance from the customer.

We also as we mentioned that the industrial segment of our printer portfolio is very strong.

So I think what we are doing is we are basically working with our go-to-market engine and try to figure out how we can continue to get the industrial printer installed base up.

As far as materials are concerned, we are feeling good about the 5% growth that you saw in materials.

And we would like to continue that kind of a focus on materials.

Software and healthcare are also looking very good for us, because this is the opportunity to continue to drive revenue growth with good margins.

So I feel that this approach of having stable growth is that what you can expect from 3D Systems.

Thank you.

The next question is from Ananda Baruah of Brean Capital.

Please go ahead.

Hey, guys.

Thanks for taking the question.

I guess just, VJ sort of related to that in the prepared remarks, you talked about incremental strength.

And I believe you said it was production, and you characterized it that way.

Just now you mentioned industrial and then there are also a handful of new products that you got -- that you spoke to.

So could you kind of anecdotally maybe going next layer down on kind of the demand dynamics, should we see energy that you're seeing and you talked about I think 8% to 14% increase in production units that you're seeing right now and sort of at what point you went through the last 90 days, does that kind of reemerge?

And then I'm just going to throw a question be on there.

Just how should we think about kind of production or industrial as a percentage of the equipment sales?

Thanks a lot.

Again, I'm learning.

First thing I will tell you is, I'm going around the sites and I'm learning.

So I think the important part for us is to really look at our installed base, look at our usage because productive installed base is more important than low usage installed base.

So I think we're going to become much better in understanding which are the productive units that we can install.

And that's why I'm actually very happy that, industrial or production portfolio where the usage will be higher.

We are going to really drive that installed base.

So, I think that's the approach I want to take because that's very important.

Now as far as the professional, that's important, because we want to be a company where we have a portfolio of products that customers can choose.

And prototyping business is still very important for us.

The other important part that I am learning and that's the vertical approach where we want to go after healthcare, aerospace, automobile, and also higher education because, if you think about the universities where this category, we need to get a lot of people trained in understanding the 3D market.

So that's the way we want to focus as we move forward.

I have a lot of work to do to figure out our long-term strategy.

So as you know, I have been talking about three phases, the first phase was listening and learning, the second phase is I want to really build the strategy and then we will organize around the strategy.

So that's the approach I'm taking on.

Got it.

Thanks a lot.

Thank you.

The next question is from Patrick Newton of Stifel.

Please go ahead.

Good morning, VJ.

Welcome to the team, and good morning, Dave.

Just looking at the press release, you had commented that an appropriate cost structure was a focus of the Company.

And I think in talking to investors, that's one of the biggest areas of concern intriguing really an opportunity.

So I guess in the context of R&D, as the percentage of revenue, understanding the shift to a more direct sales force within the SG&A line and some significant potential facility consolidation, can you help us understand what the appropriate cost structure is or quantify some of these movements.

Thank you.

Yes, I'm not going to quantify that, because as I said, I'm listening and learning.

I think the approach that I'm taking is looking at every item on the cost.

Because - let me start out by cost of sales, because I think what we need to do is to institute a fundamental cost reduction plan for all the big platforms we have.

It's very important to also understand all our vendors.

And can we get systemic cost reduction on our material cost that we get.

The third part is in the OpEx.

And the way I look at the OpEx, and say, okay, there are businesses which are growing, I want to make sure that we invest into that.

The industrial segment that we talked about, we got to invest into that because, we need to continue the innovation.

The innovation is going to be our blood line.

At the same time, the businesses which are not growing or the usage is not very high, we need to make sure that we have the right appropriate OpEx structure for those businesses.

I think what I would like to do is the next phase that I talked about, build our strategy, figure out, which segments we want to really invest, which segments we need to make sure that we look at our cost structure approach.

The last part is, we need to make sure that we also pay attention to our quality, reliability and supply chain, because we have operational issues.

So we're going to take some cost out, but we are not going to flow all that to the profit.

I want to reinvest.

I want to reinvest in IT.

I want to reinvest into growth.

So, the way you should construct this thing, is saying, okay, this is the current cost structure.

What I'm going to do with some specific cost reduction programs, how I'm going to really look at our portfolio and then take that cost out to create the capacity to invest into IT, invest into processes because we have we have a lot of manual processes and the in the growth.

Thank you.

The next question is from Wamsi Mohan of Bank of America.

Please go ahead.

Yes, thank you.

So VJ in your initial review of the Company, do you feel that there are any material write-downs that need to be taken in as you assess this portfolio?

And when you think about the number one priority, you highlighted about quality, reliability and supply chain, can you be more specific on what you're doing there and how long it will take for us to see improvements?

Thanks?

Yes.

So let me answer the first part of the question.

I am still reviewing the portfolio.

I don't have -- and again as part of the strategy conversation, we are going to really look at -- start form the total addressable market, look at our customer segmentation, the user needs.

And then use the technology portfolio that I have to figure out where we want to invest.

And create a sustainable, consumer value proposition that -- which we can grow our business.

And then we will organize around that.

So as part of that process, we will look at the portfolio and make sure that, as I said earlier, I really believe the industrial production segment is very important to us.

And we want to figure out our healthcare.

That whole approach on vertical is the way we are going to be very successful.

So I think that software is also very important for us.

So my view is during the second phase, we will be able to do those portfolio decisions.

As far as what I learned with the quality of the liability, I really think that the Company has great portfolio, but we have a lot of work to do in getting our operational approach to the Company.

The reason for that is we had a lot of acquisitions, and we needed to integrate all these acquisitions into a portfolio with which we can grow the Company.

The other part is we need to make sure that the quality, reliability are part of our design process.

And the last thing that -- the supply chain, we need to streamline the supply chain.

We need to have clarity in terms of our demand and forecast matching.

We need to work on the systematic cost reduction that I talked about.

So, I think these are all fixable and I clearly believe that the team is very energetic.

I am very actually pleased when I go around the sites that the employees are fantastic.

We just need to now have this operational and cost structure focus in addition to innovation focus.

So I feel I'm very good right now with respect to listening and learning now I'm entering the second phase of figuring out the strategy.

Thank you.

The next question is from Jim Ricchiuti of Needham & Company.

Please go ahead.

Hi.

Thank you.

Good morning.

I was just wondering if you can comment on when you would begin to anticipate improvement in the professional printer category as well as the on-demand parts business?

How do you see that unfolding over the course of the year?

Thank you.

Yes, so I think the professional part definitely will improve as we enter the second quarter.

As Dave mentioned, we had some availability issues with the new product launches with 2500 and 3600.

And we believe that those are great products.

From all our customer and partner feedback, they're very excited about those two product lines.

It's just that we have to -- the ramp came a little slower than we anticipated.

So as we move forward into this second quarter on, you are going to see improvement in our professional line.

But as I said, at the same time, we want to make sure quality, reliability and our operational issues we fix in the [balance].

I think as we move into the remaining of the year, you are going to see the improvement, slow improvement on the professional side.

The second part of your question, you were mentioning that what's happening with our Quickparts business.

And there as David mentioned, we had certain contracts where we're not profitable.

So we kind of focused on profitability because we want to make sure that this parts business is focused on profitability.

The other thing that we are improving our user experience, because that's one of the key things which will drive the profitable growth for that business.

And the third thing that we need to be paying attention to is, as we look at our parts business, we want to align that to our strategy.

So a lot of work in strategy that we are doing that we want to make sure that we look at our parts business very strategically and how we align that, so these three things.

So, I think that that will require some time, because as I said, we are focusing on the user experience, we are focusing on profitable part of that business and aligning to our strategy.

But I do believe that business is very important to 3D Systems.

Thank you.

The next question is from Kenneth Wong of Citi.

Please go ahead.

Hi, thanks.

Thanks for taking my question.

I figure at this point I'll tag in Dave.

You guys have been focused on the cost reductions, but I guess as I look at the SG&A line, that looks like it popped up a pretty good amount in Q1 on a softer revenue run rate.

So just wondering kind of what the dynamics are there and is this the level that we should model going forward?

As we talked about, OpEx was going to -- we thought be flat to down in the back part of the year into 2017.

If you look at it year-over-year, the amortization comes out.

On a cash OpEx basis, we're still -- we believe we're up about $700,000.

And there are some compensation things that [is] in the first quarter.

We had the sales, the CES show that we did in the first quarter.

So I wouldn't say that this going to be a run rate.

I think we had some things in the first quarter that added to it

But I would still say as you model it, we're looking at flat to down towards the back half of the period and into 2017.

But, again as VJ said, there's a lot of investment that we want to do.

The strategy is going to impact that.

But I do think in the first quarter there are a couple of things primarily the show we did at CES and the partner event that we did that impacted SG&A in the first quarter.

Thank you.

The next question from Jason North of Jefferies.

Please go ahead.

Hi.

I was wondering besides DMP, which of your technology you think is best suited to make and use parts going forward?

As in the various like in these lines in certain guides where you're already seeing a strong penetration.

Where do you expect to -- which areas do you expect to see the ramp and when do you expect that ramp to occur?

Thank you.

Yes.

So I think most technologies have a place.

So if you think about our 100, 200 and 300, these products are in our customer hands.

And, we absolutely need to make sure that we work on our quality, reliability aspect of those machines.

I'm very excited about 320, because 320 is a very unique technology.

And I think the introduction of 320 has really helped us to now have a portfolio of products for metal printing.

What we are focused on 320 is we need to focus on installation.

We need to make sure that we work with our big customers because metal printing is very strategic for 3D Systems.

There is a lot of growth here and we want to make sure that we get the feedback from our customers.

And I also believe that, SLS, which is important technology in aerospace, is also something that we want to continue to invest into it.

So, metal printing is a big opportunity for 3D Systems.

And we are very fortunate that we have multiple technologies with which we can address the market.

And again, as part of the strategic process, we are going to make sure that we invest into this industrial products which is going to have high usage.

Thank you.

(Operator Instructions).

Your next question is from Bobby Burleson of Canaccord.

Please go ahead.

Good morning, and thanks for taking my question.

I guess just switching gears a little bit on the R&D part of OpEx, curious whether or not you guys can maintain high levels of investment on both professional and production printers and given there is a merging competition, do you need kind of step up the investment on the professional side?

Just wondering, whether or not you can do everything you'd like to do or if there are some compromises you might have to make in terms of where you invest across those two portfolios?

Thanks.

Yes, I think, the important part here Bobby is making sure that we look at customer in view rather than technology out view.

What we need to do is look at, as I said, look at the total addressable market and segment the market with the customers and where the profit pools are.

And we need to align our portfolio to where the profit pools are and where we can have our technology creating sustainable comparative advantage for our company.

So we are going to make some trade-offs.

Trade-off is just a part of our life.

And again, we are going to look at the overall profit pools.

And that's why the usage is as important as just getting the installed base.

So productive installed base, how we can achieve that?

Where we can have with our technology portfolio a sustainable competitive advantage, where we can have alignment to our go to market.

So, starting from addressable market to the customer segmentation to the customer value proposition with our technology portfolio that we have is the way I want to make trade-off.

And I think that's what you're going to see as we move forward as we develop our strategy.

Thank you.

The next question comes from Sherri Scribner of Deutsche Bank.

Please go ahead.

Hi.

Thank you.

Following up a little bit on that last question.

Historically, 3D Systems has been a rather acquisitive company and gone after many different end markets and different opportunities.

As you start to rationalize the business, is there the potential that 3D divests some businesses like it did with the consumer business where you focused on acquisitions going forward?

Is that still a strategy?

And then can you also provide us with the organic growth rate this quarter?

Thank you.

Yes, so I think, my view is we have great technology portfolio.

We need to focus on organic growth.

At the same time, as we do our strategy, are there some gaps, this is not acquisition for growth, but acquisition to fill out the gaps.

And we need to be open to that.

But I think we have great technology portfolio.

I think what we need to do is focus on where the profit pools are and commercialize it.

That's the approach I want to take.

And David will answer the question about organic growth.

Yes, organic growth was negative 8% in the quarter.

And I would remind everybody that we were anniversarying all of our acquisitions now, the last acquisition we made of Cimatron was April - was Easyway which was in April, Cimatron was in February of last year.

So anniversaried all of our acquisitions, but negative 8% was the organic growth.

Thank you.

The next question is from Troy Jensen of Piper Jaffray.

Please go ahead.

Hey, I'm going to trying to fill in two questions here.

So first question for Dave.

Can you just talk about gross margins?

It capped up nicely.

And I get the given that swift was consumer products and materials growing, but can we continue to keep the gross margins higher?

And then for VJ, I'd love to hear your thoughts on HPs product lines given your history at HP.

Yes.

I'll start first.

So the margins, they did pop up to the 50%, we're comfortable with that range with being out of consumer.

Materials, software, healthcare all were very good contributors to that.

So we like the range that we are at and we think it's sustainable.

So as far as HP, I'm born and raised in HP.

So I have tremendous respect for Hewlett-Packard.

No doubt they will bring a quality printer to market.

It will be a formidable competitor.

They have only one product.

So they will have to partner in terms of the software, services.

And at least as I understand they are focusing on production.

So their go-to-market also will require a lot of work.

I believe that 3D Systems with 30 years of experience we have customers, we have the ecosystem and expertise with which we will be able to drive our unique value proposition.

And as I said, it's all about customers and understanding the customers.

And our healthcare vertical is a very important indication that we can actually grow the business with a vertical approach, is where I believe we need to focus.

We need to focus on where we can delight our customers.

Thank you.

The next question is from Jay Harris of Axiom Capital Management.

Please go ahead.

You mentioned earlier in the formal remarks that there's been a pickup in additive manufacturing demand.

So is that going to be continuous, or is it lumpy as it catches on?

Well, I think the approach that we believe moving from prototyping to manufacturing is going to be with a vertical approach.

Because you can't have one big platform which can work for -- because you need to really look at manufacturing -- additive manufacturing side as my vertical figuring out a complete solution.

Because it will require to have software, simulation, design, and then actually volume, the productivity is going to be important when you go into the manufacturing.

It's going to be repeatability of the parts, is going to be very important.

And you can't achieve that -- you need to really have a complete focus on end-to end from software services, and then manufacturing productivity.

So we believe we are going to go by vertical.

And some of the successes we have is because we have gone vertical.

And I think that's the approach that we're going to take.

So, it's not going to be overnight.

Because when you take the vertical approach, you have lot of work to do by understanding the complete solution that you are providing to the customer.

Thank you.

The next question is from Hendi Susanto of Gabelli & Company.

Please go ahead.

Good morning, VJ and Dave.

Good morning.

Question for Dave.

You sated that gross margin range is at 50% that you saw in Q1 should be sustainable.

Having said that, I think the products gross margin is still lower than historical, like before 2015.

So how should we think of gross margin going forward?

So the reason I think it's sustainable because I do think the mix of software, healthcare is going to be more impactful.

But to VJ's point as we focus on verticals, we do believe there's an opportunity to improve printers as well and especially in the industrial space as we look at a complete manufacturing solution.

We think there's opportunity there.

And we get that there's challenge in the jet ink printers, but the introduction of the 2500 and the 3600, we think that addresses some gaps that we had in some of our offerings.

And we're very excited about the acceptance of those printers and adding to our ability to compete in those spaces.

Thank you.

The next question is from Steve Milunovich of UBS.

Please go ahead.

Thank you.

Hey, VJ, could you talk a bit about your discussions with channel partners, what's the feedback you're getting.

I think we've all had some concern that due to the quality problems, the channel hasn't been happy.

And there's the risk of some people leaving the channel.

What are your thoughts about the feedback and where you intend to take it?

Yes.

I know I spent a lot of time with the channel partners.

And I think, of course, they are concerned.

But they are also excited that I can bring a lot of experience in terms of creating great products that -- which they are very familiar with what I had done at HP.

So, my view is the relationship is very good.

We have lot of goodwill.

And the channel partners know that we have the best product portfolio.

I think what we need to do is to continue to look at our -- how we can help to delight the customers.

So this focus on quality, reliability and supply chain, they really welcome that.

And the products like 2500, 3600 have tremendous value proposition and they are excited about that also.

So I do believe that channel is now definitely excited about what we can do at 3D Systems.

The other thing that I am doing is really helping them, how we can help them to grow their business.

And that's equally important.

And I think that as you will see, as we move forward, we are going to get better and better our channel management and the go-to-market strategy to help to grow profitably our business.

Thank you.

The next question is from Brian Drab of William Blair.

Please go ahead.

Hi, VJ.

Your early impressions of the technology obviously very positive.

And you talked about the importance of direct manufacturing and the metal printing technology.

Can you share your early thoughts on - in your assessment of your metal printing technology relative to some of the main competitors like Arcam, SLM, or Concept Laser?

How can you differentiate your metal portfolio in the market?

Yes.

So, I think Arcam is definitely electron beam technology where you want to do big parts and the part quality is not as good as what we can do.

But that's a different -- as I said a different technology.

As far as the US and Concept Laser are concerned, I think that if you think about what we can do with our 320, our titanium quality that we can produce is better than any other technology.

I think what my view is when you have a customer who can help you to transform the category, that's the approach we want to take.

We want to partner with -- because we have great customers right now.

And if you can work with them and they will help us in saying what kind of specific things that we want to do in productivity, in terms repeatability, in terms of quality of parts, and what kind of solutions we need.

Because you got to have the software part and the way you could align that to the manufacturing ERP systems.

So, we need to really have that kind of approach.

So, we want to really drive a complete solution rather than just focus on a printer and a printing technology.

I think that's what you're going to see from 3D Systems.

Thank you.

And the next question is from Paul Coster of JPMorgan.

Please go ahead.

Thanks.

Hi, this is Paul Chung on for Coster.

Thanks for taking my question.

Sure.

Can you talk about how end market demand is shaping for the year, should we expect a typical backend loaded year?

And are you seeing interest from new customers or sales leads coming more from your existing customer base?

Thanks.

Well, I think the market is different by regions as David mentioned.

And I think the customers, especially some of our big customers, they are seeing growth.

And we need to align to what they would like us to do so that we can help them as they are scaling the business.

As far as the prototyping is concerned, as I said, we need to make sure that we improve our experience.

And we really go after profitable business.

Software and healthcare, we are seeing growth.

So, I think what we need to do is to -- as I said, is to segment the market, focus on the profit pools that - which are bigger and growing is where we are going to continue to put our focus.

And if you think about long-term, this is a growth market.

There is no question in my mind that additive manufacturing and prototyping.

They both are going to be growing globally.

It's just that we need to have the right kind of a portfolio and the customer value proposition with which we can delight the customer.

And that's how we're going to grow.

Thank you.

That is all the time we have for questions.

I'd like to turn the conference back over to Ms. 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 Investors 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.

And thank you for your participation.