3D Systems Corp (DDD) 2019 Q1 法說會逐字稿

Good afternoon and welcome to 3D Systems First Quarter 2019 Conference Call and Webcast.

(Operator Instructions) Please note that this call is being recorded.

I will now turn the conference over to your host, Stacey Witten, Vice President of Investor Relations.

You may begin.

Good afternoon and welcome to 3D Systems conference call.

I'm Stacey Witten and with me on the call are Vyomesh Joshi, our President and Chief Executive Officer; John McMullen, Executive Vice President and Chief Financial Officer; and Andrew Johnson, Chief Legal Officer.

The webcast portion of this call contains a slide presentation that we'll refer to during the call.

Those following along on the phone who wish to access the slide portion of this presentation may do so on the Investor Relations section of our website.

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 the slide and in the press release that we issued today.

For those who have accessed the streaming portion of the webcast, please be aware that there may be a few second delay and you will not be able to post 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 the most recent annual report on Form 10-K.

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

In our press release and slides accompanying this webcast, which are both 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 2018.

Now I'm pleased to turn the call over to Vyomesh Joshi, our CEO.

VJ?

Thanks, Stacey.

Good afternoon, everyone.

Revenue in the first quarter was $152 million, an 8% decrease from the first quarter of 2018.

Excluding a large enterprise customer's orders from both periods, total revenue decreased 5%.

Through the first quarter of 2019, we experienced weaker sales in on-demand manufacturing as a result of business adjustments related to export compliance and outsourcing.

Additionally, we saw lower demand from the automotive industry in Europe during the quarter.

In the fourth quarter of last year, we began to ship our 3 new DMP products, the DMP Flex 350, the DMP Factory 350, which includes a powder management unit accessory, and the DMP Factory 500.

During the first quarter, as the DMP Factory 350 systems had more rigorous use, we identified a technical issue in the powder management unit, resulting in level of reliability and robustness below our standards.

As a result, we stopped shipments of the powder management units until technical enhancements are complete to ensure quality and repeatability over higher volume and long-term use by customers.

Revenue in the first quarter was negatively impacted by approximately $8 million as a result of the timing of shipments of metal printers.

Separate of the issues unique to the powder management unit, we increased metals revenue year-over-year, and our DMP printer platform remains a highly reliable, high-quality 3D printer.

Despite the challenges in the first quarter, printer unit sales increased 90% mainly driven by Figure 4, SLA and DMP sales.

We are pleased with our continued strong growth in printer units across both metals and plastics.

Our new products have been well received, and we expect revenue from these products to increase throughout this year, in particular as we introduced additional materials for plastics printers later in the year.

Gross profit margin of 43.2% was negatively impacted by under absorption of overhead as a result of the lower revenue and production in the first quarter.

We reduced operating expenses both year-over-year and sequentially.

While our actions in investments in go-to-market, IT and compliance, are not completed, we are making cost structure improvements in parallel by improving productivity and efficiency and streamlining the organization in multiple areas.

For the first quarter of 2019, we reported a non-GAAP loss of $0.09 per share and a GAAP loss of $0.22 per share.

After John provide additional detail on the results of the quarter, I will discuss the actions we are taking to improve our performance over the balance of the year, including accelerating cost reductions.

But first, let me turn it over to John to discuss our first quarter of 2019.

John?

Thanks, VJ.

Good afternoon, everyone.

For the first quarter, we reported revenue of $152 million, a decrease of 8% compared to the first quarter of 2018, including a 3% negative impact from foreign currency.

GAAP gross profit margin was 43.2% compared to 46.9% in the first quarter of 2018.

GAAP operating expenses decreased 9% to $87 million.

We reported a GAAP loss of $0.22 per share in the first quarter of 2019 compared to a loss of $0.19 per share in 2018.

We reported a non-GAAP loss of $0.09 per share or $10.1 million in the first quarter of 2019 compared to a non-GAAP loss of $0.03 per share or $3.4 million in the first quarter of 2018.

While we expect headwinds from the timing of the large enterprise customers orders throughout the year, we believe our growth drivers and opportunities remain unchanged.

We continue to expect printers, materials, healthcare and software to fuel long-term growth.

During the first quarter, printer unit sales increased 90%.

But as a result of mix of unit selling prices, printer revenue decreased 29% to $28 million primarily driven by timing of orders of a large enterprise customer.

Printer unit sales, revenue mix and overall average selling price will likely continue to fluctuate, specifically as we ramp sales with new products at a wide range of prices from $5,000 to over $1 million.

Materials revenue decreased 3% to $41.4 million in the first quarter.

A lag time of 2 to 3 quarters between printer unit sale and scaling materials utilization is typical.

As we discussed last quarter, we are also experiencing a decline in legacy materials at a faster rate than materials related to core and new systems are accelerated.

We believe those trends to begin across this year, and we continue to expect materials growth rates to improve in the second half of 2019.

Healthcare Services and simulation revenue increased but the impact of the large customer orders timing offset those increases and total healthcare revenue decreased 5% to $50 million.

Excluding the larger enterprise customers orders from each year, healthcare revenue increased approximately 18%.

We continue to be pleased with the overall demand trends for healthcare, including our NextDent 5100 3D printer.

Software revenue decreased 8% to $20.8 million in the first quarter primarily as a result of lower Cimatron product revenue.

While quarterly performance may fluctuate, we continue to expect growth from software long-term and are taking actions to improve software growth rates and enhance our software portfolio.

On-demand services revenue decreased 12% to $22.6 million in the quarter.

We expected headwinds through the second quarter related to the business adjustments -- related to export compliance and outsourcing.

And we experienced additional weakness from automotive customers in Europe in the first quarter.

We reported GAAP gross profit margin of 43.2% in the first quarter of 2019, a decrease of 370 basis points driven by under absorption of supply chain overhead related to lower revenue and production during the quarter as well as the impact of mix of sales between categories.

Non-GAAP gross profit margin in the first quarter 2019 was 44.2% compared to 47.1% last year.

We continue to drive supply chain optimization, manufacturing efficiencies and process improvements but with inventory reduction actions and lower production at our manufacturing facilities, we expect gross profit margins in the mid-40s for the balance of the year.

GAAP operating expenses for the quarter were $87 million, a decrease of 9% compared to the first quarter of 2018, including a 6% decrease in SG&A expenses and 15% decrease in R&D expenses.

Non-GAAP operating expenses in the first quarter were $72.9 million, an 8% decrease from the first quarter of the prior year and a 4% decrease sequentially.

Compared to the 2018 quarter, non-GAAP SG&A expenses decreased 5% to $51 million with lower compensation cost, bad debt, commissions and building expenses partially offset by higher legal fees.

Non-GAAP R&D expenses decreased 15% to $21.9 million as a result of lower compensation costs in R&D materials as we focused development on materials and software this year.

We believe we are beyond the phase of heavy investments we needed to begin to turn the company around and our focus on reducing costs this year and driving profitability.

We used $15.2 million of cash in operations during the first quarter.

We ended the quarter with $157.3 million of unrestricted cash on hand.

The use of cash during the quarter was driven by the impact of lower-than-anticipated results and higher inventory.

While cash use and generation will continue to fluctuate from period to period, we expect to generate organic free cash flow in 2019 as we significantly reduce inventory for the end of the year and reduce capital expenditures compared to the prior year.

With that, I'll turn the call back to VJ.

VJ?

Thanks, John.

We are focused on improving our cost structure and continue to refine the organization and operations to drive profitable growth.

We have taken actions to accelerate previously planned cost reductions and will be taking additional steps over the coming quarters to reduce total 2019 expenses by $10 million to $15 million on top of our original plans for this year.

We're exiting the entertainment business effective Q1 2019, which will reduce our revenue by approximately $12 million for the year but will improve overall profitability.

We are migrating to 2 primary business within the company: One, which includes plastics and metals hardware and materials and on-demand services; and second one with a software and healthcare workflow solutions.

We believe this refinement to our businesses structure provides synergies within each group and enables us to better leverage resources.

With this, metals will move under Phil Schultz and healthcare will move Radhika Krishnan, which enables us to streamline the leadership team and organizations to reduce costs as well as align our structure to growth opportunities.

In addition to more aggressive cost actions, we expect to continue to ramp sales of our new platforms and seek continued overall units growth and market share improvements.

As a result of unit sales over the last year, we expect materials growth to improve in the second half of 2019, and we plan to launch new materials for plastics this year, which we believe will help fuel additional growth later this year and into 2020.

We expect to continue to ramp sales of our DMP printers and put in place technical enhancements for the powder management unit this year.

Last month, we launched an online portal for on-demand services.

The portals standardizes and automates export-related processes, which we believe helps us to return to growth in our on-demand services.

With the combination of software and healthcare, we believe we are further expanding our workflow solution opportunities to accelerate growth.

With the breadth and strength of our portfolio, we continue to have significant market opportunities, and we remain committed to executing on our strategy and driving long-term profitable growth.

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

Stacey?

Thanks, VJ.

We'll now open the call to questions.

(Operator Instructions) 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're calling inside the U.S., the number is 1 (877) 407-8291.

And if you're calling outside the U.S., the number is (201) 689-8345.

(Operator Instructions) Our first question today comes from Ananda Baruah of Loop Capital.

Yes, just 2, if I could, real quick.

So just clarification on the revenue dynamics, guys.

You talked of seeing slowing in auto softness.

VJ, you also referenced timing of orders of large enterprise customers a couple of times.

And then there is the powder management dynamic sort of with metals.

So it sounds like some of these -- so just -- and here is what I'm trying to foot, timing of orders, does that suggest that those are coming back, and you think that that's less secular or structural?

And is that different than the auto softness?

And so if you could just foot those?

And then so how do we think about the powder management in that too?

Yes.

So I think -- yes, the enterprise customer is not a secular thing.

It's about how they are building their factories to really support the growth.

And that customer business is doing extremely well.

And my view is that basically, the order -- how they'll be coming into the quarter is going to be different than how they're building the factory.

Now we do see that still a headwind for the 2019, but this is not a secular issue.

In terms of the metals, it's a technical issue.

And we understand the core reason of the technical issue, and we are working on couple of solutions, and we will be able to really ship.

Because my view is, quality, reliability is our #1 priority, and I don't want to ship anything till we meet our quality and reliability standards.

And do you have a sense of when that will be rectified?

How would you like us to think about it?

I think we should think about that into second half because I want to make sure we test our solution, and we will be able to introduce in the second half.

Okay.

Got it.

And then just as a quick follow-up.

John, how should we think about OpEx levels now?

Given that you're accelerating some of the cost action?

Yes, I think directionally, from Q1 to Q2, I think about the little bit of linearity upwards partially driven by our plans in the second quarter but also because of our annual salary increases that we rolled out at the beginning of the second quarter.

So maybe a bit of an uptick but then pretty flattish in general throughout the balance of the year as we continue to take cost out in a number of dimensions.

I think it's important to understand that we are trying to really organize now the company with the right business model and that will become the enabler also in taking the cost out.

This is very important for the company.

I think we are the great platforms.

We are going to start seeing the materials growth in the second half.

We need to now work on the cost structure.

The next question comes from Hendi Susanto of G. Research.

John, you mentioned that gross margin will be in the mid-40% for the balance of the year.

Would you please share what your assumptions of gross margin across products, materials and services?

I'm wondering whether the weaknesses in gross margin is due to printer gross margin as we anticipate that growth to recover in the second half of 2019?

Yes.

The lower margins in Q1 were really driving -- driven on the hardware side of the business, and we -- as we talk about in the prepared materials, we did have under absorption issues in our own internal factories because of mix of business and in where production was and where production wasn't.

And as we look at our forward projections, our basis for saying mid-40s roughly through the balance of the year is the assumption that we're still going to see some of that in our internal factories.

Materials gross margins were 70% in the first quarter.

So as VJ talked about with growth increasing in the second half, that bodes well for materials margins.

But we're going to stick with that, kind of, the mid-40s until we see anything different.

I think we are dealing in a balancing game here because we want to reduce our inventory significantly.

And when you do that, you're managing the production of our products and that's the utilization that we want to do.

Because we want to make sure we bring our inventory down and really start generating cash for the company, and that's a balancing game.

Because you know what you have to do is really reduce the production and that utilization is also important.

That's why what we're trying to do is get the company into the right place from the product portfolio, the right kind of inventory that we will be able to manage to.

And then again, the materials having that 70% margin and then having that growth in second half will allow us to really manage this transition that I'm talking about.

And then second question, how should we think about ASP and product mix trend?

Like, you had high unique -- unit growth but printer revenue is still seeing some decline.

I'm wondering whether there's some product mix over both the mix and...

Yes, there are 2 things here.

One, when you have that enterprise customer that we talked about, the price point on those units and the metals is very different compared to revenues ship our dental units, and that -- the unit growth of 90%, a lot of those units are Figure 4 and the low end of the market, like the MJPs.

But when you have metals and that enterprise customer and the SLA products, that ASP number will be very different.

So I think we need to smooth that out.

And then, as John always talked about -- because we have a range of product going from $5,000 to $1 million.

It'll be very hard to really say where the ASP will land.

But what we can confidently say that we're going to see -- continue to see the unit growth, which means that we're gaining share in the market -- the unit market share.

Next question comes from David Ryzhik of Susquehanna Financial Group.

So I just wanted to clarify, the $8 million in timing of shipments of metal printers, that's not related to the enterprise customer.

And I believe related to enterprise customer, you didn't really provide any estimates on whether those orders are going to come back or not?

For the rest of the metal printers, should we assume that that $8 million timing is shipped in the second quarter?

No.

So there -- let me answer the 2 questions.

So yes, you are right.

The metal printers $8 million has nothing to with the enterprise customer.

Enterprise customer, we talked about, is a plastics customer, so that's the first thing.

As far as the metals issue is getting all solved, in Q2 it will not happen.

This is really something that we will continue to see in Q2.

And then in second half, we will be able to ship the technical issue that I talked about.

And then in terms of any seasonality of the order pattern of the enterprise customer, they are ordering units.

It's just that when you are building a factory, you're going to order many more units in certain quarter and certain quarters you are not.

So I think that's what we are really having the headwind from.

It's not that they are not ordering, it's just that their patterns is going to be different depending on how they're going to build their factory.

Understood.

And then can you offer some insight into the materials utilization for some of the lower-priced units?

The sPro and the Figure 4. Is it like 20% to 30% of price per year?

Or is any way we can think about, that will do...

No, we are not -- yes, we don't give that.

But let me just be very specific.

We are participating in an industrial segment and not in a consumer segment.

That's a very important distinction.

Second thing is, these products have -- say, for example, dental, I can specifically talk about dental.

Dental product in Figure 4 has a substantial usage, I won't give you the exact number, but there -- where we can build annuity on materials are very, very -- clearly, a very profitable business that we can build on the annuity of the dental material.

And again, we absolutely believe after the second -- in the second half meaning second -- meaning, third and fourth quarter of 2019 and '20, you're going to see positive materials growth.

And I've been very consistent reasoning that.

The next question comes from Wamsi Mohan of Bank of America Merrill Lynch.

So you've made this comment a couple of times about how you're expecting a pickup in materials growth in the second half.

Can you give us some sense of your materials revenue?

How much of that is related to the older declining base versus the growth areas?

Because you seem pretty confident that the crossover is going to happen here fairly imminently?

Can you give us some sense of how dependent it is on, sort of, in-period printer sales?

And also may be that the split across, sort of, the declining versus the growth areas and magnitude, maybe even a rough percent?

Yes.

So I won't be able to give you the percentage, but let me give you the basically the way we think about materials growth.

We have legacy printers, which are old printers where essentially that usage has gone down either because they have using competitive materials or some of them are retired or some of them are replaced.

And that legacy was still a big portion of it for many years, and that is coming down.

The new printers, we are seeing growth consistent with the usages assumptions that we're having.

So what I'm talking about there are Figure 4, our 6100, our dental unit.

And then the core business, which is our SLA machines, our SLS machines, our MJP machines these core is also continue to grow.

So as we get our legacy decline being offset by our core and new materials, that's why we are confident that in second half of 2019, we're going to see positive materials growth.

And I think Wamsi, we talked about this I think a little bit last quarter toward the -- we have pretty good analytical models that we have built over the past year to track and update around this.

So it's -- we have decent predictability capability here.

Okay.

And then just thinking about this business that you're exiting, the entertainment business.

I think you said $12 million.

Is that for this year or is that the magnitude of the entirety?

And there will be some, sort of, exit hit even into -- going into next year?

Or how soon do you think that this exit is going to happen?

And can you also give us some sense of the profitability of that, like the gross margin and EPS impact on the exit?

Yes.

For -- we've already pulled -- for non-GAAP purposes, we've already pulled that out of our numbers effective Q1.

So we've made that decision, what I'm seeing the estimate of the annual revenue, which I think in the prepared materials was $12 million.

It's kind of an order of magnitude of what comes out for this year.

We didn't specifically mention nor will we around the profitability, but the nature of exiting there and our ability to focus on things that at this point a more quarter wise and we do believe that will impact profitability over time for the company.

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

Just as a follow-up.

I may have missed it, but did you characterize what areas this $12 million of revenue is coming out of?

Well, this is a business that we work with the studios.

And we will need digital -- I think that's the business we are talking about.

Got it.

That make sense.

I missed it, VJ.

Just regarding the healthcare business...

It's primarily a services business.

It's primarily a services business.

Yes, go ahead, please.

No.

that's helpful.

I'm interested in with respect to this enterprise healthcare customer, it sounds like at least from what you're characterizing it that you have enough visibility to -- into the business, into the ordering patterns to suggest that it may be -- it may continue to be weak over the balance of '19.

Is that a fair characterization?

While there is still ordering, they're not ordering perhaps at levels that you had initially anticipated?

No.

The thing that we are saying is the order pattern is very different.

Some quarters, like last year in Q1, they had a big order.

In this quarter, we had a smaller order.

So I think that's what I'm talking about.

But overall, they're continue to grow.

They're doing extremely well in the marketplace.

It's just that the way they order their machines, depending on how they want to build the factory when they turn on those machines, and so that they will be part of their overall production line.

And those things are not going to be choppy.

It's not going to be all clean here.

I think that's what we're trying to make sure and that's what we started talking about before because we wanted to make sure that you all understand that that could have significant impact on our printer hardware revenue growth and we just wanted to make sure you model that.

And that will continue in Q2 and some of that also in Q3 and Q4.

Meaning, the amount of the products that they will order will be different.

And I think that's what we are trying to explain.

Okay.

Was it your -- I think so.

I was just thinking in terms of the healthcare business overall, it sounds like ex this customer, you showed pretty good growth.

Is it your expectations that the healthcare business even with these -- this choppiness with this customer would be able to grow this year?

Yes, yes.

If you take that out, we will continue to grow the healthcare business.

The healthcare business has been growing last all these years, and we will continue to grow that business very, very much -- we are really doing extremely well in that healthcare business.

But because of this enterprise customer, we are seeing that direction, and that's just basically nothing to do with that customers' business.

It's just the way their order pattern is.

Next question is from Troy Jensen of Piper Jaffray.

So if you go back on the powder management problem, does that platform just work on the 500 series?

No.

They work on both 350 and 500 the powder management.

It's just -- for powder management problem is a unit which you could buy either with 350 or with 500.

But the issue is the integration of 350 and the powder management because the powder management approach on 500 is very robust.

Okay.

Can you talk about just maybe a percentage of the metal sales that have the powder management attached to it or the pipeline?

It's...

Troy, it's just a new product.

It's a new product.

So -- It's a new product.

Frankly, we wanted to make sure that we do thorough testing and we wanted to make sure we do it the right kind of approach for -- before we ship.

In Q1, our metals was both the 350 what we call factory and 500.

The 500 there is more about characterization.

We want to make sure with for our customers, we characterized.

But I just want to make sure you hear that our core issue really is in the powder management unit for 350 Factory and that's what we're working on.

So I guess what I'm asking is if you look forward into the pipeline, what percentage of your metal opportunities have this powder management attached to it there?

Should we assume little to no metal revenues till this is fixed or will people still buy the platform...

No, no, no.

Let's be clear on this.

First of all, the 350 platform, the 350 Flex is doing extremely well.

We grew revenue year-over-year in 350 kind of a category.

So I just want to make sure our metal business actually did extremely well except for the 350 powder management unit shipment that I talked about.

So that's very important to understand.

So our metal business is absolutely growing year-over-year.

What we had expected that we will be able to ship the other metal units is where that $8 million problem that I'm talking about.

We've seen good early demand for that so far, Troy.

But that's how we, kind of, characterize between that and timing of 500 orders.

How we characterize that $8 million.

So I think in summary, overall, our metal business is doing extremely well.

We are growing revenue in the metal business year-over-year.

We had orders for these units that we would not able to ship because of the technical issue.

Understood, okay.

And VJ, just one follow-up for you.

Figure 4 update, are you now shipping all 4 platforms?

Or there is a couples upcoming?

No, the modular is the one which we're not shipping yet, and that will start shipping in June.

And that's the higher end.

That's the big one, right?

With the robotics baked in?

No, not the big one, but the one we...

It's in the middle...

The middle...

But actually, we're able to ship production.

The production that we have shipped already.

The next question is from Shannon Cross of Cross Research.

So just a couple of questions.

Just not to beat the Materials horse to that or whatever.

But when we think about usage per device on a like-for-like basis, when we think about pricing and then also if there is any pressure from aftermarket.

I just want to understand a little bit more some of the dynamics behind the supplies or the materials revenue, specifically?

So depending on the category and depending on the price, the usage will be different.

Okay.

That's the first thing that I want to make sure that everybody understands.

The other important thing I'm saying is we're only participating in the industrial segment.

That means, more -- every printer that we ship has substantial usage so that we will able to enjoy the annuity stream.

That's the second point I want to make.

Because we have our own proprietary materials, we actually have confidence in our market share of our materials.

Now in some cases, we are seeing competition, specifically, we're seeing competition in our wax product for MJP, especially in China and some of older legacy materials that I talked about and that's where we are seeing the competition.

And is it manifesting itself -- I mean are you having to take prices down?

Or are you just not willing to go there, so you lose share to some of those players over time?

In some cases, we did adjust some pricing but we now -- we are looking at a system point of view because we need to make sure that we look at our hardware pricing and the materials pricing.

But that's the approach that we have to take.

But in -- overall, we are not seeing as much a competition from third-party materials.

Okay.

And then I have just...

I gave the 2 specific examples that we are seeing competition.

Okay.

And then I understand, moving away from the Hollywood business, which is really core.

I'm curious if there are any other businesses that you are looking at divesting maybe as part of the cost reductions or just separate from that?

So I think what we're doing is we're always looking at our portfolio.

And I wanted to make sure, first thing that I want to do was turnaround the company, then figure out where we want to take the company.

And I'm mentioning that now, I see there are 2 business models, a hardware, printer, materials and on-demand business and then workflow based -- production workflow phase for software healthcare.

And those are going to be our 2 key pillars that I want to organize around that and I want to really look at our businesses and make sure what is synergistically aligned and what is not.

And we will make that decision.

I think it's important now to really focus the company, we got the great platforms, we are getting our materials into the right place, our export compliance, we're addressing that, we deliver ODM business now.

What we need to do is to grow our materials and then take cost out.

So I think that's what we want to do.

Okay.

And then just finally, just in terms of Figure 4, I'm curious as to who you are seeing buy it if you're getting a lot of repeat customers in terms of certain verticals?

Just any more color you could give?

So number one segment for Figure 4 is dental.

Our dental business is doing extremely well.

We are penetrating the dental labs and we are now globalizing it.

So my view is if we're going to see the dental business, Figure 4, growing -- continue to grow in 2019.

And that materials growth will be also very crucial for our materials business.

The second segment that we are really looking at, the Figure 4 is on what I call the design verification market where we will be able to -- the enterprise customer will be buying that in their R&D labs to really evaluate the editing manufacturing technology.

As we develop new materials, our penetration of this technology into the other segments is going to continue to happen.

But I think, it's really, in my mind it's the material development game.

We have a very robust platform, we just need to offer more materials.

The next question is from Greg Palm of Craig-Hallum Capital Group.

This is actually Danny Eggerichs joining for Greg Palm today.

I know you had mentioned, your materials gross margins were around 70% this quarter.

As we come up in the second half of the year like as you mentioned, you expect the faster new accelerating to cross with the declining legacy, how would you like us to look at gross margins for materials in this segment?

We should be continue to having that 70% gross margin.

Okay.

And then I guess, just looking forward into the second half of the year, just in demand areas, where are you looking to see strength in demand and possible weaknesses as well?

Well I think, if you look at our overall portfolio, metals is very strong.

I think that's going to continue to have the demand.

Our SLA platforms are very, very -- in my mind world-class, and we're going to continue to see SLA.

Our dental business is very, very strong.

And we're going to continue to drive more growth in the dental business.

The next will be the Figure 4 with a new materials.

I feel very good about that.

We'll continue to grow our wax-based MJP printer.

And then the last one is our SLS machine with 6100.

The next question is from Ananda Baruah of Loop Capital.

Ananda, second question.

Okay.

Why not get a follow-up in there.

VJ, just, sort of, listening to, sort of, the rest of the comments on the call, do you -- I think last quarter you said that you guys thought you would grow the business this year overall.

2 questions, do you think -- do you still feel that that's possible?

And then second question if the answer to that is no.

Once, sort of, normalizing for these items that you are talking to, sort of, tonight exiting the business and then the issue of the powder management issue with the rest of the business do you expect it to grow year-over-year?

I think my opinion is, in second half, we should be able to grow the business, and I think by then our ODM business will start growing.

If you look at that business, it declined year-over-year in Q1 with our export compliance portal.

Hopefully, in couple of quarters, we should be able to grow that business.

We will solve our metal technical issue, we will grow that business and already dental is growing, and as I said, our SLA business is very strong, SLS business is strong.

So I expect that provided we solve these things, we will be able to grow in second half of 2019.

(Operator Instructions) Our next question comes from Hendi Susanto from G. Research.

Hendi, yes, second question.

Go ahead.

Third time is the charm.

John, with regard to higher cost reduction target, how much will the cost be?

And how much cost saving we should expect toward bottom line versus reinvestment?

Yes, I think in VJs prepared comments, he talked about $10 million to $15 million throughout the course of this year beyond what we had planned.

So the expectation would be that -- the majority of that would be in OpEx but a part of that would be in cost of goods sold and the majority of those cuts will be -- we made to improve the performance of the P&L.

We won't be investing significant parts of those cost reduction plans, certainly not this year.

And then how much price restructuring costs will be toward that additional $10 million to $15 million of the overall cost savings for 2019?

Yes.

I think we didn't -- we're not taking a specific number, but as we've taken actions in this spend people-related costs, we show those in the GAAP to non-GAAP reconciliation.

So if you look at that GAAP to non-GAAP reconciliation, for example, you'll get a sense of what the impact was this quarter.

And we'll provide that information every quarter.

There are no further questions at this time.

I'll now turn the call over to Stacey Witten for 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.

Thank you.

This concludes today's conference.

You may disconnect your lines at this time.

Thank you for your participation.