3D Systems Corp (DDD) 0 Q0 法說會逐字稿

Greeting and welcome to 3D Systems First Quarter 2015 Preliminary Results Conference Call.

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

A brief question-and-answer session will follow the formal presentation.

(Operator Instructions).

As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Stacey Witten, Vice President of Investor Relations.

Thank you.

You may begin.

Good morning and welcome to 3D Systems' conference call to discuss our preliminary first quarter results.

I am Stacey Witten, and with me on the call are Avi Reichental, our CEO; Ted Hull, our CFO; and Andrew Johnson, our Chief Legal Officer.

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 in the press release this morning.

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

Forward-looking statements may include comments as to the Company's beliefs and expectations as to future events and trends affecting its business and are necessarily subject to uncertainties, many of which are outside the control of the Company, including but not limited to statements about management's expectations regarding the Company's performance, initiatives and strategies, statements of current estimates of the Company's revenue, earnings per share, foreign currency impact and other financial items, statements of management's expectations and plans related to the timing of the release of the Company's full financial results for the first quarter of 2015 and expectations and guidance for fiscal 2015.

Forward-looking statements are not and should not be relied upon as a guarantee of future performance or results, nor will they necessarily prove to be accurate indications of the times at or by which any such performance or results will be achieved.

Actual results may differ materially, and management undertakes no obligation to update or revise any forward-looking statement except as may be required by law.

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.

Please note that these preliminary results are based on current expectations and are subject to quarter-end closing adjustments.

Actual results may differ.

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

Now, I will turn the call over to Avi Reichental, 3D Systems' President and CEO.

Good morning everyone and thanks for joining us today.

We were surprised and disappointed by the abrupt interruption in customer demand late in the quarter from several economic factors, which we believe caused many of our industrial customers to defer their planned investment.

We further believe that the stronger US dollar reduced our total quarterly revenues by approximately $12 million at comparable Q1 2014 currency rates.

As a result, we expect first quarter revenue to be in the range of $158 million to $160 million, and we expect to report GAAP loss in the range of $0.13 per share to $0.15 per share and non-GAAP earnings per share in the range of $0.02 to $0.04.

After further analysis, we believe that several economic weaknesses, including the decline in the euro and yen relative to the US dollar and the aftershock of lower oil prices, caused the majority of our aerospace, automotive and healthcare customers to curb new printer purchases during the quarter and to curtail their materials and service purchases.

In addition, we believe that certain metal and nylon applications and performance issues delayed our ability to sell additional printers during the quarter.

We believe that the combined impact of these factors compressed our expected revenue growth for the quarter to 9% over 17% at first quarter of 2014 exchange rates.

On a positive note, we expect to report growth from most of our revenue categories, including software, services and consumer, over the comparable 2014 period.

However, stronger consumer product performance that yielded 169% consumer printer unit increase and continued direct metal demand that generated 46% metal printer unit growth were not enough to make up for the revenue shortfall from postponed industrial customers' purchases.

With that, I'll turn it over to Ted for more details on our anticipated financial results for the first quarter.

Ted?

Thanks, Avi, and good morning everyone.

As Avi mentioned, for the first quarter, we expect to report revenue in the range of $158 million to $160 million.

Consistent with our prior comments, we anticipate expanded gross profit margin for the quarter.

We expect to report that consolidated gross profit margin increased sequentially 110 basis points to approximately 49% despite drag from lower revenue and adverse mix and rate.

We expect to report a GAAP loss in the range of $0.13 per share to $0.15 per share and a non-GAAP earnings per share in the range of $0.02 to $0.04.

We ended the quarter with approximately $200 million of available cash on hand, maintaining our financial strength and flexibility.

Given current uncertainties from continued macroeconomic pressures and foreign currency headwinds, we are undertaking a comprehensive evaluation of our full-year guidance and plan to provide you with an update during our Q1 2015 earnings conference call scheduled for May 6.

That concludes my comments.

Avi?

Thanks, Ted.

Several weeks into the second quarter, bookings are ahead of the same period in the first quarter.

Specifically, OEMs that paused to assess their own exposure to foreign currency and macroeconomic impacts are beginning to resume their capital investments and are making the purchases they deferred during the first quarter.

While the current economic climate certainly disrupted our planned cadence for 2015, we believe that the fundamentals of our business and the strength of our portfolio remain intact.

We're encouraged by the overall strengthening of our order patterns thus far during the second quarter and are accelerating our ongoing integration, productivity and efficiency measures without impairing future growth.

And with that, I'll turn the call back to Stacey.

Stacey?

We'll now open the call to questions.

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.

Thank you.

(Operator Instructions) Jim Ricchiuti, Needham.

So currency aside, question is you've cited several factors in the revenue shortfall, and I'm trying to get a sense as to whether this is indicative of maybe an industry-wide slowdown or has there been some loss of market share in certain areas and whether these performance issues are longer term and how are you addressing those.

And if so, what actions are you contemplating on the cost side to perhaps adjust to this weaker revenue environment?

I think, Jim, that we see several macroeconomic factors that influenced our results in the first quarter and perhaps exposed some of our concentration in aerospace, automotive and healthcare and effectively have an extending business in EMEA and Japan and Brazil, which were obviously adversely impacted.

We also saw some orders for multiple systems that we counted on for Q1 that slipped into Q2, but that we have already received.

So when we look at the shortfall, it was primarily in printers and materials, specifically from industrial and healthcare customers.

To a lesser extent, although it was not material to our total revenue, we had certain metal and nylon applications and performance issues that delayed our ability to sell additional printers in the quarter.

Our channel productivity and coverage initiatives that we launched earlier in the year were muted in the wake of these conditions but are going full speed ahead.

Certainly, our resellers were not spared, these adverse impacts, as postponed orders pressured them as well.

But on a positive note, we expect to report growth for most of our revenue categories including software, services and consumer.

And we don't think that there is some kind of a competitive share loss here because we did our quarterly win/lose analysis and we haven't seen anything unusual here.

We are, however, accelerating our productivity and efficiency measures that we said that we would do this year anyway because we already had it in our sites to eke out and squeeze out additional cost efficiencies and synergies from all of our acquisitions last year, and we're taking the opportunity here to actually accelerate those efficiency and cost measures.

We are somewhat relived and comforted that for the first several weeks of this quarter, we have seen an uptick in the order cadence relative to the first three weeks of last quarter.

It's not an assurance that, that will continue in the future, but we see the return of the very OEMs that we accounted on in Q1 and it's now clear to us, some of them merely decided to sit on the sidelines for a couple of months and see how their own year shapes up before they pulled the trigger on investments.

So all said, we continue to remain positive about the future prospects, we believe in the strength and comprehensive nature of our portfolio.

We don't believe that anything changed structurally in our business model or materially in the competitive landscape.

And that doesn't in anyway diminish our disappointment in the actual results of the first quarter.

Ananda Baruah, Brean Capital.

I guess for me, I'll just get back in the queue Avi, can you talk about how late through the March quarter you felt like you were tracking and then in the context of your comments about the pace of orders coming back just for clarification, you're seeing improvement over the March quarter that you just reported, but not yet back to the original case of what your expected March to be.

It's very common for us in any quarter to see a significant concentration of orders late in the quarter.

That has been the cadence in the business for many, many years.

And so we fully counted on and fully expected to see our planned materialize all the way to the last couple of days of the first quarter.

The measurement that I gave with respect to and how are we -- if you measure order cadence in the first three weeks of the second quarter relative to the first three weeks of the first quarter, we are up and we are up at a level that makes us feel validated and confidant.

It is certainly not an assurance that the rest of the second quarter continues at this rate, but when we compare three weeks and we look at who is placing the orders with us, we feel somewhat confident and reassured that our assessment about where we had gaps in revenue performance in the first quarter are being validated and we're getting the orders that we didn't get in the first orders from customers that we counted on.

Patrick Newton, Stifel.

I guess, Avi or Ted, you talk about the growth rate being 9% for the Company in the March quarter.

I'm curious if you can highlight what the core organic growth rate is in the quarter?

And then how should we think about your prior guidance for organic growth to accelerate through the year and to achieve that 20% organic growth target in 2015?

I think that it should be clear that because our preliminary results clearly reflect revenue shortfall from adverse currency and lower than expected printers and materials revenue, we don't expect to report organic growth for the quarter.

That doesn't mean that we have given up on the rest of the year.

It's just that the combination of where the shortfall was and the double impact of currency on top of it is not likely to result in organic growth for the first quarter.

In terms of assessing the rest of the year, we think that it's premature at this point in time to make any comments about that.

We are taking time to do a comprehensive evaluation.

We're factoring in what didn't go as planned in the first quarter and also what is beginning to come back.

And based on that, we will update you probably on our May 6 scheduled earnings call.

Bobby Burleson, Canaccord.

Really basically, I guess if we look at the long-term growth expectations that you guys are planning around, Avi, what do you think that long-term growth is for the space still, if you look at the industry and we look at how you're positioned in it, what you think those growth rates are and are you planning to those growth rates right now in terms of your hiring plans and capacity plans, R&D, et cetera?

I think that's an excellent question.

We need to put a few things in perspective here.

The first is that this surprise abrupt pause in order cadence that happened to us in the first quarter is not -- we don't think it's indicative of a long-term change in what's happening in our space.

We certainly don't have any clarity at this point in time in terms of are these one-off factors, or are they going to continue for a period of time, but we're not sitting on our hands waiting for the economy to recover.

We have taken certain steps to continue to improve our channel coverage and productivity and training and the capacity to continue to develop the market.

We continued to take steps to enhance the quality and performance and value of all of our systems and we continue to invest in technologies that we believe will give us the advantage in the key markets that we are targeting.

And we believe that we are still in the very early innings of the development of this industry.

I think that what we experienced in the first quarter is indicative of periodic pauses in the fast growing industry, some that are out of our control, some that are probably indicative of the ebbs and flows of the whole industry, and some that are fully in our control and depend on our execution.

As it pertains to making sure that in and not so good cycles, we preserve our financial strength and flexibility.

We had a clear case here in the quarter where our revenue wasn't on plan, but our cash operating expenses were on plan and got a little bit ahead of us.

That is something that can certainly control, plan to control and expect to control, but not at the expense of our future growth plan.

So we will continue to invest in R&D, we will continue to add positions that are critical to our success and at the same time, we're going to continue to eliminate some of the duplication and redundancy that we acquired from acquisitions and turn our organization into highly productive and efficient organization.

That's the plan.

And the speed bumps that we encountered in the first quarter gives us even more clarity and impetus about accelerating all of these activities.

Ben Hearnsberger, Stephens.

So I wanted to ask for a little bit more clarity on the metal and nylon performance issues that you saw in the first quarter.

Are those remedied at this point?

And if not, can you kind of take us through the process of how you remedy those, and when you expect those to be back on track?

Let me start by saying that every time when we have a challenging application or a quality problem, it's disappointing to us because we like to make sure that everything that we deliver works as intended and is as flexible and capable as it could be, but to put things in perspective before we get into all the causes here, the real impact of this issues in the quarter we estimate to be less than 3% of our total revenue for the quarter.

So I want to make sure that we frame it.

In terms of what's going on, in the case of direct metal, we believe that about 5% of our metal installed base experience several challenging metal application that centered around the manufacturing of unique geometries with specialty materials.

And we've isolated these cases, we're working with the identified customers on a proper corrective measures.

And I believe that with the exception of two or three remaining users, we have the situation well in control.

And even with that, our direct metal printer unit sales for the quarter compared to last year were up 46%.

We expanded our engineering support capabilities and are working through additional applications and we also implemented several system-wide enhancements to our metal printers as part of enhancing the overall performance of our offering.

And finally, we have a few more in additional metal printing capabilities that we plan to bring to market as the year progresses to further strengthen our metal printer portfolio and make sure that it is addressing the widest possible range of applications from the get-go competitively.

With regards to nylon printers, we experienced several issues with one of our printer models, with the ProX 500.

First, it related to some random out-of-box quality issues that we identified and addressed immediately as part of the manufacturing and quality system.

In fact, we are investing a great deal to completely step up our quality and control systems as a result of this discovery because it was very upsetting to us.

And second, we isolated a thermal distribution anomaly on this particular system that we are addressing.

We expect remaining issues to be resolved promptly and we're taking additional significant steps to ensure that all of our quality systems are fully in effect.

Again, all told, even though we are flagging this as a driver in our results for the quarter and take full and complete responsibility and are taking the necessary actions here, to frame it and to put it in perspective, when all is said and done, we estimate that this accounted for less than 3% of what would have been our estimated revenue for the quarter.

We're not happy about it.

We're taking the corrective actions.

There is a lot more of that is being done, but that's the full and complete report.

Jay Harris, Axiom.

Avi, in the third quarter last year, operating expenses were $70 million, in the fourth quarter $82.4 million.

Can you give us an approximation of where they'll be in the March quarter?

When we look at our plan, or I should say consistent with our plan, after factoring in and adding the impact from first quarter acquisitions, we expect cash operating expenses to be approximately 10% up sequentially.

Although, here we have a clear case of cash expenses being ahead of our planned revenue at the moment.

We believe that we're on top of our operating expenses and expect to see OpEx leveling off in the second quarter when we have the effect of all of our acquisitions in, and we then expect to see cash operating expenses tapering off as the year progresses.

With the current conditions, we are actually accelerating our ongoing integration productivity and efficiency measures, and expect to see results in the coming periods

Troy Jensen, Piper Jaffray.

Maybe if I can ask something of Ted here.

Ted, you're relatively new to the Company here, a few months now and you guys have brought on a team of other executives (inaudible) so can you talk about maybe any changes that you or some of these other new executives are looking to kind of implement for the business here?

I think that some of the comments Avi was just making in terms of how we're looking at our business model from growing revenue and developing our reseller channels to all the way through the P&L in terms of how we can optimize our performance, including taking a hard look at our acquisition activity and the type of things you'd expect us to be driving, as we've been very acquisitive and we want to make sure that we leverage our investments to the fullest.

So we're looking at driving growth, we're looking at margin expansion opportunities and we're looking at controlling our OpEx as we go forward.

Sherri Scribner, Deutsche Bank.

I just wanted to dig into the operating margins again, I know you made some comments on the previous question, but in terms of thinking about operating margins as we move through the year stabilizing in 2Q, would you expect them to go up?

Because it seems like they've gone up a lot QoverQ and how much of that is acquisitions?

Thanks.

When we look at gross profit margin, we commented or Ted commented that we have seen a sequential improvement of about 110 basis points, that's what we expect based on our preliminary results.

And that is comforting particularly given that the revenue shortfall, the impact of currency and also the less than favorable mix and rates that came from the shortfall in revenue.

So we believe that we can continue certainly with the rebound in revenue.

We believe that we can continue to expand our gross profit margin.

As it pertains to operating margins or operating income, that will then depend on our cash operating expenses, which we just commented we feel that we have a good handle on, and that we are actually taking the opportunity to further accelerate our cost and productivity measures now that we completed the final acquisition in Shanghai and we are turning our full and complete attention now to operating efficiencies.

Holden Lewis, Oppenheimer.

You commented earlier that you don't believe that anything has changed structurally with regards to your business model in the industry.

And I guess the question is, we've had a series of quarters where it seems like the misses pile up and it seems like the reasons behind those misses, it seems like there's something different every quarter, and I guess what I'm wondering is should we be taking this and look at it and say, maybe we should be looking at the structural nature of our business model and asking some questions about complexity, focus, things like that?

I'm Just wondering, should we be complacent about the overall health of the business model when we've had just this string of issues kind of popping up.

Have you given any sort of broader strategic thought to sort of how the model maybe should be looked at in terms of changing?

We have done nothing but look at all these issues on a daily basis for quite some time, Holden.

And it's a good question to ask.

There is no question that in the last 24 months, 3D Systems decided to go after the assembly of several technologies and capabilities that we believe are critical to our future success.

Those included the acquisition and proficiency in direct metals which even though we've only been on the journey for a year and a half, we believe that in terms of the impact, revenue and the results are at the leading edge of revenue generation and profitability, and application coverage, notwithstanding the challenging and difficult applications that we had encountered, and you yourself, Holden, commented on a few days ago.

I would also tell you that just within direct metals while some of our competitors are struggling with profitability, we improved our gross profit margins in metals about 1,000 basis points.

So it's important to note that while you might look at areas like this as complexity, we look at them as opportunity and positioning the company to compete over a meaningful period.

Let's take the next example, let's take our consumer business.

We have chosen the road less traveled here.

We decided to build our consumer business from the ground up and to make a few smaller acquisitions and build it the old fashion way.

And it's beginning to pay big dividends with units for the March quarter, up 169% in a quarter that is not particularly stellar for consumer sales coming after the holiday season.

We also disciplined ourselves through most of last year and resisted the pressures and the temptation to ship product prematurely.

That also paid huge dividends and we expect to continue to make progress announcements on this part of the business as the year progresses.

We also believe that we have some unique opportunities here to continue to expand and lead in the area of design and manufacturing.

Remember that our SLA capabilities for example cover the most complete spectrum from desktop micro SLA all the way to production floor SLA in some of the most demanding applications.

And as we read and hear about some competitive capabilities coming into the market, we have a very similar capabilities in our pocket and we believe that in this case, the combined effect of our technology, our deep domain expertise and channel access positions us to be a first mover in the speed arena.

We view the same need to continue to advance our leadership in engineered materials and nylon because we believe that at the end of the day we need the complete toolbox to be able to successfully address aerospace, automotive, industrial applications, health care and patient specific applications, desktop engineering and consumer.

So I would certainly take full and complete responsibility for the growing pains and [divvying] pains that we've had over the last several quarters.

But I would also suggest that to succeed in next few innings of playing for this opportunity, the companies that will be succeed will be companies that can successfully make managing complexity a core competency.

And so we have done several or we've taken several steps to address that head-on as well.

We have brought on a very experienced Chief Operating Officer, who is increasingly not only learning the industry and the business but making significant positive impact.

We have organized ourselves around categories and activities, and empowered several other senior executives to take a complete ownership of other parts of the business.

We have organized our R&D and manufacturing factoring to be able to support a broader portfolio.

We have made a significant investments in the last year and a half in expanding manufacturing capacities, building new facilities, ramping up our IT and infrastructure.

And we believe that in all of that we are positioning ourselves for long-term sustainable growth and profitability.

So, Holden, we've been doing nothing, but evaluating self criticizing and agonizing over the business model and the strategy and I believe that we have in addition to bidding ourselves up and being constructively critical have taken many, many steps to position ourselves to be successful in managing complexity and to be profitable in managing complexity.

And when all is said and done, I believe that we have a great deal more to offer as a company as the result of what we have assembled and as a result of the way that we're organized, the talent that we have, and most importantly, the portfolio and the channel access that we have.

Scott Schmitz, Morgan Stanley.

Avi, if I look at the consumer market that grew 169%, how much do you think the growth in that market is affecting the other business?

Is a lower-end consumer or prosumer unit good enough for prototyping application that it's been cannibalizing some of the higher end use cases, are you seeing any evidence of that?

There is no question that our consumer printers, the Cube 3 and Cube Pro, are increasingly capable of making very, very good prototypes and parts for desktop engineering applications.

And we're very proud of it and we think that it's part of self cannibalization that is planned.

I would take it a step further and say that products like our ProJet 1200 Micro-SLA system, which we sell at around $5,000, is completely targeting desktop engineering and bench-top manufacturing applications.

Desktop engineering in the sense that it can really print high-fidelity parts at high speeds for engineers, and bench-top manufacturing in the sense that it's an ideal bench-top manufacturing system for dental labs, for jewelers and for either micro-casting applications.

With all of that, we also see expansion in our manufacturing systems primarily in our SLA and direct metal systems over meaningful periods.

And given in our SLS systems over meaningful periods, we see an expansion.

Our conclusion is that we will continue to lead ASP reduction as we introduce new systems, we've been saying it now for over two years that we will be the ones to continue to democratize and continue to bring ASPs down as we introduce new systems and that we will do it in a way that we believe will be accretive to our razors and blades business pieces.

With all of that said, I don't believe that the current success that we're enjoying in consumer revenue and in consumer unit placement in any way is cannibalizing sales of our higher-end system.

Again it's important to I remember that -- and that's why we believe that we're a little bit more vulnerable in the first quarter.

It's important to remember that we have a combination of expanding international business with growing concentration of manufacturing customers.

And it's that combination that perhaps made us more susceptible or more vulnerable the steep currencies declined relative to the dollar and the aftermath of lower oil prices, which by our analysis curved our aerospace, automotive and healthcare customers' new printer purchases for the quarter.

Those customers are not likely to substitute a consumer printer for high end aerospace or healthcare or automotive printer.

Vamsi Mohan, Bank of America.

Avi, I'm curious if you could give some color around why materials are underperforming.

Isn't a basic premise here that the installed base volatility should be much lower?

And essentially are you saying that the usage levels are falling here, which seems counter intuitive or are you talking about only materials that we would have sold originally with the printers that are contributing to the shortfall?

We were only talking about materials that would have been sold with new printers that would have contributed to the shortfall plus some lower activity across the user base in the first quarter, which also we have witnessed and experienced over the first three weeks of the second quarter is beginning to return to higher -- not beginning to return, has returned to higher levels than what we experienced over the same three weeks in the first quarter.

So when we look at, if you will, some indicators for the health of the business, we look at daily ordering patterns and things like materials, and things like our Quickparts business, because those are more immediate day-to-day indices if you will to the health of the business.

And we are looking at them this quarter versus the first quarter for the first three weeks of each quarter, we see an uptick in order patterns in this period, which tells us that the shortfall in materials in specific was related to not shipping more materials with new systems and some of our user base not ordering as much in the first quarter.

Those who haven't ordered enough in the first quarter are ordering now.

Steve Milunovich, UBS.

This is Peter in for Steve Milunovich.

Quick one, given the changes in FX, are you seeing increased elasticity of demand particularly from your international customers?

And you cited lower oil prices, are some of your enterprise customers arguing or pressuring for lower pricing on the material side as a result?

Let me start with the latter.

We for a period of time until the quarter ended didn't think that we had any sensitivity to whole of oil and gas issue, but what we discovered later is that some of our customers are vulnerable to it like our aerospace customers and other customers and because of that many of them sat on the sidelines for the first quarter until they saw how their first quarter shaped up before they pulled the trigger on multiple system purchases.

I'll give you an example, we expected large aerospace related orders in the first quarter, and surprise, surprise, they came in the first two weeks of the second quarter.

We now understand a little better why.

We expected a few large healthcare orders, and they came in the beginning of the second quarter.

So, while we didn't necessarily think that we were susceptible to some of these economic forces, we now understand that indirectly they influence the buying decisions of some of our larger customers.

We are not seeing pressures on material prices.

This is not a raw material discussion, it's more how these conditions influenced our customers and in turn, influenced us.

Samuel Eisner, Goldman Sachs.

Most of my questions have been answered, but just going back to the end market that you got cited, was there a particular end market that you saw more significant weakness in?

You called out the three.

And then it sounds as though you're getting some of those orders back, but should we view this shortfall as kind of lost revenue or do you anticipate making it up in say, the second half of the year?

They is an excellent question and that is why we decided to undertake this more comprehensive evaluation that Ted was talking about.

It's premature for us to be able to conclude if this is a permanent loss or some of it is going to come back in subsequent periods.

We're beginning to see our user base beginning to come to terms with their own realities of their businesses, and how they will play the rest of the year remains to be seen.

What we're doing in the meantime is, we want to make sure that we manage everything that we can control.

So we're continuing to push ahead with our channel productivity and coverage and training initiatives so that we could make it easier and more effective for our channel to manage in dealing this environment.

We're continuing to accelerate our new product development capabilities and everything that we're planning for this year and we're continuing to accelerate the implementation of enhanced quality and performance in our factories and cost reductions and efficiencies in our operations.

Those are the things that we can control.

Whether we have a snatch back or some kind of a push forward on revenue, we will evaluate in the coming weeks and will try to address that more intelligently on our May 6 quarter.

We're not giving up on the year here.

We just think that it's premature to make it clear determination if these were a series of one-off sectors that impacted only one quarter or will we have some residual impact that will continue to play this quarter.

What we do know is that so far this quarter, things are looking better than they did over the same period in the first quarter and what we also know is that we're following on on our initiatives.

Ken Wong, Citigroup.

Over the last three years, you spent probably about $250 million a year on M&A and with the mindset to focus on current portfolio, is it accurate to assume that you guys should be dialing down that particular budget significantly this year?

It's something that we have said now for several quarters that our plan -- in 2013 and 2014, the aim was to assemble the right technology building blocks and to expand our geographical presence into key markets that we felt would be critical to our success.

We have done that.

We've done it fully and completely, and the final piece came in recently with the completion of our investment in China.

With that in hand, we're going to substantially dial down acquisitions for the foreseeable future and we're spending all of our attention now on scaling our organization on organizing it for better growth on realizing the synergies from all these acquisitions and leveraging the technologies that we already assembled and parlaying them into long-term sustained profitable growth.

We have done it with metals, and we plan to introduce more metal capabilities as the year progressive.

We've done it with our consumer business and plan to introduce more there.

We've done it with our professional and production business and plan to introduce additional capabilities as the year progresses, including taking a leadership role in the whole discussion around speed and what's possible around speed, all the way from your desktop to continuous manufacturing.

So this is a year that is all about refinement, execution and profitability for the balance of the year.

Weston Twigg, Pacific Crest Securities.

This is Daniel Klein for Weston.

Maybe I missed it, but just wondering you highlighted some weakness with your North American channel in your last earnings call and that you plan to realign [incentives].

Is there an update you'd like to share on that initiative?

Sure.

We certainly put in place a series of channel realignment and productivity initiatives and those are in full swing.

And while they are in full swing, given what played out in the first quarter, it's hard to truly gauge the meaningful progress that we made against the backdrop of the challenging economic environment.

Having said that, we completed the internal reorganization of our sales and channel support personnel.

We're actually doing another round of reseller training meetings and sessions as we speak, not just in North America, but in the rest of the world.

We are ramping up and continuing to ramp up our reseller portal training tools, selling and collateral and available materials.

We are revamping and continue to revamp our demand generation.

We're in the process of rolling out a completely new CRM system that links us with all of our resellers in a way that gives us real-time connectivity and management of the entire opportunity pipeline.

And those are just a few of the specific actions that we have taken and are continuing to take in regards to improving productivity and coverage of the channel.

Jason North, Jefferies.

A clarification here on the operating expenses, are you saying that Q4 OpEx is going to be lower than the OpEx was in Q1?

And then also on gross margins, even with the volumes lower, was it better here?

Are you forecasting an improvement from this point as your revenues, your volumes pick up here going throughout the year?

And if so, where can those gross margins get to?

What we said is that we expect cash operating expenses for the first quarter to be about 10% up sequentially to the fourth quarter and that from this point on during Q2, we expect to see cash operating expenses level off as a we factor in the full impact of the latest acquisition that we have made in the first quarter.

Thereafter, we expect cash operating expenses going forward to begin to decline.

And that's going to be as a result of the accelerated cost cutting measures and productivity improvements.

What we've also said is that, even in a disappointing quarter, our gross profit margin sequentially improved or that we expect to report that it improved 110 basis points sequentially.

That is particularly encouraging to us because we had the significant revenue shortfall, which doesn't help gross profit margin, and we also had adverse mix and rate that didn't help the gross profit margin.

What it tells us is that the improvements that we have been putting in place for several quarters are beginning to gain some traction and that with the expected return of higher revenue and improved mix, we expect our gross profit margins to expand further.

That shouldn't come as news.

We've been talking about that for several periods now.

Jay Harris, Acxiom.

Avi, I wonder if you could go a little further on the pause in orders from Aerospace.

What were these companies' primary products that -- because when I think of Boeing or Airbus, I don't get a sense that -- that's been anything but growing aggressively.

So I wonder if you could provide a little more insight.

[We'd be] talking here, Jay, without getting into specific names around, orders that are related to jet engines and power type activities.

And what we tried to explain earlier is that while we didn't believe that we had, as a company, exposure to the whole oil and gas situation, what we understand now is that some of our aerospace or power related companies, companies that deal with jet engines and power turbines and things like that, were a little more cautious in the first quarter before they pulled the trigger on significant capital investments.

And so, when we're talking about orders that were delayed a little bit, we're talking about orders for multiple systems that some of which we already received now that are related primarily to the manufacturing of next-generation jet engines and power and turbine applications and things like that.

Ms. Witten, we have no further questions at this time.

I would now like to turn the floor back over to you for closing comments.

Thanks.

As a reminder, we'll hold our conference call and webcast to discusses our final results for the first quarter of 2015 on Wednesday, May 6 at 8:30 AM Eastern Time.

Thank you for joining us today and for your continued support to 3D System.

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

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

You may disconnect your lines at this time.

Thank you for your participation and have a wonderful day.