Welcome to 3D Systems’ first quarter 2008 earnings results conference call and audio webcast. I’m Chanda Hughes with 3D Systems, and with me on the call today are Abe Reichental, CEO; Damon Gregoire, CFO; and Bob Grace, General Counsel. Before we begin this discussion, I would like to preface our presentation today with a statement regarding forward-looking information. Certain statements made in this presentation that are not statements of historical or current facts are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements may involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the company to be materially different from historical results or from any future results expressed or implied by such forward-looking statements. In addition to statements which explicitly describe such risks and uncertainties, readers are urged to consider statements in the future or conditional tenses or that include the terms, believe, belief, expect, estimates, intends, anticipate or plan to be uncertain and forward-looking. Forward-looking statements may include statements as to the company’s beliefs and expectations as to future events and trends affecting its business. Forward-looking statements are based upon management’s current expectations concerning future events and trends and are necessarily subject to uncertainties, many of which are outside the control of the company. In particular, the factors stated under the heading “Forward-Looking Statements, Cautionary Statements and Risk Factors” that appear in the company’s periodic filings with the Securities and Exchange Commission, as well as other factors, could cause actual results to differ materially from those reflected or predicted in forward-looking statements. At this time, I would like to introduce Abe Reichental, President and CEO.

Yesterday, we issued our first quarter earnings results and filed our quarterly report on a Form 10-Q with the SEC. I would like to review these operating result with you this morning and give you my perspective on our business and operations. First, we reported the following first quarter ‘08 results as compared to our ‘07 first quarter. In line with this, we reported a 14% revenue decline to $31.8 million primarily as a result of lower large-frame system sales and the uncertain current business climate. Secondly, a 16% gross profit decline to $13.4 million, primarily due to the lower volume resulting in a 1 percentage point gross profit margin decline to 42%, a 7% operating expense decline to $16.7 million, which resulted in a $0.6 million net loss increase to $3.7 million for the first quarter of ‘08 and $0.01 net loss per share increase to $0.17 for the quarter. I’m deeply disappointed with the revenue decline that we experienced during the first quarter, a decline that impacted our entire operating results for the quarter. I believe that several independent events coincided during the first quarter to counter the sequential progress that we’ve made in ‘07. First, let me address our severe revenue decline. Our revenue declined during the first quarter primarily as the result of lower sales of our large-frame Rapid Manufacturing systems, reflecting domestic marketplace softness in demand for prototypes and functional parts produced on these machines. I believe that the soft U.S. demand for end-user parts during the first quarter slowed our ability to close sales for systems destined to parts manufacturers, as they hesitated to invest in significant capacity addition during an uncertain economic period. Regretfully, due to the relatively lower selling prices, sales from our mid-range prototyping systems and lower-end 3-D printers were not…

As you can see from this slide, which indicates our quarterly sales trend since 2003, systems orders and consolidated sales tend to fluctuate on a quarterly basis as a result of a number of factors, including the types of systems orders by customers, customer acceptance of newly introduced products, the timing of product orders and shipments, global economic conditions, and fluctuations in foreign currency exchange rates. Our customers generally purchase our systems as capital equipment items, and the purchasing decisions may have long lead times. Due to the relatively high list price of our large-frame systems and the overall low unit volume of system sales in any particular period, the acceleration or delay of orders and shipments of a small number of systems from one period to another can significantly affect revenue reported for our systems sale for the period involved. Revenue reported for systems sales in any particular period is also affected by revenue recognition rules prescribed by generally accepted accounting principles. However, production and delivery of our systems is generally not characterized by long lead times, and backlog is therefore generally not a material factor in our business. Consistent with the normal operating trends in our business at March 31, 2008, our backlog was approximately $2.3 million compared with the $3.1 million of backlog that we had at December 31, 2007. Gross profit for the period declined by 16% to $13.4 million primarily as a result of the lower large-frame systems revenue mentioned earlier by Abe that adversely affected our absorption of overhead over the systems category of products by $1.2 million that we believe accounted for approximately 80% of the systems margin decline. Gross profit was also negatively affected by certain supply chain and third-party logistics inefficiencies, which resulted in higher cost of goods sold, additional freight…

Before we begin the question and answer session, I would like to spend a few minutes reviewing with you recent developments in our business and how we see them contributing to our growth and profitability. Let me also mention that in the interim, nasdaq.com was able to post our slides. So for those of you on the webcast, you can now follow along. I am starting on Slide 17 now, which is titled “State of the Business”. I understand that the magnitude of the shortfall in our core business will likely raise questions and create some skepticism about the strength of our business model. In light of that, let me say that despite the significant setback that we suffered during the first quarter of this year, I remain confident in our overall direction and expect to regain lost ground in the coming quarters as the result of the positive traction that we are getting from our new products. I’m gratified that during April we were able to close several large-frame systems sales that were previously deferred. I expect that notwithstanding the uncertain current economic climate and its associated uncertainties relating to capital spending patterns, we should be able to continue to benefit from our new products and initiatives. Our growing install base, coupled with the integration of our new systems with proprietary material cartridges should improve the profitability of our business. And revenue for materials continues to outpace the growth in systems. As result, this stability of our revenue base should improve as consumables sales rise as a percentage of product mix relative to systems. Finally, I believe that our substantially reduced indebtedness and ongoing improvements in working capital management provides us with the flexibility to pursue our near term growth opportunities vigorously. Moving on to Slide 18, I wanted…

We will now open the call to questions.

(Operator Instructions) Your first question comes from Cliff Ransom - Ransom Research.

Is this is a second delay in V-Flash? Did you not pre-report these problems because you thought you might get large systems sales toward the end of the first quarter?

The V-Flash delay is, yes, a second delay as a result of expanding the field activities and discovering primarily some electrical noises in the system that we wanted to remedy before we further expand our exposure. This is not related to system performance in the sense of how it would perform in terms of building parts. It had to do with some electronic noise that we wanted to remedy immediately before too many systems got into the marketplace.

Has that now been remedied?

It has been remedied, it’s now being worked into the all the systems that have been online and as I said we would be commencing shipments, first for hearing aid customers and then for general public. Secondly, with regards to large-frame systems and why we have not reported this earlier, you absolutely right that, notwithstanding our best attempt to retrain and recondition the marketplace to conduct buying activities uniformly throughout the quarter, the bulk of our activities tend to happen in the second half of the quarter, and more significantly in the third month of the quarter. And given the size and magnitude of some of these sales, it is not clear to the company until the last bit of the quarter exactly where we stand in terms of revenue, and therefore we were in no position to alert the market any earlier.

Your next question comes from Eric Martinuzzi - Craig-Hallum.

I noticed that one of the supplemental cash flow statement disclosures talks about a $3.6 million transfer of equipment from inventory to property and equipment net. What is that equipment going to be used for?

Part of that equipment is being used in our Rapid Manufacturing Center and at 3D University here in Rock Hill, that has training courses for various people along with the university. And at times we move equipment in and out of there, so we will have sold some of that equipment over the past periods, and it’s just a matter of replacing it. Most of it was what was there previously.

Eric, let me add that we have certain commitments to our own RMC to make sure that we have x number of machines always deployed in a variety of Rapid Manufacturing activities to support our sales activities but also to support some of our customers. We have some commitments to 3D University, in terms of having equipment on site there to facilitate training. We also have some demo equipment that we put in some of our satellite offices, primarily in Germany, Japan, and the UK. That equipment is on a rotational business. It periodically gets sold and refreshed from time to time to make sure that we in our showrooms and at the University have the latest equipment. That’s why you’ll see those movements between inventory and assets.

Your next question comes from Bill Gibson - Nollenberger Capital.

Abe, I want to go in a little more on the big system sales. You mentioned booking a few in April. If those had fallen in March, would you have felt good about the quarter and hit your numbers there, because I also sense a bigger concern that it may be an economic slowdown impacting you as well that’s longer-lasting.

No, I don’t think that if we had gotten all these systems booked in I would have felt good about the first quarter. I am a little bit concerned, and my concern is more related to the consumption of parts in the market and primarily larger-size parts, which is where our equipment tends to be differentiated and what drives principally our material sales. And we have done enough channel checks and also observed from other players in the industry that the first quarter exhibited a slowdown in demand for parts and large parts. Many of our large Rapid Manufacturing systems are sold to preferred service providers that are in the business of making and selling parts. They’re also sold to some very large OEMs that have, if you will, their own in-house service bureaus for the benefit of their corporations. And in economic periods like the first quarter that had slower demand if not anemic demand for such parts, we see that impacted in the reluctance, hesitation or concern on the parts of these people to add capacity during an uncertain time. So I would not have been happy had we had the sales in April fall in the first quarter. I am a little bit concerned: I continue to be concerned. On the other hand, I’m somewhat gratified that we did get some of those sales because what it tells me is that there may be some relaxation about the future of the economy here in the United States and that some companies that hesitated, particularly in segments that are reluctant to purchase during recessionary times, like automotive. When we saw some automotive purchases come through in April it gave us some confidence that maybe the uncertain economy is not going to be long-lived.

Your next question comes from Jay Harris - Goldsmith & Harris.

Abe, what caused the decline in revenues from the first quarter of ‘07 to the first quarter of ‘08 in Asia Pacific and Europe?

In Asia Pacific and Europe, it was just a mix. We just sold fewer systems. But we did not see the same distribution as we saw it here in the United States. Let me say generally that our mid-range and low-range systems performed quite well in relative terms. It was really the large-frames that was very noticeable and specifically in the United States. In Europe and in Asia Pacific I would chalk that to just a slow start to the year.

Your next question is a follow-up from Cliff Ransom - Ransom Research.

When you were talking about the gross profit improvement plan in Slide 20 and talking about inefficient third-party logistics, was it UPS you were using for that after you fired them?

We came to the realization after many, many attempts of trying to evolve and realize potential operational efficiencies in all of the cost reductions that we were hoping to get as a result of outsourcing. We’ve realized that not only that we’re not getting the expected operational cost reductions but that the inability to tightly manage inventory, the need to periodically write off inventory that wasn’t located properly. The swell in the system on recurring materials that come back for warranty and repair and are not handled properly, and as a result the company has to purchase additional inventory while it is in the system more than negated and erased any potential saving which theoretically the company should have realized. We think that it cost significantly several percentage points in deterioration in gross profit margin. And as you can see just from the results of the first quarter, even without fully implementing the entire gross profit improvement plan, we have made significant progress on service gross profit, which probably went up by almost 10 percentage points from the first quarter of ‘07, if my memory serves me correctly. And also on materials, which I think our gross profit margin improved by some 3 percentage points from the first quarter of ‘07. And my point here is that by moving and gaining control of our inventory and gaining control of our return warranty power and gaining control also over resins which currently we’re manufacturing in Switzerland and at the moment are very exposed in terms of foreign currency, gives us a much more decisive path to not only achieve our historical gross profit margins, which notwithstanding even the dismal results of the first quarter, were within a sniffle but really getting closer to our long-term target.

Your next question is a follow-up from Bill Gibson - Nollenberger Capital.

You mentioned in your gross margin improvement plan that, eliminate the premature failure of warranty parts, and warranty expense was up in the quarter. Abe, are we having problems with the outsource manufacturers, or what’s going on there?

The problem here is not with the outsource manufacturers that assemble the machine in its entirety. We have some specific components that are failing prematurely in certain product categories. These are expensive components in the category of lasers and certain pumps and motors that are not really the responsibility or the design of the assembler of the equipment. But rather it comes from other third-party suppliers. When we have premature failures, if a component like this, Bill, is designed to run, let’s say 50,000 hours, and it only runs 10,000 hours and it’s still under warranty, it’s very costly to the company because we have to replace it. It’s even more costly because we have to send out a sales service technician to do it. It increases our inventory, and that in combination with not having an efficient return materials system using our third-party logistics partner, further exacerbate our warranty costs. Now, if you look at what most of this is captured in our field service gross profit margin, and as you can see, we’ve already improved that by 10 percentage points. I’m just telling you that’s not enough. There is much more juice to be squeezed here and we’re actually now stepping up in our effort to work directly with some of our third-party suppliers to bring this to favorable resolution quickly.

Your next question is a follow-up from Jay Harris - Goldsmith & Harris.

Abe, what were your objectives for the March quarter?

Jay, I can’t begin to give you an answer on that. Suffice it to say they were much higher than what we achieved. That’s why I’m deeply, deeply disappointed. But without beginning to give general guidance here on revenues, I’m really not at liberty to share with you what were my expectations except to say that we were very far from achieving what we wanted to achieve. This was a real disappointment.

Your next question is a follow-up from Cliff Ransom - Ransom Research Inc.

Abe, I accept that you have a philosophical stance on forward guidance and we’re not going to get it. Do you have hard numbers internally that you don’t choose to share with your shareholders about what you think the second and third quarters, fourth quarters, will look like?

We have, Cliff, hard numbers for every reporting period. We have a budget. We break the budget into monthly and quarterly expectations. We drive the whole business in accordance with this annual profit plan that starts with revenues and goes all the way to the bottom line. We are compensating our entire team in accordance with achievement of those objectives. So the answer is yes to all of it.

Your next question is a follow-up from Jay Harris - Goldsmith & Harris.

Abe, I wish you would arrange for a forum that’s more effective than a one-hour conference call to pursue the subjects raised by the press release.

Jay, we are going to be at the RAPID Show, the week after next. We plan to give a very expansive overview of where we are in the business, not just myself but many of our senior members of the management team are going to be on hand to participate and answer questions. Our entire portfolio of equipment including all of our large-frame systems are going to be on display. And we would make ourselves fully and completely available to answer any and all questions. If you made time between then and you wish to talk with us one on one in a conference call, we would be more than happy to accommodate you, starting after the end of this conference call.

Your next question is a follow-up from Cliff Ransom - Ransom Research.

Abe, what have you changed in your quarterly, monthly, annual profit plan budgeting, based on your experience in the first quarter?

Well, we made several changes in our sales plan for the year. We’ve made some changes in how we are trying to accelerate and pull in some of the longer-term prospects. We have not at this point in time given up on making up what we lost in the first quarter during the remainder of the year. I tried to indicate that in the press release, and in my prepared comments today, that we have some expectations and beliefs that we could gain some of the lost ground in the coming periods. So, while we have adjusted some of our go-to-market strategies, at this point in time we haven’t given up yet on making up the difference.

Your last question is a follow-up from Eric Martinuzzi - Craig-Hallum.

Abe, given the revenue shortfall, is there a restructuring plan that you’ll be implementing?

No. It took us, Eric, a long time to build the right team here. I came in to the company at the tail end of a massive restructuring plan, which in my view decimated the organization and resulted in a long-term devastating effect on our ability to develop and sell and succeed. It was very expensive to rebuild what was lost in the 2002 to the 2003 period. That does not mean, Eric that we’re not looking very carefully at every discretionary expense. It does not mean that we’re not looking very aggressively at other areas where we could reduce our expenditures or increase our profitability by reducing our cost of sales. But I honestly don’t believe that a restructuring of people is what’s called for. When you look at revenue per head in this company, with our 360-some odd employees, we are I think very efficient in terms of our productivity. Most of our employees are highly trained specialists, and my sense is that that would be very short-term thinking on the part of the management to contemplate these kinds of restructuring, which may look good on the P&L for a few quarters but will be much more expensive to remedy as we regain the loss ground and continue to execute on our business model.

We have no other questions at this time.

We will now close the call. Thank you for joining us today and for your continued support of 3D Systems. We will have the webcast slides posted on our website at www.3dsystems.com/ir. A recording will be available two hours after completion of the call. To access the recording, please dial 1-888-203-1112. A replay of the webcast will be available after the call on 3D Systems’ website.