Welcome to the 3D Systems second quarter and first half 2008 earnings results conference call and audio webcast. (Operator Instructions) At this time, I would like to turn the call over to Chanda Hughes with 3D Systems.

With me on the call are Abe Reichental, CEO; Damon Gregoire, CFO; and Bob Grace, General Counsel. The audio webcast portion of this call contains a slide presentation that we will refer to during the call. Those following along on the phone who wish to access the slide portion of the presentation may do so via the web at www.3Dsystems.com/ir. Participants who would like to ask questions related to matters discussed in this conference call at the end of the session, just call in using the phone numbers provided here on slide three. The phone numbers are also provided in the press release we issued yesterday. For those who access the streaming portion of the webcast, please be aware there is a threesecond delay and that you will not be able to post questions via the web. Before we begin the 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 fact 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 “believes,” “belief,” “estimates,” “expects,” “intends,” “anticipates,” or “plans” to be uncertain and forward-looking. Forward-looking statements may include comments as to company's beliefs and expectations as to future events and trends affecting this 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 headings “Forward-Looking Statements,” “Cautionary Statements and Risk Factors,” 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 the differ materially from those reflected or predicted in forward-looking statements. At this time, I would like to introduce Abe Reichental, President and CEO.

As you already know, yesterday we issued our second quarter and first half earnings results for 2008 and also filed our quarterly report on form 10Q with the SEC. I would like to review these operating results with you this morning and give you my perspective on our business and operations. We reported the following second quarter and yearoveryear results. Revenue for the second quarter increased by $0.2 million to $36.7 million on higher materials and service revenue, but this increase was almost completely offset by a decline in systems sales. Gross profit decreased by 1% to $13.3 million; and while material margins increased, lower margins on systems and services more than offset this increase. The result was a 70-basis-point decrease in gross profit margin to 36.3%. We will discuss the reasons for this decline in a few minutes. Continuing a sequential trend, operating expenses declined by 12% to $16.1 million; and operating loss declined by 43% to $2.8 million. Net loss declined by 37% to $3.3 million, and net loss per share declined by 44% to $0.15 per share. For the six months, we reported the following. Revenue decreased by 7%, to $68.4 million from $73.4 million for the 2007 period, including our weak systems revenue in the first quarter. We experienced a 25% decrease in revenue from systems. This more than offset our 3% increase in revenue from materials and 4% increase in revenue from services in the sixmonth period. Gross profit for the six months of 2008 decreased by 9% to $26.7 million. Gross profit margin decreased to 39% from 40% in the first six months of 2007. Operating expenses declined by 10%; and net loss declined by 17% to $7 million, or $0.31 per share, from $8.4 million, or $0.44 per share in the first six…

The first thing I'd like to point out this morning is that our recurring revenue continues to move in the direction of our longerterm operating model, with 69% of our total revenue in the second quarter coming from materials and services. Of that, materials accounted for 44%. The graph on slide 11 also shows that our geographical mix of revenue remained fairly consistent in the second quarters of 2008 and 2007. Gross profit for the second quarter of 2008 decreased by 1% to $13.3 million. Gross profit margin decreased by 70 basis points to 36% for the second quarter of 2008. The decline in our gross profit margin in the second quarter was primarily due to changes in our revenue mix and our lower volume of systems sales, which resulted in our inability to fully absorb overhead, and the high incidence of used equipment sales. Other items affecting gross profit margin in the second quarter were higher materials revenue with higher gross profit, 60-basis-point adverse impact of foreign exchange on cost of goods sold that Abe mentioned earlier, along with a 30basispoint adverse effect due to duplicate supply chain costs related to moving logistics activities inhouse, and a 110basispoint impact of costs associated with inventory of VFlash machines and finishers, as well as higher warranty costs that also adversely effected gross profit margin by 80 basis points. The combined impact of these items, including the high incidence of used equipment, negatively affected our gross profit margin by approximately 500 basis points. For the first six months, gross profit decreased by 9% to $26.7 million. Gross profit margins decreased to 39% for the first six months of 2008, from 40% in the first six months of 2007. The decline in gross profit margin for the first six months of 2008 was…

Before we begin the questionandanswer 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 future growth and profitability. I know that the magnitude of the shortfall in our core business will likely raise questions about the strength of our business model. In line with that, let me say that, despite the significant setback that we suffered during the first half of this year, I remain confident in our overall direction. Notwithstanding the uncertain current manufacturing climate, our sales recovered somewhat in the second quarter of 2008. We believe that we are well positioned to gain additional lost ground in the coming quarters. Our growing install base, coupled with the integration of our new systems with proprietary materials cartridges, should improve the profitability of our business as revenue from materials continues to outpace the growth in systems. As a result, the stability of our revenue base should improve as consumables sales rise as percentage of the product mix relative to systems. We believe that with the absence of abnormally high used equipment sales that we experienced in the second quarter, gross profit margins should also improve. Let me also spend a few moments updating you on the progress that we're making with our VFlash system. With the previously reported electrical noise problems related to our VFlash Desktop Modeler and the resulting delays in our planned commercial shipments, which we announced in connection with our May 9 first quarter earnings call and subsequently at the Rapid investor show a few weeks later, we neither made any commercial shipments of our VFlash Modeler during the second quarter nor recognized any revenue from our VFlash Desktop Modeler in the second quarter or first six months of 2008. This…

(Operator Instructions) Your first question comes from Eric Martinuzzi - Craig-Hallum. Eric Martinuzzi – Craig-Hallum: I am curious to know what gets the Large-Frame moving again, and I would like you to comment in your response in both the SLA and the SLS. If you could also talk a little about the sales force, the number of sales reps, the tenure of the sales force, because I don’t think we will get the whole company going again until that's working for us.

I think what gets the Large-Frame sales going both in SLA and SLS is greater demands for those parts. These larger systems are more reliant on the manufacturing economy. They tend to go to service providers. They tend to go to automotive companies. They tend to go to other related motor sports, aerospace, and large durable goods and consumer goods customers. Primarily what drives growth in those systems, in our opinion, is greater demand for parts, either paid parts from service bureaus or parts for projects and parts for shortrun manufacturing opportunities. Within SLA, the driver for growth for Large-Frame will be the combination of what I mentioned, but it will also be driven by digital dental applications as systems will continue to be deployed into those applications driven by companies like 3M, Sirona, and others. In SLS, the driver will continue to be primarily in the plastics, automotive; in the metals, it will be dentistry and other related metal applications. With regard to the sales force, the tenure of our sales force, by and large we have a thoroughly mature and experienced sales organization that is well qualified to sell and place these Large-Frame systems. I would say over 80% of the sales force is with a tenure that is over 5 years, so I don't think this is a question of sales capability. I think this is reflecting some of the realities that we experience in the marketplace. Probably the harshest reality, if you will, for the first half of the year, at least by our surveys, is that parts demand is flat, relative to last year, based on our surveys and our sources. Eric Martinuzzi – Craig-Hallum: Are those service providers that you're talking with, have they given you any indication as to potential light at the end of the tunnel or is it just things are tough and we don't see any end at this point?

There is always some optimism and light at the end of the tunnel when we look just at the historical behavior of this market, first half versus second half. We are continuing to place systems. We did grow our material revenue by some 9 percentage points overall. As I said earlier, the growth of our newer integrated materials was over 30% sequentially. What we are hearing and what we are seeing is that we can still grow, even with our service providers during a flat economy, with parts when we brand and differentiate the parts that we sell. So, it's a mixed bag in the sense that we're very successful with our more differentiated and integrated materials; and we're less successful with the legacy materials that are more commoditized and more susceptible to the downward momentum in the parts market.

Your next question comes from Cliff Ransom - Ransom Research, Inc. Cliff Ransom – Ransom Research, Inc.: I'm not sure when you're using the thirdparty contract manufacturer, why you're experiencing this heavy buildup of finished goods. Can you drill down on that and give us some granularity?

At a certain point in time, as we begin to place orders with the thirdparty suppliers, and we do that on a quarterly basis, we take in some of those units after we contract for them and the vendor completes them within X numbers of days. We then take them in. In the case of VFlash, specifically, because we have encountered the electrical noise problems and because of the certain point in time the vendor completed their obligations to assemble and build X number of units, notwithstanding those delays, we have to take those units into inventory because we decided that it would not be responsible to ship them until we resolved all the issues. Cliff Ransom – Ransom Research, Inc.: I understand that you need to take in the materials, the machines, that were in the pipeline that had to be delayed. Is that the right way to think about it?

That's how you should think about it. Cliff Ransom – Ransom Research, Inc.: Then why does it continue to grow in the third and fourth quarter?

We didn't say that it will continue to grow in the third and fourth quarter. We said that in view of all the additional products that we are selling right now, several additional new 3-D Printers, including the Flash, and direct metal systems that come in at several hundred thousand dollars a click per machine, our ability to reduce inventory to below the $20 million target is going to be hampered by that. Realistically, by the end of this year, we will only be able to reduce inventory in the range of $20 million to $22 million, giving effect to the portfolio that we're carrying. Also, in the buildup that Damon mentioned, the $3.7 million buildup, we have a couple of very large purchases on behalf of different 3-D Printer models. We had the onetime large purchase of a component because it was end-of-life. That would be depleted over a couple of years as a major component on some of our larger 3-D Printers. And we also had a high volume purchase for VFlash with regards to the Flash imaging unit that is installed on it. That has to do with our supply arrangements with the proprietary supplier of that Flash imager. Those two elements that went into inventory in the course of the second quarter would be depleted over several quarters, actually probably over a 12month period. And so, giving effect to that, we also decided to adjust our inventory targets for the remainder of the year.

Your next question comes from Bill Gibson - Nollenberger Capital. Bill Gibson – Nollenberger Capital: I'd like to zero in on a part of the business that seems to be going right, and that's the emerging dental lab business. In terms of the people you sell to, what kind of feedback are you getting on what it takes to get a lab to change the way it does business and what are the main objections to somebody buying the system?

First, let me quickly reiterate that even in this difficult economy, we actually experienced an increase in units and in revenue from placements of 3-D Printers; and a lot of that was helped by demand from dental labs for our new ProJet DP 3000. We believe, and you can see it by talking to labs and by reading the dental industry magazines that are published on a monthly basis now, that the whole industry is undergoing a significant transformation to a digitized workflow. I think what's helping us here is that we are not trying to change the industry; the industry is being changed by significant workflow forces from the shapers of the industry, the 3Ms of this world, the Sironas of this world, the [inaudible] of this world, and so forth. They're all going there with their own digital workflow solutions, starting with scanners and software packages that enable that; and we have a proprietary component that is neatly bolted into this overall digital path. We are enjoying an increasing acceptance. We have heard very favorable feedback from most everybody that received one of our new systems. We have, we think, a very interesting channel into that market in various parts of the world. We believe that the ROI for at least the top tier of laboratories is very attractive. The resistance to change here is diminishing very quickly, simply because the whole industry is headed in that direction, as I said, being shaped by the major providers. So for us, this one is more of a pullthrough as opposed to a push.

Your next question comes from Jay Harris - Goldsmith and Harris. Jay Harris – Goldsmith and Harris: On the Tangible Express inventories, it seems to be about $1.5 million worth leftover in inventory. Do you have any idea how long it will take you to sell that?

I think that the number is $1.2 million. Our expectation would be to sell it as quickly as we can to the right customers at the right price. My sense is that certainly by the end of the year, it would be fully sold. Jay Harris – Goldsmith and Harris: Is the margin lower on that because of selling price or because of you paid more than newly manufactured equipment?

It would probably be a combination of both. However, let me answer a question that you are not asking directly. I said earlier in my remarks that we had a higher incidence of used equipment sales in the second quarter. Only 33% of the units sold were Tangible Express, but they represented 40% of the revenue from the used equipment. So clearly we did not give those units away; but in the mix of a much larger component of used equipment, it certainly suppressed our gross profit margins and systems. Phil Goldsmith – Goldsmith and Harris: With regard to target markets that you're optimistic about, aside from dentistry that you mentioned, could you just prioritize those that you feel are the most fertile at this point?

We have different fertile markets for different systems. I think, particularly in this somewhat uncertain economy, it's a strength. We see opportunities to place quite a few metal systems for the balance of the year, simply because of the unique fully dense metal capabilities with six different alloys. We see that going into many different end use opportunities. We see our ability to place additional microcasting systems, which to us is 3-D Printers, the ProJet series, into additional microcasting opportunities well beyond jewelry, where we have been quite successful in the last couple of years. We see opportunities with some of our new SLS materials like the HST materials to actually break into production of unmanned military vehicles, drones and on-the-ground kind of vehicles as that material is being tested and spec’d by a variety of unmanned vehicle manufacturing companies related to the defense industry. We see, obviously, great opportunities in the dental arena, both for our Large-Frame SLA machines as centralized production systems for dental models and others, but also for the ProJet dental professional systems in laboratories for coatings and partials and also for our direct metal systems in some instances for precious metal crowns and so forth.

Your next question comes as a follow-up from Bill Gibson - Nollenberger Capital. Bill Gibson – Nollenberger Capital: Just one little followup on Grand Junction, is anything in the works on getting that sold and freeing up the cash?

We have been working on Grand Junction in every reported period since the building became available to be sold, actually before it became available to be sold. There hasn't been a period yet that we didn't either have a very serious interested party or, actually, a signed agreement that was going through its various due diligence and a prospective buyer was trying to qualify for financing, etc. So, even in this period, we have a very interested party; and one hopes that in that tiny little isolated real estate market called Grand Junction that one of these days, we'll find a buyer that, not just has the interest, but also the ability to raise the required money to purchase the facility. The facility is ideally located. It's in great shape. We appraised it several times, and we think it can fetch a nice price. What's missing is to find the right buyer, but it's not for lack of effort. We don't want to give it away.

Your next question is a follow-up from Cliff Ransom - Ransom Research Inc. Cliff Ransom – Ransom Research, Inc.: You gave us some wording on the increased second half R&D number, and you said it was due to VFlash and to some additional new products. Can you expand on those two sides? Why is there additional VFlash work? Is it aimed at derivative machines, and what are the kinds of things? When will we hear about what the other new products are?

Let me say a few things. We said that we expect R&D to be in the range of $7 million to $8 million, and that reflected work on VFlash and other new products. If you look at our history, you know that every year we will develop and introduce a handful of new systems and materials. So it's reasonable to expect that as we continue to spend at the rate we're spending, you could expect to have in any given sixmonth period some new systems and some new materials from us. Specifically, with regard to VFlash, as I said all along, VFlash as a product today is only one of subsequent systems that would come off this fill transfer imaging technology. Some of the R&D dollars that we spend in every quarter under the heading of VFlash is already looking ahead at derivatives and subsequent generations, understanding that just like we have to refresh every other part of our systems and materials portfolio for VFlash to become a credible, bona fide product, it has to have its own product road map and it has to have future plans for additional price points and for additional models and some of the R&D spending reflects that. Cliff Ransom – Ransom Research, Inc.: Can you give any sense of when we're likely to hear about it? If you highlighted the spending on both VFlash and new product development, when are we likely to hear about the actual market introductions of those other new products?

Certainly, we will be using the time between now and our world conference to possibly introduce some additional new products. We always do that in connection with major events like that. One would expect that we would be ready to introduce some new products between now, the world conference, and the end of the year, simply because we're due.

Your next question is from Jay Harris - Goldsmith and Harris Jay Harris – Goldsmith and Harris: Will we see a reduction, or do you know, in inventories and working capital in the September quarter?

I would be a little bit cautious here simply because we're still in this process of building up certain inventories and getting ready to provide all the support that we need for our gotomarket strategy between now and the end of the year. It is possible that you will see some reduction on a net basis; but as you saw from Damon's presentation, there are right now negating movements within inventory. Some of the core inventory is going down, and there are some shortterm and longerterm inventory investments in support of our extended gotomarket strategy here. We feel comfortable saying that, by the end of the year, we would be in the $20 million to $22 million. Whether some of it is realized through the third quarter, I can't tell you with pinpoint certainty. Jay Harris – Goldsmith and Harris: I only asked the question because had you achieved the inventory levels that you indicated, you would have had $5 million of free cash flow generated in the quarter.

I understand that you're asking this because of cash. Certainly we're looking at the inventory position that we have and understand its value to cash. Let me also add that, historically, this is in no way certain to happen or to repeat; but historically, in our business, more free cash is retained in the second half of the year than in the first half of the year based on the historical behavior of this business and maybe, Damon, you can elaborate on that a little bit. I know you've studied it. Again, this is no prediction of certainty that this trend will repeat again this year. But this has been the historical trend.

It's been due to sales cycles and inventory cycles and also how our receivables and everything move there, too. Basically, our payoff structure for our capital expenditures is happening earlier in the year and not happening as much later in the year. There's numbers of different factors. Over the last four years, if you looked at it, that has been the trend, that our cash has increased in the second half of the year. Jay Harris – Goldsmith and Harris: Traditionally, your fourth quarter has been your highest revenue quarter. Given the slowdown in North American and European economies, do you think we'll still see a traditional third to fourth quarter surge in revenues?

We would like to hope that would happen. We are doing our part to make sure that we are going to bring as much of that about as is within our control. So, suffice it to say, we have expectations that that behavior will continue, notwithstanding the uncertain economy to some extent. We're going to do our part to make sure that we maximize any surge in that direction. The rest is going to be up to forces that are greater than us. Jay Harris – Goldsmith and Harris: Do you have any sense that capital spending patterns might be off because the company has reduced the amount of capital dollars they're willing to put in play?

What we've been hearing, which is partly responsible for this midJune disappointment, if you will, we heard from quite a few customers that previously told us they had approved capital spending and were ready to place orders, that those funds or those budgets have been temporarily frozen and/or the project was postponed by several months because those companies wanted to wait and see how their year will shape out. Nobody came back to us and said the project is completely canceled, we’re not going to spend the money this year and that's it. What we heard is we're postponing, the budget is frozen for a few months, come talk to us again in a couple of months. We'll advise you if anything changes. I should also say that we don't believe that we lost any of these opportunities that previously we felt were committed and firmed up to any other competitors. The uncertainty in all of this is, will these companies relax enough in the course of the third and fourth quarter and find the courage to spend what they budgeted or will they continue to tap on a brake, waiting for better economic news? We're going to find out together.

We will now close the call. Thank you for joining us today and for your continued support of 3D Systems. A recording will be available two hours after completion of the call. To access the recording, dial the numbers you see here on the slide and enter the conference ID number. A replay of the webcast will be available after the call on 3D Systems website under the Investor Relations section.