Good morning and welcome to 3D Systems’ Third Quarter and First Nine Months 2008 Earnings Results Conference Call and Audio Webcast. My name is Kesha and I will facilitate the audio portion of today’s interactive broadcast. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. (Operator Instructions). At this time, I’d now like to turn the call over to Chanda Hughes with 3D Systems.

Good morning and welcome to 3D Systems’ conference call. I am Chanda Hughes and 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’d like to ask questions related to matters discussed in this conference call at the end of the session should call in using the phone numbers provided here on slide 3. The phone numbers are also provided in the press release we issued yesterday. For those who’ve access to the streaming portion of the webcast, please be aware that there is a three second delay and that you will not be able to post questions via the web. Before we begin the discussion, I’d 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 believes, belief, expects, estimates, intends, anticipates or plans to be uncertain and forward-looking. Forward-looking statements may include comments 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 headings “forward-looking statements”, “cautionary statements and risk factors”, and “risk factors” that appear in the company’s periodic filing 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.

Good morning, everyone, and thanks for taking the time to listen to our call this morning. Yesterday, we released our operating results for the third quarter and first nine months of ‘08 and we also filed our quarterly report on Form 10-Q with the SEC. I would like to review these operating results with you this morning and give you my perspective on our current business operations and prospects. As you might already have seen, we reported the following results. 7% revenue decline to $35.6 million, primarily due to a shortfall in our high-end large-frame system sales; a corresponding 13% gross profit decrease to $13.8 million, primarily on lower volume; a favorable 3 percentage point sequential gross profit margin improvement; a favorable 8% decline in operating expenses to $14.3 million; and a $0.5 million operating loss. We also reported $1 million net loss that resulted in $0.04 net diluted loss per share. And with regards to cash, we reported that our unrestricted cash declined during the quarter by $1 million to $18.1 million at the end of September. Given the importance of cash during these trying times, we disclosed yesterday that as of November 4, we had $19.5 million of unrestricted bank balances. I am now moving to slide 6. As I already indicated in our press release yesterday, I remain disappointed by the company’s overall operating performance so far this year and with the slower than expected progress that we have made this year against some of our key initiatives. I believe that my disappointment is well founded, notwithstanding the difficult economic environment in which we’re operating and several favorable developments in our operations. I recognize that our year-to-date revenue was adversely impacted by the difficult global business climate and more directly by the credit crisis that intensified during…

Thank you, Abe, and good morning. On the first slide we’ve broken out our third quarter revenue by category and region. As you can see on the left, our largest revenue category was materials, which increased to 46% of total revenue for the 2008 quarter. The right side of the graph shows that European region was the largest revenue contributor geographically, with 45% of total revenue, followed closely by North America with 40%. As Abe pointed out earlier in the presentation, revenue for the third quarter declined by 7% to $35.6 million from $38.2 million as a result of a shortfall in our high-end large-frame system sales. Gross profit margin decreased 13% to $13.8 million from $15.9 million, and operating expenses also decreased to $14.3 million from $15.5 million, representing an 8% savings quarter over quarter. I will discuss gross margin and operating costs in more detail shortly. Net loss amounted to $1 million compared to a $300,000 profit in the prior year quarter. Revenue for the first nine months decreased by 7% to a $104 million from a $111.6 million for the ‘07 period. This was primarily due to a shortfall in large-frame systems’ sales that was partially offset by higher materials’ sales and by higher sales of 3-D printers. Gross profit for the first nine months of 2008 decreased by 11% to $40.5 million. Correspondingly, gross margins decreased to 39% from 41% for the nine months. Operating expenses declined by 9% to $47.1 million from $51.9 million and net loss declined by 1% to $8 million or $0.36 per share from $8.1 million, or $0.40 per share in the first nine months of 2007. Despite the decline in gross profit margin compared to the 2007 third quarter, gross profit margin for the third quarter of ‘08 sequentially improved…

Thanks, Damon. Before we begin the question-and-answer session, I’d like to spend a few minutes reviewing the state of our business and give an update on the initiatives we put in place to reduce SG&A and improve gross profit. And I’m on slide 20 for those of you who’re following the webcast. Based on our integrated materials’ strategy and results to date, we’re cautiously optimistic, even during this uncertain economic period, and believe that our growing installed base, coupled with the integration of our new systems of proprietary materials cartridges should improve the profitability of our business as revenue from materials continues to outpace the growth in systems. We also expect that stability of our revenue base should improve as consumable sales rise as a percentage of the product mix relative to large-frame systems. We expect our operating expenses to continue to decline as we continue to drive all of our cost-reduction programs. And we believe that our accelerated new product introduction activities, which have recently culminated in the introduction of seven new systems that we plan to commercialize during this quarter and the first quarter of ‘09, will contribute favorably to our revenues starting in the fourth quarter of this year. Notwithstanding the downturn that we have experienced this year in capital equipment market, we believe that our recently released, innovative and well-positioned new products should help our manufacturing customers by reducing their development costs, shortening their time to market, and providing real economic cost-savings alternatives to their traditional manufacturing processes. Accordingly, I expect that these factors will help drive stronger demand for our products, even during this uncertain economic period. Turning to our SG&A reduction initiatives, in anticipation of the difficult economic climate ahead of us and its uncertain duration, we undertook a series of additional cost-reduction programs…

We will 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.

(Operator Instructions). Your first question comes from the line of Jay Harris.

Hello.

Hello.

Mr. Harris, your line is opened.

Can you here me.

Yes.

Alright. Abe, can you discuss a little and tell us what your priorities are at this point in time between generating free cash flow, generating profits, positioning the company for growth?

I heard -- let me repeat your questions, Jay, because it was a little bit garbled. You would like me to discuss the priorities between cash conservation, reducing expenses and positioning the company for revenue growth?

No. Not cash conservation, growth in cash.

I’m sorry. Can you please -- okay, to generate cash?

To generate cash.

Yes. Okay.

Generating profits and positioning the company for growth. I’d like you to discuss your priorities.

Okay. Thank you. I can hear you much better now. The way that we are prioritizing our activities right now, and I think it’s reflected somewhat in the results that we already announced and what we introduced in the last, say, six weeks, we are balancing three key priorities. The first is to drive additional revenue generation from the new products that we have introduced and are introducing this period and well into the first quarter, trying to create additional revenue opportunities on price points, and at the same time, mitigate the elongated selling cycles that we experienced over the last few quarters, which, as I mentioned earlier today, the good news is we’re getting those orders. The not so good news is that it’s taking much longer to get those orders to come in. The second thing that we’re doing to obviously generate additional incremental cash above and beyond increasing our revenues is to continuously manage our working capital much better. And I think that if you look at the progress that we have made in the last three quarters, it’s clear that we are beginning to, not only close the gap, but to come very close to actually generating cash, as evidenced by the sequential progress that we’ve been making, and also as evidenced by the point that we believe that we have adequate cash as indicated by our quick snapshot of the November 4th cash balances. And finally, in a period like this, Jay, we have to be very selective in where and how we spend our resources, both in terms of additional product development and also in terms of discretionary expenses. Part is due to the uncertainty of how our customers’ survivability and sustainability may play out over time. And the other part is we want to make sure we that come out on the other end of it, not just as a viable company with what we have, but well positioned for a recovering market. So, we believe that we add value to our customers by offering them systems that help them save money and collapse time to market. And with the seven new systems and additional five technology announcements that we made in the last six, seven weeks, we believe that we have a robust pipeline that not only will position us to maximize revenue generation during this depressed economic period, but hopefully will also position us to come out stronger on the other side of this economic cycle when the economy begins to recover.

Your next question comes from the line of Bill Gibson from Nollenberger Capital.

Hi. Could you share with us the price points on the new systems? What’s the range on these models?

Well, we have introduced, Bill, several systems in the last six weeks, starting with the iPro 8000 that has several models within it, ranging from $399,000 to $499,000. We also introduced a few RealWax pattern manufacturing tools within our 3-D printer segment that range between $70,000 and $90,000. We also announced the introduction of a new sPro Sintering Precision Centers that will have a range of between $350,000 to about $499,000. And we’ve made several technology announcements, including a very large format ProJet 5000 system that will have price points from the low-100s, like from $129,000 to over $200,000. So, we are deliberately and decisively filling the gap with systems that we feel will have the right monetized value proposition at the right price for our customers.

Thanks, Abe. I’ve got more questions, but I’ll get back in queue.

Thanks.

Your next question comes from the line of Eric Martinuzzi from Craig-Hallum.

Hi. It’s Eric Martinuzzi from Craig-Hallum. The Q4 –

Yes, it is. Go head Eric.

Okay. I know you guys don’t give guidance, but I’m hoping you would comment at least on seasonality. Q4 historically has been a real strong quarter for 3D Systems. Obviously, it’s a more challenging macroeconomic environment. But what your sense is as far as Q4, at least versus Q3? Are we up? Are we flat? Are we down? You’ve got one month down in the quarter, what’s your outlook?

We’ve had a reasonably good beginning to the quarter. It’s premature to be able to anticipate, since our quarterly performance, as you know, is back-end loaded. And it’s unprecedented times, Eric. So, I can’t tell you how we’re going to end the quarter. I believe that we’re well positioned. Whether or not history repeats itself in some fashion during very different macroeconomic environment, it’s hard to tell.

Those orders that slipped out of Q3, you mentioned at least $2 million worth of systems orders that were held up due to credit issues, have those been resolved? And if they haven’t, is there anything that 3D is doing to help those customers enable that purchasing process?

Well, as I’ve mentioned now for several quarters, we -- I purposely and deliberately decided to mention our disappointments and shortfall from our own internal expectations to give you some frame of reference to what is happening to us in terms of this elongated selling cycle. And I mentioned this morning that we have received quite a few large orders from global automotive manufacturing companies, which to us is encouraging during this difficult economic times. I can’t comment today if we already received all the orders that we’re accounting on during the third quarter. And finally, we are not in a position, Eric, to become a financing institution for our customers. So to the extent that some of our customers may be struggling with credit, we don’t think that with our own cash balances that we want to turn into an alternative leasing or financing institution here. Our experience taught us over the last few quarters that while it takes a lot longer to finance some of these expensive systems, the companies that are on our list have come through by and large and it’s really a matter of being patient and persevering. The value proposition is there. It is going to take a little bit longer for some of our customers to come up with the financing, but the good news is they’re not walking away.

Your next question comes from the line of Jim Bartlett from Bartlett Investors.

Yes. Could you discuss -- Abe, you mentioned the disappointment in the printer sales, although that they’re up 50%. You said you needed to do more on that. Could you expand about that?

Yeah. It’s -- I mean, it’s nice to be able to report a 50% revenue growth year over year in a corresponding quarter, but we had higher expectations. We think that we have a thoroughly unique and differentiated lineup of 3-D printers, and we are looking very hard at what else we need to do with our channel to make sure that they have all the tools, all the training and all the support that they need to be able to realize the potential. It’s -- we’re not satisfied with a 50% increase at this point in time, because we believe that there is additional upside to some of our 3-D printers. And this is just pertaining specifically to the ProJet family, which we think is a breed apart in its capabilities from what’s out there today. So, we have had all of our resellers into Rock Hill in the last few weeks. We provided more training. We created more tools including various compare/contrast analysis between what we have and what some of our other marketplace providers have out there, and we are going to drive it harder. I’m just not satisfied.

And how quickly would you be able to make sales in the RealWax ProJet printers?

Well, we are taking orders and shipping machines in the current quarter.

And you mentioned the 50%, that was up from what in the third quarter of last year?

No, that was up 50% from what the third quarter of last year was.

But what was the third quarter of last year?

We did not break that separately as a reportable number.

Another item that you had mentioned, the $1 million gross profit improvement and that was over the next two quarters, or starting in the first quarter?

Well, it’s -- some of it will be realized in the fourth quarter and the remainder will be realized in the first quarter. And as Damon said, we expect this to be a sustainable reduction that will continue forward. It’s not a one-time gain.

And finally, in response to -- the Bill Gibson was talking about the price points on some of the various products, not the ProJet, but the iPro and the sPro. Are those what you consider now mid-range systems, the under $500,000?

The iPro 8000 and the sPro 140 will fall into our mid-range systems. And as we indicated with some of our other new products and technology announcements, we’re not done yet.

Your next question comes from the line of Troy Jensen form Piper Jaffray.

Hey, Abe. A quick question on the high end. If you look at it, it looks like it was down significantly, maybe 50% year over year. Your competitor Stratus says it was up 68% year over year. So, there still appears to be a market out there for high-end systems. I’m just curious what you think caused the significant market share shifts?

Well, I think that you need to be mindful and cautious not to compare apples with oranges here. What we call high-end and what, I believe, Stratus is calling high-end is somewhat different, both in terms of its price point and its applications, Troy. And of course, it’s easy to grow a new segment and a new application 68% when you start from a relatively low base. In our case what we call high-end goes primarily today into either indirect and direct manufacturing of end-use parts, not jigs and fixtures, or it goes into very high-end rapid prototypes, tools, patterns, casting applications, etcetera. We have not seen Stratus is in any of those segments that we are playing. And so, I don’t think that you are comparing apples to apples. We do believe that there is a very good opportunity for our kind of high-end large frames and our kind of high-end mid frames. And we also believe that the marketplace behavior did not change in any material way, as evidenced by the fact that these orders that we have counted on to come in the last few quarters eventually do come in. What we are experiencing is a thoroughly stretched, elongated selling cycle that I think is reflecting back to us the real contracting economy and the fact that many, many customers, including our own, understand that cash is king during this difficult period and are deliberating a lot longer and a lot harder before they decide to spend cash. And some of them take even longer to secure the financing.

Your next question comes from the line of David Cohen from Midwood Capital.

Hey, Abe. I think you’ve had some commentary in the last couple of quarters where you’ve been very upfront about your sources of disappointment. And in this quarter you also mentioned -- you and Damon both used the word progress in a number of instances. And I know there are gives and takes on -- throughout the P&L. But you have your target operating model on page 23, which is actually already materially different from your target operating from a year or so ago in terms of still you need to hit the target margins and just what your target gross profit will be. I think previously it was 55% to 65%. And as I look, compared to 2004 and 2005, there just hasn’t been much progress, barely any progress in gross profit, notwithstanding materials that are much higher percentage of your product sales. Your SG&A and your R&D is significantly higher as a percent of sales in the first nine months. So, I guess what are you being measured against at this point? I mean, how are you gauging the success in execution for this company?

Well, we’re gauging it primarily based on the sequential progress that we’re making in the here and now. As you correctly point out, I have been very upfront about my disappointments and I have highlighted every source of disappointment and where and why we have not performed. And we have taken, we believe, very deliberate corrective action. We are making progress on SG&A. I said again this morning that I’m not entirely pleased because we haven’t yet hit the target, but we’re getting within the threshold of the target. I am disappointed with gross profit; however, we are making progress on that. The biggest difficulty, the biggest challenge that we’ve had in the last nine months has to do with our top line, primarily in the large-frame high-end segment. And we have, I believe, at least taken all the possible necessary steps to remedy that in an environment that is not entirely cooperative. If you look at our long-term target model, all that we try to do in the target model from what we had previously is to give a little bit more definition and to create at least a couple of goalposts there to show you what happens to -- within certain revenue ranges, to our gross profit potential, to our net income potential, etcetera. If you look at it and compare it back to what we showed earlier with this detail imposed on it, you will find that we’re basically at the same place. We have not changed our targets. We have just provided a better, more detailed framework as to how and when those could materialize. Finally, with regards to gross profit specifically, if you look at the progress that we are making with materials and materials as a percentage of revenue, and you couple that with what is the unabsorbed overhead that Damon and I spoke about, it clearly points that -- but for the shortfall in the large-frame systems, we would have been much, much further along in the here and now. And yes, I’m disappointed, very disappointed. And I have taken, with the entire organization I believe, very deliberate steps to try and remedy, particularly during this difficult environment with the accelerated introduction of all the systems that we spoke about.

(Operator Instructions) Your next question comes from the line of Jay Harris from Goldsmith & Harris.

Good morning, Abe. This is Phil Goldsmith. With regard to the ongoing legal expenses, how is this going to be treated and how do you anticipate this running off over a period of time?

Well, it’s treated in the way that we expense it as we incur it. We talked and disclosed today $0.5 million of incremental expenses associated with this activity. I should preface that overall we have done a good job of reducing our legal expenses. This is only the incremental cost. And our position here is that in certain situations we have to vigorously defend our intellectual property rights and other business rights that emanate from it. And the objective here is to prevail and to be successful and to share with you on an ongoing basis what’s the incremental expense, so that you understand the significance of the expense in and of itself, and also the remedy of progress that we’re making in all other areas because notwithstanding this incremental rise we have been reducing our operating expenses.

Alright. Is there a normalized rate at which you foresee this as we go forward or is it just going to be up and down --?

I don’t think that there is such a thing as normalized rate for legal expenses. It depends on so many different drivers that it would be naive on our part to try and give you a range that would normalize it, and not something that would bring any credibility to the discussion.

Your next question comes from the line of Bill Gibson from Nollenberger Capital.

Yes. I just wanted to go back down to the low end of the cost spectrum. You didn’t mention the V-Flash much this call. Where are we on the progress spectrum there?

Well, I didn’t mention V-Flash on the call because we have treated it separately a few weeks ago in an announcement that we said that we’re resuming shipments of V-Flash and that we’re getting back to where we had hoped to be quite a few months ago in terms of a managed phased roll-out of V-Flash with some checkpoints along the way. We subsequently showcased five V-Flash machines at our October -- late October World Conference, we showcased hundreds of V-Flash parts and five fully functioning machines to 400 some people that came here and got to kick the tires. And we are, as of today, on track with our managed phased roll-out plans that we articulated earlier in the year. We have the hope and expectation that this time we can go the distance, and that’s where we are.

Your next question comes from the line of Troy Jensen from Piper Jaffray.

V-Flash, I think you said in previous earnings that you expect, is it $0.5 million to $1 million in gross profit deterioration when you launch that?

That is correct.

Am I --?

That is correct. We said that in the early quarters -- since the whole V-Flash model is heavily weighted on material recurring revenues, in the early quarters we said that we expect that, depending on the volume of V-Flash machines, that we would actually -- revenue in a given quarter, we expected a deterioration of gross profit anywhere between $0.5 million to $1.0 million. And thank you for mentioning that, Troy.

Your next question comes from the line of Jim Bartlett from Bartlett Investors.

Could you give us an update on some of the vertical markets, more specifically dental and jewelry, aerospace, and then any other comments on auto since you did introduce a very large machine that could possibly see some sales, the XL. But in this environment what are your thoughts on selling that machine?

Well, let’s start with automotive since I mentioned it a little bit earlier in the call already. It has been, in defiance of conventional wisdom, if you will. We have had several large orders from automotive companies. And that happened over the last few quarters and we expect to receive more such orders. And it’s, if you will, in a way in defiance to the conventional wisdom during an economic time such as this. And on the other hand it’s exactly in line with our own expectations that when we have the right cost-saving tool we will eventually be able to sell it, even during a down economy. We have not seen a great deal of movement in aerospace above and beyond the normal activity that we’ve enjoyed quarter over quarter, up or down. In terms of verticals like jewelry and dentistry, we continue to enjoy ongoing growth. And dentistry in particular is contributing to some of the growth in our more professional 3-D printers as we mentioned earlier today and in previous releases.

Your next question is from David Cohen from Midwood Capital.

My question has been answered.

Your next question is from Jay Harris from Goldsmith & Harris.

Abe, I guess this is a question for Damon. With a contract assembly model for systems, where does the issue of unabsorbed overheads come in?

It’s -- even with contract manufacturers we still have our supply chain and logistics overhead and we have our warehouse here in Rock Hill. So there is overheads associated with all those items.

Your next question comes from the line of Troy Jensen from Piper Jaffray.

So, Abe, just to follow back on that V-Flash question. I guess, my real question was how many units are you assuming in that $0.5 million to $1 million dilution count. And then if you could update us on is it fourth quarter, first quarter, and will that ever turn profitable gross margin on system sales?

We said that from the time that we go full speed on commercial activities with V-Flash that we anticipate that within the first 12 months of full commercial operation to achieve a quarterly run rate of at least a 1,000 units annually. That was underpinned by the various models and projections that we put out there in terms of what a business such as this would be capable of delivering. And so, the expectation would be that the range of $0.5 million to $1 million in gross profit suppression -- if you look at what would be the quarterly run rate at the end of this 12 months, it would mirror scaling up within that range to get to, I guess, 250 units a quarter at the end of the first 12 months period. That’s our expectation and that’s our belief in terms of what a unit like that in this price point is capable of. And that’s what we shared with you earlier in the year in the various revenue-generation models that we published on V-Flash and shared particularly with you during the rapid presentation in this past May. In the case of what we have experienced already in the course of the second and third quarter, Damon mentioned this again earlier today, some of this negative effect was already absorbed in our gross profit in the second and third quarter of ‘08. And as we begin to scale up -- as we said, the range could be anywhere between $0.5 million to $1 million quarterly, depending on the number of systems as we scale this thing up to what we hope would be the end of the first 12 months run rate of at least 250 systems a quarter.

And at this time, there are no further questions. Are there any closing remarks?

Thank you for joining us today, for your continued support of 3D Systems. A replay of this webcast will be made available after the call on 3D Systems’ website under the Investor Relations section.

This concludes today’s conference call. You may now disconnect.