Good morning, and welcome to 3D Systems Conference Call and Audio Webcast to discuss the results of the First Quarter of 2014. My name is Tahisha, and I will facilitate the audio portion of today's interactive broadcast. At this time, all participants are in listen-only mode. Later we will conduct a question-and-answer session. (Operator Instructions) At this time, I would like to turn the call over to Stacey Witten with 3D Systems. Please proceed.

Good morning and welcome to 3D Systems Conference Call. I am Stacey Witten, and with me on the call are Avi Reichental, our CEO; Damon Gregoire, our CFO; and Andrew Johnson, our General Counsel. The 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 this presentation may do so via the web at www.3dsystems.com/investor. 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 here on Slide 3. The phone numbers are also provided in the press release that we issued this morning. For those who have access the streaming portion of the webcast, please be aware that there is five second delay and that you will not be able to post questions via the web. Before we begin the discussion, I would like to mention a statement regarding forward-looking information that appears on Slide 4. This presentation contains forward-looking statements as defined by Federal and State Securities Laws. Forward-looking statements include statements concerning plans, objectives, goals, strategies, expectations, intentions, projections, developments, future events, performance or products, underlying assumptions and other statements which are other than statements of historical facts. All such forward-looking statements, whether written or oral and whether made by us or on our behalf, are expressly qualified by the cautionary statements described on the slide. Forward-looking statements are only predictions that relate to future events or our future performance and are subject to known and unknown risks, uncertainties, assumptions, and other factors, many of which are beyond our control. As a result, we cannot guarantee future results or performance and past performance is not necessarily indicative of future results. These forward-looking statements are based on current expectations, estimates, forecasts and projections, as well as beliefs and assumptions of management. We undertake no obligation and do not intend to update these forward-looking statements. Further, we encourage you to review the risks that we face and other information about us in our filings with the SEC, including our Annual Report on Form 10-K, which was filed February 28, 2014. At this time, I would like to introduce Avi Reichental, 3D Systems' President and CEO.

Good morning, everyone and thanks for taking the time to listen to our call this morning. This morning Damon and I will go over our financial results in more depth, update you on our progress and provide an outlook for the remainder of 2014. We are pleased to report another strong quarter on robust demand for our design and manufacturing printers, on accelerated materials growth rate and a substantial unit sales increase that altogether delivered 45% revenue growth from the prior year to $147.8 million on expanding overall organic growth of 28%. We generated unit growth of 54% including a 76% increase in design and manufacturing printers, and an impressive 48% growth in our consumer unit, not withstanding slowing demand for the current consumer printer models in anticipation of the commercial release of our new 2014 models. Growing Direct Metal 3D printer sales, again outstripped our manufacturing capacity during the first quarter, even as we continued to add capacity and from previous year to our increased total printers backlog. Our gross profit margin shouldered the attack of continued unfavorable mix and the absorption of manufacturing expansion costs that compress gross profit margin from 130 basis points from the prior year’s quarter to 51.1%. All of our revenue categories contributed to record first quarter sales. But 3D printers and other products continue to outpace all other categories growing 53% to $60.8 million, primarily as a result of strengthening demand for our design and manufacturing printers. Consistent with our expectations as placement and utilization of industrial printers continue to expand, our materials revenue growth rate accelerated to a record growth of 41%, contributing $40.4 million of revenue for the quarter. Services revenue rose 38% to $46.6 million primarily driven by Quickparts. Revenue from our growing healthcare category increased 53% to $21.7 million…

Thanks, Avi, and good morning, everyone. Our first quarter revenue grew 45% from the prior year to $147.8 million. This pressure held our gross profit margin to 51.1% and consistent with our prior comments we more than doubled our quarterly R&D spending and continue to increase our sales, marketing and infrastructure expenditures in support of our growth initiatives, the combination of our direct and reseller sales teams and our strategic joint developments and alliances. These expenditures and investments that aggregated to $66 million of operating expenses for the quarter, are designed to increase our leadership position and hence our portfolio. Our strong revenue growth combined with compressed gross profit margin and increased investments resulted in net income for the first quarter of $4.9 million and earnings per share of $0.05. On a non-GAAP basis we earned $0.15 per share for the quarter. And as you know by now, we report non-GAAP adjusted results that exclude the tax affected impact of amortization of intangibles, non-cash interest expense, non-recurring acquisition, integration and severance expenses, including gain or loss on acquisitions, impact of litigation settlements and tax settlements, stock-based compensation and non-cash loss on conversion of convertible debt. Our total depreciation costs and our cash interest expenses are appropriately included in our non-GAAP net income. For your convenience, a reconciliation of GAAP to non-GAAP results is provided on this slide as well as in our 10-Q that we filed this morning. On a non-GAAP basis, we generated adjusted net income of $15.1 million or $0.15 per share, the excluded items aggregated to $10.2 million tax effected net increase to GAAP net income or $0.10 a share of the first quarter. Our non-GAAP net income was positively impacted by adding back $9.2 million of amortization expense, $1 million of acquisition and integration expenses, $7.3…

Thanks, Damon. As the competitive landscape expensively mimics some of our earlier moves, we keep our focus on the growth initiatives and targeted investments that have already given us significantly smoother and cost advantages. And we fully expect our current execution to extend our leadership position further and set us up for sustainable and more profitable growth in the long-term. Additionally, during the first quarter we have strengthened and expanded our strategic partnerships with leading global brands and taken steps to leverage existing expertise and synergies in key markets. In January, we began R&D operations at our acquired Wilsonville location with a fully assembled team of 100 engineers, chemists and material scientists using state-of-the-art labs and facilities to support the accelerated development of next-generation 3D printing technology. During the first quarter, we have made significant strides in the development of the continuous, fab-grade 3D printer platform and materials in support of Google’s Project Ara and we believe that this advanced manufacturing platform could serve to extend high speed advanced manufacturing with 3D printing into many industrial and consumer goods application. Staples continues to expand its product and services offering and its commitment to 3D printing and inline with that just launched two pilots in-store 3D printing experiences in New York and Los Angeles. The Staples experience offers in-store drop off and pickup of printables that are available in seven performance material powered exclusively by 3D Systems Technology. We continue to expand manufacturing capacity across our portfolio including accelerated expansion of our Direct Metals manufacturing as demand from industrial companies continues to outpace our capacity. Healthcare, it remains one of our fastest growing verticals as we continually focus on expanding our applications and reach. Inline with that in April, we acquired Medical Modeling, a leading provider of 3D printing enabled patient-specific…

We will now open the call for questions. I would like to remind we have approximately 25 minutes to Q&A session and the line will be muted after your first question. As 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. As a reminder, please direct all questions to the teleconference portion of this call. The telephone numbers are provided again on the slide. If you are calling inside the U.S., the number is 1-866-515-29091-866-515-2909, and if you are calling outside the U.S., the number is 1-617-399-51231-617-399-5123. The conference ID is 694733318.

(Operator Instructions) And your first question will come from the line of Jim Ricchiuti from Needham & Company.

Hi, good morning. First question I had just relates to the revenue growth that you experienced in the U.S. in the quarter. It looks like revenues grew 19% year-over-year. So I wonder if you can comment about the moderating growth in this portion of the business.

Yes, Jim, we don’t see it as moderating growth. We had somewhat of a tough comparison in the U.S. quarter-over-quarter, but more importantly we don’t see any slowdown in the U.S. We don’t consider a single quarter to be a trend. And just like we don’t necessarily expect over a 90% increase in Asia-Pacific or a 66% increase in Europe in any given quarter, we expect higher growth in the U.S. in subsequent quarters.

Your next question will come from the line of John Baliotti from Janney Capital Markets. Please proceed.

Good morning. Avi or Damon, the view on gross margins progressing through the year, should we look at that as a combination of the larger goal time lag of materials growing after strong printer growth last year and combined with the better absorption of your new capacity? Is that how you look at it?

Yes, you sort of nailed it there. I mean one of the things you look at the strong materials growth rate that we’ve had, which we’ve guided to starting in the middle of last year and we keep expanding gross profit margin there up to above 74% and we believe that continues. Those increases in the different area that have been shouldering the fact of our increased new product announcements and the costs associated with inventory buildups and getting new products out and getting them through manufacturing environment and we believe that as those become fully commercialized and the volumes take up that the margin there goes back to a normalized rate. So overall, our gross profit margin will continue to expand. And then finally, we do expect that our services business gross profit margin will continue to expand over the next parts of the year, primarily driven by increases in gross profit margin in the parts business, our Quickparts business.

Your next question will come from the line of Ananda Baruah from Brean. Please proceed.

Hi, guys. Thanks for taking the question. I guess just another one on the leverage to follow on that one. You guys in the last call and this call have talked pretty clearly about expecting – we should expect leverage to the year as a result of new product cycles and cost absorption. And I guess given you did 18.3% margin this quarter, I’d just kind of give you 150 basis point expansion through the year, I guess to the high end of your guidance. So I guess what I’m asking for is, I think a little bit of context around the op margin expansion and the gross margin expansion commentary, because if – you give dozens of expansion we get through the high end of the op margin of the EPS guidance, but I know you are agreeing your guidance. You just sometimes that’s around those two dynamics will be appreciated. Thanks.

So, well, our guidance sort of does point to the areas where we think we’re going to end up being, which is inclusive of some gross profit margin expansion, what would happen in our operating profit. And we said in the second half of 2015 that we really start to gain, the operating leverage back. We are going to take advantage in the short term of the opportunities that we’ve out there. But also look to say that you can sort of see that our operating, we believe our operating cost have started to moderate normalize because sequentially our operating cost were actually down from the previous quarter. And that’s inclusive of having added the Wilsonville engineering team that we have out in Oregon which was a cause for this quarter as opposed to last quarter too.

Yes, I think this is important because as Damon said sequentially our non-GAAP operating expenses already decreased by $1.4 million, which began to signal in all the normalization or moderation of our stepped up investments. And on the growth profits margin in the – we call it adverse mix, it’s not really adverse it’s a change in mix. That is more heavily weighted towards certain categories of printers. The change in mix we view in the interim is a very positive because what it means is that 3D printers sales continue to outpace all other products. And to the earlier point you can also see that materials sale are catching up very strongly. And materials sales margins are extending in up to nearly 75% now, and at the certain point in time we see those gross profit line crossing and our materials begin to contribute a greater portion to our gross profit margin. As well as software because software sales are growing nicely, and as well as continued expansion in our services gross profit margins which we have been experiencing as well.

Your next question will come from the line of Steve Milunovich from UBS. Please proceed.

Thank you. I have question, accounting question in the non-GAAP reconciliation your stock-based comp jumped from $2 million last year to $7 million this quarter. I thought you use mostly restricted stock for employees, I was just curious where that comes from.

It is all restricted shares and it’s based on number of shares and what the stock prices at the grant day and throughout last year, we had a very high stock prices certain points which then you amortize that cost over the next three years as those vest, you don’t get, you deduct a lesser amount if your stock price is different. But it’s all restricted shares, there is no options that mattered all.

Your next question will come from the line of Troy Jensen from Piper. Please proceed.

Hi, congrats on the results, Damon may be a couple of questions for Avi. Just curious if you could let us know visibility and lead times with respect to, how much of this year’s capacity, do you think is already accounted for – and can you just touch on the ASP machine and what you think the material usage would be kind of annually for these metals and change?

Yes, so as we said on the Macular’s machine, they all our sales are increasing we are unable to catch up as we – even as we continue to add capacity on a quarterly basis, which we see is very positive. And what’s also very positive Troy, on kind of the anecdotal side of it is that, over the last several periods we have made significant inroads into automotive applications and specifically higher manufacturing applications. And, I can share with you this morning that just over the last several periods we shift over two dozen Direct Metal systems just into major tire design and manufacturing applications. To the ASP question; ASP has ranged here from around $300,000 for our small Direct Metal printer that is specifically suited for medical and dental applications all the way to the $700,000 and $800,000 for our ProX 300 which is our large format production system for our automotive aerospace another large format applications. And as we said, late last year and earlier this year we’re also fast tracking to the market new products this would be much larger format higher speed Direct Metal printer. This will probably come into the markets towards the end of this year, that’s part of our R&D investments in Direct Metal. And finally material revenue is increasing on our Direct Metal systems and we expect it to increase further because some of the grades of metal powder, the particle size, the purity makes the material that we can supply very proprietary and very specialized, and so we see opportunities here for the material profile on our Direct Metal systems, to mimic what we experienced on our plastic systems.

Your next question will come from the line of Holden Lewis from BB&T. Please proceed.

Very much. Mostly, I wanted to get a little bit color on how you expect the cash flow and sort of the balance sheet to play out as maybe the next 12 months plays through. Then you obviously, last quarter, you’ve talked about issues with regards to getting inventory and channels ahead of some of the revenue boom, now you’re talking about the effect of sort of restructuring, perhaps to resell a channel, and I think it is somewhat, considerably can be could see some negatively the cash flow where kind of dried up and working capital continues to go up. And I just want to get a road-map if you will of when and how do you get back to our good cash generation and sort of better balance sheet metrics?

Thanks Holden. One of the issues that we’ve talked about this morning was inventory, inventory has been up significantly over the last few periods and it really is in association with the new products that are coming out are being commercialized at the end of this quarter and into the second half of the year. So as the raw materials are generated or produced into finished goods, we expect that inventory to come down, because it's built those deliveries are in anticipation of the sales and building the supply chain. So we believe we’ve a substantial amount of cash that is tied up in inventory right now, but we want to be able to supply as these come out. The second is we have a couple of things like one-time pre-payments that we expect to come back and our pre-paid accounts are up, I think over $4 million. We expect that to come back for the year. And then importantly too, I’ll touch on it really sort of drives and if you look at our DSO number, yes it’s 86 days today, but we believe that’s really affected by a short-term timing issue. And as you know, DSO is measured at the end of the quarter, but if you looked at our cash proceeds just through the first week of April and computed DSO we’ll be well down into the 70s about 78 days. So we are very comfortable with how our cash generation will come back and be there. With all this said, you’ve got to look at it over a number of periods as opposed to just even one period like this.

Then Holden to add to that, I mean we clearly in the last few periods invested heavily in our ability to bring to the market 24 new products. We invested heavily in our ability to consolidate our sales organization and to fully multiplex and leverage our global channel to be able to sell all of our products. And our expectation now is that we concluded that this build up phase and we are going to begin to liquidate portions of our finished goods, inventory and as we begin to commence commercial shipments of our new product starting in the second quarter and into the second half of this year. Remember that during the quarter, we also extended our original service support and logistics operations both in Europe and in Japan, and added local spare parts warehouses in these two regions. And our expectation is that as we progress in this year, we are going to return to strong cash generation from operations, just from the obvious liquidation of the inventories and some other initiatives that we have in place. But we feel thoroughly confident about that.

Your next question will come from the line of Bobby Burleson with Canaccord. Please proceed.

Well, thanks for taking my call. Congratulations on the strong results. Just a quick one on the Direct Metal machine. In terms of your board material there, do you guys have an opportunity that to drive down the cost of the laser either through the higher volume orders you guys are placing obviously with a specific supplier or moving some multiple suppliers or what’s the kind of roadmap there to maybe get better pricing on lasers?

Yes. It’s an excellent question, Bobby. Not just on the laser component but across the board clearly as we increase the manufacturing volumes on direct metal printers and as we fully learn how to build this class of machines. In NAS there are obvious opportunities to reduce the bill of material and to extend profitability within this range or to decide to create some new price points to accelerate adoption of this class of systems even faster.

Your next question will come from the line of Sherri Scribner from Deutsche Bank. Please proceed.

Hi, thank you. I know that you talked about seeing more revenue in the second half of the year. I was wondering if you could update us on your thoughts about the linearity of revenue as we moved through the year and then also I am just a bit curious why you didn’t tick guidance up a little bit based on acquisitions? Thanks.

We do expect that our growth is more – will accelerate over the second half of the year and we’ve looked at it over the last couple of years as being more of a stair-step throughout the year and increasing as opposed to maybe hockey stick as it used to be 2008 prior, but definitely increases as we move along. And it’s really associated with a couple of different factors. First is, the commercialization of all the new products that we’ve recently announced and second is, we really believe that in assuring that the materials growth rate continues to expand with those. So that’s what is still giving us comfort to reiterate guidance, which if you look at the first quarter and the guidance overall shows that you’re going to have some future growth there or higher growth rates in the next periods.

Yes, and to your question of why we didn’t move guidance up on acquisitions, it’s a little premature remember that we haven’t yet closed the Robtec acquisition and a time for us to consider re-looking at the guidance for the balance of the year will probably be once we conclude in our net acquisition that would be a good time to look at all the factors in the rest of the year with that company onboard and that would be a time for us to probably re-look at our guidance.

Your next question will come from the line of Weston Twigg from Pacific Crest. Please proceed.

Hi, yes, thanks for taking my question. This one is related to the project Ara program. Just wondering if you can give us some idea of whether your new printed platform and the new polymer formulations that you discussed at the event a few weeks ago, those would be ready in time to support the project Ara ramp in Q1 2015, and if those high speed polymer formulations might be transferable to other printers in your line-up?

It’s an excellent question. The answer is yes to both of them. We are pretty much on proc and our cooperating and working very closely with the Google Ara team on a daily basis. And in my earlier prepared comments this morning, I spoke about the fact that we believe that this high speed continuous 3D printing platform and polymers would have wide applications into a variety of both industrial and consumer goods type manufacturing applications. So we’re fortunate to have a sponsor like Google to push a development like this. But the realities that we probably would have developed something like this anyway at this point in time. It’s –we’re blessed to have Google sponsor this project in a better recipient of the first systems and products we will be on time. We expect to be able to support the launch and we expect to be able to apply the benefits of these developments into many, many other industrial and consumer goods application.

Your next question will come from the line of Jay Harris from Goldsmith & Harris. Please proceed.

If you look at the materials revenues, is there way of distinguishing between materials that are shipped with new printers year-over-year, and materials that are associated with year-end installed base and the growth rates?

What we do Jay, is we report overall material growth rate, which was I believe 41%, and we also comment on integrated materials growth rate, which Damon commented on in his remarks, which was 48%. So you clearly see that the newer assistance that fall under the classification of integrated materials are growing faster than the overall installed base. And that is an important factor because that represents in our opinion the real growth for it in materials after you take out the effect of the legacy installed base. So again to reiterate, total materials up 41%, but integrated materials up 48%.

Your next question will come from the line of Amit Daryanani from RBC Capital Markets. Please proceed.

Thanks a lot and good morning guys. Just a question for Avi, I guess on the competitive dynamics. Can you maybe just talk about; you’re seeing Stratasys going to the service bureau model post a couple of acquisitions. Do you think that creates a headwind for you guys and actually acquire some of your service bureau customers or do you think the entry in the business in the service side should not have a material impact on the 3D. And maybe if you just also touch on some of the public comments made by HP and their intention into the 3D Space?

Yes, two very good questions. I mean look, moves by direct and adjacent competitors into the service bureau activities are late and expensive relative to the move that was made for the last few years. So we believe that we not only got a first mover advantage of several years, but we also got a substantial cost advantage. Secondly, in all these instances for today – the other companies that are acquiring service bureaus, don’t have the ability to vertically integrate in the way that we have the ability to vertically integrate, because by and large those service bureaus were using our SLA and SLS and now Direct Metals and other systems. So we have the ability to vertically integrate. These other companies will have to create those capabilities over time if they want to really have not just the consolidation, but the effect of vertical integration. And finally, we have been fairly deliberate in what we target and fairly disciplined in how much we’re willing to pay and we don’t intend to substantially change that behavior. As to the questions about HP, look, we think that companies like HP have unlimited resources and capabilities and technology. But we also believe that entering in a meaningful way the 3D printing space requires multiple technologies and print engines. We’ve been saying this for about five years. In the last few years our competitors came to view this in the same way that we have and they all transitioned themselves from pure play players to multiple print engines. We’ve been saying this for about five years and of course we have seven print engines. Again, a substantial first mover advantage and cost advantage in those areas. And so, we take companies like HP very seriously. We also don’t underestimate the degree of complexity that they would have to position themselves as a relevant and meaningful player across the design and manufacturing marketplaces that are demanding these products. I mean, remember that today one needs bio-medical materials to play in patient specific, one needs castable materials to play in aerospace and foundry application, one needs Direct Metal ferrite to non-ferrite to play in automotive, aerospace and tire manufacturing. And when you look at the areas where we are enjoying the most growth, those are the areas where we have the least opposition and competition, because the solutions that we provide today are unique, proprietary, differentiated and in those particular verticals largely uncontested.

Your next question will come from the line of Ken Wong from Citigroup. Please proceed.

If I recall, you guys were expecting to release Q3 in this quarter. Is that still the case? And then any early demand trend from retail channel partners that you can potentially comment on?

Well, we are nearing, within the next few days the announcements are beginning to take orders for Q3 and Q4 that will probably cross the wire in the next few days. And there is a substantial interest and demand for the product and we expect that the second half of this year, we’ll enjoy a significant uptick in demand for these classes of printers, not just for home use and for makers. We see increasingly opportunities for these devices to end up as desktop design and engineering tools, especially with some of our new process tools, design tools like Sense and Touch and Capture that are also being released in the next few months. So we see significant demand interest and upside for this entire category during the second half of this year.

Your next question will come from the line of Peter Misek from Jeffries. Please proceed.

Thank you. You’ve talked really clearly about how the metals’ opportunity is expanding. Maybe we can broaden it a little bit including metals and some of your other machines and technologies and compounds. What percentage of your revenue now you feel is exposed to manufacturing and how that ramp is sort of accelerating? And additionally, how your metals’ offering is helping you get into that manufacturing opportunity, because we believe and others in the industry believe that that’s probably the largest long-term opportunity for you folks? Thank you.

You’re welcome. I mean, look, I can give you a couple of triangulation points. One is, we’ve been saying now for nearly two years that about half of the professional grade printers that we ship on a quarterly basis go into direct and indirect manufacturing applications. We said this morning in our prepared remarks that our professional segment of design and manufacturing 3D printers grew – the unit sales grew by 76%. I can also tell you anecdotally that over the last several periods we have shipped more than 100 systems just into aerospace applications that were non-metal related into outright aerospace manufacturing applications that were non-metal related. And of course then there is the metal opportunity on top of that. So we feel that in certain manufacturing applications, be it patient specific medical devices, be it certain aerospace manufacturing applications, be it certain aerospace related foundry manufacturing applications supplying to major foundries in the United States and other locations. And of course within our Direct Metal now in aerospace, automotive and tire manufacturing, overall fab grade manufacturing systems are becoming enormously important to us.

And ladies and gentlemen, that is all the time we have for questions. I would now like to turn the conference back over to Ms. Stacey Witten for any closing remarks.

Thank you for joining us today and for your continued support of 3D Systems. A replay of this webcast will be made available after the call on the Investor Relations section of our website, www.3dsystems.com/investor

Ladies and gentlemen that will conclude today’s conference. Thank you for your participation, you may now disconnect. Have a great day.