Good morning, and welcome to the 3D Systems Conference Call and Audio Webcast to discuss the results of the second quarter and first six months 2015. My name is Selena, and I will facilitate the audio portion of today's interactive broadcast. At this time, all participants are in listen-only mode. A brief question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. At this time, I would like to turn the call over to Stacey Witten with 3D Systems. Please go ahead.

Good morning, and welcome to 3D Systems conference call. I am Stacey Witten, and with me on the call are Avi Reichental, our CEO; Dave Styka our CFO and Andy Johnson, our Chief Legal Officer. 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 on the slide. The phone numbers are also provided in the press release that we issued this morning. For those who have access to the streaming portion of the webcast, please be aware that there may be a few second delay, and that you will not be able to post questions via the web. Following discussion and responses to your questions reflect management's view as of today only and will include forward-looking statements as described on the slide. Actual results may differ materially. Additional information about factors that could potentially impact our financial results as included in today's press release in our filings with the SEC including our most recent annual report on form 10-K. During this call, we will discuss our non-GAAP financial measures. And our press release, slides accompanying this webcast in our filings with the SEC, each of which is available on our IR website. You will find additional disclosures regarding these non-GAAP measures including our reconciliation of these measures with comparable GAAP measures. Finally unless otherwise stated, all comparisons in this call will be against the results for the comparable period of 2014. Now I will turn the call over to Avi Reichental, 3D Systems' President and CEO.

Good morning, everyone and thanks for joining us today. During the second quarter, we increased revenue by 13% to $170.5 million, representing a 22% increase on a constant currency basis. The stronger US dollar reduced our revenue by $14 million at comparable second quarter 2014 currency rate. Several factors besides currency adversely impacted our revenue for the quarter including continued industry level challenges, macroeconomics weakness particularly in Asia-Pacific and remaining printer quality and performance issues related to specific nylon and metal applications that impeded our ability to sell additional printers during the quarter. Altogether, these factors contributed to a 5% decline in organic revenue compared with the second quarter of 2014. At constant currency rate organic growth was 2% for the second quarter. Overall, we're disappointed with our results. While a period of high growth enabled us to acquire strategic assets and build critical expertise, our rapid expansion permitted certain operating inefficiencies that we are currently addressing. Specifically we're enhancing the quality of our product and services, accelerating synergy and cost reduction measures, driving process improvement, and working closely with our channel partners to improve our sales operations in worldwide coverage. For the second quarter, design and manufacturing revenue increased 12% over the second quarter of last year and 11% sequentially. Growth within this category was curtailed by lower printers and materials sales, but benefited from greater software and services revenue. We're pleased to see that industrial customers with mission critical applications including aerospace and healthcare customers began to resume their plant purchasing during the quarter. This contributed to sequential earnings growth in SLA, SLS, and BMP 3-D printers, while jetting printers leveled off after several quarters of sequential decline. Consumer revenue in the second quarter increased 27%, compared to the second quarter of 2014, but decreased 41% sequentially on lower demand. We entered 2015 with some residual backlog from delayed product and productions in 2014, which contributed to higher consumer revenue in the first quarter. Factoring out this effect, net quarterly bookings which exclude backlog decreased sequentially by approximately $1.4 million in the second quarter. Increasingly, we are investing more of our efforts into education and desktop engineering, two categories that we believe hold more immediate opportunities for our consumer products. As we continue to leverage resources and capabilities in support of key growth areas, we're observing some progress. In metals, revenue for the first six months increased 14% on a 37% increase in printer units. We believe that residual application and performance issues impeded growth, and we're working diligently to remediate these issues. In healthcare, revenue for the first six months increased 32% to $64.8 million on expanded products and services. And in software, revenue for the first six months increased 119% to $37 million including the addition of Cimatron. And with that, I'd like to turn the call over to Dave Styka, our Chief Financial Officer who will discuss our financial results in more detail. Dave?

Thanks, Avi. Good morning, everyone. For the second quarter 2015, we reported revenue of $170.5 million, an increase of 13% or a 22% increase on a constant currency basis. We reported a GAAP loss of $0.12 per share and non-GAAP earnings of $0.03 per share. For the six months, we reported revenue of $331.2 million, an increase of 11% or a 19% increase on a constant currency basis. We reported a GAAP loss of $0.24 per share and non-GAAP earnings of $0.07 per share. Revenue from the Americas increased 15% for the quarter, driven by healthcare, software and services as well as higher sales of 3D printers to industrial customers. EMEA revenue increased 25% for the second quarter from expanded products and services and improving performance of our European channel partners, which excluding the impact of foreign currency, generated healthy organic growth. Throughout the quarter, Japan, China and Korea shouldered adverse macroeconomic conditions resulting in a 9% decrease in revenue in APAC. During the second quarter, products revenue increased 10% driven by expanded healthcare and software products. Materials revenue for the quarter declined 4% primarily as a result of a $1.5 million loss in sales to standalone service bureaus that have been consolidated by us and others. And a $2.7 million impact from adverse foreign currency changes. Services revenue increased 28% driven by growth from Software Services as well as Healthcare Services, Quickparts and Printer Services. Gross profit margin remained flat at 47.9% compared to the second quarter of 2014. Within categories, our materials gross profit margin increased on mix and operational efficiencies despite the lower volume of sales. Our services gross profit margin expanded on higher healthcare and software contributions and improving Quickparts gross profit margin. Higher software and healthcare margins positively contributed to products gross profit margins. However,…

Thanks, Dave. We are focusing on leveraging our demand expertise in key verticals into new products and partnerships that we believe can drive incremental adoption. Specifically we expanded our presence in coverage in China through the acquisition of Easyway. We brought in our partnering network with the addition of Konica Minolta Australia HK 3D in the United Kingdom and MLC CAD systems in the United States. We entered into agreements with the United States Air Force Research Laboratory, Honeywell and the United States Navy expanding our relevance in aerospace and defense research and development activities. We extended the capabilities of our CubePro 3D printer with Infinity rinse-away water-soluble support material. We extended our educational coverage by entering into new distribution agreements with Douglas Stewart EDU and Thermo Fisher Scientific, and we strengthened our K-12 offering by integrating STEAMtrax's curricula into our educational kits. We also recently announced that the Baltimore Archdiocese is placing our Cube 3D printers in all of their 49 schools. We have come to believe that delivering quality in everything we do can garner a significant competitive advantage. In line with that, we have recently created a board level quality committee and have begun implementing a series of companywide initiatives that impact every stage of our product's lifecycle. We are enhancing new product delivery processes by fully leveraging our acquired Wilsonville expertise in design, reliability engineering, quality and compliance testing for all products. We're installing additional process checks and performance metrics designed to improve quality and reduce manufacturing errors throughout our operations. We're also taking steps to provide the very best support for our customers and partners. We're streamlining our service operations to deliver a faster and more comprehensive response. And we continue to rollout our Partner Excel (14:27) program a comprehensive set of initiatives designed to simplify and integrate all aspects of our partner sales and service activities. We believe that these measures are improving the entire experience for our existing partners, and helping us attract additional high-caliber partners. In conclusion, we're concentrating our efforts and resources on quality, differentiation, and value creation. We believe that delivering quality in everything that we do from product design and manufacturing processes to partner training and customer support, will strengthen our overall competitiveness. We believe that focusing our resources and capabilities in key areas including industrial healthcare, engineering, and education will allow us to deliver differentiated product and services faster. And finally, we believe that our commitments to innovation, operational excellence and partner friendliness will enhance our customer of attractiveness and deliver greater earnings power as industry growth resumes. And with that, we will now gladly take your questions. Stacey?

We will now open the call to questions. I'd like to remind everyone that your 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 this slide. If you are calling inside the U.S. the numbers 1-877-407-8291, if you are calling outside the U.S. the numbers 1-201-689-8345.

We will now be conducting a question-and-answer session. The first question comes from Mr. Patrick Newton from Stifel. Please go ahead.

Thank you. Good morning. Thank you for taking my questions. I guess Avi, I wanted to focus in – on the commentary around driving leverage, and OpEx leveling off before declining over the next week quarters. I am just curious why 3D Systems is choosing to focus on reining in OpEx at a time when it would seem like investing for the future and investing to create new and different shaded product, would be more prudent to re-accelerate growth for the company? Thank you.

Well, I think that first, thank you for your question, is an excellent question. And if you listen to Dave Styka's prepared remarks, he basically said that we are doing both. On the one hand, we are continuing to invest in key to success initiatives like innovation and quality, and enhancing the ease of doing business with us and be attractiveness to our partners and customers. And as I think is evidence by the R&D number increase and overall operating expenses. But at the same time, we have taken on additional costs in the last few years as a result of acquisitions. And at the moment, we believe that our overall cost structure is a little bit ahead of revenue generation. And so we're doing both. We are realigning our costs with our priorities. We are making sure that we're allocating resources to the very growth initiatives and new products and quality initiatives that we deem to be critical and strategic to the next level of growth. Because we believe that on the other side of this industry level pause, there is significant growth opportunities for our company. But at the same time we believe that we can bring our overall cost structure to a much more manageable level and get the leverage and the financial strength and flexibility and free cash generation that is worthy of the business that we are running.

The next question comes from Ananda Baruah from Brean Capital. Please go ahead.

Hi, thanks. Good morning. Thank you for taking the question. I guess sort of along these lines Avi I believe last quarter you guys had said that the expectation was the gross margins kind of go up, the year – sort of as you move through the year and the OpEx dollars to come down. So I was just hoping you could put some context around the dynamics that sort of led to the gross margin being a little softer this quarter OpEx a little higher. And how we should expect those trends to play out through the year? Should we still have that expectation of gross margins going up and OpEx dollars coming down? I appreciate it. Thanks.

No. Absolutely and that's another start-on question. I'll give a little color but I really want Dave Styka to jump in here and talk a little bit about the specifics for the quarter. I mean as we said in our prepared remarks, we had some good progress on materials gross profit margin for the quarter even though the volume was slightly down and we had greater contributions from software and our Quickparts business did well but that wasn't enough to overcome some of our many manufacturing variances and inventory write-offs that we took in the quarter as a consequence of manufacturing facility consolidations. And Dave maybe you could talk a little bit about this and also share what gross profit margin would have been...

Yes.

... if it wasn't for those issues.

Yes. Thanks, Avi. So as we kind of said as part of our OpEx kind of evaluation, we are working to consolidate our facilities footprint and make efficiencies within the business. So as we were closing some of our manufacturing facilities, and consolidating them – normal inventory processes, we came across manufacturing variances and inventory write-offs in our processes that affected the quarter by about 200 basis points on margin. So margin would've been around 50%, which is exactly kind of what we were signaling in the first quarter when we gave guidance of where we thought we would have improving margins. So overall we think margins would've been around the 50% mark, which would have been a little slight uptick from where we were in Q1.

Yes. And I think that what is significant here, particularly on material gross profit margin, is that we were able to expand those in a meaningful way even on slightly lower volumes which gives us some hope. And regarding the horizon on operating expenses and that goes back to the first question, because we are running concurrently two, if you will, opposing initiatives. One is continuing to invest in innovation, quality, and partner friendliness programs that we believe would enhance our overall attractiveness to end users and competitive position. And at the same time our – trimming our overall cost structure as a result of the additional costs that we have taken on from acquisitions over the last few periods, it's going to take us a few more periods for the OpEx to level off and begin to come down. And it's particularly because we are investing at the same time that we are trimming, and the precise period in which those two lines intersect may take a few more periods. That's what Dave was trying to say on the OpEx. Yeah.

The next question is from Kenneth Wong from Citigroup. Please go ahead.

Hi, guys. Thanks for taking my question. I wanted to zero in a little bit on the metals business. You guys indicated that they increased units 37% but you only saw revenue up 14%. The gap for the six months versus what you saw in Q1 is meaningfully wider. Just help us understand the dynamic here, is it pricing pressure, mix shift, what's going on there that keep revenues from being closer to unit growth?

Well, in our specific case it's mix related, and so in the first six months of this year we have sold more of the small and midrange systems and not as many of the large frame systems. And that in our case is specifically attributable to some performance and application-related challenges that we had, which we disclosed already in the first quarter. These are issues that again this morning we said that we are working on very diligently. We have identified and remediated many of them, and we're continuing to work with each and every customer and stand behind the product until we get to a favorable resolution on each and every one of them. What is encouraging for us is that notwithstanding, these challenges, we see that there is healthy, continued healthy demand for direct metal systems. We are disappointed that we haven't been able to fully remediate everything on the large frame direct metal printers already. But we're making good progress, and in the meantime we've been able to sell more of the midrange and small range direct metal systems. And finally, we're continuing to develop and invest in Direct Metal R&D efforts, and we expect to continue to be able to not only enhance and expand the range of applications within the current product range, but to also bring some new products to the market. We think that Direct Metal printing will continue to be meaningful to our business, but more importantly, it's very meaningful to many of our industrial customers, and it's also meaningful to certain government agencies as evidenced by some of the recent agreements that we entered into with the United States Air Force Research Laboratory, the U.S. Navy, Honeywell and so forth to continue to develop capabilities in this field.

The next question is from Troy Jensen from Piper Jaffray. Please go ahead.

A question and maybe to follow-up on Ken's too. Dave could you tell us what the metals revenue was for Q2 over Q2, and on that line what you guys are reporting in metals is more than what Phenix reports in their filing. So can you just explain what the discrepancy is in these two different numbers?

Sure Troy. I'll do that no problem. So, metals revenue was down 3% quarter – Q2 2015 to Q2 2014. And with respect to your question about our filing in Phenix, units were up 29%. However, so again as Avi said we're selling more of the smaller frames than larger frames. So I think he has answered that question. So going onto the question you had about the Phenix, Phenix is not a completely wholly-owned sub, we own 95% of Phenix and in our filings there we have there in intercompany transactions that are eliminated between the companies. However on a standalone basis, you have to file what stands alone for Phenix. So within that transaction the units and everything I think sync up perfectly for you. There are dollar changes in between companies across a global organization where you have shared services and intercompany transactions, and that's what led to the difference between the gross amount versus the total reported amount. Does that answer your question, I think?

If I'm still on the line, I think what you guys reported is a higher number than what Phenix is reporting, so I understand intercompany would reduce the number? But I just don't understand why your number would be higher than what Phenix -?

While there's intercompany transfer pricing between countries you have different transfer pricing, so Phenix would be able to charge for the activities that they provide and the values that they provide. There's a whole sales organization and back office organization, R&D that actually supports Phenix which would mean on a global basis, we could actually take some profit in those machines and actually put them outside of the Phenix organization.

And then don't forget to write differences in statutory versus U.S. GAAP requirements and things that can happen there. With all of our foreign entities we have statutory requirements and they don't always sync up because it's different rules and regulations.

The next question is from Ben Hearnsberger from Stephens. Please go ahead.

Yeah, thanks for taking my question. This is Brandon in for Ben. I'm just curious in Europe what inning would you say were in, in terms of the channel buildout? And then what's kind of the expectation for OpEx impact from this throughout the rest of 2015. Thanks.

Yeah. So Europe actually performed well or improved its performance in the second quarter. In fact on a constant currency basis Europe actually grew about 19% organically, the only region that on a constant currency actually showed healthy organic growth. And that is in no small part a tribute to the channel partner organization. Having said that, there is more to be done in Europe and in the Americas and in APAC in terms of continuing to build an enhanced coverage but more importantly to give the tools and the support in the ease of doing business with – to our channel partners. So in terms of building up the EMEA capabilities and the rest of the world we're probably in the second period of doing that. Our Partner Excel (32:02) Program is moving forward as planned. We're also making significant investments in our service center, not just in terms of technology and systems but also in a complete new training approach. And we're simplifying many of our procedures with our reseller partners to be able to add value to everything that they do. So we're deepening, for example, our CRM integration with them. We are investing more in pre and post sales. We have integrated and are giving our channel partners now access into our logistics capabilities and tracking. We're making it easy for them to get full integration into spare parts and logistics. And all of that is done to really multiplex our collective capabilities and to make both their business and our business more efficient.

Understood. Thanks for the color. Just a quick follow-up.

The next question is from...

Go ahead.

Sorry, the questioner's line is already closed. Should we take the next one?

Yes, please.

Please.

The next question is from Sherri Scribner from Deutsche Bank.

Hi. Thanks. I just wanted to dig a little into your thoughts Avi in terms of the opportunity for the consumer business that segment grew but was – grew year-over-year but was down sequentially. I know that that was an area that people were pretty bullish on you know over the past couple of years but – it seems to be less of a priority. Just wanted to get the way that you are thinking about consumer at this point and is it still a focus for you? Thanks.

Well, it's an excellent question. I explained in my prepared remarks that some of the year-over-year or the sequential comparison was a little bit skewed as a result of entering 2015 with a fair bit of backlog that we could not fulfill in 2014. Because we had as you may recall the delayed introduction or availability of the Cube 3 and the CubePro and that inflated our results in Q1. Because if you look at it on a sequential net booking comparison excluding the backlog, we sequentially declined by approximately $1.4 million quarter-over-quarter. And that we attribute to overall softness in consumer demand. I also said that we see more immediate opportunities for the Cube 3 and the CubePro, in K-12 education and around the engineer's desktop. And that we have actually accelerated some of our initiatives particularly in EDU with the addition of the STEAMtrax's curricula that allows us now to deliver complete educational kits to schools and other packages. And we are continuing obviously to support our other consumer initiatives you know such as being in 100 Best Buy stores and participating in many other initiatives. So we have the product. We think the products are really good products. They were worth waiting for. We certainly see that within consumer at large, we are experiencing some softness but specifically within EDU and the engineers' desktop, we see more immediate opportunities and so we're focusing our energies and resources on monetizing these opportunities while we push forward with those products. So we're not giving up on our product. We're not giving up on the potential to monetize them. But we're reprioritizing around where demand exists.

The next question is from Hendi Susanto from Gabelli & Co. Please go ahead.

Good morning Avi. So Avi in light of the current weaknesses and in the light of visibility, do you think it's prudent that we should consider industry forecast projection will need to go significantly lower and where it is now?

Well, look. It's clear that we have some limited short-term visibility as to what is driving adoption. Having said that, in our case, we believe that we have aligned ourselves well with our customers' mission-critical applications, and that we also positioned ourselves to diversify within the key verticals that are attractive to us like healthcare and aerospace, and automotive. And it's important to note that even during this period of industry-wide recess if you will or weakness or a challenging period, for us, overall we actually experienced sequential growth in SLA, in SLS, in DMP, and it's particularly as a result of our industrial customers including aerospace and healthcare, beginning to resume their apparatuses, and the other interesting note here is that within our jetting printer unit, after several quarters of progressive decline, we leveled off, which is really good.

The next question is from Weston Twigg from Pacific Crest Securities. Please go ahead.

Hi. Yeah, thanks for taking my question. Just first, I was wondering, on the last call, I think you said you would reduce inventory from Q1, but it went up in Q2 even after the – some of the inventory write-offs you mentioned. So just wondering if you can explain what's happening here in perhaps overbuilding in anticipation or maybe a sharper demand rebound that just hasn't happened yet? And then the second part of the question is some of the OpEx reductions that you are talking about, I am wondering if you plan to trim your current product portfolio at all to more effectively concentrate your R&D dollars? Thanks.

So in terms of inventories, some of it is timing and it's related to the timing of orders and is also related to the timing of product introductions and so on and so forth. And so within the inventory, we have all of these elements. And as Dave said earlier today, we expect to be able to reduce inventory for the rest of the year based on everything that we have on our plan. In terms of pruning products and better aligning our R&D resources with opportunities, we've said earlier this year that we had quite a list of products that we plan to prune throughout the year. And that remains the plan I think that we even given some color and given some ranges of legacy products that we planned on pruning throughout the year. And all of that is afoot, and it will make our portfolio much more focused and updated as we exit this year.

The next question is from Steve Milunovich from UBS. Please go ahead.

Thank you. Could you talk a bit more detail about the issues that you are having with the nylon and metal printers? And do you view these problems as just technology issues that would come up anyway? Or do you view them as partly due to maybe lack of focus as you've had so many acquisitions and so forth?

Certainly. I'll be happy to talk about some of the challenges. We have one nylon model, one nylon machine that has had some performance related issues around primarily thermal distribution within the powder bed. This is not a new challenge with selective laser centering or with nylon. It's a challenge that is inherent in that technology. We have tried with this new generation of equipment to push the envelope further. And everything looked good until we got further down the line and discovered that we had a few more technological hurdles to overcome. We now believe that we have successfully remediated this issue. We have run substantial tests in-house and with a select group of users, and we have decided to go out into the marketplace and visit each and every customer that received this system whether they have problems or not, and to make good on our commitment to deliver this level of performance and to stand behind this nylon product. In direct metal printing, with the large-format machine, we had additional challenges that were related primarily to powder – consistent powder feeding and powder refresh, which created a symptom of starving color build of powder incrementally. So the word on the street was that the machine is challenged in building tall parts. That was the symptom. The root cause of the problem had to do with consistent powder feed over very, very long builds that could exceed 40, 50 hours of build. We have now successfully understood it, we have solutions in place, and we are working with all of the affected customers one by one to get to satisfactory resolution, again standing behind our product. You also asked – if this is a question of focus or is this kind of inherent in complex technology. And I…

The next question is from Ronald Weiss from Credit Suisse. Please go ahead. Ronald Weiss - Credit Suisse Securities (USA) LLC (Broker) Hey guys, good morning. I just wanted to touch on M&A real quick. Has the strategy here kind of changed as most of the focus seems to be more on in-house with cost reductions initiatives investments in some of your key initiatives? Thanks.

I think that for more than a year now we've been saying that we had a period of accelerated investments and M&A activities because we felt that we needed to assemble all the critical and strategic assets and expertise so that we could begin to execute the next phase of our growth with differentiated technology in-house both on the printer hardware, the material science and technology and importantly also the software and services capabilities. We've been signaling now for quite some time that as we get ourselves to a point where we feel we amassed all these expertise the next phase is going to be about optimizing what we acquired leveraging it into new products and services, and delivering also the synergies that are available from the combination and consolidation of those businesses including potentially new revenue streams that will come from the combination of software and hardware and process technology into various areas. With that in front of us, we see that the next phase as one of internally developed capabilities, internally enhanced competencies in quality and service, in refined coverage and sales capabilities and in less M&A and more organic type activities. And that is completely consistent with what we've said all along. I'm changing a little bit the pace here because I wanted to apologize to the audience this morning. We had some difficulties with the conference call in with the way that we have taken questions and cut a few people off. I want to apologize for that, it had to do with lack of coordination with our operators this morning. And I'm really sorry for anybody that we cut prematurely.

There are no further questions at this time. I would like to turn the floor back over to Stacey Witten for closing remarks. Please go ahead.

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.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.