3D Systems Corporation (DDD) Q4 2015 Earnings Report, Transcript and Summary

Good morning, and welcome to the 3D Systems Conference Call and Audio Webcast to discuss the Results of the Fourth Quarter and Full Year of 2015. My name is Mandy, and I will facilitate the audio portion of today's interactive broadcast. All participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, today's call is being recorded. At this time, I would like to turn the call over to Stacey Witten, Vice President, Investor Relations for 3D Systems. Thank you, Ms. Witten, you may now begin.

Good morning, and welcome to 3D Systems conference call. I am Stacey Witten, and with me on the call are Andy Johnson, our Interim President and CEO and Chief Legal Officer; and Dave Styka, Executive Vice President and Chief Financial 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 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 seconds delay and that you will not be able to post questions via the web. The following discussion and responses to your questions reflect management's views 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 is included in today's press release and also our filings with the SEC, including our most recent Annual Report on Form 10-K. During this call, we will discuss certain non-GAAP financial measures. In our press release, slides accompanying this webcast and our filings with the SEC, each of which is available on our Investor Relations website, you will find additional disclosures regarding these non-GAAP measures, including reconciliations of these measures with comparable GAAP measures. Finally, unless otherwise stated, all comparisons in this call will be against our results for the comparable period of 2014. Now I will turn the call over to Andy Johnson, our Interim President and CEO and Chief Legal Officer.

Thanks, Stacey, and good morning, everyone. Thank you for joining us today. The last few months can be characterized by our progress for scores that we have identified as critical to our organizational advancement, profitability, and long-term sustainable growth. We are undertaking an extensive review of the company and our strategy. We are taking steps to better prioritize our resources and reduce costs. We have taken targeted measures that include the consolidation of our facilities, headcount reductions and company-wide synergies. At the same time, we are investing in areas that we believe are meaningful opportunities in professional and industrial verticals. In December, we made a significant step for our shipped away from consumer activities, including end-of-life of the Cube 3 and the discontinuation of cubify.com. This was a clear demonstration of our commitment to prioritize our resources towards meeting real customer demand in the marketplace. Then in January, we launched the ProX DMP 320, a high-precision, high-throughput printer designed for complex metal parts in titanium, stainless steel and nickel super alloys. The 320 is a powerful and reliable system, and we believe it gives us a strong foothold in key metals applications ranging from healthcare to industrial manufacturing to service center production. We are also introducing additional new products that extends our price points in capabilities from the product design lab to the factory floor, including the ProJet MJP 3600 and the ProJet MJP 2500. We showed our continued commitment to innovation through the demonstration of our Figure 4 SOA Technology at CES earlier this year. One of the features of Figure 4 is that it could be housed in discreet modules, allowing it to be integrated into an automated manufacturing environment at a scale of one up to a large array of hundreds. It also capable of manufacturing parts in hybrid materials that are tough, durable, temperature resistant and elastomeric. And just last week we celebrated the opening of our healthcare technology center in Denver, Colorado, a state of the art facility that serves as essential help for all of our healthcare activities from surgical simulation to virtual surgical planning, to device design and manufacturing. Maintaining the competitive product portfolio to meet evolving market demand is a top priority for us, and we are reviewing each of our product lines and business activities. We believe that a comprehensive review of our business and strategy is necessary to our success, particularly as we face continued uncertainty in the market. We are probably in the midst of this extensive business review. The executive management committee which as a reminder includes Chuck Hull, our Founder, Director and Chief Technology Officer, who chairs the committee; Dave Styka, our Chief Financial Officer; Mark Wright, our Chief Operating Officer; and myself continues to provide oversight and guidance in day-to-day operations in review of the company's strategy. Our leadership team and employees throughout the company has stepped up and are contributing to delivering improvements while insuring the effectiveness of our operations company-wide. Our commitment to quality in our people, processes and products has been apparent internally for the last several months. The executive management committee has been building a culture based on transparency, accountability and collaboration within our organization. This is manifesting itself in continue of business process improvement and enhanced new product launches and overall customer experience. We believe quality in people, business processes in products will help drive customer and employee satisfaction and improved productivity and business results. Additionally, we kicked our comprehensive partner program, Partner Xcel, at a global partner summit in January. Both Partner Xcel and the summit itself reflected commitments and investments we are making in our partners and in our sales organization, as well as the commitments our partners are making in 3D Systems. I believe our partners and our internal sales team walked away from the summit with a renewed sense of trust, appreciation and confidence of our partner model and in our company. Meanwhile, our Board of Directors is continuing the process to name the permanent CEO and the search committee is pleased with the progress today. Although we are in a transitional period, we are not sitting still. We recognize that developments in our industry have brought heightened competition and new challenges, but there are also significant and exciting opportunities. We are taking steps to position ourselves to capitalize on those opportunities through a comprehensive review of our products, activities and strategy. And with that, I'd like to turn to an overview of fourth quarter results. Revenue decreased 2% from the fourth quarter of 2014 to $183.4 million. We are pleased with the revenue in the fourth quarter of 2015 which benefitted from the timing of orders from healthcare and industrial customers, as well as contributions from acquisitions. Despite our 21% sequential improvement in revenue, industry conditions remain challenging and we may continue to experience uneven demand in the coming periods. Gross profit margin decreased to 32.8% driven by the impact of charges related to our ship away from consumer. Excluding those charges, gross profit margin was 47.7% compared to 47.9% in the fourth quarter of 2014. Cash operating expenses of $66.7 million remained flat sequentially. We reported a fourth quarter GAAP net loss of $596.4 million, a loss of $5.32 per share and a non-GAAP net income of $20.9 million or $0.19 earnings per share. Now, I'd like to turn the call over to our CFO, Dave Styka, for more details on these results. Dave?

Thanks, Andy. Good morning everyone. For the fourth quarter of 2015, our revenue decreased 2% to $183.4 million. Operating expenses of $626.1 million including impairment charge of $537.2 million, $22.4 million of R&D expenditures and $66.5 million of SG&A expenses. We reported a GAAP loss of $5.32 per share and non-GAAP earnings of $0.19 per share. For the full year, we reported revenue of $666.2 million, an increase of 2% over 2014. We reported a GAAP loss of $655.5 million or a loss of $5.85 per share. For the full year, our GAAP net loss included an $537.2 million of goodwill and intangibles impairment charges, a $27.4 million charge related to consumer inventory and purchase commitments and an $11.3 million expense for an arbitration award, as well as $61.1 million of amortization expenses, $34.7 million of stock based compensation expense and $9.3 million of acquisition and severance expenses. The consumer related charges were comprised at $18.6 million non-cash inventory write down and $8.8 million of cash expenses to exit purchase commitments that both negatively impacted gross profit margin. Excluding these charges, gross profit margin for the fourth quarter was 47.7%. Non-GAAP operating expenses increased 33% to $280.5 million for the full year, resulting in non-GAAP earnings of $30 million or $0.27 per share for the year. Challenging conditions continued into the fourth quarter contributing to lower 3D printer sales compared to the fourth quarter of 2014. This also negatively impacted sales in materials. Professional industrial printer units decreased 41% for the year and printers' revenue decreased 26% for the year to a $168.7 million. Notwithstanding these pressures, there was some positive indicators in the fourth quarter. Orders by healthcare and industrial customers supported printers and materials revenue. Stronger SOA, SLS and DMP sales drew over 4% sequential increase in printer units and a 58% sequential increase in printers' revenue. For the full year, revenue from healthcare and related applications contributed $141.1 million, an increase of 9% from 2014. Healthcare revenue growth was driven by our broader range of products and services, as well as expansion by customers printing medical and dental devices. Software contributed $78.1 million in 2015. The addition of Cimatron in early 2015 drove a 121% increase in software revenue for the year. Consumer revenue grew 7% for the year to $46.5 million, driven by the contribution from Gentle Giant and the 2014 backlog of Cube 3D printers that were shipped in 2015. Revenue related consumer products and services that are being discontinued comprised approximately $20 million of this revenue in 2015. Going forward, since we have shifted away from the consumer category we will no longer be providing a consumer revenue number. Revenue from Cube Pro and Gentle Giant will be included in our overall products, materials and services categories. For the full year, products revenue decreased 9% and materials revenue decreased 5%. Both primarily as a result of lower printer sales in 2015. Services revenue increased 22% from growth in healthcare and software, including the contributions from acquisitions. Revenue from the Americas increased 7%, EMEA revenue increased 2% and revenue from APAC decreased 13%. Revenue in global markets was negatively impacted by lower printer sales and foreign currency rates. Gross profit margin for the quarter was 32.8% compared to 47.9% in the fourth quarter of 2014. As we mentioned earlier, this decrease is primarily related to consumer, including charges for an inventory write down and cancelling purchase commitments that were recorded in the products category in the fourth quarter. Without the impact of these charges, products gross profit margin was 30.2% for the year and consolidated gross profit margin was 47.9% for the full year. Excluding the total impact of discontinued consumer products and services, full year gross profit margin was 50%. In the fourth quarter, we recorded charges of $443.7 million related to goodwill and $93.5 million related to intangible assets. Excluding these non-cash impairment charges, GAAP operating expenses increased $3.4 million compared to last year from higher SG&A expenses. Compared to the fourth quarter of 2014 SG&A increased from acquired expenses including higher compensation, depreciation and amortization expenses. R&D remained flat at $22.4 million, inclusive of acquired business R&D expenditures. Excluding the impairment charges, operating expenses decreased $16.7 million sequentially to $88.9 million primarily related to the third quarter $11.3 million non-cash arbitration award expense and lower amortization in the fourth quarter in connection with the impairment of intangible assets. R&D expenses were flat sequentially. Cash operating expenses of $66.7 million were flat sequentially on higher revenue. We have consolidated several facilities globally, and have begun to realize the cost reductions from these actions. We are currently in the process of closing the end Langhorne facilities in the U.S. consolidating these location into Rock Hill, Tulsa and Wilsonville. As a result of the impairment of intangible assets that we recorded in the fourth quarter, we expect a 42% reduction in amortization expense to $35.1 million in 2016. During the quarter, we generated $7.5 million of cash from operations. For the year, we used $3.1 million of cash in operations. We exited the year with a $155.6 million of cash on hand and we have not used any of our $150 million revolving credit facility. We ended the December quarter with $105.9 million in inventory, a $32.3 million or 23% reduction sequentially. In addition to the $18.6 million inventory write-down related to our shipped away from consumer, we have made improvements with our planning and procurement processes to reduce and better manage inventory. We estimate that the inventory held by our channel partners at the end of the fourth quarter decreased sequentially to approximately 2% of fourth quarter revenue. Backlog decreased 5% sequentially to $38.4 million as of December 31, primarily due to timing of order placement and fulfillment across all categories. We were pleased with our fourth quarter revenue. However we want to reiterate that industry conditions remain challenging and demand maybe uneven in the coming periods. We are taking steps to reduce cost and better prioritize our resources through targeted measures that include the consolidation of facilities, headcount reductions and company-wide synergies. At the same time, we are investing in products and service related to key verticals that we believe represent meaningful opportunities to us. We shifted away from consumer products and services at the end of the year. The discontinued consumer activities contributed an approximately $20 million of operating expenses in 2015. We are currently evaluating how much of these we will redeploy as investments into other areas. As we continue our comprehensive review of our business and strategy, we are committed to taking the necessary steps to foster long-term sustainable growth and improved profitability. And now I'd like to turn the call back to Stacy who'll open the floor for questions. Stacy?

We will now open the call for questions. I'd like to remind everyone that your line will be muted after your first question, and 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 1-877-407-8291; and if you are calling outside the U.S., the number is 1-201-689-8345.

Thank you. We will now be conducting the question-and-answer Session. [Operator Instructions] Our first question is from Ben Hearnsberger of Stephens. Please go ahead.

Thanks for taking my question. I wanted to ask one on non-GAAP OpEx. It sounds like you're continuing to take out cost, drive efficiency in the organization. Should we assume non-GAAP OpEx continues the trend lower from the number we saw in 4Q?

Ben, this is Dave Styka. Yes, thanks for taking the time to kind of listen and call in. Yes, I do believe that non-GAAP OpEx is going to be reduced. As I've indicated to everybody previously where we've seen cash OpEx is flat down as we go through to 2016, and I believe the non-GAAP portion as well is going to be declining throughout the period.

Thank you. The next question is from Sherri Scribner of Deutsche Bank. Please go ahead.

Hi, thank you. I just wanted to get a sense of the demand environment. I know you mentioned that it's challenging. Can you give us some sense of where you're seeing the challenges, and then in terms of the consumer business. Do you think there is any impacts to your industrial business from exiting the consumer? Do you see this as totally separate? Thanks.

Sherri, this is Dave Styka. I'll pick up the first part of that and some other guys might want to jump in. But yes we do see demand right now. The best way I would characterize Q3 to Q4 is a lot of volatility. There is still unclearness and not great visibility and everything. However, we do kind of believe that demand is at kind of look out over 2016. I see it may be up a little bit too flat, but I don't see any big spikes in it but I do still see a lot of unevenness and volatility in it.

Then at the consumer piece of it, as we said at the end of December, we shifted away from consumer. We're currently in the process of combining the channel for desktop and professional and seek opportunity to achieve synergy and strengthen our channel management team through that. And it's another step in prioritizing our resources and really looking at where the real market opportunities are and our product portfolio to adjust to those.

Thank you. The next question is from Jim Ricchiuti of Needham & Company. Please go ahead.

All right, thank you. Just with respect to the quarter we're in right now, a couple of weeks from the end of the quarter. Can you give us some better senses to you talking about a challenging demand environment? Would you anticipate excluding the consumer business from last year that the business could be up versus a year ago or flat?

So the consumer business last year, and just a reminder we actually thought it would discontinued pieces, we're about $20 million of 2015 revenue. And just last year if you look back in Q1, consumer was a bigger piece in Q1 because of the backlog that we came into 2015 with. So, and we haven't really talked about Q1 expectations for this year, but a couple of things I guess puts some color around where the differences are and in the business today versus last year.

Thank you. The next question is from Bobby Burleson of Canaccord Genuity. Please go ahead.

Yes, good morning. Thanks for taking my question. I was just curious in terms of the Q1, kind of sequential pop that you guys demand. How much of that do you think was catchup spending, customers that were waiting on some of the quality issues or just cautious on CapEx and how much of that is kind of a real resumption of organic demand in your mind?

Bobby, this is Dave again. The fourth quarter, yes we did see that there were some larger orders from healthcare and industrial customers, it's really where we saw some - probably a little more robustness than we kind of had anticipated. But overall I think we would have saw meaningful improvement just kind of across the board. We talked about our SOA, our SLS and our DMP technologies, all being up 21%. So I think we saw some robustness across our platforms. I don't think there was a lot of extra budget for us. I do recognize in the fourth quarter you do see some of that. But I think we would have had big quarter annually than not without the impact of all of those. And the other thing that I would say though is, again I think as we kind of said coming in Q3 to Q4 while volatility, uneven demand, I wouldn't want to say that we kind of hit run rate. I want everybody to be kind of clear on that, but that there is a lot of unevenness going on in the marketplace, and there's a lot of challenges though.

Thank you. Our next question is from Hendi Susanto of Gabelli & Company. Please go ahead.

Good morning, Andy and David. Andy and David, I have a question. So you mentioned that you will be combining channels for desktop and professionals. Could you elaborate on that, maybe in terms of the timeframe and then how many channels you have for desktop, how many channels for professionals, and then some rough estimate what the number of combined channels would be?

Sure. This is Andy. I'll speak a little bit. This is sort of piggy back stuff from what Stacey commented on a few moments ago. We talked in the third quarter about the fact that we were focused on engineering and educational go to market strategy and we've talked for several months since then about the best way to do that. Well at one point some of our thinking may have been to establish two separate channels. We've talked about bringing synergies across the company, and we've done a lot of work under Mark Wright's guidance to actually take a go to market approach within our printers' channels. So we're in the midst of enhancing the core printers' channel. We're not going to establish a separate education channel and we'll work to train our direct sellers as well as our resellers within the printers' channel, and how to sell into engineering and educational applications which we still see as an opportunity for near term profitability. In particular our Cube Pro trio is an excellent product in the educational space and we're seeing some real adoption there. So it's the core printers' channel, and we're working on some enhancements to the channel now.

Thank you.

Thank you. The next question is from Jay Harris of Axiom Capital Management.

In your formal remarks you indicated that material sales were down because of the absence of new printer sales in the right quantity. I'd like to hear you talk a little about the material sales from the installed based. Obviously they were down in '16. Were they up in any of the prior years?

Jay, materials utilization and there is a couple of things that going in that, one is the printers sales levels, and obviously Q3 there was a lot of impact from the lower printer sales. Also there was a pretty large FX impact. If you look at it over the year, I think it was about $9 million to $10 million FX impact which if you exclude that materials revenue would have been up. So timely materials sales fluctuate throughout the year, we saw pretty consistent utilization across the installed base, we saw some new improvements in Q4 and some in healthcare and industrial customers, aerospace customers, but - they were fluctuating but we're seeing consistent utilization across the large customer base.

Thank you. The next question is from Patrick Newton of Stifel. Please go ahead.

Yes, Andy, Dave and Stacey, thanks for taking my question. Number one, a clarification and then my question. The clarification is I wanted to make sure I heard this correctly. Did you say that the loss in the revenue from shutting down the entry-level Cube platform and Cubify was $20 million in revenue, and then the associated cost is $29 million? Then my question on the revenue side is, is it still right to think the first half versus second half seasonality is kind of 46 to 54. Is that the right way to look at revenue? And then is it also right to think that borrowing in the M&A that 2Q through 4Q of 2016 would be pure organic revenue as you allot the Cimatron purchase. Thank you.

So the consumer question, first. We said that they discontinued consumer product contribute about $20 million of revenue to 2015. On the expenses side we said that it also is about $20 million of operating expenses, of this we are looking at right now how much we want to redeploy to other investments in other areas and how much it might be saving in cost reduction. So that's...

So just to clarify it was $20 million on the cost side, not $29 million, Patrick.

Yes, so and as far with respect to your revenue question was your kind of break in revenue. It goes back to the lack of visibility. I think historically, I wouldn't give you anything different than we achieved historically. I think that's a fair way to kind of value it, Patrick. And reasonably, I mean the amounts are pretty similar anyway. I think that's the reasonable way to look at it. But I would say given the challenging environment and the lack of visibility, I wouldn't go out and say anything is significantly changed in the marketplace. I don't have anything that would give me any more visibility one way or the other.

And the organic piece, you're right. As we get into April it's when everything lapses. The China acquisition was early April of '15.

Thank you. The next question is from Brian Drab of William Blair. Please go ahead.

Good morning. Thanks for taking my question. And I just want to get a better sense if I could on revenue for fourth quarter and first quarter '16. In the fourth quarter can you talk any more about the magnitude of these orders in healthcare and industrial, and given the tailwind of the quarter, maybe is that more or less than say $15 million? And then in the first quarter you always have the seasonal down tick and I'm wondering if you can talk about your expectations? Also given that we're ten weeks into the quarter, are we going to see the kind of seasonal down tick that we see in the past, last year, we were down 14% from fourth quarter to first quarter? Thanks.

We haven't quantified what really the contribution was in Q4, and we just wanted to make sure that everybody understands that there were some benefit from orders of healthcare and industrial customers. It's not necessarily a new run rate of any kind and there were a few pieces that played into that, some of the normal year and time, some of the postponement that people had hold off on some purchases earlier in the year. And then some healthcare and industrial customers expanding their operations and the timing there. So can't really quantify, but trying to give a little color there as fast as seasonality in Q1. I don't see that there is any reason as you would expect anything different than we've seen in past years as to the exact quantity or percentage, we haven't got any of that.

The next question is from Ken Wong of Citigroup. Please go ahead.

Hi, guys. So you guys mentioned refocusing of efforts on key markets and products, and when I think about your recent announcement of the state of the art healthcare technology center, is that we should be expecting from you guys going forward on some of your other key verticals like aerospace, auto and dental? Are you guys going to have centers of excellence for those particular verticals as well?

Thanks for the question, this is Andy. Absolutely, we view our foray into a true precision healthcare hub in Denver and healthcare as a template is we get deeper into vertical applications. There is no question that both the organic work as well as acquisition we've established quite a strong vertical presence in the healthcare. When we talk about other verticals, we do talk regularly about aerospace and automotive. And as we get further into those we'll look to what we've done in Denver as a format and how to build verticals. So I think that's absolutely true and we'll be doing a lot more of that as we position the company more and more as a company that is built on the importance of rapid prototyping. Clearly we view our SOA technology as the heart of rapid prototyping, but we will become more and more end use manufacturing company. And in order to do that we're going to have to build more vertical expertise.

Thank you. The next question is from Wamsi Mohan of BMO. Please go ahead.

Hi, this is Wamsi from Bank of America. It's Rupal [ph] filling in for Wamsi, he is on travel today. I have a quick question with respect to the services margin, there seems to be have been a significant decline sequentially as well as year-on-year. Could you just talk about some of the factors that went into there?

On the services side, what makes up the services piece is software services, printer services, medical services and then on demand parts business. And there are two pieces that are really pressuring margins there. One is through the quality issues in some of the printers this year, that warranty maintenance work goes into that service margin category. And on the part side, as we have really brought all the acquisitions together and looked at the ended, the types of customers and the jobs and the work that we're doing. There has been some areas where we have acquired lower margin business and it take some time to work through some of those contracts in, and those agreements are in place and really build out the kind of business that we want to have there.

Thank you. Our next question is from Ananda Baruah of Brean Capital. Please go ahead.

Hey, thank God for taking the question. Andy, Dave and I guess even Stacey on this one. I guess, Andy, on the context of your comment about sort of demand go through this year being flat, slightly up or maybe a bit choppy. When would you guys expect to have, I guess critical mass of what you want to do, what the cost structure looks like, in the margin structure, such that you could provide some visibility to us? That would allow us to kind of go ahead and think about what normalize could look like for you guys. Not necessarily on the top liability on the cost structure side. I'm really just trying to get my arms around what kind of mechanics you guys are working with and when that whole thing kind of manifest for you. Thanks.

Sure. Thanks for the question. I'll start. This is Andy, and I'll probably turn it to Dave to talk a little bit as well. We talked about a strategic review that we're undertaking right now. That began in earnest in the fall and continues, we're in the midst of it. It's been a very fruitful exercise and we believe that we have several more months of analysis around our business, our strategy, our processes. It's been a very beneficial exercise. It's not yet complete. As we complete it we'll be talking much more about it and sort of how that impacts our view of the remaining part of the year. That will go in the margin, that will go to operating expense to the sorts of things that we can control. But we're in the midst of that exercise right now. As such we're not providing any sort of guidance at this point, but we'll be talking to you in the next couple of periods as we reach our conclusions and make some decisions.

Yes, and I guess the only thing that I would kind of highlight is as we kind of indicated we are still actively working on managing our cash, our inventory levels. Cash OpEx is a big metric that we're really looking at here, and one of the things that I want to kind of call out to people is one of the things that we said that we are going to do is facilities consolidation, headcount reduction, cost rationalization. You're seeing that happen not only in our hand over facilities or land count facilities. So we're actually working through all of that as we go through it. But holistically the big plan of any big strategic changes, that is still to come. But that's not prohibiting us from today being very aggressive and active in OpEx cash and inventory management.

Thank you. [Operator Instructions] The next question is from Jason North of Jefferies. Please go ahead.

Hi. I was wondering for the impact of the discontinued business on the printer gross margins, as any in general thoughts you had on the gross margins for the printer side going forward.

On the gross margins. We haven't had any guidance or expectations entirely around the future, but if you look at where we were in 2015, the products gross profit margin if you exclude some of the consumers, it's fairly consistent over the last couple of quarters. And we said on the consolidated basis excluding the one-time consumer impact that was a total 47.7 for the quarter and 47.9 for the year, so right in the same range as we have been.

Thank you. The next question is from Jim Ricchiuti of Needham & Company. Please go ahead.

Thanks. It looks like based on what you said you did healthcare revenues about $141 million, I think I heard you say so. Based on that, your healthcare business down again for Q4, it looks like around 3%. So you had two quarters now of year-over-year declines in the healthcare sector of the business. Can you talk a little bit about that? Is that competitive? When would you anticipate that turn?

Thanks, Jim. We've talked about the healthcare, and one of the drivers of that has really coincided with the printers and materials business and just the timing of some of the orders there. And like we've seen in some of the industrial areas, customers who are expanding in these applications parts, implants, surgery guides, things of that nature are growing. Others who are doing some the milling and prototyping aren't growing as much. So that's all the same kinds of things that are playing into that healthcare business, and we still believe that over the long term that it's a growth area for us. If you look at the year it has grown, and we've obviously talked about the investments we're making and there are reports every day about healthcare customers making investments in and the fit that 3D printing provides for all of the application.

The other thing, Jim, that I called out is I think the Denver facility is going to be a good launching point for us to cap the market in different ways with a more holistic approach to be able to be more aggressive on as we go through market and other key areas as well.

Thank you. This does end the question-and-answer portion of today's conference. I'd like to turn the conference back over to Stacey Witten. Stacey?

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.

Thank you. Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time, and thank you for your participation.