3D Systems Corporation (DDD) Q1 2021 Earnings Report, Transcript and Summary

Hello, and welcome to the 3D Systems' First Quarter 2021 Conference Call and Webcast. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to John Nypaver. Please go ahead.

Thank you, Kevin. Good morning, and welcome to 3D Systems' Conference Call. With me on the call are Dr. Jeffrey Graves, our President and Chief Executive Officer; Jagtar Narula, Chief Financial Officer; and Andrew Johnson, Executive Vice President and Chief Legal Officer.

Good morning, everyone, and thank you for joining our call today. Nearly one year ago today, I joined 3D Systems as Chief Executive Officer. My reasons for joining were very simple. First, I believed that this industry was beginning to enter an exciting growth phase, driven by both maturing of the technologies as well as receptivity of the customer base to industrial scale additive manufacturing. Second, I saw the potential for 3D Systems to be a leader in the industry, while they could not only be at the forefront of this industrial renaissance, but instrumental in making it happen. As excited as I was a year ago when I arrived, those feelings are dwarfed by the enthusiasm I feel today. Rather than opening the call with a recap of our financial performance as I usually do, today I am simply going to let our Q1 results speak for themselves with Jagtar providing more color for you in a few moments. Instead for today's call, I want to start by offering a sincere thanks to our fantastic employees and our leadership team for their outstanding execution over the last year since my arrival. I particularly want to acknowledge the leaders of two business units, Reji Puthenveetil, who leads our industrial business and has been the chief architect of our sales transformation; and Menno Ellis, who leads our healthcare business, and has done an exceptional job of creating a true integrated approach to the medical market.

Thanks, Jeff. Good morning, everyone. For the first quarter, we reported a revenue of $146.1 million, an increase of 7.7% compared to the first quarter of 2020. Our organic revenue growth, which excludes businesses divested in 2020 and 2021, was 16.6% in Q1 2021 versus Q1 2020. We experienced strong product revenues across the portfolio including printers, both plastics and metals, materials and software. We believe this growth emphasizes the strategic nature of our portfolio breadth and validates our solution strategy. We reported a GAAP income of $0.36 per share in the first quarter of 2021, compared to a GAAP loss of $0.17 in the first quarter of 2020, driving this improvement was $32.9 million gain from the sale of the Cimatron and GibbsCAM software business, as well as the tax benefit of $8.9 million as a result of the favorable ruling from the IRS regarding a FIN 48 reserve. Turning to non-GAAP results, we've reported non-GAAP income of $0.17 per share in the first quarter of 2021, compared to a non-GAAP loss of $0.04 per share in the first quarter of 2020. The exceptional non-GAAP result reflects our strong revenue growth combined with the restructuring and cost optimization activities that we have previously announced. Now, we will discuss revenue by market. Our healthcare business had a strong quarter with revenue growing 38.7% year-over-year. This growth was fueled by an increase in hardware and material sales in our dental business. The large hardware volume like we saw in Q1 may fluctuate on a quarterly basis, but drives the recurring higher margin material and services revenue, which is a focus of a lot of our long-term financial goals. Excluding dental applications, revenue from medical applications grew by 9% as we continue to see increased demand for personalized health services and advanced manufacturing of medical devices. We have recently announced a planned expansion in Denver, Colorado that is intended in part to support the future growth of this business. Revenue in our industrial segment, when we exclude the businesses divested in 2020 and 2021 was up approximately 1% year-over-year as compared to year-over-year declines in prior periods. The revenue trend turnaround in our industrial segment was across our sub-segments such as jewelry and automotive with no single segment driving the results. This is a reflection of global economies continuing to recover, albeit at an inconsistent pace from the pandemic related shutdowns. We expect this inconsistency to continue in 2021. So while we see a path to full year double-digit organic revenue growth in our core business excluding businesses divested in 2020 and 2021, macroeconomic risks such as further COVID-19 impacts, inflation concerns and supply chains shortages in certain critical components like semiconductor chips, continue to create uncertainty. Now we turn to gross margin. Let me start my commentary on gross margin with a statement on our presentation. During the first quarter of 2021, we identified certain costs that have historically been shown as cost of products that actually related to cost of services. Our reported gross profit margins reflect an update to properly present these costs. While this resulted in a small movement of costs between products and services, the change not affect our gross profit, bottom line results, consolidated balance sheets or statement of cash flow. For Q1 2021, we reported gross profit margin of 44% in the first quarter of 2021 compared to 42.1% in the first quarter of 2020. Non-GAAP gross profit margin was 44% compared to 42.7% in the same period last year. Gross profit increased year-over-year as a result of higher sales volume mix including software sales and the impact of our cost reduction activities. We are quite pleased with our improved margin performance in Q1, especially when you consider that we divested a relatively high gross margin software business at the beginning of the year. In our last earnings call we said we expect non-GAAP gross profit margins in the range of 40% to 44% for 2021. We continue to expect to be in that range on a full year basis. Operating expenses for the quarter were 66.2% on a GAAP basis, a decrease of 12.1% compared to the first quarter of 2020, including an 11.6% decrease in SG&A expenses and a 13.7% decrease in R&D expenses. Our non-GAAP operating expenses in the first quarter were $51.2 million, an 18.7% decrease from the first quarter of the prior year as we saw the benefits from our restructuring efforts as well as the impact of divested businesses. The primary differences between GAAP and non-GAAP operating expenses are $13.4 million in amortization of intangibles and stock-based compensation. Continuing the theme of year-over-year improvement, adjusted EBITDA defined as non-GAAP operating profit plus depreciation was $19.8 million or 13.6% of revenue compared to $2.2 million or 1.6% of revenue in the first quarter of 2020. The improvement is due to stronger gross margins as well as the results from our restructuring efforts. We are very pleased with the trend of our EBITDA margins over the past several quarters. Driving improvements to margins, adjusted EBITDA and revenue growth is the impetus behind targeted acquisitions like Additive Works and Allevi. While they will not be material to 2021 results, these in future acquisitions will be a key component of our long-term strategy to reach double-digit revenue growth, gross profit margins of 50% and adjusted EBITDA margins of 20%. Now let's turn to the cash flow statement and balance sheet. Cash on hand increased $48.2 million during the first quarter. This increase was primarily driven by the net proceeds from divestitures of $54.7 million in cash generated from operations of $28.5 million offset by a debt repayment of $21.4 million and other financing and investing uses of cash including capital expenditures. Note that our cash from operations of $28.5 million included the use of approximately $6.6 million of cash for withholding taxes related to the Cimatron sale. When factored together, it is of note that we have substantially improved cash from operations compared to the $2.3 million of cash used in operations in Q1, 2020. We ended the quarter with a strengthened balance sheet with $133 million of cash and cash equivalents, no debt and nearly full capacity on our $100 million un-drawn revolving credit facility. As I end my prepared remarks, I would like to make a final comment about the quarter. We have made a very strong turnaround from this time last year. 3D Systems is now growing profitably, generating cash and maintaining available liquidity. Our combination of growth and profitability is unique to our industry and positions us well to continue to invest in high growth areas that will support our long-term financial goals. Our solid financial profile makes us the partner of choice for customers that are considering a solutions provider for their most critical manufacturing processes. We are excited about the opportunity for our business and our plans to deliver against our long-term objectives. That continued to provide more detail to the investment community on our strategy we plan to hold an Investor Day in the Denver, Colorado area on September 9. We will provide more details as we get closer to the event. With that, I'll turn the call back to Jeff. Jeff?

Thanks, Jagtar. Again, I just want to say how pleased I am with our results, our return to year-over-year growth, our continued profitability improvements, the strength of our balance sheet and our strong cash generation performance. With intentional action taken on our four-phase plan, we're reinforcing our leadership in this exciting industry. We plan to continue looking for opportunities to optimize our resources, divesting or investing as needed to support sustained exciting growth and profitability. We'll now take your questions. Kevin, let's open it up.

Thank you. We'll now be conducting a question-and-answer session. Our first question today is coming from Greg Palm from Craig Hallum. Your line is now live.

Hey, guys. This is actually Danny Eggerichs on for Greg today. Thanks for taking the questions, and congrats on the good results.

Thanks, Danny.

Thanks, Danny.

Obviously healthcare was really good. I think you mentioned some outsides growth in dental. Maybe just in terms of mix there, was this maybe -- you said they're both strong, was this maybe driven by a better growth in printer sales, or maybe materials, and how should we look at that going forward?

Yes, Danny. This is Jagtar. Good morning. So, we did have very strong printer sales in the quarter. I think I mentioned that in my prepared remarks. We expect that to drive sort of the future consumable services revenue that is high profit for us, but -- so we were pleased with the high printer sales, but we saw increases in both printers and materials, printers was a little bit stronger.

Got it. And then maybe if I can just get a quick one on maybe supply chain shortages, we've seen kind of semi chips and maybe even some resin shortage, what kind of impacts are you seeing there?

Yes, Danny, good question. We got out in front of it early. With the headlines as 2020 closed, we anticipated it and got on front of it early, but yes, there's no doubt, it took a lot of work this quarter to keep it from hitting us financially. So, we didn't let any customers down. We shipped everything that customers wanted to take in the quarter, but it was a lot of work, Danny. And we think it is a risk going forward, just availability supply chain logistics. You read about semiconductor chips, but really there's a lot of components that go into printers that are in fairly short supply. So, it takes a lot of effort to stay on top of it. We're working real hard at it.

Got it. I'll jump back into queue for now. Thanks for taking the questions.

Thanks, Danny.

Thank you. Our next question today is coming from Sarkis Sherbetchyan from B. Riley FBR. Your line is now live.

Hey, thank you for taking my questions here. Just wanted to see if you can provide an update on the cost restructuring initiatives, how much is left to go in the savings program? I think last quarter you mentioned achieving a $60 million run rate cost saving. So, just want to get a sense for where we stand today, how much is left to go, and what's the timetable?

Well, we're right on track with where we thought we would be this year in terms of our cost takeout efforts. So, what we said was with the divestitures, we would get another -- with the divestitures having occurred right at the end of the year and beginning of this year. The target now this year was a $20 million incremental cost takeout. We're on track with that is going very well. The balance there is looking at investments for growth, because the market is rebounding. We're very pleased with the number of new applications customers want to pursue right now on both the metals and plastic side. So, we are funding that growth. So, in terms of seeing -- what you're seeing flow through this year as a net of those two factors. We'll get $20 million out of our cost structure, and we'll look to reinvest some or potentially all that savings back into the cost structure to fuel growth, but you should see it -- if you should see a nice response in terms of revenue growth margin performance, that's really the tradeoff that we're making there. So, Jagtar, you have any more lights you want to put on that?

No, I think you captured it well, Jeff. I think we are getting the $20 million out this year. I would expect OpEx going through the course of the year, because that will be the next question to be in line or marginally up with where we were in Q1 as we balance taking cost out with the initial investment for the opportunities we're seeing in the market.

And I was very glad that we got the $60 million out last year and got everything restructured, because it really positioned us well as the market rebounds now to leverage that reduced cost structure. And now what's really a horse race between taking further cost out of the business and investing for growth. We are determined to grow profitably. So, we're not going to overspend on that and get out in front of our skis, but we certainly are going to support the strong markets that we see right now ahead of us.

Fantastic. Just one follow-up, a quick one, I think the healthcare business is pretty obvious performing pretty nicely there, just any comments or color you can provide on the industrial side, which end markets do you think -- you know, there's a nice growth opportunity here in the near-term to intermediate term, and then which might be giving you some trouble? Thank you.

Yes. It's really interesting, there's -- you can go through each market vertical. And in automotive, clearly ignoring the semiconductor issues they have as a total industry. There's clearly a kind of a mega trend headed toward electric vehicles. So, we're really pleased with our exposure there and where that's going. It's a smaller business today, but clearly from everything you read it, you can tell publicly it's a growing market, a growing business, and the light weighting and strengthening of those cars we think is real. And the stories we hear back from customers about their utilization of Additive is really encouraging for that. Aerospace clearly has lags. It was really impacted by COVID. It's nice to see more people flying now as the U.S. at least opens up. So, you would expect aerospace to lag, but be a driver in the next couple of years. Interestingly, applications related to heat flow, heat management, thermal management are really exciting. And I say a broadly like that because there's a lot of applications for managing heat. When you think of datacenters, how do you eliminate the heat? One of the major expenditures, any developed country has for energy usage is in datacenter cooling, and it just shows you the impact, the magnitude of heat generated there and how to dissipate it as a real issue, additive manufacturing is great at that. And when you carry it down to a system level, things that are very temperature-sensitive, so I'll give you two extremes; one is rocket travel, space travel with rockets. You see that competition heating up now in the commercial realm, which is really exciting between a number of public companies getting into the space race, getting into the commercial space travel. Space travel is enabled really nicely by additive manufacturing both propulsion and the systems themselves. And then another exciting application we're finding a range of applications in is semiconductor chip manufacturing. When you start controlling stereolithography and other activities to make modern semiconductor chips, control of the thermal environment, the temperature environment in a system is incredibly important. And the structures you can make with additive at very effective costs are remarkable, absolutely remarkable. So we've been very pleased with the interest level and the growth in the business of the semiconductor equipment manufacturers. So, I could go on and on, but those are several that we think will both lead and trail in the opening economy.

Thank you.

You're welcome.

Thank you. The question today is coming from Noelle Dilts from Stifel. Your line is now live.

Hi guys, good morning, and congrats on a good quarter.

Good morning, Noelle.

I was hoping that you could stand -- expand a little bit on some of your bioprinting initiatives and you spoke to some of the opportunities in the near-term around cosmetics. And I think printing on slides, could you speak to how to think about the monetization of this over the next few years, when you think it could become contributory and how to think about kind of the longer-term kind of thinking about the longer-term ramp of that, that side of the business things.

Thanks, Noelle. It's a great question. For an emerging industry, it's always tricky to predict the timing, and -- again, I don't want to be too aggressive in telling stories, but I got to tell you, I am so excited about the progress that we've made technically, and the way the markets are evolving. Clearly we started on the very long-term end of things, and that's the -- our engagement with United Therapeutics on the printing of human organs that's a long-term effort that that will be measured in years, not quarters, but doing that and setting that high bar really got us involved in progressing the technology. And as we did that, we start to opening up near-term markets. So other parts of it sounds funny to even talk about it, the other parts of the human body that you can print with bioprinting and get into application. When you think about it, everyone's body is unique, everyone's body, arteries, veins, muscles, tissues, bones. And so, it generically lends itself to additive manufacturing where you print things that are specialized for each human body. So we were very happy as we entered 2021 to say, "Hey, let's broaden our scope and go for some nearer-term applications, which might be measured in fewer years, okay, to get into." So, all of those are funded -- that effort is all funded internally. And I would tell you, we model a nice return on investment, but it's still measured in years to get fully FDA qualified and all of that, progress is remarkable, but it still takes a lot of time. So with that, we said, well, how do we run further and faster and shorter term? And you look at the laboratory applications and then the Allevi acquisition came along as an opportunity for us. We were able today to print three-dimensional tissue specimens in the lab for -- first of all, for basic studies of regenerative medicine and that's fine. That's needed to progress the science, but I would tell you, you know, what I'm really excited about are the applications in the pharmaceutical industry, because the testing of drugs and other skin therapies and treatments is -- relies on an enormous amount of computer simulation and then animal testing. And then they very, very carefully go into real human testing. The regenerative medicine approach bioprinting gives you an opportunity to really test the effects on human tissue, but in a lab setting. And I would tell you, no, I believe that can be an exciting near-term market for us. Through Allevi we're now exposed to hundreds of research laboratories around the world. We can take the technology we've developed for organs and other human applications and refine it to apply it to laboratory settings, leveraging what Allevi has done in their customer base. So I would tell you I think the pharmaceutical industry and things like cosmetics and other skincare, I think that could very well be a revenue stream for us that's certainly measurable next year and can contribute in the long-term to the business substantially. It can be an enormous business for us, and it will be for someone and I feel good about our leadership role in that today. It's nascent. It's evolving and we want to be out in front and making it happens.

Thank you. In the interest of time, I'd like to remind everyone to please limit themselves to one question then return to the queue. Our next question today is coming from David Mizrahi from Berenberg. Your line is now live.

Hi, guys.

Hi, David.

Aligned guided to CapEx of greater than $300 million this year, well, last year's attracts roughly $150 million and part of this is going to support new factory in Poland. Could you just discuss the implications for you guys or any conversations you've had, I'll jump back in the queue. Thanks.

No, we really can't. We really can't. I would love to tell you about the conversations we have with individual customers, but we just can't go there. I love our customer base and we have a terrific customer base and some very long-term customers that have done very well in their industry, but we just can't talk about them. It's too sensitive to them as much as I would love to talk about it ourselves, so we just can't do that. But we're excited, I mean, clearly medical in total is growing really nicely for us across the range of big name healthcare companies and end markets, end users like surgeons, same with dental. It's an exciting business and a dynamic business, and it is broader than you might think and it's going very, very well, but I just -- David, I can't really comment on individual customers. I'm sorry.

Thank you. Our next question today is coming from Paul Coster from JPMorgan. Your line is now live.

Hi, this is Paul Chung on for Coster. Thanks for taking my question. So I see that you're splitting out healthcare and industrial by operating profit in the 10-Q. Will you be kind of providing the historical data and how should we think about the margin performance between the segments moving forward? There's kind of quite a discrepancy today.

Yes, Paul, unfortunately, we won't be providing historical data. So to provide that operating segment data, we -- as you know made a substantial restructuring of our business last year into these two verticals, healthcare and industrial that required a pretty substantial rewiring of our financial systems to be able to now report by segment down from just revenue -- not just revenue, but down to operating profit, healthcare and industrial. We did that on a prospective basis, not a previous year basis. So we don't have the ability other than kind of excel spreadsheets to report historical results going in to 2022. We'll have 2020 results -- 2021 results, so you'll be able to see year-over-year impact. So that's our plan going forward.

And how does that margin performance evolve kind of through the year and into 2022 and getting to your goals longer-term goals. Thank you.

Yes. I would expect that if you look at our business in totality, I think as we look at EBITDA margins for the year, right, I would expect just looking at kind of where consensus revenue guidance is right now, right. If I take consensus revenue guidance for the balance of the year, I apply the midpoint of our gross margin guidance range to 44%. And I say OpEx will be about where we were in Q1, maybe marginally up from the investments that we're making. I think that gets us to low-single - low-double digit adjusted EBITDA margins. And I think that'll be roughly split between healthcare and industrial the way you saw in Q1.

Paul, I would just add in terms of our long-term financial model for the company, I mean we certainly see healthcare has got a great future to it. It's a -- and it lends itself to kind of what's called mass customization through additive quite effectively, both on the implant side and on the dental side, really, really well. And it generally is growing faster and carries a higher margin. So in terms of supporting our long-term financial objectives, you can see the mix between the businesses that we would expect that trend to continue. And that kind of supports our -- when you extend out that kind of supports are longer range targets. And we'll be talking more about that at our Investor Day in September.

Thank you. Our next question is coming from Brian Drab from William Blair. Your line is now live.

Hi, good morning. Thanks for taking my questions or question, I should say. Are you -- and I'm sorry, I'm listening to the two call simultaneously, so I'm sorry if you addressed this, but are you hearing anything from your largest customer in terms of their plan capacity expansions and the requirements of 3D Systems in 2021? Thanks.

Yes, Brian. Again, we don't want to talk about individual customers. They really don't allow us to, they don't want us to, but I would tell you we're very intimate with a number of our large customers. And we -- I think we understand their growth plans themselves and what they would like us to be doing and investing for. And we're excited about that. So, across the board, I think all the guys we support are growing nicely and have exciting plans and we'll -- I expect us if we execute our business well to be a key part of it.

Okay. Thank you.

Thanks, Brian.

Thank you. Next question today is coming from Wamsi Mohan from Bank of America Securities. Your line is live. Wamsi, you are on mute.

.:

Well, let me take the reopening question there, Wamsi and I'll let Jagtar to answer the second question you had. Yes, in terms of revenue and expectations, it is the big question that and in the struggle -- we have two struggles. Number one, the world is much different in different locations in terms of rate of opening. The U.S. is good systematic opening. We see -- it's kind of becoming predictable now. So you see customers behaving that way and ramping up their current capacity planning for new investments all of that. And then you've got Europe, on the extreme side, India, where Europe is really not opening quickly. They'll put it that way. And in India is kind of headed the other way, seeing these tragic headlines out of India. So -- and we do some business in India. So you have to net it all out to look at revenue performance. So I want to be very careful in Q2. Again, I'm really pleased with the demand profile we see out there and it's more of a pacing item, how fast can we -- how fast are customers comfortable placing purchase orders and ramping up their capacity. In the U.S., I'd tell you very confident things look really good. Europe is much more of a flip of the coin and then places like India are still going backwards. So it's tough. And I think that should clear up nicely in the second-half of the year, but predicting Q2 is a little hard, which is why we're not giving guidance -- not give a guidance out there. On top of it, you have logistics and the short-term -- I think short-term supply constraints. And we're managing our way through that fine, but it's a week to week, month to month foot race to make sure we have all the components we needed to build product and ship it. It's going well, but we just have to -- it just remains a risk factor for us going forward. So, the hardest thing frankly to predict right now is the short-term. In the long-term, Jagtar into your cost structure, that's pretty easy to predict, but the longer-term -- there was a short-term outlook on revenue is a little bit trickier, it's full -- it's more full noise. Jagtar, do you want to take the second-half of that…

Yes, I'll address the question I think Wamsi you have was on our segment revenue reporting. So we did disclose obviously, as you know, Q1 healthcare versus industrial. We do have the ability to do that for other quarters. What I was addressing in that prior question was operating profit, but revenue we certainly have, and we can make that available to post this earnings call.

Okay, thank you.

Thank you. Your next question today is coming from Ananda Baruah from Loop Capital Markets. Your line is now live.

Hi, thanks guys. Good morning. Thanks for taking the question. Congrats on a solid execution. Hey, just real quick. What -- how should we think about opportunity for the divestitures going forward and then cash is now that's starting to collect. Thanks. That's it for me.

Great questions. It's clearly we started down this path on divestitures having defined the purpose of the company. We looked at what's outside of that envelope and we did -- we felt great. We did a couple of them very late last year, right, as we rounded the curve into 2021. That work is still ongoing. We're still considering what do we want to hang onto? What do we want to divest? What fits within that core package? I don't really want to talk more about it because it's obviously a very sensitive topic, but, yes, we're not finished and we continue to work on that. You'll hear more about it in the coming months and quarters. In terms of what we're going to do with the cash, I feel great. We've got nice cash on the balance sheet. We're generating good operating cash flow. We've got no debt. I feel really good about our investment opportunities now and they should continue to expand. In terms of priorities, clearly, we're now on the hunt for smart investments across our business. So it could be technology investments like we did last quarter that make printing more efficient or move us into a new market with regenerative medicine that was an example. I would love to do more in healthcare, would love to do more -- some more in our core technologies. Although I have to tell you we're in really good shape organically on that as well. So I love the Additive Works addition from a software standpoint. It was incremental to what we had the capability to do internally, which was great. Those are the kinds of opportunities we look at. They're small-ish niche kind of technology opportunities that really don't shift the needle in a given year materially, but they make a huge difference in the long-term. So they open up new markets, they bring new technologies. So we'll continue to look for those. And fairly aggressively I would tell you there's no lack of opportunities. You just have to look at getting a good return on the investment for our shareholder.

Excellent.

So, yes, I'll just add a little more color on top of the potential use of cash and M&A that Jeff mentioned in technology investments. I would also say, you'll see increased use for CapEx. I think our CapEx has been light for the last year now. We'll be increasing CapEx as we make investments in our business. We talked about the expansion in Denver that -- and other areas investments we'll get CapEx up closer to the 4% or 5% of revenue that we talked about in the last earnings call. We'll still have some cash for restructuring activities as we continue to restructure our business and reduce costs. And then finally, I'd also say we'll probably have some inventory bills going into Q2 and maybe later this year, right. We are seeing increasing demand. We talked about supply chain concerns and wanted to make sure that we had sort of adequate product or components to meeting demand. So, we will probably invest in inventory for the balance of the year.

Thanks, guys, super helpful.

Thanks.

Thank you. Our next question is coming from Troy Jensen from Lake Street Capital. Your line is now live.

Yes, gentlemen congrats on nice results.

Thanks, Troy.

Hey, Jeff, just quick for you, I guess one new trend we have seen is high temperature DLP. As you think of Stratasys -- excuse me, 3D Systems when it comes to SLA and DLP technologies, could you just remind us -- update us what your strategy is to do more in high temp DLP, or maybe you have, and I am just not aware of it?

Well, number one, Troy, we really increased our investment internally on new materials for both SLA and DLP. We were playing a bit of catch-up there. And we have got some really exciting materials coming out this year, actually quite a lot. So, in terms of developing new materials for our current platforms and our next generation platform which we haven't talked about yet, but that will be coming soon. We want make sure the materials pipeline is really strong. It's really hard to start getting payback on those platforms. As you know from your experience, it's really hard to get the payback on the platforms until you have good materials flow through it plus customer adoption has helped tremendously by having a good portfolio material. So, we are trying to get on front of the materials questions on those. And we then have some next generation platforms coming along. And we will talk more about in the fall.

If I can piggyback a follow-up just on that trend of materials, how about composites displacing metals? Are you doing a lot more -- can we expect to see more composite materials from you?

Yes. Troy, I think composites have a really nice role to play. And we are looking at it from a number of angles both the material systems themselves and then obviously the combination of matrix and fiber and what you do there as well as the printing technology, just the printing hardware. How do you print, how do you best print composite structures? There is a lot of exciting work going on. And so, we can progress some of it internally. Some of it we are looking at partnerships and acquisitions. But I think there is -- you put your finger on it, there is a really nice evolving niche between classical polymer technology and metals technology for lightweight strong stiff materials of composites. So, it will be a factor and we are excited about it.

All right. Well, get good luck, gentlemen.

Thanks Troy.

Thanks, Troy.

Thank you. We've reached the end of our question-and-answer session. I'll like to turn the floor back over to John Nypaver for further closing comments.

Thank you all for joining us today and for your continued support of 3D Systems. A replay of this webcast will be available after the call on the Investor Relations section of our Web site. Have a good day.

Thank you. That does conclude today's teleconference and webcast. You may disconnect your lines at this time, and have a wonderful day. We thank you for your participation today.