Good morning, and welcome to the 3D Systems Conference Call and Audio Webcast to discuss the results of the Fourth Quarter and Full Year 2013. My name is Shantale, and I will facilitate the audio portion of today's interactive broadcast. At this time, all participants are in listen-only mode. (Operator Instructions) At this time, I would like to turn the call over Stacey Witten with 3D Systems.

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

Good morning, everyone, and thanks for taking the time to listen to our call this morning. Today, Damon and I will go over our financial results in more depth in update you on our progress and again provide an outlook for 2014. Let me begin by saying that we are pleased to report another record revenue quarter on robust design and manufacturing printers demand on accelerated materials growth rate and on total unit sales that more than tripled this last year's units. Our fourth quarter revenue grew 52% from the prior year to $154.8 million on a 76% revenue increase in printers and other products and extending overall organic growth of 34%. Although we have grown our total revenue by 52%, we actually expected more. In fact, compared to our late October expectations, certain revenue categories fell short and our much stronger order book didn't convert to higher revenue for the quarter, instead, resulting in a near doubling of last quarter backlog. Unfavorable mix and extraordinarily high concentration of new product announcements also deferred some sales and helped suppress our expected gross profit margin. As a result, gross profit margin remained flat from the prior year's quarter at 51.7% and our operating expenses also exceeded our expectations and Damon will cover that in more detail shortly. For the year, revenue grew 45% to a record $513.4 million on an 80% revenue increase in printers and other products and a 29% organic growth. Gross profit margin expanded 90 basis points to 52.1% despite unfavorable mix. All of our revenue categories contributed to record sales for the quarter, but 3D Printers and other products outpaced all other categories growing 76% to $73.9 million, primarily as a result of strengthening demand for our design and manufacturing printers. Our materials revenue growth rates accelerated…

Thanks, Avi. Good morning, everyone. Our fourth quarter revenue grew 52% from the prior year to $154.8 million, and despite mix of new product pressure, our gross profit margin held at 51.7%. Consistent with our prior comments, we more than doubled our fourth quarter R&D spending and continued to rapidly increase our sales, marketing and infrastructure expenditures in support of our growth initiatives and recently announced joint developments and alliances. These expenditures and investments had aggregated to $50 million of non-GAAP operating expenses for the quarter, are designed to increase our leadership position and expand our market share. We believe that maintaining our historical performance does not require this level of increased expenditures, but that planning to double our revenue over the next couple of years does. Although, in October, we guided for reduced earnings to reflect these actions, additional opportunities that added to our quarter expenditures ramp surpassed our expectations and compressed our net income to $11.2 million and our earnings per share to $0.11. On a non-GAAP basis, we earned $0.19 per share for the quarter. Our 2013 revenue grew 45% to a record $513.4 million and gross profit margin expanded 90 basis points to 52.1%. Our total operating expenses increased 55% to $186.7 million from our increased investments in sales, marketing, infrastructure, talent and accelerated R&D expenditures. Our strong revenue growth expanded gross profit margin and materially increased investments resulted in net income of $44.1 million, representing a 13% improvement over 2012 and GAAP earnings per share of $0.45 non-GAAP EPS of $0.85 per share for the year. As you know by now, we report non-GAAP adjusted results that exclude the tax affected impact of amortization of intangibles, non-cash interest expenses, non-recurring acquisition, integration and severance expenses, including gain or loss on acquisitions, impact of litigation settlements…

Thanks, Damon. We believe that we have a head start as the leading industrial healthcare, consumer electronics, athletic, toymakers and food companies are receptive to forming the relationships with us and this other and potentially larger players marketing resources 3D printing opportunity. As the competitive landscape continues to evolve at a fast pace, our goal is to move even faster to solidify and extend our first mover advantage, while we concurrently begin to pursue opportunities in new areas. We see substantial organic and inorganic opportunities in the areas we are targeting and we expect growing demand for our design and manufacturing solutions to continue to drive, lead and shape our growth. As a reminder, our 2013 annual revenue from our design and manufacturing 3D Printers increased 60%, with some 50% of those units already sold into outright manufacturing applications. Our growing installed base in this category already accelerated our materials growth rate and generated a 40% increase in integrated materials revenue for the year. We expect further material sales upside as more of our customers' manufacturing facilities come online. We launched 12 new game changing professional and design and manufacturing products at EuroMold 2013, and we believe that we are the domain experts in aerospace, automotive, medical device and jewelry manufacturing and we further believe that the acquisition of Xerox Wilsonville combined with our Google Project Ara, positions us to be able to catapult our R&D capabilities full decade forward. We believe that the consumer opportunity is nascence. It is in its early innings and during 2013, we conducted a series of experiments and built the channels, the retail presence and product line. It's worth noting that despite some quarterly bumps, largely of our own making, we managed to triple our consumer revenue for the full year and have sold…

We will now open the call for questions. We kindly request that you ask one question at a time and then return to the queue, thus allowing others to participate in the Q&A session. As a reminder, please direct all questions through the teleconference portion of this call. The telephone numbers are provided again on the slide. If you are calling inside the U.S., the number is 1-866-953-6856, and if you are calling outside the U.S., the number is 1-617-399-3480. The conference ID is 7717177985.

(Operator Instructions) John Baliotti of Janney Capital Markets. Please proceed.

Thank you. Good morning, everyone. This is probably a question to Damon and Avi, obviously probably each of you, but recognizing, you have made several comments about willing to forego the near-term margin improvements for the long-term growth and leverage. Slide 10, I think, to a degree speaks to that. Recognizing that a new product supplies several years of growth and R&D is not a one-year phenomenon. It has multiple years of benefits. But if you look at just the discrete periods, it seems interesting that in 2012 your new products grew 70%, 2013, 75% and yet the preceding 12 months, the R&D expense has lagged, the growth in R&D lagged that. So it certainly seems that your absorption of the R&D efforts is very high with the market. I was just curious if you can talk to maybe some of the inputs you are getting obviously internally, but also externally, to help you efficiently allocate those dollars?

Well, look, I think that first, it's important to know that we measure the effectiveness and productivity of our R&D based on its market acceptance and revenue generation and we have historically believed have gotten a great deal more out of every R&D dollar that we spend vis-à-vis the other players in our industry and in other industries. So we believe that we are very good custodians of R&D activities in dollars. The investments that we are making our are clearly designed to accelerate our leadership in key verticals, extend and expand market share and do it in a way that attracts more channel faster, attract more domain experts in key areas that we are interested in and build out both the manufacturing and consumer deployments ahead of anybody else's ability to catch up. And we think that it's working. It's working in terms of the opportunities, the conversation, the order book, the ventures and alliances that are on the table and most importantly, John, the impressive lineup of new products that will only begin to accrue benefits for us in the second half of this year. So based on all these inputs and outputs, we believe that now is the time to step up our activities. You have seen early returns from that step up in the six weeks between EuroMold and CES, and there is more to come. We also feel that now is the time to take even bolder steps and bring on capabilities like the Xerox Wilsonville team that brings additional 100 engineers, scientists, technologists, with 20 materials scientist, their lab, their know-how, access to hundreds of patents, a powerful reminder here that this is the team that mainstreamed to the color printing in the last decade, decade-and-a-half and we are able to crack the code of making high-performance reliable plug-and-play low cost printers that are very (Inaudible) catapults us forward at least a decade.

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

Thanks for taking my question. Maybe a quick follow-up on the OpEx, I appreciate you guys' commentary on what the incremental above planned expenses were, but could we just focus on the sales and marketing? I think it was $8.5 million above the original expectations. Just curious was there any co-marketing payments, any distributions baked into those numbers?

In sales and marketing, as far as distributor incentives know, all of the distributor incentives and all of the discounts and everything that get there actually get recorded in net revenue that I think get recorded down there. We did make some marketing payments and do some marketing for different areas for sure, but that wasn't the driver, so I mean the real drivers again were just like we said there, the accelerated new product introductions, which they are not co-marketing payments, but there is marketing campaigns around those and there is literature and all the all the assets that go around providing the marketing campaign, but not necessarily co-marketing payments as you would define them.

Yes. For the [cycle] clarity, Troy, the increase or I should differently. During the fourth quarter, we did not have any extraordinary or unusual reseller co-marketing or other incentives. The increase is purely linked to the extraordinary number of new product introductions, the activities around those and to a lesser extent, a much faster expansion of sales organization and channel and to a lesser extent some acquisitions.

Your next question comes from the line of Ananda Baruah of Brean Capital. Please proceed.

Thanks guys for taking the question. I guess this could be one for both, Avi and Damon. Just with regards to the revenue guidance for the year is I guess the mid-point of $700 million. Avi, Damon, if I back out what you are suggesting the contribution, incremental contributions to the growth of revenue dollars, with metals in for consumer into '14, it seem to suggest that you are implying from some slowing, some potentially meaningful slowing in your core commercial plastics business. I guess the question is, is that the case and if not, we would seem to seem to some conservatism, maybe meaningful conservatism baked into the rough guidance, so I was just looking for some context around that. thanks.

Definitely. As Avi spoke about the consumer range and the metals range, those are ranges just like the revenue range of $680 million to $720 million, so you can't just take the midpoint of one and the other. You got to sort of look at the whole thing and there is some - why we give range is, there is some play in how those ranges will work out. We do not believe that there is weakness in the plastic side for this is and that we will achieve growth rates in all areas.

Yes. I would add to that that I prefaced in my prepared remarks that our consumer initiative to a certain extent represent an upside, so yes there is some conservatism in our guidance, appropriately so. We think that certainly in the case of consumer, it's early days and based on all the experiments that we conducted in 2013, we believe that we have built the presence, the product and the necessary muscle via some of our new co-ventures and alliances to actually plan on tripling revenue again there. Metals is in the beginning stages of what we believe is a very exciting journey. As we have said repeatedly now, we have been sold out of capacity every quarter since we acquired this business and we expect that this year it could generate some place between $25 million and $50 million in revenue and it's just the beginning. We don't recall many exciting opportunities and we expect our plastics business continue to grow strong. Bear in mind that just on our design and manufacturing printers that are primarily plastic, that category grew last year by 60%. That is primarily driven or was primarily driven by plastics. About half of those installs now go into outright manufacturing environment. So we see a significant expansion opportunities in plastic and we think that the more that we expand this category, new use cases and applications, both in design and manufacturing will avail themselves.

Your next question comes from the line of Jim Ricchiuti of Needham & Company. Please proceed.

Thanks. Just wanted to follow-up on the discussion around metals. The range that you are suggesting for 2014 and the increase that potentially you could see over the next 12 to 18 months. First off is that, you said all are organic, and secondly, if it is all organic, what gets you there? Is it new products? Is it market share gains? Or is it just your expectations for the overall health of the market demand in that area?

Jim, clearly the growth in metal that we anticipate is going to be based on our organic efforts to grow that product line. We have aimed that range. We are not contemplating additional acquisitions in direct metals to aid to achieve that range. We may contemplates direct metal acquisitions but not to reach this range. This range is predicated solely on our organic. And what gets us there is basically the attractiveness of the current product line. It is very attractive because of the unique capabilities and differentiating output that it delivers. And based on the current funnel of opportunities and the order book and also based on our plans to fast-track a larger format direct metal business, we think that the combination of the product and the extended channel that we have, we can continue to drive those kinds of growth rates just on our own volition without any assistance from any other activities.

One important point to make here, just for clarification, is we are talking organic and inorganic. We did not include the metals printers in the organic growth rate for this quarter and they will not be included in the organic growth rate until after July of this year. So I just wanted to clarify that.

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

Hi guys. Thanks for taking my question. So just back to the metals printers again, if you don't mind. It sounds like there is a lot of demand out there for an alternatives to EOS and you guys are capitalizing on that. How about the service growth side? What kind of you allocations are you giving yourself internally in order to make sure you kind of have an advantage there, let's say, versus the radar or your other guidance that are supplying service bureau capacity.

Yes. We are getting there, but up until now we have given clear preference to OEMs and other customers, so little bit of shoemakers' syndrome here. In the sense that, you know, we had to go barefoot for a few quarters while we shoed all of our customers, but in the next few months, between now and the end of the second quarter, we will have installed our on-service bureau capability within Quickparts, so that we could also take advantage of increased demand for cloud printing of metal parts, which as you know the acquisition of Morris Technologies, by GE and some others have taken quite a bit of capacity out of the service bureau marketplace that needs to be fulfilled, so we view that as the near-term opportunity for ourselves.

Your next question comes from the line of Holden Lewis of BB&T. Please proceed. Mr. Lewis, please check your phone for the mute feature. Your next question comes from the line of Holden Lewis of BB&T. There is no response from that line. Your next question comes from the line of Ken Wong of Citigroup. Please proceed.

Hey, guys. Just a quick question on the on our 2014 outlook, I guess, one, with all the products launching in the back half, would you expect the seasonality to trend meaningfully above kind of roughly the 55% you usually see? Then second, how much cushion do you guys feel you have embedded in the OpEx guide there? You know, should we expect that that's the numbers that you gave might have to revisit down the line?

Well, I think we did put in our comments here that we expect faster growth of the second half of the year. A lot of it is how the new products that we have launched will get brought to market traction. We believe that the EPS guidance that we put out there for 2014, and there is a high or low again for that and we feel very comfortable with the range that have there for that. That's affected definitely by both, OpEx, but also revenue and margin. One thing I just want to make the point again with where we are and what we have done with our preannouncement that we had and there has been a lot of focus and rightfully so on the operating expenses, but you also got to realize and I stated when we were talking about comments that our mix also affected this, which is out of our control that to some degree that has affected the gross profit margin and our gross profit margin was below where we expected it to be even though we were able to keep it flat for the last year's number, so that was a driver to this last year's amount too.

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

First, my great respect for the extraordinary growth that you are generating and the details that you are providing in your formal remarks. My question is simply this, is there anything looking out over the next few years, which would interfere with you driving your operating expense ratio into the mid-to-high 20s-percent rate?

Look, Jay. First, thank you for your comments. Secondly, for the next few years, it is about leadership growth and scale, that on the other side of it, we believe, generate significant economic benefits. As Damon already mentioned in his prepared remarks, we fully expect operating leverage to return in 2015, so based on our planned product lineups, technology and execution, we don't see any obstacles to success unless the world colossus somehow.

And ultimately when we mentioned before and if you can see on the slide, these increases in expenses, both in R&D, sales and marketing, probably to a lesser extent on the G&A side, but that was a lower increase. They are discretionary cost. So they are ones that don't need to continue if we saw, like Avi just said, if the world started to fall apart and it affected some other are of our business, we are able to scale back and not effect the business further.

And also what Damon said this and I want to repeat what Damon said, we have generated the results that we generated last year, there is a 52% revenue growth for the quarter and 45% revenue growth for the year without the need to step up our expenditures and we still generated significant number of new products based on a much lower level of spending. What we are doing now is clearly preparing us for the next chapter of growth. It wasn't necessary if we just wanted to continue as we are. We think that it is necessary as we plan to double revenue again in the next couple of years. And it's completely discretionary.

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

Good morning guys. Just a question on the slide 20, you talk about the 2015 aspiration. I realize its not a formal guide that you get to $1 billion by 2015, but that would imply you get 40% plus growth in 2015, pretty much on organic basis. Can you maybe just touch on what are the opportunities or (inaudible) that gets you so excited about that you can see this ramp-up in 2015 beyond the growth in 2014? Then if I could just sneak in the direct metal ramps you guys are talking about. Do you think you have enough capacity to sustain the growth? Or should we think about more capacity additions there through this year?

You definitely should think about more capacity additions through this year. We have already talked about those, even last quarter and the quarter before that, we are in the process of tripling capacity over that period over this next year. If metals continues to do what we would expect in everything, you can expect additional expansion and that's a good thing. From getting to that $1 billion rate, next year's guidance of the $680 million to $720 million doesn't mean, it is our business as it stands today. So that would be organic or some of it is acquired but last year acquired. We assume to get to the 40%. We are going to continue to do some acquisition. So to the $1 billion, we are going to do some acquisitions. It isn't a formal guidance out in year two. It's more of directional thing to say and if we did something larger we would even update above that or change that. But the real formal guidance is just the next year one, which is $680 million to $720 million which doesn't include any future acquisitions that we may do.

And we said that certainly for 2014, we expected organic growth to be at or above 30%. So just to preface this again for clarity and what gets us excited back to the first part of your question, what gets us get us excited is, look, we have grown our design and manufacturing printers at a very high rate over the last few years. Most of it is, the vast majority of it is organic growth in 2013. We expect that to continue to accelerate our materials revenue growth rate, which already for the quarter has risen to 39% and integrated materials for the quarter to 59%. So we see lots of upside there within the main plastics. Metals is very exciting and it's in its beginning stages. Consumer is in the early innings and with the kind of experience that we gain, products that we develop and partners that we attract, we think that in the next few years, it represents an upside to the business. You put it all together, barring any unforeseen structural changes in the economy, we think that what we are doing now positions us for accelerated organic growth rates and that is primarily what's behind the clear outlook that we provided this morning.

Your next question comes from the line of Wamsi Mohan of Bank of America Merrill Lynch. Please proceed.

Yes. Thanks for taking my question. Your revenue was up $19 million, sequentially, from 3Q to 4Q, but your receivables were also of $18 million quarter-on-quarter, so the cash you are receiving from the sales didn't really grow on the quarter. Do you expect that to reverse in 1Q? Could you also reconcile the high level of finished goods inventory with the commentary of growth being slower in the first half of '14. Thank you.

Two areas. Yes. I mean, the receivables did grow. Some of that is due to the timing of sales, but it also includes us have more and more sales as we have talked about before going through our reseller channel, which have terms as opposed to the direct sales channels, which used to get deposits upfront and everything, so changing business model that we have been talking about for number of quarters continues to affect that. Timing of receivables, every quarter is going to change a little bit back and forth. We do not see any issues with the receivables actually than that receivables that we have reported out there. Inventory, the increase of finished goods inventory was a couple reasons. One, we said that a few of these sales categories were below our expectations - inventory to them. We do expect the sales to be moving through and we adjust our forecast for building over the next quarters. The other one looks just as important or even more so is, all the new products we announced, the 24 new products between EuroMold and CES, getting ready for manufacturing and building those printers and inventory is also one of the areas that we are planning for this next year.

Remember too that Damon said in his prepared remarks, a big part of our increase in backlog for the order book that did not timely convert to shipped revenue for the fourth quarter amounts to about $17 million of printer orders that ended up shifting to backlog, so that accounts for some of the inventory increase as well.

Your next question comes from the line Peter Misek of Jefferies. Please proceed.

Good morning, gentlemen. Just a few quick questions or one question one clarification. On the seasonality, you have talked that growth will be bigger in the second half. Is there any kind of percentage split or way you can help us model that progression for the year on the revenue side, that would be extremely helpful. Just to go back to metals, I guess, if we look at what is going on in metals, give us some more detail or color on verticals that are driving the growth, any kind of mixed shift? Obviously, a lot of large orders seem to be circulating in that space from large industrial group, but we are trying to just sort of size that market opportunity for '14 and also into '15. Thank you very much.

Let me start with the latter part of your question on metal. What's driving metal adoption primarily today is aerospace, defense and automotive. Then a series of very interesting patient-specific medical devices from dental restorations to implantable knee and hip replacement and some other specialty-type implants. Also some micro [Medtronic]-type of applications. All these areas, it is a beginning. With every passing quarter, you know, we just see increased opportunities in front of us, because in many instances, this will be the first time that the company within a vertical is beginning to adopt this kind of technology, and in many of those instances, this is only preludes to subsequent multiple orders in the future.

At this time, that's all the time that we have for questions and I would like to turn the conference back over to Stacey Witten for closing remarks. Please proceed.

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 for your participation in today's conference. This concludes the presentation. You may now disconnect. Have a wonderful day.