Good morning and welcome to the 3D Systems Conference Call and Audio Webcast to discuss the Results of the Fourth Quarter and Full Year 2016. My name is Michelle, and I will facilitate the audio portion of today's interactive broadcast. As a reminder, this conference 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 begin.

Good morning, and welcome to 3D Systems conference call. I am Stacey Witten, and with me on the call are Vyomesh Joshi, our President and Chief Executive Officer; and John McMullen, Executive Vice President and Chief Financial Officer; and Andy Johnson, Executive Vice-President and Chief Legal Officer. The webcast portion of this call contains a slide presentation that we will refer to during the call. Those following along on the phone who wish to access the slide portion of this presentation may do so 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 this slide and in the press release that we issued this morning. For those who have access to streaming portion of the webcast, please be aware that there may be a few second delay and that you will not be able to pose 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 this 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 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 2015. Now, I am pleased to turn the call over to Vyomesh Joshi, our CEO. VJ?

Thanks, Stacey, and good morning, everyone. We believe the 3D printing industry is at inflection point and is shifting from prototyping to production. We have a market based strategy focused on enabling digital manufacturing work flows in key verticals. We are leveraging our core assets and domain expertise to provide solutions to address customer needs, use case by use case. We are executing an annuity based business model combining materials, services and software with structural improvements in our operating model to drive profitable growth. I have now been with the company for 11 months. During this time, we have put significant focus on and made improvements in quality, reliability and supply chain. We also adjusted our product focus to shift more innovation dollars to production solutions while driving structural cost improvements in supply chain and overall operations. For the full year, revenue declined 2%, excluding from 2015 the revenue related to consumer products, the company discontinued in 2015. Even with this decline in revenue, we improved our gross profit margin 270 basis points on a non-GAAP basis. Non-GAAP operating expenses declined 4% year-over-year, including second half investments in IT, go-to-market, and focused innovation. Our non-GAAP EPS improved 70% and we've generated additional cash for the company. We still have lot to do in our processes and supply chain to drive operational excellence. During 2017, we expect continued solid growth in software and healthcare solutions. We also expect printers' revenue to grow with a focus on production solutions, a ramping metals business and the introduction of Figure 4. This in turn will generate materials' growth. In addition, we are investing significant capital into our on-demand parts services, which we believe will begin a turnaround in that business. In line with this progress and these investments, today we are introducing annual financial guidance for 2017. We expect revenue to grow in the range of 2% to 8% and we expect non-GAAP earnings per share to improve 10% to 20% compared to the full year results for 2016. And now I will turn the call over to John to discuss our fourth quarter and full year 2016 performance and 2017 expectations in more detail. John?

Thanks, VJ Good morning, everyone. For the fourth quarter we reported revenue of $165.9 million, a 10% decrease year-over-year driven by lower printers and on-demand services revenue. On a GAAP basis, gross profit margin for the fourth quarter of 2016 improved 50%. Excluding the impairment charges in the prior year, operating expenses decreased $10 million to $78.8 million. The decrease in operating expenses was primarily the result of lower stock-based compensation, amortization and legal expenses and a $1.3 million decrease in R&D expenses, partially as a result of more focused investments. As VJ said, we still have a lot of work to do, but we are seeing progress in our initiatives to reduce costs and reinvest in key areas. We reported GAAP earnings of $0.05 per share in the fourth quarter, which is the first quarter with GAAP earnings since 2014. We also generated cash from operations each quarter of 2016 including $18.7 million in the fourth quarter for a total of $56.9 million during the year. For the full year 2016, we reported revenue of $633 million, gross profit margin of 48.9% and operating expenses of $348.2 million, a decrease of 12%, excluding the impairment charges in the prior year. We reported a GAAP loss of $0.35 per share compared to a loss of $5.85 per share for full year 2015. As VJ said, throughout 2016, we have taken steps to drive an appropriate cost structure and operating model and focus our resources. Non-GAAP gross profit margin for the fourth quarter of 2016 was 50% compared to 47.7% for the fourth quarter of 2015, despite lower revenue in 2016. Compared to the fourth quarter of 2015, non-GAAP SG&A expenses increased $1 million to $45.1 million as we are investing in IT and go-to-market initiatives. Non-GAAP R&D expenses decreased $1.3…

Thanks, John. As I have said many times before, going forward, material science will be a key driver in the transition to 3D production and we are investing in materials innovation across our portfolio. In connection with that, on January 31, we acquired Vertex Dental and NextDent from Vertex Global. We view this acquisition as a strategic foothold within the multibillion dollar Digital Dentistry opportunity. We believe NextDent's proven 3D printing materials are a perfect fit for our high-speed production ready Figure 4 platform as we focus on advanced dental use case. Specifically, the combination of Figure 4 and NextDent will enable us to transform and automate workflows and to create solutions from the dentist's chair to the dental lab. Like other healthcare applications, by leveraging and advancing digital work flows, we believe, we can improve productivity, precision and cost effectiveness for our customers and ultimately enable better care and outcomes for the patients. We are taking a similar approach to other verticals beyond healthcare. Our comprehensive solutions and advanced materials are enabling digital manufacturing workflows from digitize, design and simulate to manufacture, inspect, and manage in aerospace and defense, automotive and durable goods as well as the teaching and training institutions that support these verticals. Our portfolio of products and services can meet a complete range of professional and industrial needs in the market. We believe, our metal technology and Figure 4, combined with the advanced materials and software innovation such as 3D Sprint and 3D Expert will enable our customers to shift from prototyping to production over time and will drive profitable growth for the company. With that, I would like to turn the call back to Stacey, who will open the floor for questions. Stacey?

Thank you. We'll now open the call for questions. We would like to ask you to limit yourself to one question and one follow-up, thus allowing others to participate in the discussion. As a reminder, please direct all questions to the teleconference portion of this call. The telephone numbers are provided again on this slide. If you are calling inside the U.S., the number is 1-877-407-8291. If you're calling outside the U.S., the number is 1-201-689-8345.

Thank you. We will now be conducting a question-and-answer session. One moment please while we pull for questions. Our first question comes from the line of Wamsi Mohan with Bank of America Merrill Lynch. Please proceed with your question.

Yes. Thank you. Good to see the confidence in sort of re-establishing full year guidance. Last couple of quarters have been tough for both printers and on-demand services and I think you said you're expecting printer revenues to turn around. What specifically are you seeing in your orders that gives you that confidence and how much of this growth are you attributing to metals and Figure 4. And I have a follow-up.

Yeah. So I think the first thing is we are focused. We are not trying to put our focus on every printer because we believe the usage and the materials growth is going to be the very important part of our business model. So we are focused on the production printers, because I fundamentally believe that the production printers are going to be important. So like SLA printers are really the ones which I believe that's going to generate more materials growth. The second thing that metals, you rightly said, I think if you look at our metals, we are seeing now the 320, really the acceptance is much much better as we have provided the right kind of 3D Expert software and we believe that long term, metal will be a very big opportunity for us. Prototyping is still important to us and our multi-jet printer that we introduced last year, like 2500 are doing well. We are going to continue to innovate that particular technology because that technology is perfect for the prototyping. The last part is, we are also looking at vertical markets. So, for example, for multi-jet printing, casting, dental, jewelry, they are three big verticals with which we will be able to drive more production kind of a approach to our multi-jet printing technology. So focus is on production. Now Figure 4 really is a later part of 2017. So I think what we are trying to do is focus on the production technology, helping our go-to-market model that we have built now. We believe that the investment that we are making in go-to-market will also help us in driving the printer revenue growth.

Thanks VJ As my follow up, if either you or John could address. Your guidance for fiscal 2017 implies a decline in cost, say, COGS and OpEx together of about $15 million at the high end of your guidance range and an increase sort of at the low end of your range. So I was wondering if you could address conceptually, you know the level of reinvestment seems that it's relatively high, can you talk about where these reinvestments are happening, are these more front end loaded and maybe talk about the linearity in 2017? Thank you.

I think the first part is, as I always mention, that I look at the cost as revenue minus operating profit. So cost of sales is one of the biggest opportunity we have. And as you could see it right even with the revenue decline in 2016 we improved our gross margin by 270 basis points. I think we need to continue to improve our gross margin and that's the work, the supply chain work, with Reinhard's help is very, very important to us. So that's the first thing. The second thing is the investment that we're talking about, and I think John mentioned, IT investments that we need to make because we really need to automate the processes because that will enable us to really continue to look at our cost structure very differently. The second investment we are making is the innovation in the production side, because my view that technologies like metal and Figure 4, we must invest into that so that we can set up for further growth in 2018, 2019. And the third part is go-to-market as I talked about because my view is as we go and shift from prototyping to production, the work that we have to do with respect to the go-to-market model is going to be very important. I think those three things and vertical market approach that I talked about because we need to make sure that we look at use-case by use-case and how we're going to shift from prototype to the production. John, do you want to add something?

Yeah, I think two things. So as we go quarter-to-quarter throughout the year, we will provide color on kind of the puts and takes from an OpEx point of view in terms of investments we're making but also in parallel cost out (22:16) because it's going to be a little bit lumpy throughout the year that way and I think that the way you're looking at is roughly right (22:22). I think also from a linearity point of view just want to remind folks that it's going to be a build throughout the course of the year similar to what you saw last year in terms of the build related to our EPS performance. And each quarter we'll give you an indication of how we're feeling again relative to that full year guidance.

Thanks guys.

Thank you. Our next question comes from the line of Ken Wong with Citigroup. Please proceed with your question.

Hi, Ken.

Hi, thanks a lot. Hi, how is it going? John, you guys mentioned earnings growth around 15% to 20% and you also touched on cash flow continuing to grow next year. Should we think of cash flow growing at a similar range? Should it be better since you guys have more work to do on improving your working capital? Anything there would be helpful.

Yeah. I think from a working capital point of view, we're beginning to see some good progress certainly in the second half of 2016 in terms of net working capital and cash conversion cycle in general. Although, we haven't provided specific numbers. So I think there's an opportunity from a cash flow from operations point of view. Certainly there's an opportunity for us to accelerate that performance in 2017. And like we've done this past year, we'll let you know quarter-by-quarter how we're doing.

But we also need to invest. Some of the capital that we need to invest in 2017, as for example, our on-demand services business which we have not done any really good investment in the last few years. I would really like to do that, because we believe that turning around that business is very important. So it's kind of a combination. We will have more cash flow from the operations, as John was talking about, but we also want to invest.

Got it. And then maybe a follow-up. In terms of – and you touched on services, any rough sense for how we should think about products versus services growth? Should both of those lines see some uptick next year or you expect some headwinds on one or the other?

Well, I think, hopefully we will be able to – the investments that we are making both on services, on-demand parts, and printers should be able to at least reverse the decline, because my view is the growth is going to come from following categories. The first one, of course, we have solid growth in our healthcare business and software that we will continue because those investments in the annuity based business models are really playing out very well in 2016. And we have a good portfolio there with which we will be able to grow those two businesses. Now, the third part is, as I mentioned about the production printing, because my view is that's where we have a strong value proposition. That's where we are investing and I think that's something that we are going to continue to do that. Especially on the metal business, as I was talking about answering Wamsi's question earlier, because I think that's a good opportunity for us. And because of our focus on vertical, healthcare, metal printing business is very good for us. And the last part is the introduction of Figure 4, because Figure 4 is a revolutionary technology with which we will really enter with respect to plastics some kind of a production use-case is that we will be able to address. So I think all these things will enable us to really drive the overall printer growth in 2017.

Great. Thanks a lot, guys

Yeah.

Thank you. Our next question comes from Sherri Scribner with Deutsche Bank. Please proceed with your question.

Hi. Thank you. Just thinking about the guidance for the full year. I was hoping you could provide a little bit of detail on how you expect that to roll out through the quarter. I know you don't want to give specific guidance, but do you think you'll grow revenue in every quarter in 2017 or should we start to see some growth later in the back half of the year?

I think we are not going to talk about specific quarter. But as John mentioned, it's a build and I think that's the word you should expect because what we are trying to do is get the right kind of a cost structure, the right kind of investment and all these things generally is a build, it won't happen overnight

Yeah. And I think that's why it will be important for VJ and I on a quarter by quarter basis to give you color on how we're feeling relative to the full year outlook. So it would be – you can expect that we're going to give you color both on the quarter each quarter but then how we feel about those guidance range, holding those guidance range quarter by quarter.

Okay. And then just as a follow-up, the healthcare segment continues to be a priority and a growth area, but it looks like sales decelerated pretty significantly in the fourth quarter based on the full year number. Can you maybe just talk about why that decelerated and what you expect as we move into 2017?

So if you look at healthcare services, like medical modeling and the similar business, that's doing extremely well. We also include some of the printer and materials aspect of the businesses that we do, as an example Align. And those orders are not always in the right kind of a quarter line. So what happens is some quarters we get orders and that's where you see much bigger growth in the healthcare revenue. But from services point of view and overall healthcare as a vertical segment, we feel very good about that. So I think that's the combination that what you are seeing and that's why it looks like the fourth quarter numbers are a little different. But when I look at overall as a segment and the contribution that particular segment makes for overall our revenue, I feel very good about. And that's why I'm very confident that we will continue to build on what we are seeing in healthcare in 2016 into 2017.

Thank you.

Thank you. Our next question comes from James Kisner in with Jefferies. Please proceed with your question.

Good morning everybody. This is Timur Ivannikov for James Kisner. VJ, how would you characterize your full year guidance? So you said 2% to 8%, that's a pretty wide range. So what do you think needs to happen to hit 8% growth?

Well, I think, you know, as I said, I feel very good about software and healthcare. I think turning around where on demand services business that the parts business will be a very important factor in where we end up between these 2% to 8% because that's the one. If you look at that business declining 18% in 2016, I think we need to really invest into that and turn it around. So I think that will be one factor that I need to worry about. The second one is still our printer revenue, I would like to see turn around on the printer. I think those two are the factors that I'm trying to really figure out where we will be. Now, we are investing, we are very positive about what we are doing and the investments that we are making. I am really trying to make sure that we can make that happen. But you asked me the question that why this range. And I think those are the two businesses that I need to really figure out how we can turnaround.

All right. Thank you.

Thank you. Our next question comes from Hendi Susanto with Gabelli & Company. Please proceed with your question.

Good morning, VJ, John and Stacey. Thank you for taking my questions. First question, what drove weaknesses in professional printers? Do they represent overall market, market that could be a specific to 3D system or both?

I think it's both because market also is slow here. With respect to that -that's why I said shifting to production is a fundamental strategy that we need. That's the first part. The second part is we are selective. We're trying to really make sure that we focus on printers where we have high usage because that's the main reason we got out of the consumer business. We need to really pay attention and acquire every production printer that we can because that's where the usage is and that's the reason, one of the key thing I want to mention in 2016. Even with minus 2%, anyone more because of the consumer business, the units were declining – minus 2% I was talking about the revenue decline, we still grew our materials 4%. That means that if you can reshape your install base where there is a high usage, it's very, very important for us.

Got it. And then one follow-up. VJ, you saw metal printers as one of your growth drivers in 2017. They are established and strong players in 3D metal printers out there. In which area of metal printers do you see 3D system excel above competitors in 2017?

So I think one of the key thing that I believe is the healthcare vertical segment, because in my opinion we have a unique competitive advantage in that particular segment because we are not just a metal printers. We provide a complete solution all the way from digitization to design to manufacture. And then device – the medical device manufacturing company, they are not interested in just buying a metal printer, they are interested in someone who could help them to really understand how additive manufacturing will help them, that's the first part. The second part is, because we really helped them to go through prototyping actually doing some production parts for them and making sure that our FDA approved facilities in Denver and Leuven, Europe are very important part of the value proposition for the healthcare segment. So for metals in healthcare which is a very important part, we have a unique competitive advantage. The second part that I can tell you, the 3DXpert software that we introduced last year is very, very important in respect to our 320 printer and 3DXpert because what that does, it simplifies the workflow. That one software can all the way go from design to actually manufacture the parts and the post processing. So that also gives us a unique advantage in other segments than healthcare. So between those two we will be able to continue to drive our metal revenue growth in 2017.

Thank you for your insightful answers, VJ.

Thank you. Our next question comes from the line of Jim Ricchiuti with Needham & Company. Please proceed with your questions.

Thank you.

Hey, Jim.

Good morning. Question with respect to your guidance, VJ. Clearly, the focus is going to be on driving growth in the additive manufacturing portion of the business. But I'm wondering what the guidance might imply for the prototyping business. You want to drive some growth back into your on-demand parts. But just in general, how are you viewing the prototyping business? Another challenge here?

I think that is – this is very important for us. Look, we are working on a trend that how we shift. But if you think about our core prototyping business, it's very, very important for us. And that's where our MultiJet Printing and our SLA products that we sell. When I talk to our customers, our service bureau customers, they basically tell us these 3D printing SLA and SLS are basically the standard. And that's what my opinion is, because I think the overall prototyping market from the service bureau point of view is going to continue to increase. And they are looking for the best technology. And one thing that I want to mention, that when we go after the production user needs in terms of productivity, the part quality, then durability and repeatability and total cost of operation, it also applies to the prototyping market. So it's just kind of value to think about how customers are looking at it. They are going to buy our Figure 4 even for our service bureau business, because my view is that will improve the productivity and total cost of operation, and they can also now turn around the parts faster. So the beautiful thing about focusing on production, it also improves the effectiveness and efficiency of the prototyping business. And that's why my view is having that focus allows us to drive growth both in prototyping market and in the new production opportunities

Okay. That's helpful. John, a question for you. It looks like your Q4 materials revenue had a bit of a reversal versus Q3 in terms of growth. I mean it actually looks like the numbers are correct that it might have declined year-over-year. Same thing on the product side, but I'm just wondering what were some of the contributing factors that might have led to that?

So I think – this is VJ.

Hi VJ.

I think the main thing here was, remember I mentioned the lumpiness, because we are not going to get all materials orders in one particular quarter. And I think that's why, remember, when we – when John and I talked about it in last call, look at the half. Don't look at the – just the particular quarter. And I think that's how we should look at it. My view is 2016, when you look at the 4% materials growth, I think that's a much better signal. Do you want to add something, John?

Yeah. I was going right there in the 4%, VJ, because we're seeing – even though we talk about a decline in printers in certain areas, we're doing much better in higher usage printers, and that's why you're seeing actual materials growth on still with hardware declines in certain areas. So it's a little bit lumpy like VJ said based on timing of large orders

Got it. Okay. Thank you.

Thank you. Our next question comes from Troy Jensen with Piper Jaffray. Please proceed with your question.

Yeah. Hi, thanks for taking my question here. I guess I wanted to dig in a little bit on go-to-market strategy. Specifically one thing we picked up it seems like you're maybe (37:58) some channel partners. Just be curious to know kind of where you are to-date for the number of channels, do you plan to trim more where you were previously. And then coupled with that, can you talk about direct sales initiatives as far as the numbers of direct sales (38:10).

Sure. You know, I think for us channel is a very important partner because if you think about global coverage, there is no way we will be able to cover globally, the opportunities that we have. So that's the first thing that I want to make sure that I've mentioned. The second thing that I want to mention is what we need to do is to invest into our channel. And that's what I've been doing for last six months. I want to train the channel. I want to get them excited about the opportunities that we have in front of us. For example, I've mentioned our MultiJet Printing line with 2500. We're going to have some very good new products that we will be introducing soon in that particular category, and then channel will be very important for us. So my view is we need to make sure that we focus on the channel for the opportunities, especially on the prototyping side is very, very important to us. As far as the direct, yes, I think as we shift to prototyping to the production, there are only going to be few channel partners who are going to have capability to sell the production kind of the solution because it's a solution sale rather than just a printer sale, one. The two, I think we also need to hire more direct salespeople because to cover that market and really talk about the solutions approach and, we have understanding of that with our healthcare business. My view is the way we build our healthcare business was to really have our direct sales force calling on medical device manufacturers. So we understand the model and how to sell solution. What I want to do is replicate that model into the other segments that I've been talking about.

Hey, a quick follow-up for John then. Could you just help out with the tax rate, if you look at the $0.51 to $0.55 you're assuming for the guidance, what tax rate is implied in that?

Yeah. You should – you can assume a single-digit tax rate in 2017.

All right. Perfect. Good luck, gentlemen.

Thank you.

Thank you.

Thank you. Our next question comes from Patrick Newton with Stifel. Please proceed with your question.

Yeah. Good morning VJ and John. Thank you for taking my questions. I guess, just starting on the metals side, you're clearly bullish on the opportunity you talked through the healthcare vertical. But one is, can you help us quantify the revenue contribution in 2016 as a base? And then as we think about the growth and what you're excited about and we gauge that against pure-play public entities, should we think about your growth rate exceeding or lagging some of these players in 2017?

Well, I think – again, you don't disclose specific revenue information of any our technology platforms. But I just think that metals is a very big opportunity. And as I have mentioned about the healthcare vertical, and the approach that we are also taking as a complete solution will really enable us to grow our metals business in 2017. The other aspect that I talked about, the 320 is a very solid platform, especially with the titanium metal. And then with having the 3DXpert and a combination of that, I am very, very optimistic that we will be able to grow that business. I'm not going to worry about whether – what the market growth is because we need to really make sure that we focus on our solution and start growing that business in 2017.

Does that mean – I'm sorry, when you say start growing, does that mean that it did not grow in 2016?

No. I think that I'm just saying that we are actually ramping that business, especially with 320. I'm talking more specifically about 320 product platform.

Understood. And then John maybe to ask Wamsi's question from earlier a little bit differently. You did 20 – 270 basis points of gross margin expansion in 2016. I think you walked through several reasons why that occurred and then VJ again highlighted that there's still substantial room for improvement there. Should we think that you could see another 100 basis points to 200 basis points of improvement in the gross margin line or what – I guess what different levers do you have to pull there still?

Yeah. I'm not going to give you a specific mark on that. But I think we're – if we're successful executing the kind of mix and the cost reductions that we're already seeing, it's reasonable to think that we'll get potentially some expansion throughout the course of the year. And we will update you as we go. But it's a combination. It's a combination of mix and actions that are already in place from a cost of sales point of view that we started to realize even in the fourth quarter of this year.

Great. Thank you for taking my questions. Good luck.

You bet. Take care.

Thank you. Our next question comes from Paul Coster with JPMorgan. Please proceed with your question.

Yeah. Two questions. First off, the – I think VJ, you talked of CapEx being important in turning around the on-demand business. Why is that? Is it to get good proximity to customers or is it to upgrade the equipment? Perhaps you can just elaborated there?

I think most of that, because to really upgrade the equipment would be the first priority from the CapEx point of view. But we also want to invest so that we could be closer to our customers. Because that business in my view that I need to turn it around with the amount of (44:03) growth expectation I have for 2017.

Okay. Got it. And then the revenue guidance. To what extent is NextDent, Vertex acquisition contributing there? Can you quantify that please?

Yeah. We didn't give specific revenue numbers on Vertex but you can assume that first we don't view them today as material to the revenue. But you could think about them as 1 to 2 points or 2% of revenue.

Right. Thank you.

Thank you. Our next question comes from Weston Twigg with Pacific Crest Securities. Please proceed with your question.

Yeah. Hi. Thanks very much. This is Daniel on for Weston. It looks like your on-demand part service revenue declined sequentially in Q4, just wondering what drove that decline.

Well, as I mentioned, that what we need to do is to really invest into that particular business. And I really believe the approach that we are taking, there is a quick turnaround part of that business and there is a project-based part of that business. And I think what we need is invest on both. We need to invest in our website, we need to make sure that we invest in our go-to-market so that we can capture every opportunity that we can get. Plus, some of our sites in Europe they have certain very good capability that I would like to take that capability and put across all our sites for that business. So my view is, that's the work that we are doing and we will be able to turn that around in 2017.

Great. Got it. And then could you just remind us what the timeframe for commercializing the Figure 4 technology is?

Well, I think, I always said that this is something that, you know, we will do it in 2017 but we are not talking about specific timing. My view of Figure 4 is we have now already shift our first customer beta units to a very large industrial customer. And I think that's a very big check point in my mind. So that customer is already using the product, they are very happy with the kind of the contribution it can make to drive really what I was talking about moving from prototyping to production. So my view is this capability that we have, we already have it now in our customer hands and we are getting tremendous feedback in terms of how we want to use it to commercialize this particular technology. The second thing that I can tell you that we are going to continue to show our developments in our upcoming show like AML (46:52), RAPID with respect to what we are doing with respect to Figure 4. The last part is this Figure 4 technology is very important because we can go by each segment and by each use-case and show with the right kind of materials and the right kind of a configuration we will be able to meet the production needs. And I think having that kind of an approach which is scalable and configurable is going to be the key to really winning in the marketplace that I'm talking about. And I really don't believe that any competitive technology will be able to match what we are doing with Figure 4. And I think that's going to be the key.

All right, great. Thanks.

Our next question comes from the line of Joe Wittine with Longbow Research. Please proceed with your question.

Hi, thank you. I apologize if I missed this, but does the sales guide of 2% to 8% assume printer sales growth?

Well, we're not going to specifically talk about it. But as I said, that I believe our driver for the 2017 is continued to solid growth on software and healthcare. And then we need to drive our printer revenue growth, especially focus on the production, ramping our metals business and introduction of Figure 4. Plus, the on-demand parts business we also need to turnaround. So there are multiple elements and the drivers for the growth that I'm talking about in 2017.

All right. And there's a follow-up on gross margin. VJ, when you came aboard and kind of rolled up your sleeves you were pretty up front in seeing a big opportunity to reduce direct manufacturing costs. I think you used the phrase low hanging fruit a few times especially at IMTS. So the question is within the EPS guide you provided and I know John you kind of talked through the opportunity for slow and steady GM progression throughout the year. But for 2017 in the EPS guide, is all that kind of "low hanging fruit" incorporated in the 2017 outlook or do you see potentially more to come beyond 2017?

Well, I think my opinion is cost of sales reduction is not a one-time thing. We got to have that kind of a discipline that every single platform that we develop and introduce there is an opportunity to take the cost out. So the way I think about this thing is – and this is not a one-time thing – we need to know (49:51) initially it's a bigger opportunity because there was no focus on cost reduction in this company. But there needs to be a discipline that every year that we will be able to achieve that. The other important part that you ought to understand which I really want to focus on is the annuity business model that I talked about. More and more if our revenue comes from software, from our materials and from our professional services which are high margin businesses, we are going to have the right kind of a composition in terms of the margin growth. So I think those are the two key things. Systematic cost of sales reduction and second thing is the profile for our business model where we are really driving the annuity based business model is going to be very important for us.

Thank you. Good luck.

Thank you. There are no further questions at this time. I would like to turn the call back over to Stacey Witten for closing comments. Stacey?

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