Good afternoon and welcome to 3D Systems' Conference Call and Audio Webcast to discuss the Results of the First Quarter 2018. My name is Sherry and I will facilitate the audio portion of today's interactive broadcast. 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. At this time, I would like to turn the call over to Stacey Witten, Vice President, Investor Relations, 3D Systems.

Good afternoon 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; John McMullen, Executive Vice President and Chief Financial Officer; and Andrew 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 on the Investor Relations section of our website. Participants who would like to ask questions at the end of the session related to matters discussed in this conference call should call in using the phone numbers provided on the slide and in the press release that we issued today. For those who've accessed the streaming portion of the webcast, please be aware that there may be a few-second delay and you'll not be able to pose questions via the Web. The following discussion and responses to your questions reflects 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 and slides accompanying this webcast, which are both 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 on this call will be against the results for the comparable period of 2017. Now, I'm pleased to turn the call over…

Thanks, VJ. Good afternoon, everyone. For the first quarter, we reported revenue of $165.9 million, an increase of 6% compared to the first quarter of 2017. GAAP gross profit margin was 46.9%, compared to 51.3% in the first quarter of 2017. GAAP operating expenses increased 7% to $95.4 million, including a 5% increase in SG&A expenses and a 13% increase in R&D expenses. We reported a GAAP loss of $0.19 per share in the first quarter of 2018 compared to a loss of $0.09 per share in the first quarter of 2017. We used $1.5 million of cash in operations during the first quarter. We ended the quarter with $121.6 million of cash on hand, compared to $136.3 million at December 31, 2017, as we continued to invest capital in IT, new product launches, on-demand manufacturing, and customer innovation centers. Compared to the first quarter of 2017, non-GAAP SG&A expenses increased 8% to $53.6 million, as we continue to invest in IT transformation and go-to-market initiatives. Non-GAAP R&D expenses increased 13% to $25.9 million, including continued investments in support of previously announced new products. We reported a non-GAAP loss of $0.03 per share or a loss of $3.4 million in the first quarter of 2018, compared to non-GAAP earnings of $0.06 per share or $7.1 million in the first quarter of 2017. Healthcare revenue for the first quarter of 2018 increased 21% to $52.4 million. We continue to be pleased with the overall demand trends for all categories of healthcare and expect continued double-digit growth in healthcare going forward. Printer revenue increased 24% to $39.1 million in the first quarter on a 44% increase in printer unit sales, with strong growth in both production and professional unit sales. As we have discussed, printer unit sales and revenue mix may continue…

Thanks, John. In 2018, we are focused on execution, driving operational efficiencies, and bringing our disruptive and innovative new products to market. We have a strong offering of additive solutions for the entire digital manufacturing workflow, with a series of new product introductions planned throughout 2018 to further solidify our leading market portfolio. We recently began shipping the SLS 6100 and FabPro 1000, and have received great feedback on these products. The FabPro 1000 offers 2.5 times the speed of competitors and unmatched accuracy. The next generation SLS 6100 system provides six production-grade materials, superior part quality, and enhanced temperature control, enabling more productivity and better total cost of operation than competitive systems. At LAB DAY, we previewed the NextDent 5100, which we believe can redefine digital dentistry at a price point of less than $10,000 per printer. This solution offers 30 dental materials, four times the speed of competitive systems, up to 90% cost savings for customers compared to traditional production methods, and can cut the number of patient visits in half for products such as dentures which typically require multiple fitting visits. At recent trade shows, we demonstrated real-world use cases of our Figure 4 platform and the benefits it can provide customers. Figure 4, with over 30 materials offered at launch, can reduce injection molding cycle times by 40%, provide 20% cost savings, and increase production rates by 30% compared to traditional manufacturing methods. Last week, we also announced the U.S. Air Force has selected Figure 4 for research on integrating high-speed 3D printing into the aircraft maintenance supply chain. This project brings together 3D Systems and the 3D printing leader with aerospace manufacturing leaders including Lockheed Martin, Orbital ATK and Northrop Grumman. One of the main goals of this research is to explore how Figure 4 can be used to reproduce aircraft components for older planes with difficult-to-replace parts and to demonstrate rapid part delivery with just-in-time production and no minimum order quantities, reducing costs and time for repairs. One reason Figure 4 was selected is because it is the quickest, most accurate 3D printing technology available, delivering the fastest time-to-part, an unparalleled Six Sigma reputability. We plan to begin shipment of NextDent 5100, standalone Figure 4 and modular Figure 4 this summer. Additionally, later this year, we plan to bring to market the DMP 8300 metals printer, a factory-ready model of the ProX 320 and the larger DMP 8500 Factory Solution. The collective feedback on our full set of new products from customers, beta testers, and trade shows has been very positive, and we believe our new products will provide incremental and expanded market opportunities going forward. We are very excited about our enhanced and complete end-to-end portfolio, ongoing innovation and significant growth opportunities. And with that, I would like to turn the call back to Stacey who will open the floor for questions. Stacey?

Thanks, VJ. We will now open the call to questions. We ask that you limit yourselves 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 the slide. If you are calling in 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. Our first question is from Jim Ricchiuti with Needham & Company. Please proceed.

Hi. Thank you. Good afternoon. Question I have is just as it relates to the printer growth that you showed, the 24%. It looks like you indicated it was coming from both professional and production. I wonder if you can just give us a little bit more color on that. How much was production up? How much was professional up? And is this momentum do you think at this point sustainable in the June quarter? And then, follow-up question just with respect, VJ, to the new products. Can you give us any better indication as to whether some of these will be shipping in the early part of summer or the latter part of the summer? Thank you.

Okay. All right. You have lot of questions. So let me go one-by-one. The first thing is there's a balance. We had both production and professional printer's growth in Q1 2018. So, not only our MJP, but our SLS, SLA and DMP printers, the production printers, we had a tremendous growth in 2018. And I believe this is even without introducing the new products that I've been talking about, which will happen in really the second half of 2018. The second thing that I can say is, because we are focused on productive installed base, these things would generate the annuity stream in the coming quarters and especially in 2019. Another point that I want to make that the printer revenue grew 12% sequentially. So, even in a weak quarter generally, we saw tremendous market share growth on the printer hardware side. As far as the next-generation product, this is going to be different. So, as for example, we talked about we started shipping our FabPro 1000 and SLS 6100 starting this month. We are going to start shipping our dental lab which is the 5100 early summer, and then DMP 8300 and 8500 in the fall timeframe. So what you're going to see is, throughout the second half, you're going to see many more products coming to the market. And the feedback that we have is we are very excited about the feedback that we got in the trade shows. Like Figure 4 got tremendous feedback in terms of the speed, the overall accuracy of the unit, the DMP 8300 and 8500, the metal printers, I really believe we are the best titanium printer and our success there will also help us in growing this revenue. The Figure 4 shipping, as I said, will be in early summer all the way to the fall.

And your product gross margins, at least in the Q, indicate 29.3%. Should we assume, as these products begin to ship in the second half, that we could see some improvement in those product gross margins?

It depends because certain products are the low price point like FabPro. There the margins will be lower. But, as you go into the modular Figure 4, the DMP 8500, the production Figure 4, you can expect the higher margin. It's going to be different by the product category. But what I believe, we will be able to maintain overall margin for the company.

Okay. Thank you.

Our next question is from Ananda Baruah with Loop Capital. Please proceed.

Hey, Ananda.

Hey, Ananda.

Hey, guys. Thanks for taking the question. Couple if I could. Hey, congrats on the solid straight quarter of execution. It's really good to see. And I guess I'd just like to start there. VJ, I mean, do you consider yourself ahead of schedule with regards to sort of collectively what all the initiatives you had in place for 2018? And then, when you remove the guide in October for 2017, you had talked about doing a handful of things. Do you consider yourself to be ahead of schedule there? You've had two straight quarters of pretty solid execution. So I'd love to get your thoughts there. And I have a couple others. Thanks.

I wouldn't call it ahead. I just think it's a build. We are going to – as I always say, I want to stabilize the company, focused on the revenue growth, the growth drivers that I always talked about, continue to grow healthcare, continue to drive our software and ODM business to the positive growth. And now, I always said that I want to go take our printer hardware revenue in the right direction, and that's the first quarter. I just want to continue doing that. The other important part is the balance between the EMEA, Americas and Asia. So, this quarter, Americas grew 5%, EMEA grew 8% and APJ grew 3%. That was the second thing that I always said that I want to achieve not only growth into these categories and then the annuity streams will come for materials, software and services, but also I want to have a balanced performance in our go-to market. So, now, this is the first quarter. We are seeing now our Americas and EMEA and APJ performance in a balanced way. I want to continue doing that. And I want to really make sure that we launch these innovative products, because at the end of the day, now pruning that overall portfolio that we achieve, I want to make sure that now we augment that with our new products and that will continue to help us as we move into the second half of 2018, continue to build on what we have done, and I would really like to focus on revenue growth. The other important part is we do need to work on our cost structure. And the cost structure, the way I want to work on is, not really impact our product introductions, but really make sure everywhere else how can we take the cost out.

And is it the actions that you've been taking in the North America channel that have really been the incremental catalysts over the last several quarters?

It's not just the channel. It's the both direct and indirect. See, for me, we are adding more direct sales people, we are adding inside sales, we are scrubbing and clarifying territory assignments. The other important part I talked about is to really create the right kind of a pipeline, and we want to get focused on lead generation. So we launched Our People Know campaign at RAPID because I really believe – the thing that I'm finding, in the 3D Systems, we have incredible talent and all these 30 years of experience that we can really count on our employees and the approach that we have with our application engineering, the workflow work that we do, I want to really drive the demand generation. So, the marketing campaign, the lead generation approach that we are taking, the pipeline processes that we had in EMEA, applying them into Americas and APJ, all these things, plus we want to also optimize our events and fairs and really drive execution. Plus, with the new launch that we will do, we will continue the approach that we have taken for right kind of go-to-market investment to drive the revenue and profit growth.

Okay. That's helpful. Now, I'm just going to sneak one more in. Just help us out, how should we think about seasonality? I know you're not giving guidance, but through the year, the dynamics into these new product launches. I mean, you've had sort of high-end of normal seasonality in the last two quarters and ahead of the launches. So, do the launches help or could the launches stall? How would you like us to sort of think about that dynamic?

No, I think, seasonality, the way you should look at Q2 is like the same seasonality what you saw on Q1 to Q2 because all the major launches are not happening. And then, in Q3, Q4, we should be able to see the launches helping us in overall execution and the revenue growth.

Got it. Thanks so much. Appreciate it.

Thank you.

Yes. Take care.

Our next question is from Brian Drab with William Blair & Company. Please proceed.

Hey, Brian.

Hey. Thanks for taking my questions. Gosh, I would have asked, and I was kind of forming this question sort of the opposite way, I guess, as you might not be too surprised than Ananda was, and that I'm wondering if you feel, at this point, like you're a little behind. I mean, I'm looking at the gross margin is down 400 basis points year-over-year, OpEx is up 300 basis points, and organic growth this quarter was 1% if you take out the 5 points of FX. And last year, we were talking about returning to industry levels of growth, which are 20%-plus. So I'm just wondering, is that 20%-plus – I'll just ask a question here, is the 20%-plus in the cards and is it a 2019 story at this point?

Well, I think let's break down all the questions one-by-one because there are multiple questions. The first thing is, clearly, the first thing that I wanted to do was to get our printer unit growth, which is really very important because that's the way you put the installed base. So, 44% unit growth, we said we are gaining share. Let's just be real. The market is not growing 44%. So I just want to be clear. And that's both in MJP and the production unit. So this is not just an MJP story and I want to be very clear about that. The second thing is, yeah, definitely the foreign exchange helped. But when you have America, there is no foreign exchange. When we grew 5%, that sales that we are really focused on the execution and what we are achieving there. The third point that I want to make is the mix because, remember, we are still looking at our materials revenue coming from the installed base which was a legacy system. And when you have printers which were not working, they are not going to utilize the materials. Now, we have made lot of progress on services but there is a migration going on, like, especially on MJP where customers are taking MJP 2500 and replacing the old MJP 3600 units. So you're going to see that flattish materials growth will have a very different mix on the gross margin, because when you have more hardware relative to the materials growth, that's what you are really seeing the mix thing in terms of the gross margin. So I am actually happy about where we are with our gross margin. It's just that as we put this 44% kind of a unit growth and then once we start seeing the annuity stream in materials, that mix of the margin is going to be much, much better. The last part, in terms of – I always said that I want to build the company for long-term. I want to make sure that we focus on absolutely driving the new product introductions and the execution in the go-to-market and our IT investments I want to make. I don't want to really run the company for short-term and just cut some expenses, because that's how we – I want to look at it how I can build a great portfolio, drive the unit growth because that's where the market share – and these units are going to consume kilograms of materials, not grams of materials. We are very, very methodical and measured in terms of what kind of installed base we want to drive. So, with that in mind, I'm really happy with our performance. And let John add too.

Yeah. Just on a couple of specifics that you brought up on. When we talked in Q4, we gave some direction on gross margin. So, sequentially and throughout the course of the year, we suggested that you could probably continue to expect high-40s or somewhere in the range of Q4. Margins, operating expense, overall performance in Q1 was certainly within the range of our expectations and we were pleased with certain areas of revenue growth, particularly printer revenue growth. So, just wanted to give you that detail part. I understand the year-over-year margin, but we've been kind of addressing that on a quarter-by-quarter basis. And we've talked about how, as we reshape the installed base and go through that migration process, the leverage and margin going forward is driven by materials growth yet to come.

Got it. Okay. I appreciate that detail. I'm just looking at the Q and thinking the stock would really get going if you had this column for change in gross profit where you've got 1% for products and flat for materials gross profit year-over-year and overall company gross profit dollars down 3%. It's just... (32:39)

...understand, it's a mix thing, right?

...by giving up some price or giving up margin and I'm wondering when that starts to turn.

Well, I think what you will see that, as soon as we start getting our installed base, printing more and more the materials growth and then now you have the right kind of a mix. I think in any kind of annuity-based business model, you've got to invest in getting the productive installed base, because if you don't drive that, you are not going to really see the fruits of the annuity that you will get on an installed base. And this company needed that and that's why we pruned our portfolio, we focused on saying where we can get the usage and then driving that installed base. 44% unit growth, I'm very happy with that.

Yeah. The other thing, Brian, is that we've also invested a fair amount of time in our analytics and understanding of the installed base. So we have pretty good visibility in terms of how that's moving over time, and that helps us with our expectations as well.

Okay. Great. Appreciate it. Thank you.

Yeah. Thanks.

Our next question is from Wamsi Mohan with Bank of America Merrill Lynch. Please proceed.

Hey, Wamsi.

Hey. Good afternoon, guys. I was wondering, just to follow up on your comments here, VJ and John, on that shipping of that installed base. Can you give us any metrics that give us some sense on what is the maybe average age of the printers in the installed base? How much is the installed base down on a year-on-year basis, or some color that you think is appropriate for us to understand how that... (34:32)

Yeah. I can give you lot of details, but I will just give you a flavor of it. So, if you think about it, because installed base you have to look at really three to five years kind of approach because that's what – generally you create what I call annuity-based business model based on that. So, if you think about it, the company was installing lot of consumer units where we didn't have the usage, and that is not very good for the materials growth. We also had the issue that I have been very upfront about in the legacy MJP in our 300 printers, and that also hurts because these products that we installed, they were not being used. Now, we are working hard and we kind of stabilized that. So what happens is these units come out of the active installed base, because they are not really consuming any materials. Starting last year, we started putting really focus on saying how do we really put the production units which is SLS, SLA, DMP. And then, specifically our MJP product line for jewelry segment and for investment casting segment where we have production work, so that we can now shape the overall installed base. The stuff which is not consuming lot of materials will be out of that active base. And then adding more and more units because that's what we need to create. And I'm feeling that we are on the right path from 2017 and now in first quarter 2018, and we need to continue doing that with augmenting our portfolio with Figure 4, with our DMP 8300 and 8500 units. And we believe, with 6100, which is the new SLS printer, we are going to see this installed base which will then generate annuity in materials and services starting second half and lot more will come in 2019.

Okay. Thanks for the color, VJ. And if I could, John, if you look at the cash flows, they're down quite materially on a year-on-year basis both for operating and free cash flow. There's a big tick up in CapEx as well. How should we think about the progression of cash flows as we go through the remainder of the year? And what should we think of your full-year CapEx? Thank you.

Sure. So I think if you step back all the way back to the beginning of last year, right, the biggest shift from a cash point of view was the acquisition that we did back in January. We did show some cash burn through the course of the year, but it was a fraction of that. From Q4 to Q1, the primary driver of the decline in cash from Q4 to Q1 was continued CapEx investment in the business in the support of the product launches. So, roughly $10 million or $11 million of cash CapEx that was in play there quarter-to-quarter. You should think about CapEx for the full year. You should think about CapEx in the $40 million to $50 million range, not too inconsistent with what we did last year. And as we continue to build and ramp the business, our ability to improve our cash position down the road and, hopefully, later in the year is there for us.

Okay. Thank you.

Our next question is from Hendi Susanto with Gabelli & Company. Please proceed.

Evening, VJ and John. Congratulation on delivering growth in Q1. First question is for VJ. Given the strong units printer growth in Q1, how should we look into printer's revenue growth? Would you be able to share some colors on mix shift toward lower ASP or whether there is some strength of mid-end versus high-end printers in Q1? Furthermore, I'm wondering also, when you have new printer introductions, whether we should anticipate that some customers may delay their purchases and then wait and see for new products?

Well, I think as I mentioned, the Q1 2018 was very balanced. We had very similar growth in both production and professional printers, and that's what I would expect in Q2. But as we are introducing all the way from $5,000 product to $1 million-plus product line, the ASP on average will not be a good way to look at it, by category may be worth it, but on average, because you're going to have lot of units in the low price point and fewer units in higher price point. And I think that's what the new product introductions that we are doing. So my view is you just have to really look at are we adding more units, are those units consuming lot of materials, and also having a overall hardware revenue growth throughout the 2018. And I think that's what you should be measuring us.

Got it. And then, John, following up on Wamsi's questions on OpEx, would you share more clarity on your investment in OpEx? Does Q1 represent a base case for OpEx or OpEx may increase further throughout the year for your investments?

Yeah. Sure. So I think when we came out at year-end with Q4 and full-year results, we talked about Q4 being a good kind of proxy for a run rate number throughout the course of 2018. But we also talked about front-end loading of OpEx a little bit in the first half as we get these products out the door. So we saw a 2% sequential increase from Q4 to Q1 in total OpEx, and that's really driven predominantly in R&D expenses related to new product introductions. And so I would stick with the thought that Q4, as roughly a number plus or minus, is a good way to run rate in terms of how the year might look, and I'll let you kind of fill in the blanks quarter-to-quarter.

Thank you.

Yeah.

Our next question is from David Ryzhik with Susquehanna Financial Group. Please Proceed.

Hey, Dave. Hi.

Hi, guys. Thanks so much for taking the question. VJ, can you give an update on the metals portfolio, the ProX DMP 320? I think you've talked in the past about Europe, some good demand there, but an update on your efforts in the U.S.

Yeah.

And I have a follow up.

So I think, the metals, I think you have to look at two key segments. The healthcare segment, I think we are getting tremendous success because what I believe the fundamental value proposition here with the workflow know-how and having that capability in healthcare is helping us to really get this solution to the medical device manufacturers. So, my view, our metal business in healthcare is a very important aspect of it. And as I mentioned, that in aerospace, we still have work to do because this is where the overall approach that we are taking is very similar to healthcare that I want to really focus on overall workflow because the 3DXpert software that we have. The ProX DMP 320 is a phenomenal titanium product, but we also believe that having that system approach with our workflow know-how, the 3DXpert, the materials and hardware, we will be able to come after some use cases in aerospace where we will have a competitive advantage. As far as the success in Europe, it's continuing. And now, we have hired some very good talent also in U.S. and I believe we're going to see that – and you can see the traction already, as I mentioned, and you're going to see traction also in Americas in the coming months.

Thanks. And just a quick balance sheet question, John. So, if cash is at a little over $100 million, what's the minimum that you need to run the business and how much cash do you have onshore?

Right now, our ending cash balance was just shy of $122 million in Q1. And I don't think I'd give you a pure minimum number because a lot of the cash really depends on where it is a lot of times, right? So I'm comfortable with the mix of U.S. and non-U.S. cash for the company, and it's certainly something that we keep an eye on and work on, on a quarter-to-quarter basis. So I'm certainly not uncomfortable with our cash position at all. We understand what investments we're making, and we also understand what the opportunity for us to grow that cash going forward is. But, really, to give you a peg on a number like that is not something we shared, but also it's not really meaningful. It's really where that cash is. And I'm very comfortable with the mix of where our cash is today.

Okay. Thanks so much.

Yeah.

Our next question is from Bobby Burleson with Canaccord. Please proceed.

Hey, Bobby.

Hi. Hey, guys. Hi, VJ. Hi, John. So, I guess, curious on the competitive landscape. I don't think we've touched on that yet. A lot of innovation out there. I'm curious kind of where you see your advantages in your portfolio. I mean, obviously, you guys have the broadest range of technology, hardware, software, et cetera.

Yeah.

What are you guys doing to make sure that you have a leg up on the competition?

Yeah. So let's start with – because it goes by, as I always feel, by customer in-view rather than technology out-view. So, when you think about for a jewelry and investment casting customers, I think we have the best solution. We don't have really any competition. And this is where our 2500 wax product is doing extremely well. We are continuing to gain share. And I am very comfortable that we have a very unique solution with which we are making tremendous progress. Then, you go after the dental, healthcare, the appearance modeling, this is where our SLA solutions are. And we are absolutely the leader and we continue to be a leader. We believe that the solution that we provide all the way from casting solution to the overall modeling solution, we own that space and I'm very comfortable stating we are the leaders and will continue to be the leaders. And the reason for that is the productivity, the quality of the part that we achieve, and the reliability of ProX 800 system is fantastic. You go to the functional prototyping and low-volume production, this is where the SLS machines – I always believe that we have a better technology and it is proving out. And with our new SLS 6100, we have a better part quality. Because of the temperature control now, the density of the part that we can build and the productivity that we are getting with 6100 is absolutely competitive. And we are going to continue to do well in our functional prototyping and in the low-volume production. And then you go to the DMP, I already talked about it. We have a very unique advantage in the titanium, in healthcare segment, and I do believe with our new DMP 8300 and 8500 Factory…

Okay. Great. Thank you for that. And then, just following up on the materials side, you guys have delivered nice unit growth, very strong unit growth. And it sounds like the mix is still a little bit volatile but might be stabilizing in terms of production and professional, et cetera.

Yeah. So, on the materials...

So, I'm wondering what's the read-through – I'm sorry. What's the read-through in terms of the lag between the time that your installed base is growing and when we should see a real resurgence in materials growth, and is that materials margin itself stable? Thanks.

Yeah. So I think the first thing is, as I said, that we need to reshape. Again, and you have to look at it by category. So, for an MJP printers, remember, we had issues with our legacy reliability and other things. And now, we are really having MJP 2500, which is a very reliable platform. So I absolutely believe that the MJP 2500 materials growth is going to really show up and help us in overall materials growth. Right now, this harmonizing of that portfolio is the reason that you are seeing the kind of materials flat. As far as SLA is concerned, we are continuing to see tremendous growth in materials for SLA. SLS, I think with our 6100 printer, I am now very confident that we are going to continue to see our SLS materials growth. And then, as we look at the new products, they are going to be all incremental. The beauty of the new products is they're of different categories and there is not really overlap between this portfolio. So I think that starting second half and then 2019, you're going to see a significant change in our materials revenue growth.

Great. Thank you.

Welcome.

Our final question is from Troy Jensen with Piper Jaffray. Please proceed.

Hey, Troy.

Hey. Hey, gentlemen. Thanks for sneaking me in and congrats on the great top-line here.

Yeah.

Hey. Just a quick question, can we dive in a little bit on gross margins? Just curious if what targets you guys should think about or we should be thinking about as far as how you're managing the business. I mean, can we get back to 50% gross margins or just kind of fundamentally, are we going to just see high-40s?

Yeah. I think the direction that we gave relative to the year in general, Troy, was to think about gross margins relatively stable around Q4 levels, high-40s, and we were in the ballpark, but a little down in our seasonal low quarter in Q1. And then, the leverage above that is really the discussion that VJ just had relative to when we can turn the corner on material growth for the installed base migration and the additive new products that start coming in that are really incremental. So, that's where we could see some leverage with the mix of the business between materials and hardware.

I think, in my mind, the materials gross margin, one thing I learned that when you have IP, you have a gross margin. And that's why proprietary materials and then 75% kind of a margin, they go hand-in-hand. Because that's what you want to do, because margins are really connected with the intellectual property that you are developing. And that's why this R&D is very important, and that's how it could maintain that kind of a gross margin for the materials, because that mix is the way I think about how we want to really continue to drive, okay?

So, VJ, I mean, software is growing as a percentage of revenue. That's a good margin (54:12) so is materials here. If Figure 4 starts to really ramp, I guess, could that help drive gross margins above 50%? Would that have... (54:23)

It all depends on the mix, Troy. It depends on the mix. If I get more and more the modular and the production units, it's going to have a very different kind of a profile. I think the way I look at it is the Figure 4 gross margin will be determining on the kind of a category that we are going after. And then, the materials, I'm very confident on the materials because these are all unique materials we had to develop. There is nothing in the world like that. And that's why next-gen materials, the materials that we are doing it for the tough, the prototyping material, the elastomeric material, these are all innovation. And as I said, these things will tie the gross margin.

Okay. All right. Understood. Good luck.

Thank you.

Thank you.

Ladies and gentlemen, we have reached the end of our question-and-answer session. I would like to turn the conference back over to Stacey for closing remarks.

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.

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