Hello. Good morning and welcome to 3D Systems Conference Call and Audio Webcast to discuss the Results of the Second Quarter 2022. My name is Kevin 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 Russell Johnson , Vice President, Treasurer and Investor Relations. Please go ahead.

Good morning and welcome to 3D Systems second quarter 2022 conference call. With me on today’s call are Dr. Jeffrey Graves, President and Chief Executive Officer; Wayne Pensky, Interim 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 in the phone who wish to access the slide portion of this presentation may do so on the Investor Relations section of our website. For those who have accessed the streaming portion of the webcast, please be aware that there maybe a few seconds delay and that you will not be able to post questions via the web. The following discussion and responses to your questions reflect management’s views as of today only and will include forward-looking statements as described on this slide. Actual results may differ materially. Additional information about factors that could potentially impact our financial results is included in last night’s press release and our filings with the SEC, including our most recent annual report on Form 10-K and quarterly reports on Form 10-Q. 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 in this call will be against our results for the comparable period of 2021. With that, I will turn the call over to our CEO, Jeff Graves for opening remarks.

Thank you, Russell and good morning everyone. I want to thank all of you for joining today’s discussion of our second quarter results. As always, it’s my pleasure to have this opportunity to speak with you and share my perspectives on our ongoing efforts to make 3D Systems the world’s most innovative and successful provider of additive manufacturing solutions. As I look out on the environment, which 3D Systems is operating today, I see much to be optimistic about, but I also see a complex and volatile mix of business conditions that’s challenging our ability to deliver consistent results during 2022. On one hand, it’s clear to me that the underlying trends supporting the broad adoption of additive manufacturing solutions in production environments are both strong and resilient across our diversified economy in applications ranging from the traditional manufacturing shop floor to the biotech laboratory, where life-saving medical treatments are created. Additive manufacturing technologies are enabling new levels of efficiency, flexibility and innovation. These macro trends give me tremendous confidence in this industry and in 3D Systems role as a leader in it. It’s this confidence that’s guiding the strategic actions we are taking this year to consistently invest in new additive technologies and in our internal infrastructure to support future growth. On the other hand, the new normal of our post-pandemic world is proving anything but normal. As we highlighted in yesterday’s earnings released during the second quarter, 3D Systems, like many other companies encountered a more difficult global business environment that we had anticipated when we exited 2021. Our performance this quarter was impacted negatively by various macroeconomic and geopolitical factors, most notably stubborn supply chain issues, foreign exchange volatility, and our exit from the Russian market. While these factors such as these are often hard to predict…

Yes. Thanks, Jeff. Good morning, everyone. We had three significant divestitures in 2021 as we discussed the non-GAAP measures from the tables we presented in last night’s earnings release and as was discussed today, we excluded from the 2021 results the impact of the divestitures. We did this to make the 2022 results comparable to the 2021 results. As Jeff discussed, revenue for the quarter did not meet our expectations due to three factors: the strengthening of the U.S. dollar, persistent supply chain issues and geopolitical factors such as the Russia-Ukraine war. Revenue for the second quarter was $140 million, a decrease of 13.8% compared to the prior year. Excluding divestitures, revenue increased 3.2% and on a constant currency basis, revenue increased 7.8% compared to the prior year. This top line growth reflects continued solid demand in both our healthcare industrial segments and demonstrates our ability to grow the business against the very challenging background of supply chain macroeconomic and geopolitical pressures. Just to put dollars behind the three factors, nearly $6 million of this impact was attributable to the sharp appreciation of the U.S. dollar that occurred during the second quarter and reduced the U.S. dollar value of our international sales made in different currencies, which typically represent about 40% of our total sales. In the second quarter of last year, we had approximately $4 million of sales in Russia that did not repeat in the second quarter this year, because we exited the Russian market. If we exclude Russia sales from 2021, then our adjusted growth rate is 11.3%. Finally, supply chain issues in particular component shortages prevented us from filling more than $9 million of firm customer orders. By way of comparison, in the first quarter of 2022, we are unable to ship approximately $7 million of…

Thanks, Wayne. Before Wayne and I take your questions, I’d like to add one more additional comment. As you likely saw last week, we announced that Michael Turner will join 3D Systems as our new Chief Financial Officer at the end of this month. I am delighted to have Michael join our team. He is an accomplished financial executive with a strong technical background, is ideally suited to lead our finance and accounting function. I encourage all of you to connect with Michael after his arrival, introduce yourselves and get to know him as you wish. I’d like to also take this opportunity to thank my colleague and good friend Wayne Pensky for so ably serving as our interim CFO for these last several months. Wayne will be staying on for a while to ensure that Michael has a smooth transition into his new role, then we will be returning to his well-deserved retirement. So Wayne, thank you very much for all you have done for us. So, Kevin, I think we can now open up the line for questions.

Certainly. Our first question today is coming from Greg Palm from Craig-Hallum Capital Group. Your line is now live.

Yes, good morning. Thanks for taking the questions here. I wanted to first dig into the guidance a bit, because last quarter when you provided guidance, you talked about demand outstripping your ability to fulfill. So, I guess if we think about the reduction for the second half, how much is incremental FX headwinds relative to where we were last quarter? Was that the $20 million? How much if any, is additional supply chain challenges that you are now running into and how much is true demand falling off? And I guess of the demand anyway, you can breakout more specifically the impacts across the various end markets or geographies?

So with respect to FX, you are correct that the $20 million is the difference between what we did last guidance versus this guidance. With respect to supply chain, I wouldn’t view that really as a factor in terms of changing our guidance, while we didn’t assume any improvement, we didn’t assume it was going to get any worse. So I wouldn’t view supply chain as the factor for reducing the guidance. The rest is really about this slower demand in the end markets, primarily dental and then the rest of if you think about what’s happening in Europe in terms of slowdown of our customers, in terms of their ability to manufacture that everybody is taking a pause, their inventories probably went up in the past, they are probably trying to manage that inventory down and they are much more cautious about their own outlook.

Greg, it’s very much what you would see in the newspaper everyday. If people are having to spend more money on gas and food and basically, they are cutting back on certainly on discretionary items, which is particularly impacting the dental industry. So that was – that’s a major second half effect for us as we – as that rolls through the supply chain. And again, we view that as temporary that the outlook for that business is quite strong. But undoubtedly, it’s going to – it’s projected to have an effect in the second half of the year, hopefully with inflation peaking soon that will start rolling back, but it’s prudent at this point to assume it just lasts throughout the year and we go on. The other effect clearly is with COVID spiking up in different parts of the country in the world, it’s nudged out the treatment in hospitals for COVID patients has nudged out discretionary operations, especially around orthopedics. So, that outlook has flowed somewhat to and it’s much like the initial spike in COVID did back in late ‘20 and early ‘21. So we would expect it to be transitory and somewhat highly transitory. But you just don’t know how many of those variants are still out there. So, instead of looking at a quarter by quarter, which we will continue to do, we just assumed this condition lasts throughout the year and we updated our guidance.

That’s helpful. I mean, Jeff, presumably, the dental that you are alluding to, is more of the big projects type stuff. I mean, do you have any visibility into whether that’s just getting pushed out to next year or is it unclear still at this point?

Yes, I think the demand is going to – I mean, just my opinion, Greg, demand is going to remain for those products if they are very popular. And I think people are just having to make short-term decisions, with gas and food becoming so expensive and I use that symbolically, I think everything is becoming more expensive. People have had to just put off things that are truly discretionary, but still highly valued. So all the feedback we get is that it’s temporary and it will pass the growth outlook back, if you listen to that customer base, which they are public companies, you can listen to them. What they say is, their long-term outlook is still for very strong double-digit growth and the numbers I’ve heard are 20% to 30%, they talk about publicly, but for this year, it’s been ratcheted back to low double-digits, high single-digits and that ripples through the supply chain. So there – we see no other indications that they are planning for long-term dampening. I mean all of the other discussion and things are all around continued strong growth. It’s a very short-term factor.

Understood. And I guess last one I mean just in light of everything going on, it’s surprising that you are raising your OpEx guide. I mean, I guess, going forward, how should we think about investments on a go forward basis as we get into next year and beyond?

No, it’s good questions, Greg. It’s funny when challenging economic environments hit, I think historically, you see companies do one of two things. Obviously, everybody becomes more prudent and they watch their spending. But for folks with a stronger balance sheet, I think you see them saying, look, some of the weaker competitors in our space are going to really struggle in this environment. They weren’t built for short-term headwinds. And with our scale and our balance sheet coming into the year, we were very well equipped to deal with a downturn and continue investments. So we are able to pickup talent, we are able to pickup I look at this dp polar group an outstanding group of people that small companies struggle in these environments, because they have to rely on longer term revenue projections and that becomes more variable and they burn through their cash. So in essence, for bigger companies like ours with a strong balance sheet, it gives us an opportunity to really kind of double down and say we are going to come out of this really strong. And when you look at our infrastructure investments, if you make the assumption, you are coming out of the strong you better have the infrastructure to support the growth. So that’s why we are maintaining the infrastructure investments we are making. So now, I won’t tell you we are not looking at all of them and we are cutting back where we can and we are managing through our costs. We definitely are. We are going to run a good business. We believe in running a profitable cash generating business. But there are certain periods of time where you have an opportunity to really move ahead. And I think that’s us right now. If you look at regenerative medicine, which are a really organic investments at this point and you look at this high-speed production process that dp brings us, those types of investments really pay dividends in the long-term if you can maintain them. So, while everybody is struggling, it’s our chance now to really kind of kind of push ahead.

Okay, good. Alright. Well, best of luck going forward. Thanks.

Thanks, Greg.

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

Hey, gentlemen. Thanks for taking my question. Maybe to follow-up on Greg’s question line here. Supply constraints, it seems like it’s been three or four quarters now that Wayne and Jeff talked about $68 million of demand that you guys can fulfill. And to me, you guys will be building a big backlog right with these orders that you can’t ship. So you factor that in with just kind of the reduce – the reduction of about $50 million in revenues with a growing backlog. I just wonder if you kind of touch on what’s happening to these orders and is the backlog in visibility improving at all?

I see this, an insightful question, Troy, as always. Yes, so backlog is building, there is no doubt about it. And we don’t usually talk about those numbers. But there is no doubt about a backlog’s building, we were able to – we left more on the table in Q2 than we did on Q1. And we don’t want to use that as an excuse in the second half, because I do think that things are going to plateau and then get better. But we thought the second half would be significantly better when we enter the year. And at this point, we are going to wait until the data says it is better to really talk about it. So in terms of the durability of orders, when you push orders out, obviously there is a fraction of people that could – that may choose to cancel. But by and large, we are not seeing any diminishing of demand. Folks are willing to wait for product. And part of our move in manufacturing Troy to bring our largest contract manufacturer operation back in-house is we really believe we can better control it and meet our delivery commitments and manage our supply chain. It’s a big move for us or required a lot of planning. But especially when times get tougher, you just don’t get the attention from the contract manufacturers that you want and it’s much better to run it in house. So we are making that move. I think it’s a permanent move with a high mix of product that we need to provide to our customers. It’s a better way to manage the supply chain. So, we took a big step in July to bring that in-house. And I think you will see incremental improvements going forward between that and supply chain is truly getting better around the world. I think we will come closer and closer to meeting our growing demand that we see out there.

Okay, thank you. Just a follow-up for you Jeff, dp polar, I guess when I think of inkjet, I think more of prototyping. And I think that’s because material properties, I believe these machines need to use acrylic materials. So when you talk about a production machine, you are producing molds, right? Was I kind of think indirect production or is it?

With your background, Troy, particularly appreciate this machine, they have a great – by the way, if you go to the dp polar website, they have a fantastic YouTube video posted there of the machine. And it demonstrates the technology with their printing technology, their inkjet printing technology it can actually accommodate much more of our current portfolio of materials that are printed. So a lot of our materials will be able to be printable, if not now in the near future. And those heads can be interchanged with other printing technologies. So you can substitute other printing technologies for those print heads. And they’re stationary, which makes it much simpler. And it prints on a rotating platform. So no, no, it’s it is particularly geared toward continuous production and high-speed production of products. Our estimates are Troy anywhere from 3x to 5x more productive for production applications. And the doubly cool thing when you watch the video is you can use pick and place robots to put all electronics or magnetics within the component is printed, which is really gives you another capability with 3D printing that you don’t have in the current batch processes.

Can you do multiple materials?

Yes, you can do multi materials. You can build components of all different geometries continuously as you rotate the platform. It is just a fantastic technology and one of the key pieces of IP here Troy is the machine intelligence because the spinning platform is spinning base plate is so large, there’s a big velocity difference between the inner radius and the outer radius. So the intelligence of the machine to be able to uniformly present across broad – across through multiple printheads, across a broad radius is really exceptional and they have got – they’ve been working at it for several years. And they’ve got a great concept that’s now been demonstrated and moving into beta ship and phase now.

Got it. Alright, Jeff. Well, thank you for that info and good luck on the second half.

Thanks, Troy.

Thank you. Next question today is coming from Ananda Baruah from Loop Capital. Your wine is now live.

Hey, guys, good morning, I really appreciate you taking the taking the questions. A couple if I could, just sort of going over going back to sort of the commercial context, what you guys talked about reduced visibility from selling to your customers? Are you also yet seeing a meaningful demand impact from those votes? Are you just sort of getting the softer signals that the visibility is being reduced?

No, it’s there’s a concrete false in demand, I’d say it’s still positive, there’s still demand out there. But it’s definitely a lower rate of demand growth, the second half than we had originally modeled. And what they attribute that to which they pass on to us is, customers are really struggling, their customers are struggling because they’re having to spend more on the basics of life than they are in for example, in improving their smiles, things that are truly optional. And there’s sad extensions to that, too. And orthopedics were procedures that are labeled optional, are often very painful for patients, and they really would like to take care of them. But hospitals have been managing their capacity. With COVID, they don’t want to overcommit their capacity. So they’ve discouraged optional procedures. And we factor that into our second half planning. So, both of those factors impact our healthcare business. And we view both of them very much not as transitory. But I’m tired of waking up every morning saying, it’s going to get better next quarter. And at this point, I think we just said, well, we’ll project it through the end of the year. And hopefully, it’ll be better than that. But I think it’s a good time to be conservative and just say, these, these pressures are going to be for the full year.

It’s the right thing. I mean, investors are going around see the guidance lowered anyway. At some point, maintaining the guide probably would just be a headwind to the stock. I mean, you don’t like to see this move today in the stock. But, it would be a headwind to participation at some point. So it’s a wise thing to do Jeff, is to debit balance. And on the, I guess, on the non-consumer adjacent, kind of verticals, let’s say you’re trying to manufacture verticals, what’s the context is there at this point?

Yes. So I think, supply chains around the world are trying to catch up. And you probably see this in your personal life. And certainly, if you’ve gone out to buy a car recently, or even a spare part for a car, I don’t place a fuel pump the other day, and it had to be shipped from Germany. And it took weeks and things that used to take days take weeks. So I think supply chains on the industrial base worldwide are still playing catch up. So there’s really nice demand and with one exception, I’ll tell you that there’s really nice demand in the industrial environment, because our customers are looking to bring manufacturing closer to home over time. And they want more flexibility, if they’re going to do it, they want more automation, they want more flexibility, they want a lower cost. So it gives him an opportunity for 3D printing to really move in there and demonstrate his capability in production environments. So that’s good, that’s really a good tailwind to have. The one area in the world that’s problematic that is Europe and particularly Germany, which is an industrial powerhouse. The outlook they have and the concerns they have around the Russian energy supply has caused the government to send signals to watch industrial production, potentially cut back in certain industries and parts. And if you follow their announcements, the German industrial firms, you are worried about that, because come winter time, they need the energy. And companies consume a lot of energy. So, they are trying to cut back early, store energy. And I think that’s led to an overall concern about capital investment in that part of the world. And again, if the war is a tragedy on many fronts, I hope and pray it lifts soon. But I think that’s yet a coming risk for everyone. And we have factored that into our guidance. And looking forward, it’s hard to estimate, but we factored it in and said, look, we think Europe could get weaker, not stronger over time, due to energy and the war. So, again, hopefully they will find a solution and a good outcome there. But I think it’s prudent to just have a wait and see attitude.

That’s helpful context. Thanks.

Thanks Ananda.

Thank you. Our next question is coming from Wamsi Mohan from Bank of America. Your line is now live.

Good morning Wamsi.

Hi. Thanks for taking the questions. It’s actually John, on behalf of Wamsi. Just wanted to quickly touch up on gross margin. I know the full year guide, midpoint around 40% implies slight improvement in the margin trajectory in the second half. So, just wondering what might be driving that improvement? And when do you expect these headwinds of consumer spending or supply chain constraints to gradually recover?

You take the first one Wayne. I will take the second one, which will be pure speculation.

With respect to the margin outlook, that point on 40%, that’s not terribly different than how we did in the first half of the year. And so I think we need to do a little bit better on one, passing our price increases, and secondly, just in terms of the input costs going up. So, it assumes a slight improvement there, but not a huge amount or huge improvement.

And in terms of when things will get better. We came into the year with just the base assumption, I think we were very transparent about this that supply chain issues, which impact our gross margins, were going to be a struggle through the first half of the year, and then they would improve in the second half. I think as we exit Q2, the number of risk issues in the world has probably increased versus the beginning of the year. And as we look at – in the second half, we just thought, it’s prudent not to really speculate on when things will get a lot better. Let’s just assume it stays basically the same and projected through the end of the year now. And I do think by ‘23, there is a good chance that supply chains have straightened themselves out. We do see evidence. And you would be probably see this in common everyday things of going to restaurants and things that the world is returning towards normal, but there is a lot of training. Within a restaurant this weekend, there is typically a lot of training opportunities for new people that are taken jobs. And I think every company is working their way through that. And that will happen in the second half. And I think ‘23 will be better. But at this point, when we are only dealing with ‘22 guidance, we say, let’s just assume everything stays as tough as it is now for the rest of the year. And I think that’s a prudent position to take, and that’s what we have done.

Got it. And a quick follow-up if I may. Just curious, are you seeing the slowdown more related to the system side or the consumables?

Oh, very good question. So, it depends on the market and the place in the world. In the – it’s a very interesting question, actually. And most of our customers look through this downturn period. And they say, okay, let’s watch inventories, let’s cut down on consumable materials to kind of run leaner. I think in the first half, we probably saw people building because they thought the second half was going to be strong. So, they built inventory, supply chains were disrupted. It caused everybody to add inventories. I think in the second half here, we are seeing people be a little bit more prudent, if you would, and managing their inventories or cash position, make sure they don’t have too much on hand. So, I would tell you consumables in the second half, we are projecting as probably a bit softer than we are probably – and Wayne correct me on this. But I think it’s consumables in the second half will probably projecting to be to be softer. They are certainly softer than we would have originally imagined. In the first – yes, that is softer than the first half. And then on the – but on the capital side, on new printers and things, we see that demand remaining strong, basically across the market. So, that tells you really basically customers are looking through this and saying, I am going to need the printing capacity, but I may not need the consumables right now in the next couple of quarters. So, it hurts our mix. But it does encourage you that the long-term you are installing more printers, there is more – going to be more consumption of consumables including materials and software in the long-term, because the capacity will be out there. So, that it’s a – that’s a good question and thanks for asking it. Any other color on that Wayne…?

Generally speaking, in our forecasts the second half is about the same in sales in the first half.

Yes. That originally we projected it up with a richer mix, okay?

Okay. Understood. Thank you.

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

Hi. Thanks for taking just a couple of quick questions here. In the second half of the year, do you expect the typical, I know it’s hard to forecast anything right now? But are you portraying typical seasonality in the fourth quarter with revenue from the third quarter?

Yes. Typically, Brian, as you know, from falling, there is usually a bump in the fourth quarter. It’s a little bit stronger going into end of the year. I would just encourage you though to – if any years going to be watered down, I think this year will be, I wouldn’t expect there to be – we are not expecting a huge change quarter-to-quarter. If anything, there may be a slight shift towards Q4 over Q3. Is that fair?

Yes, it’s pretty minor. If you look in the prior years, fourth quarter had a much more noticeable bump than we are forecasting right now.

Right. Fourth quarters weighs away. I mean we could still get it. But again, Brian, we took the approach this time of let’s just assume the world just kind of stays like it is now for the rest of the year. So, that’s in terms of building a model that’s where our favorite, so – for this year.

Alright. Okay. And you gave the industrial and healthcare change in revenue year-over-year, I may have missed it. But did you tell us what dental was either up or down year-over-year in the second quarter?

We did not.

We didn’t put that out there, Brian. We didn’t put that out there.

Look, if you look at for the first half dental, for the first half was about the same as the prior year. And if you look out for the guidance for the second half that will be lower second half than it was in the first half.

Okay. Alright. Thanks.

That really goes back to Jeff’s comments about, a little – as they are forecasting their own growth. If they over-forecasted previously, and drop it down now, they probably need less printers, and a little bit of consumption of less materials.

That’s just it, Brian. I think they came into the year assuming their growth rates were going to be consistent with prior year growth rates. And so they were anyway building fast. So, I think they have certainly seen a drop off in their demand due to discretionary spending issues. And that’s rippled through the supply chain. So, there was a clearly an effort to manage inventory on their part. And in the face of softening demand for their products here in the second half. And they have gone out of their way to assure long-term growth rates are, they are maintaining the same guidance. And I think that’s true. But in the short-term is certainly as impactful in the second half.

Yes. Got it. Understood. Okay. Thanks for that color.

You’re welcome, Brian.

Our next question is coming from Noelle Dilts from Stifel. Your line is now live.

Hi, there. So, I was hoping that you could expand a little bit on how you have to respond from a production standpoint, when you have say, a slowdown with a large customer in terms of what you are expecting from demand. So, for example, are you going to have to work through some excess inventory here in the back half of the year? And how should we think about that from a cash flow perspective? Thanks.

Yes. Well, certainly, we did – we have built inventories. And I will give a little color and Wayne maybe you could comment more from a cash perspective, if we can estimate that. We have built, no doubt, we have built inventory. No, it’s been such a difficult time, to just make sure you have all the components to meet demand in these printers. So, we have undoubtedly built inventory. So, now as things slow down, we have got to manage through that inventory. And I think part of bringing production back in-house for our biggest plants here is I think we can manage our inventories better that way. And better meet demand as well, by the way. But yes, undoubtedly, there is – I think we have an opportunity actually in inventory management to generate cash over time, because we have got a lot of inventory. But it’s always a challenge, because there is a lot of volatility, if you will, in demand right now across the platforms. So, it probably doesn’t help you much…

Yes. So, the first half inventories went up about $16 million. As we just sort of reflect how much what Jeff was to say. But as we talked, as Jeff mentioned earlier, we are going to bring some of the manufacturing in-house. And you will see in the 10-Q that was posted this morning that meant in July, we actually bought another $15 million of inventory. So, inventory that previous was on our books now came our books as part of bringing inventory in-house. Now, we think that number is probably too high. And our goal in life was to work that down a little bit. But you will see inventory going up just for that reason.

And a lot of it will happen when the supply chain just becomes more predictable. We have had inventory a lot of extra parts, because you really didn’t know what was going to hang up your shipments. So, and in Murphy’s Law, we hung up more shipments than we did in Q1, that we did in Q2. So, you never quite have all the right stuff, eating too much of room one and not enough, another. So, that will work down, the supply chains get smoother and more predictable. And I think we will be more efficient doing it than we would have been an outsourced model. But it will take a little time. So, you will see a bump up and it is listed in the Q, right, see a bump up in the Q, a significant bump up as we took that inventory back on our books from our contract manufacturer. And I think you will slowly see a bleed off over time, which will be a cash generator for us.

Great. Thank you.

Sure.

Thank you. Next question is coming from Paul Chung from JPMorgan. Your line is now live.

Hi. Thanks for taking my question. So, just on the move back to in-house manufacturing, what percent of the portfolio is kind of moving in-house? And where are you moving it? And can you quantify kind of the margin uplift from these actions? And should we expect kind of higher levels of CapEx kind of moving forward as a result?

There were several, I see you are meeting Kevin’s goal of one question. Now, there is several parts of that question. And they are all good ones, by the way. So, one nice thing about this move was the plant is right here in Rock Hill, South Carolina. So, it’s very close to our current headquarters, and a lot of our engineers here in town. So, we took the lease back over ourselves. We took production back in-house. And so there is some incremental cost with that. But in general, I think we will manage those costs. We were paying for them anyway to the contract manufacturer with a markup. So, I think there will be a – there should over time be a cost savings there as we drive more efficiency out of that plant, same thing with the inventory. So, it’s right here, there is no physical move, frankly, of the production process. It’s us taking over the lease again and really running the plant ourselves. So, there is no move required. Thank goodness, we are not moving products around. An answer to part of your question though, it is a very significant part of our polymer based production. And it probably approaches half. It’s a very big percentage. And hopefully, that will grow over time. Our industry fault, well, I shouldn’t – I can’t speak for other companies. But we offer the broadest range of printing platforms in the industry. It’s what our customers want, because they want a large flexibility in solving their application issues. So, we offer and as part of our model, we offer the broadest range of printing technologies in the entire industry, from polymers to metals. And we are going to keep that model. What we are doing to make it more efficient is moving to a modular engineering approach. So, we have more commonality between platforms. And we are bringing manufacturing back in-house, because contract manufacturers notoriously are if they are not as efficient with a low-volume high mix product lines, and high tech product lines. So, by bringing it back in-house, I think we will do a better job of managing that. And when you combine it with the move to modular engineering, I think you will see some significant cost reduction over time in our COGS, just due to efficiency of design and manufacturing. But it will take time. Those are usually multi-year efforts. But I would tell you, it’s a key part of us getting to 50% gross margins, is improving the gross margin on our printer products. Did that cover all the pieces of your question, Paul?

Oh, just the CapEx levels, I assume there is going to be a little bit out there.

Now, these are assembly operations. So, there is really very little capital involved. Now, we will make some CapEx investments in IT infrastructure and things to run the plant better. But it’s largely an assembly operation.

It won’t be noticeable.

Yes. Got it. Thank you.

You’re welcome. Thanks.

Thank you. Our final question today is coming from Jim Ricchiuti from Needham & Company. Your line is now live.

Hi, good morning. It’s actually Chris Grenga on for Jim. Just wanted to ask, how do you think about the level of SG&A and R&D in the event that demand softens further? And could you talk about some of the levers that you discussed in the prepared remarks that you have to address cost structure efficiencies? Thank you.

Yes. And that’s – I will say Chris, that’s the art of it. It’s how to manage those costs down when you see this conflicting thing of short-term headwinds and long-term demand growth and pretty exciting demand growth, you need to come out of it on the other side ready for that. And so, the desire is to maintain continuity in R&D spending, our SG&A we look at because our G&A costs are high right now. But a lot of that is geared toward improving our infrastructure and efficiency. So I think you can quite clearly see G&A coming down in future years, but we’ve got to invest to make sure our foundation is strong, and that we have the platform to support growth, R&D spending, we just – we – I’m hoping that we can manage that down over time as well. But I would tell you in this industry, right now, it’s a disruptive industry. And you’ve got to watch, how much you’re spending on R&D, because that those production platforms when they hit are going to be very sticky sales. And that’s – it’s going to drive a lot of consumable utilization. So you need to have the platforms in order to meet that demand. And that’s one reason we invested in dp polar is we picked up years of R&D work that’s been done with a machine that’s ready to go to beta customers now, to accelerate that whole process. So I’m not giving you a crisp answer, I want to be very, very selective about R&D spending and make sure we’re doing it correctly. With the leadership we have in place now, I think there’s a really nice opportunity to focus and get more out of our R&D spin with modularity and platforms. In terms of bringing the overall spin down, I really don’t want to make commitments on that in the long-term, it’s – as we grow, they’re easier to bear. So the scale really helps. But on $1 basis, we have to be very careful. G&A I think we can bring down and even sales efficiency, we can bring down over time with scale, with the scale we have, the G&A particularly I think we can breakdown in future years. Wayne, anything you want to add?

Yes, I guess the only thing I’d add, we’ve with dp polar, that will make our seventh acquisition a little over last year. And each of those comes with a little bit of SG&A and R&D costs. And so we’ve added those into the mix. And the most of them are early stage development companies or early stage of commercialization. We’re not yet bringing in a lot of revenue. So, as those guys progressed, we’ll get a little bit more leverage from those in the interim, we just need to manage them as best we can.

Is that answered you question?

Thank you very much.

You got it.

Sure. Thank you. Yes, thank you.

Thank you. We reached the end of our question-and-answer session. I’d like to turn the floor back over to Dr. Graves for any further closing comments.

Thanks, Kevin. So thank you all for joining the call this morning. We look forward to updating you again on our business next quarter. And we wish you all a great day. Thank you.

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