Good morning, and welcome to the 3D Systems Conference Call and Audio Webcast to discuss the results of the Third Quarter and first nine months of 2014. My name is Robin, and I will facilitate the audio portion of today's interactive broadcast. (Operator Instructions) As a reminder, this conference is being recorded.

At this time, I would like to turn the call over to Stacey Witten with 3D Systems..

Good morning and welcome to 3D Systems Conference Call. I am Stacey Witten, and with me on the call are Avi Reichental, our CEO; Damon Gregoire, our CFO; and Andy Johnson, our 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 via the Web at www.3dsystems.com/investor. Participants who would like to ask questions at the end of the session related to matters discussed in this conference call should call in using the phone numbers provided on the slide.

The phone numbers are also provided in the press release that we issued this morning. For those who have access the streaming portion of the webcast, please be aware that there may be a few second delay and that you will not be able to post questions via the Web.

The following discussion and responses to your question reflect management’s view 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 IR Web site. You will find additional disclosures regarding these non-GAAP measures including reconciliations of these measures with comparable GAAP measures.

Finally amongst otherwise stated all comparisons in this call will be against our results for the comparable period of 2013. Now I will turn the call over to Avi Reichental, 3D Systems’ President and CEO..

Good morning everyone and thanks for joining us today. Before we get into our financial results, I want to go over a few key trends that shaped our third quarter results and continue to inform our overall business outlook.

First, our inability to fulfill available demand for our direct metal and consumer product restricted our organic growth during the quarter. Second, our bold investments in healthcare and metals are delivering category growth rates that substantially outperformed current industry growth validating our early and decisive move into this space.

Third, our effective integration of acquisitions is already delivering synergies and expanded margins in our Quickparts and Healthcare businesses. Fourth, our stepped up growth investments that started some 12 months ago are leveling off and our operating leverage is returning.

And fifth our ability to acquire strategic assets affordably and to bring on board the leadership talent required to scale our business provides us with immediate opportunities to deliver greater value and positions us best for sustainable profitable growth.

Back to the financial results, I want to highlight a few drivers that shaped our third quarter results. First, we sold 57% more design and manufacturing printer units than the same period last year. This category includes our plastic, nylon, composite, and metal printers.

Second, our services revenue increased 29% and finally our materials revenue increased 18%.

Some of our revenue shortfall contributed to a higher order book which increased by $14 million or 44% sequentially to $46 million and included $4 million increase in printer orders in hand compared to the second quarter order book, more accurately reflecting the robust demand for our products and services.

What’s more, approximately 70% of our order book was comprised of organic products and services. Our decision to delay shipments of our consumer printers and our continued direct metal printers manufacturing constraints restricted our organics growth rate to 12% and held our total revenue growth to 23% or $166.9 million for the quarter.

We’re very disappointed that we’re not able to monetize all the available demand for our metal printers and capture a greater portion of the consumer printer’s opportunity during the quarter.

Having said that, during the quarter we took decisive measures to remediate this remaining performance gaps, specifically we brought online a second manufacturing line that now allows us to fulfill the increasing metal printers demand and we commenced shipments of our latest consumer printers and believe that the immediate positive user response that this products also received validates our decision to wait until this products were ready.

The decisive and cost effective investments that we made to build and end-to-end 3D healthcare business are delivering impressive top and bottom line results, specifically for the quarter healthcare products and services revenue grew 121% to $37.4 million over the same period last year primarily driven by strong organic growth.

Earlier this year we acquired Medical Modeling adding proprietary virtual surgical planning, and medical device 3D printing expertise. During the quarter, we acquired LayerWise enhancing our capabilities in medical and dental direct metal 3D printed devices and implants.

And also during the quarter, we acquired Simbionix, a leading provider of 3-D virtual reality surgical simulation and training product further extending our reach into personalized medicine.

We’ve build the acquisitions in hand, we can now offer integrated 3D solutions that extends from the training room to the operating room powered by our proprietary digital thread.

Now that we have assembled this strategic portfolio or integrating it into a cohesive and synergistic family of products and services under the capable leadership of one of our most experienced executives, Kevin McAlea.

We believe that our proprietary 3D healthcare solutions address a truly open ended opportunity and provide long term profitable outcomes for our users, patients and our shareholders.

Our bold investments in acquiring and developing proprietary direct metal printing technology contributed revenue growth of 241% in the first nine months of this year compared to the pro forma results over the same period last year.

In fact, we outsold our growing manufacturing capacity in every reporting period since we acquired Phenix Systems and failed to add incremental capacity fast enough to meet rising demand for our metal printers.

Now that we are ramping up production in a second direct metals facility, we expect to be able to meet this rising demand during the fourth quarter and beyond.

We believe that industrial grade direct metal printing represent significant growth opportunities in the manufacturing of flight-ready aerospace parts, functional automotive assemblies, production tire molds and ready-to-use medical devices.

Armed with the complimentary direct metal printing technology that we have acquired from both LayerWise and Phenix we believe that we are best positioned to satisfy this open ended opportunity well into the future.

For the first nine months of this year our effective R&D investments delivered 33% revenue increase from new products to $207 million that was primarily driven by strong adoption of our latest design and manufacturing products.

This investment already delivered 11 new products and were poised to unveil several new design and manufacturing products during the up and coming Euromold 2014 show including new production printers and materials. And with that, I will now turn the presentation over to Damon Gregoire our Chief Financial Officer.

Damon?.

Thanks, Avi, and good morning, everyone. For the third quarter we announced net income of $3.1 million and earnings per share of $0.03 and on a non-GAAP basis we earned $0.18 per share. For the first nine months we increased revenue 30% from the prior year to $466.2 million and reported net income of $10.1 million and earnings per share of $0.09.

On a non-GAAP basis we earned $0.48 per share. For the quarter, we enjoyed a 27% increase in revenue from our design and manufacturing category to $155.2 million. Revenue from our rapidly expanding healthcare category increased to 121% from last year and 36% sequentially.

Consumer revenue decreased to 13% to $11.8 million as a result of our decision to delay launch of our latest consumer products, and despite delayed availability our quarterly consumer revenue expanded some 60% sequentially reflecting the early impact of our latest products that began shipping late in the quarter.

For the first nine of this year products revenue grew 27% to $195.6 million driven by strong placement of our plastic, nylon, composite and metal 3D printers. An expanding customer base and increasing printer’s utilization fueled the materials revenue increase of 29% to $117.5 million.

Services revenue rose 35% to $153.1 million as we expanded our footprint and our range of services. For the first nine months of this year, we continued to experience robust growth in all geographic regions, specifically EMEA revenue grew an impressive 47% in the first nine months.

Asia Pacific revenue grew 39% and the Americas grew 19% over the same period. In the third quarter, organic revenue from design and manufacturing products and services grew 26% despite the capacity constraints for direct metals printers which limited overall shipments from this category. Software grew 23% and materials revenue grew 18%.

We expect our products, materials and software categories to continue to contribute substantially to rising total organic growth rates. Due to the continued shedding of less profitable activities, Quickparts contributed moderately to our organic growth and we expect that to continue for some time.

We expect revenue from printer service to remain relatively flat as we have shifted much of that business to our reseller network. Our decision to delay our latest consumer products decreased our consumer growth rate by 43% compared to last year’s third quarter.

Now that we have begun shipping our latest consumer products we expect this category to contribute favorably and return to more healthy organic growth rates over the next periods.

Sequentially materials gross profit margin rebounded to 73.1% and Quickparts gross margin expanded to 44.7% despite greater drag from concentrated service bureau acquisitions during the quarter.

Now withstanding these gains consolidated gross profit remain sequentially flat at 47.8% on the current sales volume and mix and the residual cost of manufacturing ramp up.

Transitional forces related to our new product launches and production ramp pressured our gross profit margin this year, but set the stage for us to enter next year poised for accelerated growth and gross profit margin expansion.

During the quarter, we continued to make greater R&D investments, and our stepped up SG&A investments including amortization cost related to acquisitions increased our SG&A expenses by 7% sequentially. And even with that, we held our SG&A expenses to 33% of revenue or $152.7 million for the first nine months.

And as you can see on this slide after four consecutive quarters of stepped up investments, our operating expenses flattened and our operating leverage is on an expansion trajectory. Consistent with our previous statements we expect operating leverage to continue it to expand through the end of this year and into 2015.

We generated $8.6 million of cash from operations during the quarter and ended with $377.3 million of cash on hand, our total working capital increased $120.8 million to $534.2 million. During the first nine months of the year we paid $244.6 million for acquisition and venture investments and $17.3 million for capital investments.

We received $299.7 million of net cash proceeds from our equity raise in May and inventory increased to $104.9 million primarily from acquisitions and to a lesser extent from our expanding product lines.

During the quarter, we also entered into a $150 million five year unsecured revolving credit facility with an option to increase the aggregate principal amount availability by an additional $75 million. And at this point this facility remains fully available.

Factoring our third quarter revenue shortfall and outlook for the remainder of the year, we are reiterating our previous guidance for the full year of 2014.

Accordingly we expect to deliver annual revenue in the range of $650 million to $690 million and GAAP earnings per share of $0.18 to $0.28 and non-GAAP earnings per share in the range of $0.70 to $0.80. As a reminder, our guidance is fully tax affected and inclusive of our acquisitions completed to-date.

Our expected blended annual tax rate is 32% to 35% and is reflected in our annual guidance. I’d also like to remind you that this guidance is based on current plans and assumptions and is subject to risks and uncertainties including those detailed in our risk factors in our Safe Harbor Statement, Annual Report on 10-K and other filing with the SEC.

And that concludes my comments. Back to you, Avi..

Thanks, Damon. During the third quarter we added powerful synergistic technologies, domain expertise and complimentary sales channels through several acquisitions that are all in line with our growth initiatives. We expanded our Quickparts capabilities for the acquisition of three U.S.

based regional service bureaus that added to our expertise in aerospace and industrial applications. We substantially advanced our leadership in direct metal 3D printing technologies and the manufacturing of medical, dental and industrial precision parts at convincing scale through the acquisition of LayerWise.

We completed the acquisition of Simbionix, the global leader in 3D virtual reality surgical simulation extending our digital thread in healthcare from the training room to the operating room.

And finally, in anticipation of future growth, we recently list and began outfitting a 200,000 square foot manufacturing facility in Rock Hill, South Carolina that is designed to further expand our manufacturing capacity. We expect this new facility to become fully operational during the first quarter of 2015.

During the quarter, we continued to expand our senior leadership team. We appointed Ted Hull as our Chief Financial Officer effective November 11 of this year. Ted will succeed Damon Gregoire as he transitions to the role of Executive Vice President Mergers and Acquisitions.

Ted brings a wealth of experience in integrating, scaling and fine tuning high growth tech companies. He previously served as the Chief Financial Officer of Fusion-io and prior to that as Vice President of Finance at Cisco.

We appointed Mark Wright as Chief Operating Officer, previously as Senior Executive at EMC Mark will work closely with other senior leaders in our company to scale our commercial and manufacturing operations and to leverage our recent investments further.

We also promoted Kevin McAlea to the position of Chief Operating Officer healthcare, most recently Kevin oversaw the successful development of our direct metal printer line after we acquired Phenix Systems.

Kevin will now be responsible for executing our healthcare growth strategy integrating recent acquisitions into a cohesive and synergistic portfolio of products and services. We promoted Jeff Blank to the role of Chief Development Officer.

Jeff joined 3D Systems through the acquisition of the Xerox Wilsonville engineering team where he held the position of Vice President Engineering. Jeff brings decades of relevant engineering leadership expertise and is now leading our global engineering team of 400 strong working out of 12 R&D locations around the world.

We also appointed Peter Theran as Vice President, Consumer Retail, a former senior executive at Bose responsible for consumer sales, Peter will lead our consumer retail operation and broaden the reach and penetration of the latest consumer offering. We entered the fourth quarter of 2014 with an all time record order book and positive sales momentum.

We have now closed our recent product availability gaps in consumer and metal printers and expect those categories to contribute favorably to our growth in the fourth quarter end.

The same accelerated investments that pressured our short term performance also delivered the most comprehensive portfolio of self developed and acquired 3D product and services available to date.

We believe we are now on a stronger footing as we shift forward towards fine tuning these investments and leveraging them into profitable and sustainable growth. And with that, we will now gladly take your questions. Stacey..

We will now open the call to questions. I’d like to remind everyone that we have approximately 30 minutes for the Q&A session and that your line will be muted after your first question. And we kindly request you to ask one question at a time and then return to the queue, allowing others to participate in the Q&A session.

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 inside the U.S. the number is 1877-407-8291 and if you are calling outside the U.S. the number is 1201-689-8345. Operator, you may now take questions..

(Operator Instructions). Thank you. Our first question is from the line of John Baliotti with Janney Capital Markets. Please go ahead with your question..

Good morning. Dam or Avi, I’m not sure if you can break out the non-recurring margin impact from the way you described this transitional cost launch raising capacity, but the operating expenses as a percent of sales, you pointed out were down versus the second quarter and the first quarter.

Given that you expect continued margin leverage through this year and into next year, can you give us a sense of mix in terms of contribution of where you think its coming from gross margin SG&A, R&D because those suddenly SG&A and R&D are showing good trends back to more normal levels starting in the beginning of the year..

Yes, good morning John. Let me begin and I’ll ask Damon to end and follow-up on my answer and expand on it. I think that we have a few elements here two to consider. One is we’re still getting through the transitional cost in scaling up and concentrated introduction of new products.

And certainly the combined impact of all of that has dragged certainly our systems gross profit margins.

Not withstanding the fact that material gross profit margins rebounded nicely as we expected and as we said previously, and not withstanding the fact that our effective integration capabilities extended our Quickparts gross profit margins even in the quarter that we had a thoroughly high concentration of regional Quickparts acquisitions which typically introduces margins headwinds.

So not withstanding that, in those categories we continue to expand margin nicely and our expectation is that as we complete the ramp up and the introduction of what’s in the pipeline systems gross profit margins will rebound as well and that the mix we expect to improve as well based on what we have teed up.

On R&D and SG&A I think Damon said it very well in his prepared remarks that those have flattened, have been held on as the percentage of revenue more or less constant and as you can see in one of the slides that Damon showed clearly leverage is returning and with expected increase revenue we expect greater leverage in the P&L going into next year.

Damon, I’m sure you’re itching to add to what I had said..

You cover things pretty well. But I will say to answer you John about what the big drivers are.

Avi mentioned the different categories for sure, but continued Quickparts margin expansion will have drive operating -- ultimate operating leverage, because that’s becoming a much more significant part of the business every period both through growth and through acquisitions that we have done and we are very happy with how those margins have been expanding and even in a high time of acquisitions.

Material margins will -- material sales and margins will help expand gross profit margin both from growing and returning to be a part of the mix at the percentages that we would expected overtime and also not just the rebounding of the materials gross profit margin but expansion of that gross profit margin that we had talked about before.

The flattening of SG&A and R&D as a percentage of revenue or even coming down a bit as a percentage of revenue will help, but it’s the big drivers to operating margins ultimately are those gross profit margin expansion opportunities..

Thank you. Our next question is from the line of Jim Ricchiuti of Needham & Company. Please go ahead with your question..

Thank you. Good morning.

I guess you are about 10 months into the acquisition of the Xerox engineering team and I wonder if you could talk about the progress you are making in that area and what broadly is the new product development that you have underway in industrial grade printers, particularly in light, I think of the competitive developments we’ve seen?.

Well Jim, I think that in all material respects, when all is said and done, the wisdom of us taking earlier and bolder decisive actions and making investments before the [Tea leaves] were readable is going to continues to bodes well for us.

So, we made the Xerox Wilsonville investments as you said about 10 months ago in anticipation of not just existing competitive development, but new competitors entering the arena and we felt that we had a unique if you will once in a decade opportunity to acquire an assembled team that spend decades mainstreaming and simplifying a very complex 2D full color printing technology productizing it in a way that will faster, simpler, more affordable and with increased user satisfaction.

That same team now is fully integrated in fact we’ve recently promoted the head of that team Jeff Blank to head our global engineering development team is our Chief Development Officer and that team is working and is involved with the development of a series of new product that you will see coming onto the market throughout next year.

They are plugged into all of our adjusting projects, our color and multi materials and composites and they are obviously leading our developments in high speed continuous 3D printing which we believe will completely shift the landscape in terms of what’s possible to manufacture at convincing scales with functionality and precision, the kind of functionality and precision that is relevant and pertinent to aerospace and automotive and medical device and consumer electronics at convincing scales.

With all that said Jim, we are also continuing to advance primarily as we enter Euromold season, we’re continuing to advance our current professional design and manufacturing systems and you can expect to see several significant announcements in connection with Euromold of the expansion of our SLA, SLS and direct metal platforms and materials and software capabilities..

Thank you. Our next question is from the line of Bobby Burleson from Canaccord Genuity. Please go ahead with your question..

Hi. Thanks for taking my question. I guess this one for Avi. Just looking at the organic growth certainly there was a deceleration there in Q3. And I’m wondering what gets us back to that kind of 20 plus percent, it looks like you’re getting towards that maybe in Q4.

But the view on organic growth seem to shift a little bit during the quarter last quarter, I’m wondering what the cause of that was and what gets us back to a nicer trend on the organic revenue growth going forward? Thanks..

Well, I think, Bobby, that when we look at our organic growth we have to look at organic growth in which category specifically, because you know for example as we said in our opening remarks this morning, we sold 57% more design and manufacturing units in the quarter than we did a year ago.

If you look at the entire design and manufacturing category it organically grew by 26%, software organically grew by 23% and materials organically grew by 18%. What was hard for us to do is to make up the shortfall that we have from our deliberate decision to delay consumer, consumer actually contributed negative to organic growth.

It was negative 43% contribution. Although I have to add that sequentially consumer from the second to the third quarter just on the tail end of the quarter commencement of shipments of the new product consumer already improved sequentially 60% quarter-over-quarter, its early days. We expect much greater contributions in the fourth quarter.

Our sales services primarily related to printers are holding flat and that is as part of a deliberate decision to basically pass most of that growth opportunity through our extending reseller network and given them an incentive to stay engaged and involved with resellers in the field.

And Quickparts has only grown 10% organically for the quarter and this is the continuation of us integrating and shedding less profitable activities for the full nine months it has grown much nicely, much nicer organically and we expect that it will take us several more quarters of slower growth from Quickparts before we get it up to a higher level.

Finally, remember that a lot of our organic growth is sitting in our order book and some of it is directly related to our metals capacity. But as Damon said in his opening remarks this morning about 70% of what is currently sitting in the order book is organic. Our organic growth improve somewhat sequentially, it was about 10% in Q2.

Its up to 12%, but its clearly understated by the current mix and by the significant shortfall that we had some of which is clearly sitting in an order book that extended substantially on as sequentially basis and hauled some of the yet realized organic growth.

Our expectation, Bobby, is that in the same way that we have 26% organic growth in design and manufacturing and 23% organic growth in software and so forth.

The rest will come up to the level of what this industry will support and it will come up as we remediate it now our performance gaps and shortfalls in direct metals and in consumer, which we expect to recover nicely in the fourth quarter.

And I will also add to that that we have some categories that greatly outperformed even the most optimistic industry growth rates like our healthcare which has been growing by 121% primarily on organic growth of about 79%..

Thank you. The next question is from the line of Ben Hearnsberger with Stephens. Please go ahead with your questions..

Hi. Thanks for taking my question. Avi, can you speak to kind of how quickly you think you can take new metals capacity up to full productivity.

And if you are new line at a 100%, what type of revenue opportunity this gives you on an annual basis?.

We believe that this point in time, we are ramping in direct relation to existing demand. We clearly believe that we can --we have a second line fully operational, keep up with demand for the foreseeable future.

We have been guiding for the year to be somewhere in the range I believe of $25 million to $50 million and we still that we will finish closer to the upper end of that guidance as we exist a year. As to the potential for next year, we will deal with that when we provide our 2015 guidance in connection with the full year report.

But I think the fact that we were able to for first nine months grow this product by 241% based on last year’s pro forma revenue even with the shortfall factored in should stick volumes about the kind of potential that this product line hauled for the future.

Add to that, the second strategic investments that we’ve made with LayerWise which also brings proprietary complementary direct metal technology to the table and we believe that that will substantially enhance our portfolio going into 2015.

And as we said previously and I’ll reiterate this morning, we plan to unveil Euromold’s 2014 a larger direct metal machine that we are going call the Pro X400, we will provide more details on it in the coming days, and that will further expands the attractiveness and open new applications for our direct metal platform as we go forward..

Our next question comes from the line of Jason North of Jefferies. Please go ahead with your question..

Hi. Thank you. I was wondering you made several acquisitions in the quarter for smaller service bureaus, I was wondering if you could with the organic growth for services overall been fairly flat and just what your thought process is for this acquisition strategy? Thank you..

Well our thought process is that we are consolidated and adding coverage in regional capabilities.

We believe that ultimately Quickparts represents a very significant profitable growth platform for us not just in our ability to supply customers with what they need and create more meaningful and deep long-term relationship with the customers, but Quickparts has been our most powerful demand generation platform for all of our expanding design and manufacturing portfolio.

Quickparts has significant ecosystem of professionals that are doing business with us everyday of the week the world over and Quickparts continue to represents one of the most attractive growth opportunities with expanding margins.

The natural of consolidation and integration is such that given that we like to do it in a way that’s accretive and profitable, we are shedding unprofitable growth and replacing it with profitable growth.

When you do it and in every period you continue to add acquisitions the underlying net progress is not as clear as it would be had we ceased to make those acquisitions.

And I think that what you should really take note of is that even in a period that we had a high concentration of acquisitions we still manage to expand our gross profit margin which for that particular business right now is our primary objective to fully integrate, to put it all on the same platform and to continue to expand margin.

We have done it really, really well and we expect that that will bode well for us in the future.

I also want to point out to you that unlike some of the other players in this space, we are vertically integrated all the way to their materials in the systems with our Quickparts integrations which gives us we believe a significant long-term and scalable advantage.

In addition to that, we are providing is an integrated business unit, the works off our proprietary [Q-Soft] platform.

And finally that we expect to continue to increase our Quickparts gross profit margin further as we continue to increase utilization, get all the synergies out of the recent acquisitions and complete their shedding of the less profitable activities. We think that this is a strategy that had served us extremely well.

We were the first to do it before it’s became popular in mainstream. We’ve done it much more affordable than others and we will go the distance..

Our next question comes from the line of Wamsi Mohan with Merrill Lynch. Please proceed with your questions..

Yes. Thank you. Good morning. Can you comment on the organic growth in the fourth quarter, when we think about it in terms of ex-metals and consumers especially given your comments on very strong quarter-on-quarter growth rates for those two categories. And those two combines still only account for less than 20% of your business.

So when you look at your guidance change for the full year and relative to sort of the $20 million also shortfall that you experienced in the second quarter. It seems that the third quarter excuse me, it seems like the fourth quarter numbers are moving even further down, despite the fact that you’re ramping all this capacity.

So I’m just trying to understand what is the actual organic growth rate of the core business ex the metals and ex consumer? Thank you..

So, we have given it to you for the third quarter on slide 17, right. And when you look it you can see design and manufacturing 26%, software 23%, materials 18%, and so forth. Remember Wamsi that we can’t make in a single quarter the shortfall of the first nine months from our consumer delays and from our capacity constraints in metals.

And since we are not given quarterly guidance we adjusted annual guidance. In fact in terms of real growth rate, we believe that what we see in design and manufacturing and in software and in material clearly reflects and projects the core business growth rate.

We have seen real strengthening of design and manufacturing primarily laid by our SLA and SLS printers. We see a real growth in materials that is organic and we expect that once we begin to benefit during the first quarter from available consumer product that will contribute to organic growth.

And of course the ability to shift book metal orders will also contribute to it. And will restore our organic growth to original expectations..

Our next question comes from the line of Patrick Newton from Stifel. Please go ahead with your question..

Good morning. Thank you for taking my questions. This is [Robert] now for Patrick this morning.

A specific question on really as we saw last week where you recently announced a 3D printer value bundle offer consisting three different PolyJet printers and to our knowledge is first that you’ve ever discount your products, can you discuss the strategy behind what drove the decision of discounts, should we expect to see discount will become more integral part of your sales strategy.

And is this discounting dues give any competitive dynamics in the market? Thank you..

Okay. Well, a couple of clarifications, we do not sell PolyJet printers, that must be somebody else that [indiscernible] the package that we put together if you study very carefully actually doesn’t offer any additional discounts to what is typically available.

These are incentives to allow people to actually purchase the complete capability that they made for their design and manufacturing needs in a company. It’s a very popular way for customers today to purchase.

And the combination of the three printers in question that are in the package even after the incentive package to purchase them as a package its still accretive to our average selling prices and it is extremely well positioned vis-à-vis the price of a single unit of competitive offering.

It is central to our belief that there is no one printer and there is no one print engine that can solve all of our customers needs.

Its at the heart of our strength which is seven print engine and the ability to match the right tool for the right job and it is very empowering and the [mortising] to our users to be able to get the complete tool box of everything that they needs for the design and manufacturing requirements in one package and we’re actually excited that we could offer especially..

Your next question comes from line of Ken Wong of Citigroup. Please go ahead with your question..

Hi, guys.

So we’re nearly half way through the quarter, can you give us some color on the early demand trends in the consumer space and should we be expecting a meaningful sequential increase here just given that there is probably pent-up demand from the delays?.

Well, clearly you can design not just from our prepared remarks but what you can read on blogs and message boards that the early reception for our Cube 3 and Cube 12 have been phenomenally positive.

We believe that we have hear a couple of products that represent a giant lift versus the competitive landscape and more importantly matching what customers are really looking for in a plug-in and play capability for the consumer and in a professional capability for the engineers desktop.

Even with just limited late third quarter availability we have seen a sequential uptick in consumer revenue of about 60%. So clearly with some of the pent-up demand in the order book and with shipments now in full swing we expect to see greater contribution from our latest consumer products in the fourth quarter.

And by the way well into next year we’re just beginning. We have lot of activities activations and promotions for our consumer product line.

We just hired a very experienced senior executive from Bose, Peter Theran to help us lead the extension of our retail and consumer activities not as we believe that we succeeded in delivering world-class products. And that is only the beginning of what we believe will become a much more meaningful part of our business going into 2015 and beyond..

Our next question comes from the line of Ananda Baruah with Brean. Please go ahead with your question..

Hi. Thanks guys for taking the question. Good morning..

You don’t sounds like Ananda..

Yeah, I know, I know. [indiscernible]. Hey, on the operating leverage potential for next year, I believe that before the primarily 3Q results the view is that there is potentially the ability to get the operating margins to the mid 20s existing the year.

And I guess just sort of piggy backing off of the previous response you guys gave to the up leverage drivers, how much of the driver of potential operating leverage is actually the revenue dollar amount in the content of what your OpEx plans are -- I guess versus what the growth might be.

Now that we’re starting from a lower rep dollar base going into next year and I’m really just trying to get a sense of if the leverage potential is still somewhat similar to what you guys previously believe it could be? Thanks..

We definitely think our operating leverage potential is over time is where we – is impacted where we had it. Obviously revenue generation or increase revenue as a portion of that, but that’s also a higher gross profit margin in the categories we talked about the question earlier.

We do expect that the operating expenses as a percentage revenue continue to flat and actually decrease as a percentage of revenue, right now they’ve been flat as a percentage of revenue. But the big operating margin increases are really related to gross profit margin expansion and the categories I talked about earlier..

And I think that we need to bare in mind the few things here. We decided to step up our investments in operating expenses about four quarters ago anticipating that we would need to build that organizational capabilities infrastructure and manufacturing capacity.

We are at the tail end of our investments and we have done it while in our remaining profitable generating free cash and doing it in a way that is already indicating the return of leverage. Clearly with increased revenues and expanded gross profit margins you see even greater operating margin leverage.

But it’s important to remember that as a percentage of revenue we believe that we kind of peak in absence unusual events like large acquisitions on the comparable basis we see our operating expense is not just flattening, but as a percentage of revenue even moderately declining.

You put all that together, we’re looking at a horizon with an expectation for healthy return of leverage in a way that we believe has remained intact..

Our next question comes from the line of Amit Daryanani with RBC. Please go ahead with your question..

Thanks a lot. Good morning, guys. Just a question I have was around inventory levels that you are on 3D Systems and the channel up. In the past you’ve talked revenues is a percent of resell inventory is about 8% to 10% in the first half of the year.

Could you just tell us what that number was for Q3 and broadly how do you think the inventory levels at the channel at 3D right now? Thanks..

We have – when we file our Q this morning that will be there, it is 9% for the quarter, which is consistent with the levels that we expected and we have reported in the past. That number could go up or down a percentage point in any period.

We still do not have large inventory levels at resellers and a lot them again still operate in the same way we’ve dropped shipment from us or other areas where they’re not taking inventory until they have sales.

On interesting area though is because of our new products and their demand, we’ve been attracting larger more distributor type instead of just resellers.

Those might take a little bit inventory in order to fulfill there sub-distributor or sub-reseller plan, but that’s a very validating point to us that actually larger distributors are looking at us and able to move these products also..

But the simple answer is, it’s really hasn’t moved at all. It’s remained at about 9%, that’s what you will see in the Q and that is been thoroughly consistent for many, many quarters now. So, steady as she goes..

Our next question is from the line of Ajay Kejriwal with FBR. Please go ahead with your question..

Thank you. Good morning. And obviously a lot of ground covered here. So Avi, maybe a big picture question on healthcare with all the acquisitions you perhaps haven’t unmatched portfolio.

So maybe just talked about that, do you have most of the pieces that you want it and you can now focus on just driving organic growth or do you think that are still acquisition opportunities as you think about that healthcare market?.

Yeah. Well, I would only slightly correct what you said; you said you perhaps have the most differentiated portfolio. We think that we have the only portfolio that takes you all the way from training room to the operating room with leading technology.

And so if you look at this and we showed in this mornings presentation on one of the slides, the healthcare revenue growth, bear in mind that that is without any material contributions yet from LayerWise and Simbionix that were added late enough in the quarter that they did not make material contributions to what you see here.

You can say that we have been over many quarters delivering very impressive top and bottom line results that with the addition of Medical Modeling Simbionix and LayerWise we really have the only end-to-end expertise that can allow you to train, simulate, rehearse with patient specific data, plan virtual surgical procedures, print all the instruments and the implants and carry out with improved outcomes in the operating room.

This is what we call the digital thread and what you see is you see a 121% growth in Q3 over last year without any meaningful contributions yet from Simbionix and LayerWise, 79% of it was organic, the rest came from primarily Medical Modeling. You see a 36% sequential increase and you see a 68% CAGR there. We think that this is still early days.

We see patient specific healthcare or patient specific medicine is truly an open ended opportunity, its one of the core areas that we invested in decisively and well ahead of the crowd and we believe that that will bode extremely both in terms of topline and bottom-line contributions in the coming years, it’s another part of our decisive early moving, move or advantage in key verticals and we see this as a very similar story to what we intend to do with direct metals..

Our next question comes from the line of Holden Lewis of Oppenheimer. Please go ahead with your question..

Great. Thank you very much. Just wanted to touch on the organic growth driver page again, I appreciate by the way you giving us sort of the organic pieces for those six, I hope you continue doing that.

But for design and manufacturing, I guess I’m trying to get a sense of is I assume that that does include the metals, you talked about how strong the metals growth did year-over-year even if its not quite where you expected to be, but if the metals are not included in that 26% organic, you know there been obviously the design and manufacturing piece ex metals would be quite a bit lower than that I suspect and quite a bit lower I guess than what most industry people think, the industry is growing at and I just wanted to get some color maybe of the design and manufacturing sector excluding the metals?.

So what we also said Holden is that actually our plastic printers are growing very, very healthily and in fact we shared another key point and that is that design and manufacturing printer units increased 57% and that was aided by a very strong contributions from our SLA and SLS printers. We’ve many, many customers placing orders for multiple units.

And on the flip side Holden had we been able to shift all the demand for our – all the book demands for our metal systems and had we not experienced the consumer product availability delays we wouldn’t be having a conversation about our organic growth rate in total. So it’s important to bear that in mind as well..

Thank you. Our next question is from Sherri Scribner of Deutsche Bank. Please go ahead with your questions..

Hi, thank you. I just wanted to get a sense of how, what types of growth rates do you think the industry is growing at and what types of growth rate you expect going forward and then related to that with HP entering the market what do you think the impact is and how do you think that changes growth for the industry? Thanks..

Well, let’s start by saying that you know we see the HP announcement as enormously validating to us and personally we think it’s a net-net positive.

We’ve been expecting their announcement actually for quite sometime it’s been delayed multiple times and the question is whether or not their technology can find a sweet spot between part performance, material cost, unit cost and speed.

What we’ve seen from them so far is more of a technology announcement or a technology concept looking for sweet spot.

We don’t think that it in anyway impacts our ability to continue to differentiate and drive adoption in [rail] manufacturing applications that include aerospace, automotive, healthcare consumer electronics and the at home demand, we really don’t see what they announced as being flight-ready, or fitting under the hood of automotive companies or in people bodies anytime soon.

And so, we wish them a great deal of success, we respect their capabilities and we continue to differentiate and advance our business model in key verticals and judging by the category of results that we shared with you this morning in healthcare and in direct metal etcetera, we think that we are executing externally well..

Thank you. The next question is from the line of Jay Harris with Goldsmith & Harris. Please go ahead with your question..

Good morning. You’re building a very powerful enterprise and I wondered whether the any of the financial dynamics of the business would change, as an example comparing the fourth quarter to the third quarter on a $16 million increase in revenues you had a $25 million increase in inventories.

What can we expect in terms of the capital employed and inventories relative to the size of the corporation going forward?.

Yeah, Jay we are building a very powerful and I would add differentiated enterprise and we’re doing it in a way that is been profitable and responsible in the sense that you know we’ve made the investments and we burdened or pressured our P&L this year to do it, but we stayed profitable and generated free cash throughout the year while doing it and most of that is now behind us.

As it pertains to inventory specifically, it’s true that our inventory increased primarily on the addition of acquired products, primarily in this case Simbionix, which is a product company and has increased our inventories sequentially over the prior quarter and to a lesser extent the support of all the new product that we have added to the portfolio, the second manufacturing lines for metals, the new consumer product etcetera.

Going forward, again, absent significant acquisitions that come with inventory, going forward expect inventories to level off and to just incrementally fluctuate in support of portfolio additions. And Damon, I don’t know if you want to discuss working capital in general..

Well I just want to make one more comment on inventory. The inventory gains we can make with our let’s call it core inventories or existing inventories don’t just relate to decreasing amounts on hand, they also relate to efficiencies and steps in supply chain with the new products.

So as we start with these new products the cost is higher until we get a certain volumes. So in the future, we believe that even with the same amount of inventory or inventory cost come down. And that was the big point I just wanted to make..

It’s a good point..

Thank you. At this time, we have reached the end of our allotted time for question and answers this morning. I would like to turn the call back over to Stacey Witten for closing remarks.

Stacey?.

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 Web site, www.3dsystems.com/investor..

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