3d systems corp (ddd) q1 2019 earnings call transcript
Image source: Motley Fool3D Systems (NYSE: DDD) CallMay q1209 earnings. 2019, 4: 30. m. ETContents: ready to speak: Welcome the operator\'s 2019 conference call and webcast in the first quarter. ( Operator instructions) Please note that this call is being recorded. I will now hand over the meeting to your moderator, Stacey Witten, vice president of investor relations. You may begin. Stacey Witten -- Good afternoon, vice president of investor relations and financial planning and analysis, welcome to the 3D system conference call. I\'m Stacey Witten. Joshi, our President and CEO, joomesh and I are on the phone; John McMullen, executive vice president and chief financial officer; And chief legal officer Andy Johnson. The webcast section of this call contains the slide presentation that we will refer to during the call. Those who wish to visit the slide section of this presentation can do so in the Investor Relations section of our website. Attendees wishing to raise issues at the end of the meeting related to the matters discussed in this conference call should use this slide and the phone number provided in our press release to call today. For those who have access to the streaming part of the webcast, please note that there may be a delay of a few seconds and you will not be able to post the issue over the network. The following discussion and responses to your question reflect only the views of management and will include forwarding As described on this slide. The actual results may vary a lot. More information on factors that may affect our financial results is included in today\'s press release and in our submission to the SEC, including our recent annual report on Form 10K. In this call, we will discuss some non- GAAP Financial indicators. In the slides that come with our press releases and webcasts, you will find out about these non- GAAP measures, including reconciliation of these with comparable GAAP measures. Finally, unless otherwise stated, all comparisons in this appeal will be compared with the results of our comparable period in 2018. Now, I am happy to transfer the call to our CEO Joshi joomesh. VJ? Vyomesh Joshi -- President and Chief Executive of Stacey thank you Good afternoon, everyone. Revenue for the first quarter was $0. 152 billion, down 8% from 2018. Excluding large enterprise customer orders in two periods, total revenue fell by 5%. In the first quarter of 2019, we were on- Demand manufacturing due to business adjustments related to export compliance and outsourcing. In addition, demand in the European auto industry declined this quarter. In the fourth quarter of last year, we started shipping three new DMP products, DMP Flex 350, DMP Factory 350, including powder management unit accessories and DMP Factory 500. In the first quarter, due to the more stringent use of the DMP Factory 350 system, we found a technical problem with the powder management department, resulting in lower reliability and robustness than our standards. Therefore, we stopped the shipment of the powder management unit until the technical improvement was completed to ensure the quality and repeatability in a larger volume and for a longer period of time The customer uses the term. Due to the delivery time of metal printers, revenue for the first quarter was negatively affected by around $8 million. In addition to the problems unique to the powder management department, we have increased the metal revenueover- Our DMP printer platform is still a highly reliable high High quality 3D printer. Despite the challenges in the first quarter, sales of printer units increased by 90%, driven mainly by figures 4, SLA and DMP sales. We are pleased with the continued strong growth of printer equipment in the field of metals and plastics. Our new products are well received and we expect revenue from these products to increase throughout the year, especially later this year when we introduce additional materials for plastic printers. Gross profit margin 43. Due to the decline in revenue and production in the first quarter, 2% was negatively affected by insufficient absorption of indirect costs. We reduced our operating expenses in two years. over- Year and order. And our actions in investmentto- Market, IT, and compliance are not yet complete, and we are improving cost structures in parallel by improving productivity and efficiency and streamlining organizations in multiple areas. In the first quarter of 2019, we reportedGAAP lost $0. $09 per share, GAAP loss of $0. 22 per share. After John provides more details on quarterly results, I will discuss our actions to improve our performance for the rest of the year, including accelerating cost cuts. But first, let me hand it over to John to discuss our 2019 issue. John? John McMullen -- Executive vice president and chief financial officer, VJ Good afternoon, everyone. In the first quarter, we reported revenue of $0. 152 billion, down 8% from 2018, including 3% of the negative impact of foreign exchange. The gross profit margin of GAAP is 43. Compared to 46 2%. The first quarter of 2018 was 9%. GAAP operating costs fell 9% to $87 million. We reported a loss of $0 for GAAP. In the first quarter of 2019, $22 per share, compared with a loss of $0. 2018 19 per share. We reported a non. GAAP lost $0. $09 or $10 per share. The first quarter of 2019 was 1 million, notGAAP lost $0. $03 or $3 per share. The first quarter of 2018 was 4 million. While we expect adverse effects on order times for large enterprise customers throughout the year, we believe our growth momentum and opportunities will not change. We continue to expect printers, materials, healthcare and software to power the long-term development. term growth. Printer sales rose 90% in the first quarter, but credit revenue fell 29% to $28 million due to a mix of sales prices, driven mainly by order time for large enterprise customers. Printer unit sales, revenue mix and overall average selling prices may continue to fluctuate as we increase sales of new products at multiple prices ranging from $5,000 to $1 million. Material revenue fell 3% to $41. First quarter 4 million. The lag time between printer unit sales and scaling material utilization is typically two to three quarters. As we discussed last quarter, we are also experiencing a decline in legacy materials, faster than materials related to core and new systems. We are confident that these trends are beginning to emerge this year and that we continue to expect material growth rates to increase in the second half of 2019. There has been an increase in health care services and simulated revenue, but the impact of big customer order time has offset these increases, with total health care revenue down 5% to $50 million. Excluding large corporate customer orders per year, healthcare revenue grew by about 18%. We continue to be pleased with the overall demand trend for healthcare, including our next dent 5100 3D printer. Software revenue fell 8% to $20. The first quarter was 8 million, mainly due to a decline in revenue from Cimatron products. While quarterly performance may fluctuate, we are still looking forward to the long-term growth of the software and are taking action to increase the growth rate of the software and enhance our software portfolio. On- Demand services revenue fell 12% to $22. 6 million this quarter. We expect that business adjustments related to export compliance and outsourcing will have an adverse impact in the second quarter. In the first quarter, we encountered additional weaknesses in our automotive customers in Europe. We report a gross profit margin of 43. 2% in first quarter of 2019, due to the absorption of supply chain overhead costs associated with the decline in revenue and production for the quarter, a decrease of 370 basis points, as well as the impact of intra-category sales portfolios. Non- In the first quarter of 2019, the gross profit margin of GAAP was 44. Compared to 47, 2%. 1% last year. We continue to drive supply chain optimization, manufacturing efficiency and process improvement, but we expect the medium-term gross profit margin to decline as inventory reduction actions and production facilities decrease The remaining 40 s this year. GAAP operating costs for the quarter were $87 million, down 9% from 2018, including a 6% reduction in SG & a costs and a 15% reduction in R & D costs. Non- GAAP operating costs for the first quarter were $72. 9 million, down 8% from the first quarter of the previous year, down 4% in a row. Compared with the 2018 quarter Gaap sg & A costs fell by 5% to $51 million, the cost of compensation was reduced, and the Commission for bad debts and construction costs were partially offset by higher legal costs. Non- Gaap r & D costs fell 15% to $21. 9 million, as we focus on the development of software materials this year, the salary cost and research and development materials are lower. We believe that we have gone beyond the significant investment phase needed to start turning the company around and that our focus this year is on reducing costs and improving profitability. We used $15. Operating cash for the first quarter was 2 million. We ended the quarter at $157. 3 million of unlimited cash on hand. The use of cash for this quarter is affected by the following factorsthan- Expected results and higher inventory. While cash use and generation will continue to fluctuate during the following periodsto- During the period, we expect to generate organic free cash flow in 2019, as we significantly reduced our inventory and reduced our capital expenditure at the end of the year compared to the previous year. With this I will transfer the phone back to VJ. VJ? Vyomesh Joshi -- Thank you John, president and chief executive. We focus on improving the cost structure and continue to improve the organization and operations to drive profitable growth. We have taken action to drive the cost of the previous plan, and we will take more measures in the coming quarters, in order to reduce the total cost of 2019 from $10 million to $15 million, we originally planned this year. We will withdraw from the entertainment business of 2019 in the first quarter, which will reduce our income by about $12 million this year, but will improve our overall profitability. We are moving to two major businesses within the company: one business that includes plastic and metal hardware and materials and on-demand services; The second is software and medical workflow solutions. We believe that this improvement in our business structure provides synergies within each group, enabling us to make better use of resources. With this, the metal will be developed under the leadership of Phil Schulz, and healthcare will be developed under the leadership of Radhika Krishnan, which enables us to streamline the leadership team and organization, In addition to more aggressive cost action, we expect sales on the new platform to continue to grow, overall sales will continue to grow, and market share will continue to increase. Due to unit sales last year, we expect material growth to improve in the second half of 2019, and we plan to launch new plastic materials this year, which we believe will help drive economic growth later this year, 2020. We expect to continue to increase sales of DMP printers this year and make technical improvements to powder management. Last month, we launched an online portal for on-demand services. The portal is standardized and exported automatically- Related processes, we believe that these processes help us inDemand service. With the combination of software and healthcare, we believe we are further expanding the opportunities for our workflow solutions to accelerate growth. With the breadth and strength of our portfolio, we continue to have great market opportunities, and we continue to work to implement our strategy and drive for the long term Long-term profit growth. With this I want to turn the phone back to Stacey, who will open the floor for questions. Stacey? Stacey Witten -- Vice President of Investor Relations and Financial Planning and Analysis Let\'s start asking questions now. ( Operator instructions) As a reminder, please point all questions to the conference call section of this call. The phone number is provided again on this slide. If you call within the United StatesS. , Number of 1-877-407- 8291 if you call outside the US, the number is 201-689-8345. Question and Answer: Thank you, operator. At this time, we will have a question. and-answer session. ( Operator instructions) Our first question today is from Ananda Baruah at Loop Capital. Please continue. Ananda Baruah --Loop Capital -- Good afternoon, AnalystHi. John McMullen -- Executive Vice President and Chief Financial OfficerAnanda Baruah --Loop Capital -- John, analyst. Thank you for answering this question. Yes, there are only two, if I can be quick, so just clarify the revenue dynamics and you will see a slowdown in the weakness of the car. VJ also mentioned the order time of large enterprise customers several times. Then, through the dynamics of powder management with metal. So it sounds like some--so just -- Here, what I want to say is the timing of the order, does that mean those orders will come back? Do you think this is not secular or structural? Is this different from the softness of the car? So if you can put these in, then, how do we think about powder management? Thanks. Vyomesh Joshi -- President and Chief ExecutiveSo I think -- Yes, corporate customers are not worldly things. It\'s about how they build factories to really support growth. The customer business is doing very well. My point is that basically the order- How they will enter this quarter will be different from the way they build their factories. Now, we do see that it is still a headwind for 2019 people, but it is not a secular problem. This is a technical problem in terms of metals. We understand the core causes of technical issues, we are working on several solutions and we will be able to actually ship as I think quality/reliability is our top priority, I don\'t want to ship until we meet the quality and reliability standards. Ananda Baruah --Loop Capital -- Do you know when it will be corrected? What do you want us to think? Vyomesh Joshi -- The president and chief executive felt that we should consider this issue in the second half of the year because I wanted to make sure we tested our solution and we would be able to roll it out in the second half of the year. Ananda Baruah --Loop Capital --AnalystOkay. Got it. Then follow up quickly- Well, John, given that you\'re speeding up some of the cost action, how should we now consider the level of operating expenses, and then that\'s it for me. Thanks. John McMullen -- Executive Vice President and Chief Financial Officer I think from the first quarter to the second, I think a little bit of a linear upward, partly driven by our plan for the second quarter, but also because of our annual salary increase, we launched in the second quarter. So, maybe a bit up, but for the rest of the year, as we continue to deduct costs from the dimension, it\'s pretty flat overall. Vyomesh Joshi -- The president and chief executive believes that it is important to understand that we are now trying to really organize the company with the right business model, which will also be the driver of cost reduction. This is very important for the company. I think we are a great platform. We will start to see material growth in the second half of the year. We need to study the cost structure now. Ananda Baruah --Loop Capital --AnalystGot it. Thanks a lot. John McMullen -- Thank you to executive vice president and chief financial officer. The next question comes from Hendi Susanto of G. Research. Please continue. Hendi Susanto --G Research -- Good evening, VJ and John. John McMullen -- Good evening, executive vice president and chief financial officer. Vyomesh Joshi -- Good evening, president and chief executive. Hendi Susanto --G Research -- Analyst John, you mentioned that the gross margin will be in the medium term. The balance for the whole year was 40%. Could you please share your assumptions about gross margin for products, materials and services? I wonder if the weak gross margin is due to the printer gross margin as we expect growth to recover in the second half of 2019? John McMullen -- Executive Vice President and Chief Financial Officer The lower profit margin in the first quarter was actually driven by the hardware side of the business, and we-- As we mentioned in the prepared materials, due to the mixing of the business and where production is not, we do have absorption problems in our own internal factory. When we look forward to our future forecasts, we say the basis of mid For the rest of the year or so, people in their 40 s assume that we will still see some of this in our internal factory. In the first quarter, the gross profit margin of raw materials was 70%. So, as VJ talked about with growth in the second half of the year. This is a good sign for material profits, but we will stick to the middle In our 40 s until we see something different. Vyomesh Joshi -- We are dealing with a balanced game because we want to reduce inventory significantly, the president and CEO said. When you do this you are managing the production of our products and this is the utilization rate we want to do because we want to make sure we reduce our inventory and really start creating cash balance games for the company, because what you have to do is really reduce production and utilization is also important. That\'s why we\'re trying to get the company into the right place from the portfolio, which is the right inventory we can manage. Then, again, the profit margin is 70%, and then the material to achieve growth in the second half of the year will enable us to really manage what I said about this shift. Hendi Susanto --G Research -- Then analyze the second question, how should we look at the trend of ASP and product mix, just as your unit growth rate is high, but the printer revenue is still declining. I would like to know if there are some product portfolios-. Vyomesh Joshi -- President and Chief Executive There are two things. Here, when you have the corporate customers we are talking about, the price points for these units and metals are very different compared to when we ship, the units are up 90%, many of them are number four, and low-end markets like MJPs. But this ASP number will be very different when you have metal and enterprise customers on SLA products. So I think we need to get things sorted out. Then, as John often talks about, because we have a range of products from $5,000 to $1 million, it\'s hard to say where ASP will land, but we can say with confidence that we will see- Continue to see unit growth, which means we have gained a share in the market --- Market share per unit. Hendi Susanto --G Research -- Thank you, John. Thank you, VJ. John McMullen -- Thank you to executive vice president and chief financial officer. Vyomesh Joshi -- Thank you, president and chief executive. The next question comes from David rezick of Suzanne Financial Group. Please continue. John McMullen -- David, executive vice president and chief financial officer. Vyomesh Joshi -- David, president and chief executive. David Ryzhik -- Financial Group. -- Thank you very much, analyst, for answering this question. So I just want to clarify the $8 million of the shipping time for the metal printer. This has nothing to do with corporate customers. I believe what is relevant to my corporate client is that you have not really provided any estimates as to whether or not these orders will come back? For the rest of the metal printers, should we assume that the delivery time for the second quarter is $8 million? Vyomesh Joshi -- President and Chief Executive So two questions can be answered. You\'re right. The $8 million metal printer has nothing to do with corporate customers. The corporate customers we talk about are plastic customers, so this is the first thing. As for the metal problem that all problems were solved in the second quarter, it will not happen. This is the real thing we will continue to see in the second quarter. Then in the second half we will be able to post what I said about the technical issues. Then, from the seasonality of the enterprise customer order model, they are the order units. Just when you are building a factory, you will order more equipment in certain quarters and you will not. So I think that\'s the real headwind we have. No, they didn\'t order. Just depending on how they will build the factory, their model will be different. David Ryzhik -- Financial Group. -- Analysts understand. Thank you. Then, can you provide some insight into some of the lower material utilizationpriced units? The (inaudible) Is Figure 4 a price of 20% to 30% per year? Can we think about it anyway? -. Vyomesh Joshi -- President and Chief ExecutiveWe are not -- Yes, we don\'t. But let me be very specific. We are involved in the industrial sector, not in the consumer sector. This is a very important difference. Second, these products- For example, dental, I can talk about dental specifically. Dental Products in figure 4 are in great use. I won\'t give you the exact number, but there we can build an annuity on the material-very -- Obviously, we can build a very profitable business on the basis of the dental material annuity. Again, we absolutely believe in the second time- In the second half, it means the second half. - From 19 to the third and fourth quarters of 20 years, you will see positive material growth. I have been very (inaudible). David Ryzhik -- Financial Group. --AnalystGot it. Thank you very much, VJ. Vyomesh Joshi -- Thank you, president and chief executive. John McMullen -- Thank you to executive vice president and chief financial officer. The next question comes from Wamsi Mohan of Bank of America Merrill Lynch. Please continue. Vyomesh Joshi -- President and Chief Executive of Wamsi. John McMullen -- Executive vice president and chief financial officer of Wamsi. Wamsi Mohan -- Bank of America Merrill Lynch. --AnalystHey, VJ. Hey, John. Thank you for answering the question. So you have made several comments on how you expect a pick-up in material growth in the second half of the year. Can you tell us your material income? How much of this is related to the old base of decline and the area of growth, because you seem confident that the crossover will happen soon here, can you give us some feeling about how dependent it is During the period printer sales, may also be a part of the decline compared to the growth area and scale, or even a rough percentage? Vyomesh Joshi -- President and Chief Executive So I can\'t give you the percentage, but let me give it to you-- Basically, we think about the way materials grow. We have traditional printers, they are old printers, and usage has basically declined due to the use of competitive materials, or some of them have been retired, or some of them have been replaced. This heritage has remained a large part of it for many years and is declining. The growth of the new printers we see is consistent with our usage assumptions. So what I\'m talking about is our dental equipment, Figure 4, 6100. Our SLA machines, SLS machines, MJP machines are our core business; These cores are also growing. So when our core and new materials offset our traditional recession, that\'s why we believe we will see positive material growth in the second half of 2019. John McMullen -- I think once we talk about this, I think there will usually be a little bit in the last quarter. We have built very good analysis models over the past year to track and update. So it\'s -- We have considerable predictability and ability here. Wamsi Mohan -- Bank of America Merrill Lynch. --AnalystOkay. Thanks a lot. Then think about your exit from the entertainment industry. I think you\'re talking about $12 million. It\'s this year or all, and there will be some export hits or even next year, or how long do you think this exit will happen? Can you also give us some feelings about this profitability, such as the impact of withdrawal on gross margin and earnings per share? John McMullen -- Executive Vice President and Chief Financial OfficerFor -- We already pulled it. -for non- The purpose of GAAP is that we have extracted this from the number of valid q1. So we made this decision. inaudible) I think the annual income in the prepared materials is estimated at $12 million. This is a kind of scale. We don\'t specifically mention profitability, but, the nature of leaving there and our ability to focus on things that are more central to us at the moment, we do believe that over time, this will affect the profitability of the company. Wamsi Mohan -- Bank of America Merrill Lynch. --AnalystYeah. Thank you. Vyomesh Joshi -- Thank you, president and chief executive of Wamsi. Your next question comes from Jim Ritti from Needham. Please continue. Jim ridgety. -Needham & Co --AnalystHi. Like a follower. up. I may have missed it, but did you describe the areas in which this $12 million revenue came from? Vyomesh Joshi -- President and chief executive, this is a business we work with the studio. We will be digital. I think that\'s what we\'re talking about. Jim ridgety. -Needham & Co --AnalystGot it. This makes sense. I missed it, VJ. Thank you for your clarification. Just about health care. . . Vyomesh Joshi -- Mainly the president and chief executive of the service business. Mainly service business. Please continue. Jim ridgety. -Needham & Co --AnalystNo. That\'s helpful. I\'m interested in this corporate healthcare client, at least from what you describe you have enough visibility-- Enter the business and enter the order mode to indicate that it may be-- For the rest of 19 years, it may continue to be weak. Is this a fair description? While there are still orders, they may not have ordered at the level you originally expected? Vyomesh Joshi -- President and Chief Executive What we see is that the order pattern is very different. For some quarters like the first quarter of last year, their orders were large. We have fewer orders this quarter. So I think that\'s what I\'m talking about. But overall, they continue to grow. They did a very good job in the market. Just, when they open these machines, the way they order the machines depends on how they want to build the factory so that they become part of the entire production line. There will be no ups and downs in these things. It won\'t be completely clean here, and I think that\'s what we\'re trying to make sure --- That\'s what we started talking about (inaudible) Because we want to make sure that you all understand this, it can have a significant impact on our printer hardware revenue growth, and we just want to make sure that you model this. This will continue in the second quarter, and some of them will continue in the third and fourth quarters. That means-- The products they will order will be different. I think that\'s what we have to explain. Jim ridgety. -Needham & Co --AnalystOkay. Was it your --I think so. I just think from the perspective of the entire healthcare business. It sounds like this customer. your growth is very good. Do you expect the health care industry to even have these- This instability with this customer will grow this year? Vyomesh Joshi -- President and Chief Executive We will continue to develop the healthcare business if you take it out. The healthcare business has been growing over the years and we will continue to grow. That business is very, very-- We did a very good job in the health care business. But because of this corporate customer, what we see is that rotation, which is basically not related to the customer\'s business. It\'s just the order of their patterns. Jim ridgety. -Needham & Co -- Thank you. John McMullen -- Thank you to executive vice president and chief financial officer. Next question for Jensen OperatorYour Troy at Piper Jaffray. Please continue. Vyomesh Joshi -- Troy, president and chief executive. John McMullen -- Executive vice president and chief financial officer of Troy. Troy Jensen --Piper Jaffray -- Gentlemen, analyze it. Hey. So if you go back to the powder management issue, is this platform just working on the 500 series? Vyomesh Joshi -- President and Chief Executive They are also responsible for powder management at 350 and 500. It\'s just -- For powder management, the problem is a unit that you can buy with 350 or 500. But the problem is the integration of 350 and powder management because the powder management approach on 500 is very powerful. Troy Jensen --Piper Jaffray --AnalystOkay. Can you talk like a percentage of additional powder management or piping in metal sales? Is it. . . . Vyomesh Joshi -- This is a new product. So -- This is a new product. Frankly, we want to make sure that we do a thorough test and we want to make sure that we are doing the right approach-before we ship. In the first quarter, our metals were 350 and 500 of what we called the factory. 500, there is more about representation. We want to make sure-- Our features for our customers. But I just want to make sure that you hear that our core issue is indeed in the powder management department at the 350 plant and that\'s what we\'re working on. Troy Jensen --Piper Jaffray -- I guess what I\'m asking is, if you look forward to the pipe, how many percentage of powder management in your metal opportunity is attached to the pipe? Should we assume that there is little or no metal Income (inaudible) Will anyone buy the platform? Vyomesh Joshi -- President and Chief Executive, no, no. Let\'s be clear about this. First of all, 350 platform, 350 Flex is doing very well. Our income is growing year by year. over- Years in 350 categories. So I just want to make sure that our metal business is actually doing very well, in addition to the 350 powder management unit shipment I mentioned. So it is very important to understand this. So our metal business is growing every year. over-year. What we expect is that we will be able to ship other metal parts, which is what I am talking about with the $8 million issue. John McMullen -- So far we have seen a good early demand for this, Troy. Troy Jensen --Piper Jaffray -- The analysis is correct. John McMullen -- Executive vice president and chief financial officer, but that is what we characterized between 500 orders and $8 million. Vyomesh Joshi -- I think our metal business is doing very well in general. Our annual revenue in the metal business is growing. over-year. We received orders for these devices due to technical problems and could not ship them. Troy Jensen --Piper Jaffray -- Analysts understand. Okay. VJ has only one follow upup for you. Figure 4 update, are you shipping all four platforms now, or are there a few more? Vyomesh Joshi -- Modular is a product that we have not shipped yet and will start shipping on June. Troy Jensen --Piper Jaffray -- This is a higher goal. This is the big problem with RobotiX (inaudible)? Vyomesh Joshi -- The president and chief executive are not big, but big. . . John McMullen -- Executive vice president and chief financial officer. But we can actually ship. Vyomesh Joshi -- President and Chief Executive of the production department, we have shipped the goods. Troy Jensen --Piper Jaffray --AnalystOkay. Hi, guys. Good luck to you in the future. Vyomesh Joshi -- Thank you, president and chief executive. Troy Jensen --Piper Jaffray --AnalystThanks. The next question comes from the Shannon Cross of Cross-study. Please continue. Shannon Cross -- Cross Research- Thank you very much. Hello. Vyomesh Joshi -- Shannon, president and chief executive. Shannon Cross -- Cross Research- Analysts are just a few questions, not materials --- Sure, anyway, but when we consider using each device on a similar devicefor- Like basis, when we consider pricing, if there is any pressure in the aftermarket, I just want to know more about some of the dynamics behind the supply of material revenue? Thank you. Vyomesh Joshi -- Depending on the category and price, the usage will be different. Okay. This is the first thing I want to make sure everyone understands. Another important thing I will say is that we are only involved in the industrial field. This means that every printer we ship has a lot of use so that we can enjoy the annuity stream. This is the second point I want to say. Because we have our own proprietary materials, we have confidence in the market share of our materials. In some cases, we see competition. Specifically, we see the competition for MJP wax products, especially in China, and some of the old legacy materials I mentioned, and that\'s what we see (inaudible)competition. Shannon Cross -- Cross Research- Did the analyst manifest himself? - I mean, do you have to cut the price or are you just not willing to go there, so you lose some player share over time? Vyomesh Joshi -- We do adjust some pricing in some cases, but we look at it from a system point of view because we need to make sure our hardware price and material price. But -- This is the way we must take it. But in -- Overall, we don\'t see competition from third place. Party materials. Shannon Cross -- Cross Research-AnalystOkay. Then, I--. Vyomesh Joshi -- The president and chief executive gave us a concrete example of how we see competition. Shannon Cross -- Cross Research-AnalystOkay. Thank you. Then, I understand that leaving Hollywood is the real core industry. I\'m curious if there are other businesses that are considering attribution, perhaps as part of a cost reduction or just separate from this? Vyomesh Joshi -- So I think what we\'re doing is we\'re looking at our portfolio all the time. I want to make sure the first thing I want to do is turn the company around and figure out where we want to take the company. I mentioned now that I see two business models, hardware, printer material and online Requirement business, then workflow Workflow based on production Based on software and healthcare. This will be the two key pillars of the organization that I want to focus on. Then, I really want to look at our business and make sure that we make this decision on what is collaborative and what is inconsistent. I think it\'s important to really focus on the company right now. We have a great platform. We are putting the materials in the right place. Our export compliance, we are now working on this through the ODM business. What we need to do is increase our material and then keep the cost. So I think that\'s what we want to do. Shannon Cross -- Cross Research-AnalystOkay. Finally, as far as Figure 4 is concerned, I\'m curious who you see (inaudible). In some vertical areas, do you have a lot of repeat customers? You can talk about the color again. Vyomesh Joshi -- The first part of Figure 4 is dentistry. Our dental business is doing very well. We are entering the dental laboratory and now we are globalization. So my point is that if you want to see the dental business continue to grow in 2019, material growth is also very important for our material business. The second part of our real focus on Figure 4 is what I call the design validation market and we will be able-- Enterprise customers will purchase this product in their R & D lab to truly evaluate additive manufacturing technology. As we develop new materials, we will continue to infiltrate this technology into other areas. But really-- It seems to me that this is a substance development game. Our platform is very powerful. We just need to provide more materials. Shannon Cross -- Cross Research-AnalystRight. Thank you very much. John McMullen -- Executive Vice President and Chief Financial Officer thank Shannon. Your next question is Greg Palm from Craig. Harlem Capital Group Please continue. Vyomesh Joshi -- Greg, president and chief executive. John McMullen -- Greg, executive vice president and chief financial officer. Danny egerich. -Craig- Harlem Capital Group- Analysis this is actually Danny egerridge and today is John of Greg palms. Thank you for answering the question. John McMullen -- David, executive vice president and chief financial officer. Danny egerich. -Craig- Harlem Capital Group- AnalystI knows that you have mentioned that your material Gross margin is around 70% this quarter. As you mentioned, when we show up in the second half of the year, you expect the new acceleration to accelerate as the legacy decreases, how do you-- What do you want us to look at the gross profit margin of the material? Vyomesh Joshi -- The president and chief executive think we should keep the gross margin at 70%. Danny egerich. -Craig- Harlem Capital Group-AnalystOkay. Then, I guess just looking into the second half of the year in the demand area, where do you want to see the strength and possible weaknesses of the demand. Vyomesh Joshi -- I think the metal is very strong if you look at the overall portfolio. I think there will continue to be demand. Our SLA platform is very, very- In my mind, the world We will continue to see the SLA. Our dental business is very, very strong. We will continue to drive growth in the dental business. Next will be figure 4 of the new material. I feel very good about it. We will continue to grow our wax. Based on the MJP printer, the last one is our 6,100 SLS machine. Danny egerich. -Craig- Harlem Capital Group-AnalystOkay. I appreciate the color very much. The next question is Ananda Baruah from Loop Capital. Please continue. Vyomesh Joshi -- President and Chief Executive The second question. Ananda Baruah --Loop Capital --AnalystYeah. When I get a tracking There, VJ just listened to other comments on the phone. Do you -- I think last quarter you guys said you think the overall business will grow this year. You think there are two problems. - Do you still feel that this is possible, then, the answer to the second question is No. Once the items you \'ve said are rejected, I think it\'s business, and then, powder management issues related to other businesses you expect to grow --over-year? Vyomesh Joshi -- I think my point is that we should be able to develop the business in the second half of the year. I think our ODM business will start to grow by then. If you look at that business, the annual decline-over- Our export compliance portal achieved this in the first quarter. Hopefully, we will be able to grow this business in a few quarters. We will solve the problem of our metal technology. Our business will grow and our dental business will grow. As I said, our SLA business is very strong. The SLS business is strong. So I hope that as long as we address these issues, we can achieve growth in the second half of 2019. Ananda Baruah --Loop Capital --AnalystOkay. Great. Okay, great. Thank you very much. That\'s it for me. Thanks. John McMullen -- Executive Vice President and Chief Financial Officerinaudible). Operator( Operator instructions) Our next question is from Hendi Susanto of G. Research. Please continue. Vyomesh Joshi -- Yes, president and chief executive The second question continues. Hendi Susanto --G Research -- The third time is charm. John, about the higher cost reduction target, what is the cost and what is the cost We should expect savings to go to the bottom line compared to reinvestment? John McMullen -- Executive Vice President and Chief Financial Officer I think in the comments prepared by VJ, he talked about $10 million to $15 million throughout the course of the year, beyond our plans. Therefore, it is expected that most of them will be in operating expenses, however, part of them will be the cost of selling goods, most of which will be used to improve the performance of profit and loss. We will certainly not invest a lot of money in these cost cuts this year. Hendi Susanto --G Research -- So, what will be the additional $10 million to $15 million of the total cost savings over 2019 years? John McMullen -- Executive Vice President and Chief Financial Officer What I\'m trying to say is that we don\'t give specific numbers, but when we do,related costs. We show those in GAAP to non- Settlement of accepted accounting principles. So if you look at the accepted accounting principles as non- For example, GAAP reconciliation, you will understand the impact of this quarter. We provide this information every quarter. Hendi Susanto --G Research --AnalystGot it. Thank you. John McMullen -- Thank you to executive vice president and chief financial officer. Take care. There is no further problem with the operator at this time. I will now transfer this call to Stacey Witten and ask him to conclude. Stacey Witten -- Vice President of Investor Relations, financial planning and analytics thank you for joining us today and for your continued support for the 3D system. The replay of this webcast will be broadcast on the Investor Relations section of our website www. 3dsystems. com/investor. Thank you. This concludes today\'s meeting. At this point, you may disconnect the line. Thank you for your participation. Participants: Stacey Witten-- Joshi, vice president of investor relations and financial planning and analysis-- John McMullen, president and chief executive-- Executive Vice President and Chief Financial Officer-Loop Capital -- Susanto analyst Hendi--G Research -- Analysis of David rezick- Financial Group. -- Mohan analysis-- Bank of America Merrill Lynch. -- Analyst Jim Ricchiutti--Needham & Co -- Jenson analysis-Piper Jaffray -- Cross Analysis- Cross Research- Analyst Danny egerridge-Craig- Harlem Capital Group- The analyst DDD analyzes all revenue phone records more from Motley Fools. This article is the minutes of the conference call made for Motley Fools. While we strive to do our best, there may be errors, omissions or inaccuracies in this transcript. 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