3D Systems Corporation (DDD) Q4 2017 Earnings Conference Call Transcript

3D Systems Corporation (DDD)
Q4 2017 Earnings Conference Call
March 14, 2018, 4:30 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good afternoon, and welcome to 3D Systems conference call and audio webcast to the discuss the results of the fourth quarter and full year 2017. My name is Matt, and I'll facilitate the audio portion of today's interactive broadcast. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press *0 on your telephone keypad. As a reminder, this conference is being recorded. At this time, I'd like to turn the call over to Stacey Witten, Vice President of Investor Relations for 3D Systems. Thank you, you may begin.

Stacey Witten -- Vice President of Investor Relations

Good afternoon, and welcome to 3D Systems Conference Call. I'm Stacey Whitten, and with me on this call are Vyomesh Joshi, our President and Chief Executive Officer, John McMullen, Executive Vice President and Chief Financial Officer and Andrew Johnson, Executive Vice President and Chief Legal Officer.

The rest of the portion of this call contains a slide presentation that we will refer to during the call. Those following along on the phone, who wish to access the slide portion of this presentation, may do so on the Investor Relations section of our website. Participants who would like to ask questions at the end of the session related to matters discussed in this conference call, should call in using the phone numbers provided on the slide in the press release we issued today. For those who have accessed the streaming portion of the webcast, please be aware that there may be a few second delay and you will not be able to pose questions via the web.

The following discussion and responses to questions reflect management's views as of today only and will include forward-looking statements as described on this slide. Actual results may differ materially. Additional information about factors that could potentially impact our financial results, is included in today's press release and our filings with the SEC, including our most recent annual report and Form 10-K. During this call, we will discuss certain non-GAAP financial measures. In our press release, and slides accompanying this webcast, which are both available on our investor relations website, you will find additional disclosures regarding these non-GAAP measures, including reconciliations of these measures with comparable GAAP measures. Finally, unless otherwise stated, all comparisons in this call will be against our results for the comparable period of 2016. Now, please turn the call over to Vyomesh Joshi, our CEO. VJ.

Vyomesh Joshi -- President and Chief Executive Officer

Thank you, Stacey. Good afternoon, everyone. During 2017, we built a foundation for a stronger company. We worked very hard, made substantial progress, and we believe we closed the year in a position of strength for the future. As we discussed last quarter, we faced more challenges in 2017 with quality, reliability, processes, and infrastructure, than we initially anticipated. We believe the actions we took, both organizationally and operationally, throughout the year, positioned the company well for sustainable growth moving forward. Before we get into the details about the fourth quarter, I would like to take a few minutes to reflect on the last year and the progress we have made.

Throughout 2017, we improved our operational gains, analytics, and utilization of our sales force platform for improved visibility and execution. Began the process of supply chain optimization, both internally and through a strategic partnership with Sanmina. Rebuilt our service model to be metric driven, with a focus on customer satisfaction, including material improvements in customers' hardware and service experiences, which resulted in achieving a twenty-point improvement in our net promoter score during the year. While at the same time, making good progress in fully integrating with other product development and supply chain organizations. We actualized a product portfolio to focus more on production applications and a reposition of our gross former product more competitively, via cost reduction programs and new offerings. And, completed significant work and improved analytics to drive the shift both from a business model and company culture perspective, from a hardware centric company to a newly made systems model where materials, software, and services, are the long-term driver of original investment across our install base.

We improved our employee infrastructure, including a market based rebuild of the company's job hierarchy, which we believe will give us the visibility to drive improved cost structure over time. And, make significant investments for a series of new product offerings from our flagship Figure 4 technology and low cost DLP to next generation metals and expansions in dental. We also invested in the IT structure and transformation to drive long term efficiency, including a major Oracle ERP system upgrade. We have enhanced the company's global market strategy with a worldwide consolidation and made a real time adjustment during the year to improve execution.

To date, we have made the most progress with our go to market organization and EMEA, which we believe is reflected in the consistent growth in that region throughout the year. However, in the fourth quarter, we experienced more balanced performance across all regions as the more recent work in America and APAC is also beginning to show returns. We expanded our direct sales and application engineering teams, implemented tools designed to improve our lead generation and conversion rate, and continue to refine and improve the focus of our sales channel.

When are actions and investments in go to market are marked done, we have made significant progress and believe we are on the right track to continue to drive growth and improve execution worldwide. We are in a multi-year transformation and actions last year centered around building the foundation to enable the company to capitalize on significant opportunity ahead of us. We focused on building infrastructure, processes, analytics, and organization structure, necessary to take the company forward. We have prioritized the critical need and actions to stabilize the company and enable our market strategy to drive the expansion in 3D production, use case by use case.

With this work behind us, we believe 2018 is a corner turn year for the company. Our energy and focus are on execution, improving efficiency, and introducing disruptive new products to drive customer shift to 3D production. Our planned product launches throughout the coming year will continue to build momentum as we drive efficiency in the next phase of transformation. As we showcased in November, we plan to introduce several products to enable customers to seamlessly scale from prototyping to production and bridge the gap between traditional and additive manufacturing. We plan to launch next generation production system with our Figure four, DLT, SLS, and metal technologies, as well as a range of materials, software, and services, to help our customers integrate 3D printing into their manufacturing workflow. We remain excited about our significant long-term opportunity and I'm confident in our ability to be a leader in the market and drive sustainable profitable growth.

With that, I would like to provide an overall view of our fourth quarter before John provides more detail. Throughout 2017, we talked about several drivers to revenue performance and I would like to recap where we are with these. These drivers included continued double-digit growth in healthcare, continued growth in materials, continued growth in software, on demand manufacturing return to growth, and printer revenue return to growth.

During the fourth quarter, total revenue increased 7% to $177.3 million. Demand from healthcare and industrial customers continue to be strong, resulting in a 13% increase in healthcare revenue, with growth across all categories. Printer revenue has been good and was approximately flat in the fourth quarter. For the fourth quarter, total printed units sold increased 15% with growth in both production and professional business units. Materials revenue increased 8% in the fourth quarter, with utilization of the installed base including high demand from healthcare customers. On demand manufacturing revenue increased 10% and software revenue increased 8% in the quarter. Additionally, our solid execution in EME continued and demand in the region remains strong. And our performance in the America and Asia Pacific improved in the fourth quarter. Those profit margins were 48.2%.

Non-GAAP operating expenses increased 17%, compared to the fourth quarter of 2016, including a 9% increase in R&D, as we continued our investments to bring new products to market in plastics, metals, materials, and software. And a 21% increase in non-GAAP SG&A expenses inclusive of IT and go to market investments. We reported non-GAAP earnings of $0.05 per share in the fourth quarter of 2017 and a GAAP loss of $0.08 per share. Now, let me turn it over to John to discuss our fourth quarter and full year 2017 performance in more detail. John.

John McMullen -- Executive Vice President and Chief Financial Officer

Thanks, VJ. Good afternoon, everyone. For the fourth quarter, we reported revenue of $177.3 million, an increase of 7% compared to the fourth quarter of 2016. Gross profit margin was 48.2% compared to 50% in the fourth quarter of 2016. GAAP operating expenses increased 16% to $91.2 million including an 18% increase in SG&A expenses and a 9% increase in R&D expenses. We reported a GAAP loss of $0.08 per share in the fourth quarter of 2017, compared to $0.05 earnings per share in the fourth quarter of 2016.

For the full year, we reported revenue growth of 2% to $646.1 million. Gross profit margins of 47.2% and a 3% increase in operating expenses to $358.8 million, primarily driven by increased investments in R&D. We reported a GAAP loss of $0.59 per share for the year, compared to a loss of $0.35 per share in the prior year. Compared to the fourth quarter of 2016, non-GAAP SG&A expenses increased 21% to $54.6 million, as we continued to invest in IT transformation and go to market initiatives. Non-GAAP R&D expenses increased 9% to $23 million, primarily driven by investments in plastics, in particular, our Figure 4 platform, metals, materials, and software. These investments have been critical in support of many products we plan to bring to market throughout 2018.

We reported non-GAAP earnings of $0.05 per share, or $5.3 million in the fourth quarter of 2017, compared to non-GAAP earnings of $0.16 per share, or $16.7 million in the fourth quarter of 2016. For the full year 2017, we reported a non-GAAP loss of $1.7 million, or a loss of $0.02 per share, compared to non-GAAP earnings of $50.8 million, or $0.46 earnings per share in the prior year.

Healthcare revenue for the fourth quarter of 2017 increased 13% to $50.4 million, driven by growth across all categories. We continue to be pleased with the overall demand trends for all categories of healthcare, and for the full year, healthcare revenue increased 18% to $188.7 million. We expect continued double-digit growth in healthcare going forward. In the fourth quarter, on demand manufacturing revenue increased 10% to $26.5 million. Our investments in facilities, technology, customer experience, demand generation, and enhanced sales approach, except driver return to growth in on demand manufacturing.

For the year, on demand manufacturing was approximately flat, at $104.6 million. Printer revenue was approximately flat for the fourth quarter. Printer unit sales grew 15% in the fourth quarter, with growth in both production and professional unit sales. For the full year 2017, total printer revenue decreased 7%, and total units decreased 4%. Production printer unit sales increased 20% and professional printer unit sales decreased 7% for the year. Throughout the year, printer revenue and ASPs were negatively impacted by mixed, particularly by the increasing sales of our lower priced MJP 2500 flats printer. Materials revenue increased 8% to $42.8 million in the fourth quarter. For the year, materials grew 8% to $168.8 million, driven by the addition of Vertex and continued utilization of our installed base. We expect ongoing growth in materials as we continue to increase our understanding of the installed base, improve sales execution, increase applications, and drive a more annuity-based business model.

Software revenue increased 8% from the fourth quarter of the prior year to $26 million. For the year, software revenue increased 5% to $91.7 million. We continue to extract growth in software going forward. We reported 48.2% gross profit margin in the fourth quarter of 2017, compared to 50% in the prior year. For the full year, we reported 47.2% compared to 48.9% in 2016. Gross profit margin includes the negative impact of product discontinuations and legacy inventory charges, which offset supply chain efficiency improvements made during 2017.

We have begun supply chain optimization throughout our procurement and manufacturing processes, and have entered into a strategic relationship with Sanmina, a recognized technology leader, providing end to end design, manufacturing, and logistic solutions, delivering high quality and support. We expect these changes, and ongoing efficiency improvements, to help maintain and improve gross profit margins over time.

GAAP operating expenses for the quarter, were $91.2 million, an increase of 16% compared to the prior year, including an 18% increase in SG&A expenses, and a 9% increase in R&D expenses. Non-GAAP operating expenses in the fourth quarter were $77.6 million, a 17% increase from the prior year, but only a 2% increase sequentially. Compared to the 2016 quarter, non-GAAP SG&A expenses increased 21%, and R&D expenses increased 9%, primarily from additional investment in support of the recently announced new products, which are planned for commercialization over the coming months. For the full year, GAAP operating expenses increased 3%, to $358.8 million, including a 2% increase in SG&A expenses, and a 7% increase in R&D expenses. Non-GAAP operating expenses increased 10%, to $296.6 million. Non-GAAP SG&A expenses increased 8%, and non-GAAP R&D expenses increased 15%. Throughout 2017, we made significant investments in IT, go to market and innovation which we believe are critical to the company for long term growth. We are committed to driving an appropriate cost structure and we believe over the next couple of years, we can drive operating expenses materially lower.

We generated $8.2 million of cash from operations during the fourth quarter, resulting in $25.9 million of cash generated from operations in 2017. We ended the quarter with $136.3 million of cash. While quarter to quarter cash generation and expenditures timing will fluctuate, we expect to continue to generate cash from operations over meaningful periods, while at the same time, investing in growth and infrastructure.

Before turning the call back to VJ, I'd like to take a few moments to discuss where we are today and a high-level outlook going forward. We are focused on building the company for long term growth, profitability, and success. We are still in the midst of a multi-year transformation of the company. As VJ described, we have made significant progress in many areas, and completed a lot of foundational work in 2017, but we still have more work to do. As we build momentum throughout the coming year, with disruptive product launches to drive production applications for added manufacturing, we will also remain focused on continuing to improve our organization and operational efficiency. We have plans in place to improve leverage from the P&L and drive operating costs down meaningfully over the next couple of years. Over the same period, we plan to balance investments with these cost reductions of maintain a solid cash position, drive profitability, and ultimately improve our earnings power.

With that, I'll turn the call back to VJ and for some concluding remarks. VJ.

Vyomesh Joshi -- President and Chief Executive Officer

Thanks, John. In 2017, we made significant progress to stabilize and turn around the company, addressed many legacy issues, and put in place the foundation for scalable growth. We believe we are turning the corner in a multi-year transformation project. We are focused on execution, driving operational efficiencies, and bringing disruptive and innovative new products to market. We have a strong portfolio of additive manufacturing solutions for the entire digital manufacturing workflow, with a series of new product introductions planned throughout 2018 to further solidify our leading market portfolio.

At LAB day in Chicago, the largest dental laboratory event in America, we introduced the NextDent 5100. A Figure 4 based 3D printer specifically designed for dental labs. The NextDent 5100 is our first entry to market with our scalable Figure 4 platform, and we believe it is a breakthrough product which will redefine digital dentistry. At the same time, we launched several new materials for the NextDent 5100, bringing the total number up thirty dental specific materials for this printer. This innovative solution is four times faster and up to 90% more cost effective than any other solution today. And was extremely well received at the show. SmarTech has defined dental hardware and materials as a billion-dollar market by 2020, and we believe we are the best positioned to address this.

We also launched the FabPro 1000, a new low cost, high productivity, DLP-based 3D printer designed for dental and jewelry production, and high functionality, industry prototyping. During the first quarter, we plan to begin shipping our next generation SLS printer, the ProX SLS 6100 with six production grade materials to deliver superior part quality with greater efficiency and lower total cost of operations versus our competitors.

And over the coming months, we plan to launch additional Figure 4 products designed to meet various production environment needs from stand-alone units to modular to fully automated production solutions. Later in the year, we also plan to launch the DMP 8500, a scalable, automated, fully integrated next generation metals platform to deliver a true end-to-end solution for metal additive manufacturing. With it, we plan to offer an expanded materials portfolio, durable and removable print modules, powder management modules, and fully integrated 3D expert software, to help streamline production of parts, as well as, the industry's largest paradigm compared to what is available today.

These products expand our leading suite of end-to-end solutions and we believe they will help accelerate the shift from prototyping to production. We remain excited about our complete portfolio, ongoing innovation, and significant market opportunities, and we continue to be focused on the long-term growth and success of the company.

...

With that, I would like to return the call back to Stacey, who will open the floor for questions. Stacey.

Stacey Witten -- Vice President of Investor Relations

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

Questions and Answers:

Operator

Great, thank you. We will now be conducting a question and answer session. If you'd like to ask a question, please press *1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press *2 if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the * keys. One moment, please, while we poll for questions.

Our first question is from Ananda Baruah from Loop Capital. Please go ahead.

Ananda Baruah -- Loop Capital -- Analyst

Hey, good afternoon, guys. Thanks for taking the questions. I'd just like to start out with VJ. You guys spent some time teasing out the areas that you grew this quarter and going through some of the metrics. And you made mention that you believe your position for ongoing growth. So, I'm going to take that to mean including calendar 18, you also made mention I believe, of improvement in lead generation. And correct me if I'm wrong, conversion rates. So, if that's not accurate, improving conversion rates, and then please, correct that. But I guess the question is, can you talk to the degree to which you might expect to grow this year, and which aspects of the business do you expect to grow this year, do you think printers will grow as well, you had made mention of a couple...

Vyomesh Joshi -- President and Chief Executive Officer

So, let me start out by saying, the way I am building that growth engine, healthcare, materials software, and on demand manufacturing, continue to grow. I think an important part for 2018 will be our printer revenue growth. So, if you look at printer revenue growth, it was minus 4% in Q1, minus 14% in Q2, minus 11% in Q3 of 2017, and nearly flat in fourth quarter 2017. Slowly, we are now getting into a place where we can now feel good about growing our hardware printer revenue growth. And I think that's the sign that we are looking at.

The second thing that I can say, is all the investments we made in go to market will also help as you talked about the conversion rate. Because we are having now competitiveness, especially with the launches that we will do, with Figure 4, with our FabPro, new next generation SLS machine, and the 8500, the metal products, so I believe that should help us now, to drive the printer hardware revenue growth and I think that will be very important for 2018.

Ananda Baruah -- Loop Capital -- Analyst

So, sounds like you have an expectation of driving printer revenue growth in 2018.

Vyomesh Joshi -- President and Chief Executive Officer

Yes, we need to do that. I think we're making the progress, and we need to continue to do that throughout the year in 2018. I also want to make sure, that as a reminder, there's a seasonality in our revenue and first quarter, always is a softer quarter. I think you guys need to model that, kind of a build, for 2018.

Ananda Baruah -- Loop Capital -- Analyst

And just as a quick follow up, how much -- you've spoken about the work that you've done in the to go to market and in the channel. How much of that work remains as you go through this year...how far you are in that process?

Vyomesh Joshi -- President and Chief Executive Officer

Yeah, I understand. So, I think the main important part for go to market is this whole shift from prototyping to production, is very important. And there are two aspects of it. We need to build our direct sales force because for production, it's a complex sale, and I think we need to make sure we build what we call customer innovation center, our direct sales force, and application engineering. The second part is getting the right kind of a channel where they can sell this complex solution. So, what we are doing globally, building both direct sales force, application engineering, and the right channel.

Ananda Baruah -- Loop Capital -- Analyst

Got it. Thanks so much.

Vyomesh Joshi -- President and Chief Executive Officer

Thanks, Ananda.

Operator

Our next question is from Jim Ricchiuti from Needham & Company. Please go ahead.

Jim Ricchiuti -- Needham & Company -- Analyst

Hi, good afternoon. Wanted to ask a question first, about the services business. The revenues there were up significantly from Q3. Was there anything unusual about that? And maybe, VJ, if you could, talk a little bit about the seasonality of that business. Would you expect a significant drop off in Q1 in that area? Or are we at a new level in that area of the business?

Vyomesh Joshi -- President and Chief Executive Officer

Well I think in services we include healthcare, which is very important to note because, if you look at our healthcare business, this quarter, meaning fourth quarter, we grew 13%. And if you look at the profile, 29% in Q1, 25% in Q2, 10% in Q3, and now 13%. So, I think kind of a seasonality you're to expect. With a lot of our healthcare business, during the summer months and during the Christmas months, we have an uptick. So yeah, Q1 will be a little different because our seasonality will be lower when you talk about the seasonality of the healthcare business. I think that's the driving force for our services business.

Jim Ricchiuti -- Needham & Company -- Analyst

Okay, that's helpful. And then, you have a fairly active new product, new printer introduction schedule for this year. And what I'm wondering is, obviously you can't comment specifically on individual products, but if we look at these new products in aggregate, how meaningful could the impact of these new products be on the printer revenues in the second half of this year?

Vyomesh Joshi -- President and Chief Executive Officer

Yeah. So, I think, first of all, you are right on. It's a build. And I think second half is where we really need to be looking at all these new products, and how that can help our printer revenue. T The good thing -- there are two good things I can tell you. First of all, the products that we are working on, the feedback that we're getting from our beta customers is phenomenal. And I'm very excited about the contribution we are making in respect to the customer value propositions.

The second thing is most of the products, except for the SLS, are new categories. That means they're going to be additive to our overall product portfolio. And that's why it will be additive in terms of revenue growth, especially in the second half. The last piece that I can talk about are the new categories, we also have to be careful in how we build the go to market. So that's why the uptick will be gradual, but the approach we're taking is the right combination of value proposition and disruptive products and then building that go to market.

Jim Ricchiuti -- Needham & Company -- Analyst

Thanks very much.

Operator

Our next question is from Bobby Burleson from Canaccord Genuity. Please go ahead.

Vyomesh Joshi -- President and Chief Executive Officer

Hey, Bobby.

Bobby Burleson -- Canaccord Genuity -- Analyst

Hi, good afternoon. I was curious, just looking at the printer mix as headwind for printer revenue growth in 2017. Do you think that mix has stabilized where it is? You had it flat year on year, printer revenue performance in Q4, or do you think some of the new products coming mix could shift higher, in terms of AMP.

Vyomesh Joshi -- President and Chief Executive Officer

I think, first of all, that's the reason I was sharing. What was our profile -- it was a build, right? And my view is, mix between production and professional printer is going to be very similar. The reason for that is the SLS, the Figure 4, these are all production printers with the multi-jet printing, where we have been very successful with our wax products. And some of the FabPro, will be the professional printers. So that's why the mix that we have seen right now between professional and production will continue in 2018. And as I said earlier, because there is not as much overlap, for example FabPro is a $5,000 product, it's a completely new category, we're not going to have as much impact on our current portfolio.

Bobby Burleson -- Canaccord Genuity -- Analyst

Okay. And I guess as a follow up to that, if you're going to have a concentration of new products this year versus last year, sounds like they're going to be more innovative in terms of how much stuff you're bringing to the market. Should we be thinking about start-up costs there? Or anything associated with gross margin or operating margin that could be a little front-end loaded expense-wise.

John McMullen -- Executive Vice President and Chief Financial Officer

This is John, I think a lot of that front-end loading of the costs has taken place through the latter part of 2017, and then there'll be some of that in Q1 as we do final work in launching the products. But then, at that point, we'll just start to ramp those products in the market. So, there's been a lot of investment from an R&D point of view, and from a marketing point of view, in advance of these launches. And there's a meaningful set of launches in the next half year.

Vyomesh Joshi -- President and Chief Executive Officer

And I think that's the reason we wanted to invest into R&D, we wanted to invest in go to market, because we felt that these new categories require the right go to market, and the innovation, the disruptive innovation, the combination of this, will build a category and this is front-loaded. I like to believe that's what you were indicating.

Bobby Burleson -- Canaccord Genuity -- Analyst

Great, thank you.

Vyomesh Joshi -- President and Chief Executive Officer

You're welcome. Thank you.

Operator

Our next question is from Hendi Susanto from Gabelli & Company. Please go ahead.

Hendi Susanto -- Gabelli & Company -- Analyst

Good evening and thank you for taking my questions. My first question is for VJ. VJ, how do you characterize the 3D printing market and market opportunities in 2018? How are they different compared to 2017?

Vyomesh Joshi -- President and Chief Executive Officer

Well, I think my view is, that overall, that market opportunity is continually there. I think in 2018 -- and I really go back to my fundamental belief that we need to shift from prototyping to production. And production opportunities are going to be the driving force in the coming three to five years, from the growth point of view. I also believe on-demand manufacturing, our parts business, is also a very big opportunity. As you can see, in Q4, we grew that opportunity by 10% because a lot of companies slowly are understanding the value of additive manufacturing. And they may start by outsourcing. Saying, "Hey, let me play this thing," using our on-demand parts capability and then eventually bring it in house. And that's where you will see a combination of outsourcing and insourcing. So, my view is '18 should be a good year and as I said, it'll be driven both for production opportunities and the opportunity in on-demand manufacturing.

Hendi Susanto -- Gabelli & Company -- Analyst

And VJ and John, post Q3, 3D Systems has been reorganizing your go to market structure toward your Europe's best practices in North America and Asia, Asia Pacific. How far along is that in terms of making organizational changes and sales productivity right now?

Vyomesh Joshi -- President and Chief Executive Officer

So, if you remember, we had announced that Herbert -- he runs now the world wide go to market organization. And he's bringing all the processes that he had built in Europe, in both Americas and in Asia. These processes' improvements are showing good results. If you look at what we achieved in Q4, we're much more balanced than either Q2 or A3. I still think we have work to do, because these processes and the talent that we need, in both Americas and APJ, we need to continue to build. Because it's all about the people and processes, and I think my view, in '18, we need to make sure we continue to build our Asia Pacific and Americas.

Hendi Susanto -- Gabelli & Company -- Analyst

Thank you and good luck for 2018.

Vyomesh Joshi -- President and Chief Executive Officer

Thank you very much.

Operator

Our next question is from Joe Wittine from Longbow Research. Please go ahead.

Joe Wittine -- Longbow Research -- Analyst

Yeah, hi, thanks for taking the questions. To put a finer point on your answer to Bobby's question, do you anticipate consolidated printer ASPs will increase this year when taking into account the impact of the launches ahead?

Vyomesh Joshi -- President and Chief Executive Officer

I think it may not be that way, but these are, remember, we are going all the way from $5,000.00 to multi-million dollar offers. So, you need to really look at this thing, where depending on the participation and depending on the mix that we generate, all the way from 5,000 to multi-million-dollar solutions. You're going to see the appropriate ASP. The thing that we want to watch for, is the unit growth. Because we've got to build the right kind of an installed base and that's what I'm on right -- I really believe the newly based business model with materials, services, and software, is the model I want to build. So, what we want to do is, we want to help protective installed base and I think that's what I'm more interested in. The ASPs, depending on the mix, you're going to have a different answer.

Joe Wittine -- Longbow Research -- Analyst

Okay, that's helpful. And then John, your prepared remarks on driving total OpEx dollars, I think you said, materially lower, were interesting. It doesn't sound like you're ready to give details on the size of these initiatives today. Correct me if I'm wrong there. But can you also address the timing as we adjust to your models today? Should your initiatives become visible to the street this year or are looking beyond that?

John McMullen -- Executive Vice President and Chief Financial Officer

Yeah, I think my prepared comments around that were a multi-year approach for us. I think the way to think about is, we spent a lot of time in 2017 really understanding what we had, cleaning up a lot of things, improving our visibility across all the organizations, making some organizational changes. And we also front end loaded some investments that we felt were needed for the long-term growth of the company.

But we're at the point now where we have a baseline that we can really look at and take more of a business model approach going forward and what we think are appropriate cost structures over time. So, it's a multi-year project. I think we have a pretty broad portfolio. We've done some good early work in terms of setting the stage for where we think we should be heading as a company. But it's a multi-year project. As you think about '18, I think that the Q4 numbers from an operating expense, we're not providing any specific guidance or direction on the P&L but the Q4 is a decent proxy for a kind of a run rate for OpEx. We're not looking to grow our head count more as a company, we're going to start turning the corner gradually on operating expense. And we'll keep you posted on a regular basis. But this is a multi-year project for us.

Vyomesh Joshi -- President and Chief Executive Officer

I think the most important thing for us is we're building a company for long-term. And we need to invest appropriately and find innovation in go-to-market. And I think that's what we're focused on.

Joe Wittine -- Longbow Research -- Analyst

Thank you. If I could sneak in one really quick follow up. John, if you can just quantify how big a tailwind the Euro is to your 2018 from where we sit today. And I'll step out. Thanks.

John McMullen -- Executive Vice President and Chief Financial Officer

Yeah, we don't really make projections on foreign currency. Things can move pretty quick. So, no projections around that.

Operator

Our next question is Wamsi Mohan from Bank of America Merrill Lynch. Please go ahead.

Ruplu Bhattacharya -- Bank of America Merrill Lynch -- Analyst

Hi, it's actually Ruplu, filling in for Wamsi today. Thanks for taking the questions. Hey VJ, in the past you've talked about product quality issues. So just can you give us an update, maybe what percent of printers in the field still have issues with them?

Vyomesh Joshi -- President and Chief Executive Officer

So, I think, remember, I talked about our legacy product, especially multi-jet printing, where we had a lot of issues and our 300 platform. We have tackled all the issues throughout 2017. And I do believe that shows up into our net promoter score, where I talked about 20-point improvement in that promoter score. So, customers now are really very, very happy that we are attending to them, we are solving their problems, and moving forward, all the new products that we will be introducing in 2018, I'm taking personal accountability in making sure that we are going to have great quality and reliability, because we're designing for quality and reliability, designing for manufacturing, designing for assembly. So I believe we've turned the corner I talked about, I believe that -- but we had to invest a lot, because we had all those legacy issues, and I think we are seeing, now turning the corner, and I'm very confident that we are continue to work on that and make sure that quality and reliability is a very important aspect of every solution that we built.

Ruplu Bhattacharya -- Bank of America Merrill Lynch -- Analyst

Okay that's helpful. And maybe John, can you just help us quantify, was there any impact from the accounting changes on revenue and earnings in fiscal 4Q?

John McMullen -- Executive Vice President and Chief Financial Officer

Yeah. So first of all, as we noted in our preliminary results, we chose to do additional analysis around the revenue with cost related to product warranties. The outcome of that was no impact to Q4 or full year financial results. We did add a disclosure in the balance sheet around projected cost liability relative to original warranties on the balance sheet, but there was zero impact relative to the financial results for Q4 or full year. And also, since we're on changes and related topics, we want to make it clear that there was absolutely no impact relative to the 606 in 2017, that's a 2018 event. And as we get into 2018, right now, we don't believe that 606 will have any material impact on the company in either cost or revenues.

Separately, I do want to let folks know that as part of our ongoing disclosure enhancements and reviews, and to be consistent with how we internally review the company's results, in 2018, we will reclassify revenue costs related to initial product warranties from services to products. We've traditionally shown that in services, we're going to reclassify that from services to products, and we'll give disclosure each quarter that will enable all of you to do apples to apples comparisons on a year over year basis for those changes, and we will also give disclosures for any impact related to 606. We think those impacts will be minimal, nonmaterial to the company, and again, no impact in 2017, and the work we've done over the last week had no impact on financial results in 2017 at all.

Ruplu Bhattacharya -- Bank of America Merrill Lynch-- Analyst

Okay, thanks for the clarification. And if I can just ask one quick clarification, and there have been a lot of questions on go to market. So, I take it when you say that OpEx will remain challenged, is it because of go to market? Or what else is contributing toward your OpEx spend here from... Sorry, go ahead.

Vyomesh Joshi -- President and Chief Executive Officer

There are three aspects of it. First is IT, because we wanted to make sure we bring the processes to the right place, or the business processes, we need to automate them, so we had a major upgrade for our Oracle IT system. And that is also in our OpEx, that what you're seeing. And then the other two places are innovation, meaning R&D budget, because we want to make sure we build a platform, and the third one is the got to market. So, I just want to be clear there are three aspects to it. John, you want to add anything?

John McMullen -- Executive Vice President and Chief Financial Officer

Yeah, and I think when the earlier question around the longer-term outlook on OpEx. As VJ noted and I noted, we front end loaded a fair amount of cost over the last six to nine months in support of things where we really believed we needed to invest like go to market, like IT, quality in our services, P&L. So, the advance work for all the launches over the next six months. So, our run rate coming out of Q4 is something that's going to continue for a bit. But we will be able to turn the corner on that and start driving more cost out now based on a lot better visibility and having the organization and structure and operational cadence where we want it. So, we have very good views on where we ought to get, but we don't want to set an expectation that that's an overnight kind of event. That's going to take us some time.

Ruplu Bhattacharya -- Bank of America Merrill Lynch-- Analyst

Thank you for all the details.

Operator

Our next question is from Brian Drab from William Blair. Please go ahead.

Brian Drab -- William Blair -- Analyst

Hey, thanks for taking my questions. First, just a quick clarification, did you reclassify some revenue in the healthcare segment because the 2016 10-K shows 148 million in healthcare revenue but the 2017 10-K says that in 2016 you did 159.

John McMullen -- Executive Vice President and Chief Financial Officer

Yeah. So first of all, we haven't changed the way we classify healthcare revenue, but unfortunately, there was an error last year, and we understated healthcare revenue for the fourth quarter in 2016. So, in the 10-K, we provided the correct information for the comparison to 2017. So, if you look at -- when we talk about healthcare growth of 13% for the fourth quarter, 18% for the full year, those are based on the corrected numbers. So, we had an error. But we didn't change anything in terms of how we aggregate and classify healthcare revenue.

Brian Drab -- William Blair -- Analyst

Okay, alright. That makes sense. Thanks. And then John, you said I think pretty clearly that the fourth quarter OpEx level should be that the guidance, so to speak, for...

John McMullen -- Executive Vice President and Chief Financial Officer

No guidance.

Brian Drab -- William Blair -- Analyst

I used the word guidance, and yeah, let me edit the word guidance, whatever you want to call it, guide post.

John McMullen -- Executive Vice President and Chief Financial Officer

I would say, it's a good peg for kind of a run rate-ish number. But that can vary quarter to quarter. But it's not our intent to continue to ramp from an OpEx point of view, let's put it that way.

Brian Drab -- William Blair -- Analyst

Okay, and how about gross -- the last question just on gross margin, it's been around 47, adjusted in the third quarter, 48 this quarter. What should we expect in '18?

John McMullen -- Executive Vice President and Chief Financial Officer

I think the fourth quarter's a reasonable proxy plus or minus, where our margins will trend throughout the year.

Brian Drab -- William Blair -- Analyst

Got it, thank you.

Operator

Our next question is from Patrick Newton from Stifel. Please go ahead.

James Gruetzmacher -- Stifel -- Analyst

Hey, guys. It's actually James on for Patrick. John, just a clarification on the OpEx commentary that you've given about dragging it down over the next couple of years. Is that on a percentage of revenue basis or an absolute basis? And how should we expect that to fluctuate if you see a more meaningful return to growth here, up into the high single digits or even double digits?

John McMullen -- Executive Vice President and Chief Financial Officer

Yeah, I think certainly on a model basis, you should expect improvement and on an absolute basis, that'll be driven over the P&Ls in general. So, I think that's all we can really say right now.

James Gruetzmacher -- Stifel -- Analyst

Okay. And then to follow up on the IT and ERP investments that you made, how should we think about those costs in terms of being one-time costs relative to subscription models?

John McMullen -- Executive Vice President and Chief Financial Officer

Yeah, we'll continue to invest in IT in 2018. And the other part of it is, we've also rebuilt the IT organization in general. So, the biggest change for us I think coming out of the IT transformation work, will be the efficiency opportunities we've seen from the organization from having much better systems and processes going forward. And that'll be a contributor to reducing the cost over the whole company over time.

Vyomesh Joshi -- President and Chief Executive Officer

Yeah, I think the investment in IT is important. It's not a one-time, initially, we wanted to upgrade the ERP system, but I do believe our on-demand manufacturing, our other services, they need the right kind of a IT system, so we can really go after the business model I'm talking about, where material, services, and software will be important for us.

Operator

Our next question is from Sherri Scribner from Deutsche Bank. Please go ahead.

Sherri Scribner -- Deutsche Bank -- Analyst

Hi, thank you. I know you guys introduced some new products last year in 2017, and you clearly have a strong pipeline of products in 2018. I was trying to get a sense of how we should think about new products as a percentage of revenue in '17 and what is your goal for new products as a percentage of revenue in 2018. Thanks.

Vyomesh Joshi -- President and Chief Executive Officer

I don't think we are going to give any numbers there, I'm just very excited about the new products and product launches, because I do believe that shifting to production is something that we believe is the way we're going to continue to grow this business.

Sherri Scribner -- Deutsche Bank -- Analyst

Okay. And then thinking about production and some of your products which are targeted at final parts production, can you give us a sense of how much of your mix now is for machines that are going toward final parts, and then what is your long-term goal for...

Vyomesh Joshi -- President and Chief Executive Officer

Again, we don't give out that. But just to give you an example, so aligners, so we produce 300,000 aligners a day. The company is doing that using our technology to align. And I think that says that if you have a production kind of a use case, that's very vital for overall, our growth. And I think my view is, we need to find more and more use cases like this, which would give us significant opportunity for growth both in hardware and in materials.

Sherri Scribner -- Deutsche Bank -- Analyst

Okay, thank you.

Operator

Our next question is from Shannon Cross from Cross research. Please go ahead.

Shannon Cross -- Cross Research -- Analyst

Thank you very much. Hi, how are you doing? So, my question -- I have a couple. One, from a consumables perspective, can you talk a little bit about where you're seeing the most growth in consumables from a vertical standpoint, and maybe also from a geographic standpoint.

Vyomesh Joshi -- President and Chief Executive Officer

I think materials growth depends on the use cases. I think I gave you one example of dental and the aligners because that's a very clear vertical that I believe is a tremendous opportunity for the growth. The second vertical that I believe long term will be very important for us is not only in dental but healthcare and aerospace. Because we think that those are the two verticals where your complex and custom parts are going to be done using additive manufacturing. And when you're adding to the production kind of arena, that's where the growth is going to come from. Because material usage is directly related to the way I want to set up the annuity business model.

Shannon Cross -- Cross Research -- Analyst

And I guess when you're talking to end customers, I'm curious, I understand, the goal is to move from prototyping to mass manufacturing and or some level of manufacturing. Can you maybe characterize how the conversations have changed in the last year or two? From when you maybe came, to the last year, to now, in terms of where your customers are at in their thought process.

Vyomesh Joshi -- President and Chief Executive Officer

So, I think the customer needs are very clear. There are four customer needs that they talk about when you talk about production. The first and very important, is the part. Efficient quality, repeatability, and durability. Because at the end of the day, it's the part which will determine whether it's going to be end user or not. The second thing they ask is the productivity. Can I produce that part which can be an end user part, so that I will be able to run, let's say between 100,000 to a million or even maybe more, per year volume? The third thing they always ask is total cost of operations. Once you're in a production arena, cost becomes total cost of operations, including the footprint that you want to have, the cost of the materials, the maintenance cost, and the uptime. Those things become very, very important.

And I think that -- so if you look at the dental model that we just introduced in Chicago, with NextDent 5100, it's four times faster than anything comparative technology. So now, you have something very, very clearly productive point of view. It has the precision -- in dental, you're carving out custom parts, it has to have the accuracy and precision. And it will last inside your mouth for multiple years. So, having that NextDent acquisition that we did with the right materials and the Figure 4 technology, we are able to meet the customer needs for the production requirement. That's just an example I'm giving you. It's four times faster and 90% more -- from the cost-effectiveness than any other solution that you have. And we had repeat customers actually quoting when we launched that product. It's all about having the right customers and then they actually confirm, that that's what we can achieve the way things are going to shift to production use case by use case.

Shannon Cross -- Cross Research -- Analyst

Thank you.

Operator

This concludes the question and answer session. I'd like to turn the floor back over to Miss Witten for any closing comments.

Stacey Witten -- Vice President of Investor Relations 

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 in the Investor Relations section of our website at www.3Dsystems.com/investor. Thank you.

...

Operator

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

Duration: 59 minutes

Call participants:

Stacey Witten -- Vice President of Investor Relations 

Vyomesh Joshi -- President and Chief Executive Officer

John McMullen -- Executive Vice President and Chief Financial Officer

Andrew Johnson -- Executive Vice President and Chief Legal Officer

Ananda Baruah -- Loop Capital -- Analyst

Jim Ricchiuti-Needham & Company -- Analyst

Bobby Burleson -- Canaccord Genuity -- Analyst

Hendi Susanto -- Gabelli & Company -- Analyst

Joe Wittine -- Longbow Research -- Analyst

Ruplu Bhattacharya -- Bank of America Merrill Lynch -- Analyst

Brian Drab -- William Blair -- Analyst

James Gruetzmacher -- Stifel -- Analyst

Sherri Scribner -- Deutsche Bank -- Analyst

Shannon Cross -- Cross Research -- Co-Founder, Principal, and Analyst

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