3D Systems Corporation — FY2016 Form 10-K
Reporting period: Fiscal year ended December 31, 2016; quarterly figures below are unaudited. 3D Systems provides 3D printers, materials, software, on-demand manufacturing and healthcare-related solutions.
Financial performance and liquidity
| Metric | FY2016 | FY2015 |
|---|---|---|
| Revenue | $633.0 million | $666.2 million |
| Gross profit / margin | $309.8 million / 48.9% | $291.8 million / 43.8% |
| Operating loss | $38.4 million | $641.9 million |
| Net loss attributable to 3D Systems | $38.4 million; $0.35 per share | $655.5 million; $5.85 per share |
| Cash from operating activities | $56.9 million | Cash used: $3.1 million |
| Cash and cash equivalents at year-end | $184.9 million | $155.6 million |
| Working capital | $302.5 million | $287.0 million |
FY2016 revenue by management’s product-class presentation was products $223.5 million, materials $156.8 million and services $252.6 million. Revenue from outside the U.S. was 49.3% of total. Capital expenditures were $16.6 million. Year-end debt and capitalized lease obligations totaled approximately $8.2 million, primarily lease obligations; the $150 million revolving credit facility had no borrowings and was fully available, subject to covenants.
Q4 FY2016: Revenue was $165.9 million, gross profit $82.9 million, operating income $4.1 million and net income attributable to 3D Systems $5.2 million ($0.05 per share). Q4 FY2015 revenue was $183.4 million and operating loss was $565.9 million, including substantial impairment charges.
Changes versus prior periods
- Annual revenue fell 5.0%, as lower printer sales—including the exit from consumer products—and lower on-demand manufacturing services more than offset growth in materials and software.
- Materials revenue increased 4.1%; on-demand parts services revenue decreased 17.8% to $104.8 million. Software revenue from products and services rose 12.3% to $87.7 million.
- Gross margin rose 5.1 percentage points to 48.9%, aided by cost reductions and a mix shift away from lower-margin consumer products.
- Operating expenses fell 62.7%, largely because FY2015 included $537.2 million of goodwill and intangible-asset impairments. Excluding those impairments, FY2016 operating expenses declined 12.2% year over year.
- FY2015 net loss included the impairment charges; no goodwill or finite-lived intangible impairment was recorded in FY2016. FY2016 did include $7.4 million of property and equipment impairment.
Outlook, commentary, risks and unusual items
- Management emphasized a strategy focused on industrial and healthcare applications and a shift from prototyping toward production. It plans continued investment in hardware, software, materials and customer-specific applications. The filing provides no quantified revenue, earnings or margin guidance.
- In January 2017, the company acquired dental-materials provider Vertex-Global Holding for approximately $37.6 million, including about $34.3 million in cash and $3.2 million in stock. Management cited digital dentistry and healthcare applications as strategic opportunities.
- Cash from operations improved to $56.9 million, supported in part by noncash charges and working-capital movements; the company nevertheless recorded a GAAP net loss. Management said existing cash should meet foreseeable operating and capital needs, while noting future financing might be needed and could dilute shareholders.
- Key disclosed risks include competition and technology change, uneven quarterly sales and product mix, reliance on select suppliers, foreign exchange and global-market exposure, possible future asset impairments, cybersecurity, product quality and litigation.
- A former employee’s arbitration resulted in an approximately $11.3 million award provision recorded in 2015. A court entered judgment for the principal amount in 2016 and denied the company’s motion to vacate; motions concerning the judgment and prejudgment interest remained pending. The company stated it intended to appeal.
- A securities class action and related derivative suits remained unresolved; the class-action motion to dismiss and subsequent motion for reconsideration were denied. The company said it believed the claims were without merit and intended to defend them.
- The company reported effective disclosure controls and internal control over financial reporting. Its auditor issued unqualified opinions on the financial statements and internal controls.
Important facts for investors to verify
- Whether revenue stabilizes and printer and on-demand services sales recover, while materials and software growth continues.
- Whether improved gross margin and operating-cost reductions translate into sustained operating profitability and cash generation.
- Cash requirements and integration results for the Vertex/NextDent acquisition, alongside the company’s acquisition and capital-allocation plans.
- Final outcomes and any additional costs from the Barranco matter and securities and derivative litigation.
- Exposure to supplier disruptions, foreign-currency movements, inventory obsolescence and potential goodwill or intangible-asset impairments.