3D Systems Corporation — FY2013 Form 10-K
Business context and reporting period: This annual report covers the fiscal year ended December 31, 2013; it is not a standalone Q4 filing. 3D Systems sells 3D printers, materials, software, scanning tools and on-demand manufacturing services. It reported one business segment and generated 44.5% of revenue outside the U.S.
Key financial results
| Metric | FY2013 | FY2012 | Change |
|---|---|---|---|
| Revenue | $513.4 million | $353.6 million | +45.2% |
| Gross profit / margin | $267.6 million / 52.1% | $181.2 million / 51.2% | Margin +0.9 percentage points |
| Operating income / margin | $80.9 million / 15.8% | $60.6 million / 17.1% | Income +33.5%; margin lower |
| Net income attributable to 3D Systems | $44.1 million | $38.9 million | +13.3% |
| Basic and diluted EPS | $0.45 | $0.48 | Lower year over year |
| Cash from operations | $25.2 million | $51.5 million | Down $26.3 million |
| Cash and cash equivalents | $306.3 million | $155.9 million | Up $150.4 million |
| Working capital | $416.4 million | $212.3 million | Up $204.1 million |
- FY2013 revenue rose across product categories: printers and other products were $227.6 million, materials $128.4 million, and services $157.4 million. Printer revenue increased 72.7%; materials revenue grew 24.4%; services revenue grew 27.2%.
- Operating expenses rose 54.8% to $186.7 million, including R&D of $43.5 million, up 87.4%. Management cited product development, launches, channel expansion and staffing. Higher expenses outpaced revenue growth and contributed to the lower operating margin.
- Net income included $51.4 million of non-cash expenses, primarily depreciation and amortization, stock compensation, and convertible-debt conversion losses. The company’s non-GAAP adjusted net income was $83.7 million; this measure excludes specified expenses and is not a GAAP result.
- Investing activities used $173.8 million, including $162.3 million for acquisitions; capital expenditures were $7.0 million. Financing activities provided $298.7 million, primarily from a $272.1 million net common-stock offering.
- Operating cash flow was reduced by working-capital investment, including increases in receivables and inventory. Days sales outstanding rose to 79 from 72. Inventory increased to $75.1 million from $41.8 million.
- Debt included $12.5 million principal outstanding on 5.50% senior convertible notes due 2016 (carrying value $11.4 million) and $7.5 million of capitalized lease obligations. The company converted $80.8 million principal of notes into shares during 2013 and recorded an $11.3 million conversion loss.
Q4 and changes versus the comparable period
- Q4 2013 revenue was $154.8 million, up 52.4% from $101.6 million in Q4 2012. Q4 gross profit increased to $80.1 million from $52.5 million.
- Q4 operating income was $18.0 million versus $18.2 million a year earlier, while operating expenses rose to $62.1 million from $34.3 million. Q4 net income attributable to 3D Systems was $11.2 million versus $10.9 million; EPS was $0.11 versus $0.13.
- Full-year organic revenue growth was 29.4%, compared with 22.4% in 2012; Q4 organic growth was 34.3%, versus 18.8% in Q4 2012, using the company’s definition that excludes businesses owned for less than 12 months.
- Cash rose substantially, but mainly reflecting equity issuance; cash from operations declined. Goodwill grew to $370.1 million and net intangible assets to $141.7 million, largely alongside acquisition activity.
Outlook, commentary, risks and unusual items
- The filing gives no quantified financial guidance. Management described continued expansion of manufacturing capacity, including plans to at least triple direct-metal printer output, and reported an expansion plan for its Rock Hill facility.
- Management’s growth priorities were expanding Quickparts, increasing printer adoption, growing healthcare solutions, building consumer and retail offerings, and developing integrated tools for engineers. New product announcements and partnerships were presented as growth initiatives, not guaranteed results.
- In 2013 the company completed 11 acquisitions. Purchase-price allocations were preliminary; acquisition integration, expected benefits, and acquired-asset valuations remain important uncertainties. The company also reported a subsequent acquisition of Digital PlaySpace in February 2014.
- Goodwill impairment testing in 2013 found reporting-unit fair values above carrying values, and no impairment was recorded. Management cautioned that lower share prices, results below projections, or changed market assumptions could prompt reassessment and non-cash impairment charges.
- Material risks include competition and rapid technology change; dependence on limited or single suppliers for certain components; integration and execution risks from acquisitions; product liability and intellectual-property disputes; foreign-exchange exposure; cybersecurity; and potential dilution from equity issuance.
- At year-end, printer-assembly purchase commitments were $41.1 million, deferred acquisition payments were $4.5 million, and recorded acquisition earnout liabilities were $5.6 million. The DSM Desotech appeal and the company’s patent litigation against Formlabs remained matters to monitor; the filing does not provide a clear quantified estimate of potential exposure.
- The effective tax rate was 31.1%, compared with 10.0% in 2012, when valuation-allowance releases and use of tax-loss carryforwards reduced tax expense. The company reported no valuation allowance against U.S. deferred tax assets at year-end 2013.
Important facts for investors to verify
- Whether revenue growth and order backlog (reported at $28.6 million, including $17.2 million of printer orders) convert into sustained profitability and operating cash flow.
- Whether receivables, inventory, and the increase in days sales outstanding indicate collection or inventory-obsolescence concerns.
- How much future growth is organic versus acquired, and whether the 2013 acquisitions deliver expected returns without further margin pressure.
- The assumptions underlying goodwill and intangible-asset valuations, and the potential effect of further acquisitions or weaker operating results.
- The remaining convertible-note terms, future share issuance or dilution, and the company’s substantial near-term supply commitments.
- The status and potential financial impact of the disclosed litigation, tax examinations, and other contingencies.