3D Systems Corporation — Q1 2016 Form 10-Q
Reporting period: Quarter ended March 31, 2016. 3D Systems sells 3D printers, materials, digital design tools, and manufacturing and healthcare services. Unless otherwise noted, amounts below are in U.S. dollars and millions.
Financial performance and liquidity
| Metric | Q1 2016 | Q1 2015 / prior date |
|---|---|---|
| Revenue | $152.6 | $160.7 |
| Gross profit / margin | $77.5 / 50.8% | $79.0 / 49.1% |
| Operating loss | $(16.8) | $(17.5) |
| Net loss attributable to 3D Systems | $(17.8); $(0.16) per share | $(13.2); $(0.12) per share |
| Non-GAAP net income / diluted EPS | $5.2 / $0.05 | $5.2 / $0.05 |
| Operating cash flow | $18.1 | $(0.9) |
| Cash and cash equivalents | $169.8 | $155.6 at Dec. 31, 2015 |
| Working capital | $284.5 | $287.0 at Dec. 31, 2015 |
There were no borrowings under the $150 million revolving credit facility at quarter-end; the company reported approximately $150 million of availability, subject to financial covenants. Capitalized lease obligations totaled $8.6 million. Current assets were $432.5 million and current liabilities $148.0 million. Cash held outside the U.S. was $72.1 million.
Changes versus the prior-year quarter
- Revenue fell 5.1%. Product revenue, as presented in management’s product/materials/services breakdown, declined 16.3% to $52.5 million. Materials rose 3.7% to $38.5 million and services rose 1.1% to $61.6 million.
- Management attributed the product decline mainly to lower 3D printer sales and the discontinuation of consumer products. Asia-Pacific revenue declined 16.1%; management cited continued macroeconomic weakness. Foreign-currency translation reduced revenue by $1.6 million.
- Gross margin improved 1.7 percentage points, driven by stronger materials and services margins; product margin fell 2.7 points amid lower printer sales. On-demand manufacturing services revenue declined 15.2%, and its gross margin fell to 41.8% from 44.4%.
- Operating expenses decreased 2.3% to $94.3 million. Lower amortization and legal costs were partly offset by higher compensation costs. Operating loss narrowed, but net loss increased, primarily reflecting the change from a prior-year tax benefit to a current-period tax provision.
- Operating cash flow improved to $18.1 million, with non-cash charges and working-capital changes contributing. Investing used $4.5 million, versus $82.5 million in Q1 2015, which included acquisition payments.
Outlook, risks, and unusual items
- The filing provides no specific revenue, earnings, or cash-flow guidance. Management said existing cash and cash equivalents were expected to meet foreseeable operating, capital, and other liquidity needs, while noting future financing might be needed and could be unavailable on acceptable terms.
- Management identified competitive and technology pressures, execution and integration of acquisitions, supply-chain dependence, foreign exchange, litigation, cybersecurity, and the ability to generate operating cash flow among the risks to future results. It reported no material change in risk factors from the 2015 Form 10-K.
- A securities class action and six related derivative lawsuits were pending; the company said it considered the claims without merit and intended to defend them. A separate arbitration award of approximately $11.3 million was recorded as a long-term liability; the company was seeking to vacate the award, and related court motions were pending. The company stated any ultimate payment would be funded from cash on hand.
- Printer-assembly supply commitments were $51.7 million. Acquisition earnout and deferred-payment liabilities totaled $10.1 million. Put rights relating to a subsidiary could require an estimated $8.9 million payment in future periods, with exercise no earlier than 2019 and the ultimate amount dependent on future performance.
- Vyomesh Joshi was appointed President and CEO effective April 1, 2016. The quarter also included a $0.9 million impairment of investments and a $1.5 million foreign-exchange transaction gain.
- Management reported effective disclosure controls as of March 31, 2016 and no material changes in internal control over financial reporting.
Important facts for investors to verify
- Whether printer demand, product revenue, and Asia-Pacific performance recover, and how new product launches contribute to sales.
- Whether higher materials and services margins can persist, particularly given weaker on-demand manufacturing revenue and margin.
- The sustainability of positive operating cash flow and the effects of receivables, inventory, and deferred-revenue movements.
- Developments and potential financial outcomes in the securities, derivative, and Barranco litigation, including the pending challenge to the arbitration award.
- Future cash requirements from supply commitments, earnouts, and subsidiary put rights, as well as compliance with credit-facility covenants and actual available capacity.
- The basis and limitations of non-GAAP results: reported non-GAAP net income excludes amortization, acquisition and severance costs, and stock-based compensation.