3D Systems Corporation — Q3 2013 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2013. The company supplies 3D printers, printing materials, software and on-demand manufacturing services. Amounts below are in U.S. dollars; financial statement figures are in millions unless noted.
Financial performance
| Metric | Q3 2013 | Q3 2012 | Nine months 2013 | Nine months 2012 |
|---|---|---|---|---|
| Revenue | $135.7 | $90.5 | $358.6 | $252.1 |
| Gross profit | $71.4 | $46.9 | $187.5 | $128.7 |
| Gross margin | 52.6% | 51.8% | 52.3% | 51.1% |
| Operating income | $28.6 | $18.4 | $62.9 | $42.4 |
| Net income attributable to 3D Systems | $17.7 | $13.5 | $32.9 | $28.0 |
| Diluted EPS | $0.17 | $0.16 | $0.34 | $0.35 |
| Cash from operations | Not separately stated | Not separately stated | $44.4 | $44.0 |
- Q3 revenue rose 49.9% year over year; management reported organic growth of 29.7%. Printers and other products revenue increased 75.6%, materials 30.2%, and services 37.8%.
- Nine-month revenue increased 42.3%, with reported organic growth of 27.5%. Nine-month net income rose 17.3%, while diluted EPS fell to $0.34 from $0.35 as average basic shares increased to 96.9 million from 79.0 million.
- Q3 operating margin was approximately 21.0% versus 20.4%; nine-month operating margin was approximately 17.5% versus 16.8%. Net income growth was restrained by higher taxes and interest and other expense.
- Q3 consumer solutions revenue was $13.5 million, 9.9% of total revenue, versus $3.3 million a year earlier. Healthcare solutions revenue was $16.9 million, or 12.4% of revenue.
Cash, liquidity and debt
- Cash and cash equivalents were $345.4 million at September 30, up from $155.9 million at year-end 2012. Working capital was $436.8 million, compared with $212.3 million.
- Nine-month operating cash flow was $44.4 million. Investing used $122.5 million, including $113.1 million for acquisitions; financing provided $268.8 million, principally from $272.1 million net proceeds from a May common-stock offering.
- Current assets were $541.2 million and current liabilities $104.4 million. Capitalized lease obligations totaled $7.5 million.
- Convertible-note principal fell to $12.5 million from $91.0 million at December 31, 2012 after conversions; the remaining notes carry 5.5% interest and mature in December 2016. The company recorded an $11.3 million loss on conversions during the first nine months. Notes were convertible, and the company reported compliance with their covenants.
Changes, outlook and risks
- Growth reflected organic expansion and acquisitions, including four Q3 acquisitions: an 82% stake in Phenix Systems and acquisitions of TeamPlatform, CRDM and The Sugar Lab. The company also acquired three businesses earlier in 2013. Acquisitions contributed to higher goodwill, intangible assets and amortization expense.
- Management cited demand for professional and consumer printers, a larger installed printer base supporting materials sales, and growth in Quickparts and printer services. It continued investing in R&D and strategic areas including healthcare, consumer offerings and integrated design solutions. The filing provides no specific financial guidance.
- Management cautioned that printer revenue can vary with timing and concentration of orders and shipments, and with revenue-recognition timing. Backlog was $14.4 million, versus $9.3 million a year earlier, including $8.7 million of Quickparts orders.
- Receivables rose to $114.0 million; days sales outstanding increased to 77 from 72 at year-end, and receivables more than 90 days past due increased to 10.2% of gross receivables from 6.4%. Inventory increased to $66.1 million. These working-capital movements and quarter-end sales timing merit attention.
- Contingencies include the appealed DSM Desotech antitrust judgment and a patent dispute with Formlabs and Kickstarter; the latter case had been stayed for settlement discussions, but no settlement was reached and the company intended to pursue damages. The filing says other legal matters were not expected to materially affect results or financial position.
- After quarter-end, the company launched a tender offer for Phenix Systems’ remaining shares at €13 per share. The filing identifies foreign exchange exposure, acquisition commitments and earnouts, and intellectual-property indemnification obligations. Management stated that it might need additional funding beyond the next 12 months or for significant acquisitions.
- Disclosure controls were assessed as effective; no material change in internal control over financial reporting was reported. The company reported no material change in market-risk assessment or previously disclosed risk factors.
Important facts for investors to verify
- How much reported growth reflects organic demand versus acquisitions, and whether printer, software, materials and service growth and margins persist.
- Receivables aging, collection performance, inventory levels and backlog conversion, particularly given higher DSO and past-due receivables.
- The cash and share dilution effects of acquisitions, the Phenix tender offer, deferred purchase payments and earnouts.
- The remaining convertible-note balance, conversion-related losses and potential dilution; compare GAAP results with management’s non-GAAP measures and their stated adjustments.
- Developments in the DSM Desotech appeal and Formlabs litigation, along with any material changes in the company’s funding needs or stated risks.