Beleaguered 3D Systems Begins Long Road to Recovery By CARLOS MARTINEZ Staff Reporter As a tough economy was taking its toll on the company’s finances, officials at Valencia-based 3D Systems were wondering how they would survive as they also faced lawsuits, internal audits and even the delisting of company stock for failing to file an annual report on time. But two years after troubles began, the company is showing sputtering signs of recovery with plans to cut costs to move the business forward. “We’re coming to the end of a long and difficult process,” said Chief Executive Brian K. Service. 3D Systems manufactures laser equipment to make precision cut three-dimensional models made from metal and plastics for manufacturers of everything from new appliances and auto parts to racing cars and aircraft parts. In its most recent quarter results, ending March 31, the company reported a $6.9 million loss ($0.54 per share) on revenue of $23 million compared with net income of $8.7 million ($0.66 per share) on revenue of $27.5 million in the year-ago period. Although the company reported a loss, it would have been worse had it not implemented cost cutting measures and efforts to streamline its overall operation, Service said. “In the coming quarters, we intend to focus our attention on continuing to control costs while aggressively moving to take advantage of opportunities,” he said. Its stock resumed trading on Nasdaq on July 17 after the company finally filed its first-quarter results. Antitrust probe It was just two years ago that the company’s troubles began. It announced it would acquire fellow digital modeling equipment-maker DTM Corp., based in Dallas, prompting an immediate antitrust investigation by the U.S. Department of Justice. The department was worried that the transaction would give the newly-combined company about 80 percent of the U.S. market. Stratasys Inc. of Minnesota is the only other U.S. firm that competes with 3D Systems. But the DTM acquisition was approved last year when 3D Systems agreed to license its Rapid Prototyping technology to others who might want to compete in the market. But the investigation took its toll on the company as many of its top management staff was required to testify before a government investigative panel over a period of months, adversely impacting the company’s ability to conduct business. The 2002 acquisition of resin-maker RPC limited was supposed to help the company, but it resulted in a lawsuit brought by Vantico Inc., over 3D’s cancellation of its 13-year-old development contract which made it 3D’s sole provider of resin products. Even as orders for 3D’s laser cutting devices slumped after the Sept. 11, 2001 terrorist attacks, the company was facing mounting costs and declining revenues. Mounting debt It’s acquisition of DTM Corp. added 200 new employees and a multimillion-dollar debt incurred by the mostly leveraged $45 million deal. The company shut down DTM’s longstanding plant in Austin, Texas, and laid off nearly all of its workers as it consolidated those operations with those in Valencia. Although the company’s cutbacks helped reduce overall costs, it still had to deal with declining revenue. “We sold fewer large frame systems as many of our corporate customers tried to make do with the systems they had,” Service said. For the year, the company reported a $14.9 million loss or $1.16 per share on $116 million in sales, compared to a year earlier when it reported a $2.4 million loss or $0.19 cents per share on $118.7 million in sales. In February, company officials discovered a potential overstatement of revenue for the year-end quarter and began an internal investigation. By the time the audit was completed in May, company Chief Financial Officer E. James Selzer was fired along with a sales staffer and company president Grant Flaharty was demoted to head of domestic sales. During its internal audit, it was discovered that the company had overstated is revenue for all of 2002 by $3 million, forcing the company to restate its revenues for the year. “Anytime you have overstatement issues and accounting problems, it has far reaching consequences for a company,” said Milan Vukovic, an analyst with Alpha Banker. “But they have the advantage of having a big share of the market.” Quick response The company’s quick response of hiring Deloitte & Touche to conduct the internal audit and take action against those responsible for the accounting errors have helped the company get back some of its reputation, Vukovic said. In May, the company offered $16 million in convertible stock to help repay some of its $20 million revolving debt. But in the meantime, 3D Systems was unable to file its annual report until June 30 months after it was due. Trading in its stock was halted and it was delisted after the company was unable to file the report on time with Nasdaq. On July 15, the company filed its first quarter results and two days later, the stock was again being traded on Nasdaq’s national market. The stock went from $8.68 a share when the accounting problem was discovered to its 52-week low of $4 a share on April 15 before climbing back to $9 a share last Friday. The stock’s 52-week high was $10.15 on Jan. 15. Meanwhile, the company is slowly moving forward with new products such as software and hardware as it attempts to rebound. But officials and analysts say it’s unclear how well these will do.
