3D Systems Defends Public Disclosures

A few articles have cropped up on the web recently, attacking 3D Systems’ public disclosures and accounting methods. One such article, titled “3D Systems: Has The Printer Jammed?” was published on the website Seeking Alpha, claimed 3D Systems’ continued economic growth was due to creative accounting and primarily based on acquisitions.  An example of this can be found in the following statement, taken from the Seeking Alpha article:

“This overstates DDD’s true growth rate. Through Q3, it posted total revenues of $252.1M representing yoy growth of 57%. If the Z Corp/Vidar revenues are backed out, then the total revenues are $211.9M. This reduces the yoy growth rate to 32%. This single acquisition accounts for a whopping 25% of DDD’s stated revenue growth (57 - 32). I am not declaring that DDD’s reporting is inconsistent with GAAP. I am simply stating the obvious, that DDD is overstating its true growth rate.”

On November 19, 3D Systems held a conference call to dispute these allegations. Speaking on behalf of the company were Abe Reichental, president and CEO; Stacey Witten, investor relations manager; Damon Gregoire, senior vice president and CFO; and Andrew Johnson, vice president and general counsel.

According to transcripts acquired by Rapid Ready, following an opening state by Witten about forward-looking information, Reichental launched directly into a denial of the accusations. From the transcript:

“While in the ordinary course, we respect opposing views on our company’s strategy and valuation and generally refrain from commenting on bearish analysis, we believe that these particular articles cross the line and are based on blatantly false statements and fabricated allegations that are designed to damage our reputation and impair our ability to operate for the benefit of our customers and shareholders.”

Reichental also stated the company’s intent to seek legal action against the parties involved in the attacks on 3D Systems. The call then moved to an explanation of 3D Systems acquisition strategy, which is based on five growth initiatives.

• Accelerate 3D printer penetration
• Grow healthcare solutions
• Integrate 3D authoring solutions to combine capture, mesh, surface, model and measure
• Expand Quickparts services globally
• Build significant consumer presence

According to Reichental, the 31 companies acquired by 3D Systems were paid for with $300.3 million in cash and $16 million in shares of common stock. He further stated that all acquisitions are, “…fully counted as part of our share count.” and reaffirmed that the company’s management had no previous investments in the companies, which might lead to SEC violations.

Following an in-depth look at acquisitions, Reichental turned the call over to CFO Gregoire, who broke down the accounting methodology used by 3D Systems. Gregoire wasted little time in defending the company’s accounting. He addressed the claims that acquisitions were being used to bolster the bottom line, saying:

“Specifically, we count newly acquired business revenue from the date of acquisition until its 12-month anniversary as acquired revenue. From its 12-month anniversary forward, we add the actual total first year revenue to our total base and count only the incremental revenue growth going forward on our total base as organic revenue.

“In cases where a new product was released during the first 12-month period that was commercialized using our own R&D product development, that specific product revenue is counted as organic revenue.”

3D Systems then went on to defend against specific claims made in the articles, the first of which was that the company doesn’t fully disclose acquisitions revenue. 3D Systems’ response is that not only do they release the organic figures mentioned above, but they also release projected growth numbers based on what the company’s finances would have looked like without the acquisitions. Other specific claims were similarly debunked.

I’m no accounting expert, but some of the claims made in Seeking Alpha’s article still made me raise my eyebrows. Specifically, the claim made by the author that the 3D printer market is saturated, owing to the fact that rapid prototyping has reached its peak. That sems like claiming Apple won’t sell any more iPhones because half the planet already has a smartphone.

Interested parties can find the 3D Systems slide show that went along with conference call here (right column).

Sources: 3D Systems, Seeking Alpha