A Rapid Turnaround for Maker Of Advanced Imaging Systems

0

Just two years ago, 3D Systems Corp. was an executive’s worst nightmare.


Teetering on the brink of bankruptcy, the manufacturer of rapid imaging devices faced an antitrust investigation by the Justice Department and a revenue recognition probe by the Securities and Exchange Commission.


Its chief executive and chief financial officer had resigned, and the company was saddled with litigation from an acquisition made in 2001.


That’s when Abe Reichental, a long-time executive at packaging giant Sealed Air Corp., received a life-changing call from a headhunter.


“At the time, I wasn’t looking for a job and I had to determine if I wanted to leave my comfortable cocoon and take on a rescue mission,” said Reichental, who spent two weeks conducting his own due diligence before accepting the post of chief executive. “The business had fallen into a fairly deep ditch, but it had passionate people, a strong technology and a loyal customer base. So I thought there was still life in it.”


Despite its woes, 3D Systems holds 370 patents in the fields of rapid prototyping and stereo-lithography processes that create prototypes or mock-ups of three-dimensional objects.


Analysts believe the applications are vast. Film and videogame companies, for example, use prototyping to transform real-world objects into digital products. Boeing Corp. uses one of 3D’s techniques to make air ducts that are used in fighter planes.



Fixing problems


When Reichental took the reins in late 2003, he spent the first three months assembling a new management team that includes founder Charles Hull, several executives from Sealed Air and a handful of existing managers.


To beef up revenues, the company invested in new products and began analyzing its customer base with the ultimate goal of refocusing its sales team.


Addressing the lingering legal problems involved more heavy lifting.


That included the 2001 acquisition of DTM Corp. for $45 million. As it turned out, DTM had 13 global lawsuits, most of them patent infringement claims from competitors, which were eating up between $5 million to $8 million a year in legal fees. “When you inherit a situation like this, you can quickly conclude there will be no winners except the lawyers,” said Reichental.


The acquisition gave 3D Systems an 80 percent market share in the U.S., prompting the Justice Department to file a civil antitrust lawsuit alleging that the merger would reduce the number of competitors in the rapid prototyping industry.


In addition, 3D’s previous chief financial officer had booked $3 million in revenue in the wrong quarter, prompting the SEC investigation.


Reichental said that when he was researching the job offer, he wanted to understand not just the technology but also the legal and business challenges.


More than a year later, he has been able to settle nearly all the litigation. The company crafted an agreement with the Justice Department that allowed the DTM deal to go through in exchange for 3D Systems entering into agreements with two Japanese manufacturers to open the U.S. market.


In November, 3D Systems reported its first profit in more than two years. Shares of the thinly-traded stock have doubled in the past year, to roughly $22 each.


Eric Martinuzzi, an analyst at Craig-Hallum Capital in Minneapolis, said the company fell into a financial hole during the so-called “manufacturing recession” from 1999 to 2003.


“It was a very tough job to manage through,” said Martinuzzi, who has a $27 price target on the stock. “When the board brought Reichental in, they were looking for someone to reinvent the company. It had been off people’s radar screens for a long, long time.”


Rapid prototyping is growing in excess of 50 percent a year, Martinuzzi said. The manufacture of hearing aids, in particular, has been transformed by the technology, which allows doctors to use lasers to create hearing aid shells that fit the precise specifications of an individual ear.


Jay Harris, a principal at Goldsmith & Harris in New York, a shareholder whose company raised capital for 3D in 2003, thinks it’s one of the few manufacturing processes that won’t be migrating to China. “It’s a technique that substitutes capital labor and materials costs so you have a virtual warehouse,” he said. “You don’t need any place to store your products.”



Staff reporter Kate Berry can be reached at (323) 549-5225, ext. 228, or at

[email protected]

.

No posts to display