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CORPORATE FOCUS — Drastic Measure Have Made A Difference at 3D Systems

Valencia-based 3D Systems Corp. is proof that it’s possible to turn a company around in a remarkably short period of time: All you have to do is fire your entire management team, radically cut expenses and pray the market for your product makes a giant comeback. At least that’s the model that worked for 3D Systems, whose stock was trading for $4 a share last September and hit a 52-week high of $20.13 on July 6. 3D Systems makes solid-imaging machines and thermal jet printers that convert computer images into solid objects, by instructing a laser to build a prototype out of liquid epoxy plastic. Up to this point, the technology has been used to make prototypes and molds. The company’s clients include auto manufacturers such as Ford Motor Co. and General Motors Corp., toy makers such as Mattel Inc. and medical supply makers. The stock price climb caps off a tumultuous year for 3D Systems, which was bleeding money a year ago. In June 1999, facing increasing losses, the board of directors voted to replace the existing management team. They hired consultancy Regent Pacific Management Corp. as an interim team to cut expenses and retool the company’s mission. “The company was in pretty dire straits nine months ago,” said Brian Service, the new president and chief executive. “Turnarounds don’t happen overnight. We’re still structurally improving the company, as well as refocusing.” They have made surprising progress. After three straight quarters of losses, 3D Systems was back in the black by the fourth quarter of 1999. For the first quarter ended March 31, it reported net income of $1.1 million (9 cents a share), compared with a net loss of $2.3 million (20 cents) for the like period a year earlier. Revenues were $23 million vs. $22.7 million. CEO Service credits the board of directors’ quick move in removing the prior management team and bringing in Regent Pacific as an interim manager for the turnaround. The new management cut operating expenses by 27 percent in the first quarter, consolidated the company’s European operations, laid off nearly 10 percent of the workforce and worked to increase the company’s recurring revenues for servicing and selling materials for its machines. “We took fairly difficult steps,” Service said. “But we didn’t do anything that would impede the company’s continuing growth.” At the same time that 3D’s management was working to cut costs, the market for solid-imaging systems began to make a comeback. In 1998 and 1999, the entire industry saw a slowdown as demand declined, said Terry Wohlers, of Wohlers Associates, a Colorado-based consulting firm to the solid-imaging industry. “The industry is only 13 years old,” Wohler said. “We’ve seen some leveling off in the past couple years in the level of growth.” That decline forced companies like 3D Systems to cut expenses. When the market began to recover last year, they got a double boost from lower expenses and more business, said L. Michael Braig, an analyst with A.G. Edwards. Braig said the current stock upswing has to do with 3D Systems’ push to extend the market for its technology. “The change in focus came because we saw a need for the company to get more benefit from the money it spent in development,” Service said. “And we saw that it was more what the customers and market were asking for.” Many companies like 3D Systems are changing from making models to pumping out actual products, at substantially lower costs than those experienced by manufacturers. 3D Systems is also developing new materials for use in building prototypes and products. Up to now, the material has been expensive to make, and thick and brittle, making it OK for a model but not much good for actual products. “Their belief is that using different materials will expand their market,” said Jeff Bansinderen, an analyst with B. Riley and Co. “I don’t know that that’s been proven yet.” Though analysts like Wohler are optimistic about 3D Systems’ future, Bansinderen is skeptical. He says some analysts have been overconfident of the company’s turnaround, with consensus estimates predicting annual earnings per share to reach 80 cents this year, compared with a loss of 47 cents a share in 1999. “The estimates may be a little aggressive,” he said. Though B. Riley doesn’t officially cover the company, he estimates earnings per share will hit 70 cents this year. Service said if the company is able to broaden its market, he believes its current stock price reflects its true value. Ever since the new management team was brought in last September, “the company has moved into profitability and essentially met analysts’ objectives,” he said.

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