3D Systems Reports Operating Results
"Specifically, we started up our new ERP system in the U.S. on May 1, 2006 and in most of Europe in mid-June 2006. While we expect the ERP system to ultimately improve our business processes, efficiency and control environment, following the start up of the system, we encountered disruptions in processing transactions in the system that affected our ability to enter and process customer orders, procure and manage inventory, schedule orders for production and shipping and invoice finished products to customers," continued Reichental.
"We also experienced significant disruptions in our supply chain activities that led to shortages of parts and materials, resulting in loss of parts and materials' revenue, a consequent loss of service revenue, higher service and expediting costs and the need to compensate customers who were adversely affected by these shortages," continued Reichental. "These shortages also delayed shipments of finished products, which reduced revenue recognized in the second quarter and resulted in an estimated $8.3 million of backlog for new orders placed during the second quarter that we were unable to ship during the quarter.
"In addition, difficulties with the new ERP system also impacted our ability to test and analyze certain data recorded in the ERP system necessary to complete the financial statements required for the 10-Q filing, which caused us to file for a filing extension permitted by the SEC's rules. The filing of our Form 10-Q today enables us to remain current in our SEC filing obligations," said Reichental.
"As we have said previously, our new, sophisticated, advanced manufacturing-capable Sinterstation(R) Pro, Viper(TM) Pro and 3-D Printing systems, with their broader range of capabilities, continued to require more extensive commissioning and training to achieve operating stability and operating potential for some customers. As a result of the high volume of sales of these systems that we have enjoyed in recent quarters, and the continued need for additional commissioning and training time, we also have experienced field service resource constraints and equipment stability issues that have delayed the start-up of some systems," continued Reichental.
"During the second quarter, we continued to address these issues, and we believe we made meaningful progress by working closely with our customers to resolve system stability issues in a mutually beneficial manner. We also intensified our own internal training and provided more extensive customer training, support and installation activities than the services we traditionally provide with our legacy systems. Nonetheless, we encountered higher warranty and related costs that adversely affected our gross profit in the second quarter and first six months of 2006," said Reichental.
"Notwithstanding all of these challenges, we are heartened by the fact that we ended the quarter with a significantly larger backlog of new orders compared to our historical experience, which we believe suggests that our lower than anticipated results in the second quarter were symptoms of the disruptions we experienced rather than a fundamental problem with our business," continued Reichental.
"We are pleased that, since the beginning of July, the focused corrective action plan that we have implemented enabled us to process and ship the majority of the new order backlog we had at the end of the second quarter. Although there can be no assurance that all of these outstanding orders ultimately will result in sales to and revenue from customers, we believe that the backlog and our progress in shipping it suggests, first, that the demand for our products and services remains strong and, but for the problems we experienced in fulfilling orders, would have contributed to a significantly better second quarter than we experienced and, second, that we are making real progress in correcting these disruptions," concluded Reichental.
"Despite the second quarter's disappointments, we firmly believe that we have made significant progress in many areas. For example, since the beginning of 2006:
-- "We have entered the advanced stages of executing our plan to consolidate our corporate headquarters' functions in a new facility in Rock Hill, South Carolina, which is intended to enhance our effectiveness and customer responsiveness and to reduce overall costs, including recruiting some 80 new employees to work with us there;
-- "We announced an exciting agreement with Symyx Technologies to work together to discover and commercialize advanced materials for use in our Rapid Prototyping and Rapid Manufacturing solutions;
-- "We reached an agreement in principle with DSM Somos to cross-license certain patents and other intellectual property related to stereolithography materials;
-- "We entered into an agreement to sell our Grand Junction facility for a $7.3 million cash purchase price, subject to the satisfaction of certain customary conditions;
-- "All outstanding shares of our Series B Convertible Preferred Stock were converted into 3D Systems' common stock in June, simplifying our capital structure and reducing our dividend expense for the future;
-- "We continued to develop in partnership with York Technical College what we expect to be a world-class training center adjacent to our new headquarters that will provide training to our customers, resellers and employees;
-- "We signed agreements in principle with Integra Services International, Inc. and Total C S Team, Inc. that would enable each of them to become non-exclusive 3D Systems' authorized service providers to provide repair and upgrade services in the United States for our selective laser sintering and stereolithography equipment; and
-- "We have continued to focus on broadening our product portfolio consistent with our key initiatives to grow our Rapid Manufacturing and 3-D Printing base,"
said Reichental. "We are continuing to aggressively correct all of the remaining ERP, supply-chain, relocation and systems' stabilization-related issues, and to remedy as promptly as we can the control deficiencies discussed above that we identified for the second quarter. We expect to successfully resolve all remaining issues within the next few months and to end 2006 with all of our key initiatives fully implemented. We remain confident in our direction and expect that these key initiatives will provide us with demonstrable benefits as we move forward," concluded Reichental.
Conference Call and Audio Webcast Details
3D Systems will hold a conference call and audio Webcast to discuss its second-quarter and first-half 2006 financial results tomorrow morning, August 15, 2006, at 9:00 am Eastern Time (6:00 am Pacific Time).
-- To access the Conference Call, dial 1-888-336-3485 (or 706-634-0653 from outside the United States). A recording will be available two hours after completion of the call for seven days. To access the recording, dial 1-800-642-1687 (or 706-645-9291 from outside the United States) and enter 4556751, the conference call ID number.
-- To access the audio Webcast, log onto 3D Systems' website at www.3dsystems.com. The link to the Webcast is provided on the homepage of the website. To ensure timely participation and technical capability, we recommend logging on a few minutes prior to the conference call to activate your participation. The Webcast will be available for replay beginning approximately 48 hours after completion of the call at: www.3dsystems.com under the Investor Relations' section.
Certain statements made in this release that are not statements of historical or current facts are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements may involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the Company to be materially different from historical results or from any future results expressed or implied by such forward-looking statements. In addition to statements that explicitly describe such risks and uncertainties, readers are urged to consider statements in the conditional or future tenses or that include terms such as "believes," "belief," "expects," "estimates," "intends," "anticipates" or "plans" to be uncertain and forward-looking. Forward-looking statements may include comments as to the company's beliefs and expectations as to future events and trends affecting its business and expectations and are necessarily subject to uncertainties, many of which are outside the control of the company. The factors stated under the headings "Forward-Looking Statements," "Cautionary Statements and Risk Factors" and "Risk Factors" in the company's periodic filings with the Securities and Exchange Commission, as well as other factors, could cause actual results to differ materially from those reflected or predicted in forward-looking statements.
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