I Was Wrong About 3D Systems

Adam is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Note from The Motley Fool Blog Network: This article is a follow-up to an earlier blog post that contained some factual inaccuracies about 3D Systems and The Motley Fool’s ownership stake in the company. We regret the error.

Some lessons are learned the hard way. We make mistakes, we feel badly, and hopefully we can learn something from it. I know that I’ve made my share of mistakes, and I think I’ve learned at least something from each of them.

Last week, I made a mistake. I wrote an article about 3D Systems (NYSE: DDD) that was partially based on inaccurate research. I neglected to dig deeper into the company’s SEC filings, and find the real story of what was going on. It was irresponsible, and for that I apologize to the management at 3D Systems, investors in the company, and to the readers of The Motley Fool Blog Network.

I did not write the article with malicious intent or any self-interest. I have no position in 3D Systems, nor do I know of any close friends or family that have a position in the company.

I’m writing today to set things straight, and hopefully make up for my previous article, at least in some way.

Acquisition Accounting

The main inaccuracy in my article from last week has to do with acquisition accounting. In the last 3 years, 3D Systems has moved from growing organically, to growing through acquisitions. In total, the company has made 31 acquisitions.

I was following up on a couple articles posted to Seeking Alpha, where the authors claim the revenue growth at 3D Systems is being materially overstated. I was duped, and I added that information to my article as a reason to be wary of investing in 3D Systems.

After the tremendous backlash, I started digging through the company’s filings with the SEC and the articles from Seeking Alpha. What I found is that those (and subsequently my) articles had a big oversight. They assumed acquired revenue grew from zero, and that growth from any acquired company's should not be counted toward organic growth.

In actuality, 3D Systems accounts for acquired revenue separately for the first 12 months, and then that full year of revenue is added to the base the company uses to determine subsequent revenue growth. In that way, revenue growth from acquisitions is incremental and not overstated in organic growth numbers. It’s essentially the same principle as same-store sales.

Here’s a quick example. In the company’s most recent quarterly earnings report, 3D Systems separates out revenues from newly acquired Vidar and Z Corp. They show exactly how much revenue and operating profit (loss) the new acquisitions had. Taking out the revenue from those two acquisitions, 3D Systems still had great year-over-year growth of 39%, so the core company and its older acquisitions are still generating more and more revenue (and not staying flat as I may have suggested last week).

There’s no trickery here. There’s no obfuscation. This is how every company that grows through acquisition does their accounting. With the number of acquisitions 3D Systems has made in the last 10 quarters, it would be silly to request that they separate out every part of the business.

Doing the Work

I learned my lesson: Don’t take everything you read at face value. It’s important for me, as a member of the financial media, to take every measure to ensure what I publish is accurate. That means digging deeper and finding the real story, sniffing out bad research and fact checking before hitting the publish button.

adamlevy has no positions in the stocks mentioned above. The Motley Fool owns shares of 3D Systems and has the following options: short JAN 2014 $55.00 calls on 3D Systems and short JAN 2014 $30.00 puts on 3D Systems. Motley Fool newsletter services recommend 3D Systems. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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