3D Systems shares surged 8.49% to $8.76 on Thursday after the company said its fourth-quarter results would be much better than what analysts were expecting. The Rock Hill-based company announced that it would hold a conference call and webcast to discuss fourth-quarter and FY2015 results on Monday, February 29 at 8:30 am. ET. 3D Systems said it would also take a significant goodwill write-down, which indicates that the management is bracing for subdued growth in near future.
3D Systems to take a goodwill writedown
3D Systems’ positive Q4 outlook was a rare piece of good news from the 3D printing industry, which has been struggling with falling capital spending and lower consumer demands. The company believes it generated $183 million in fourth quarter revenues, a 20.7% increase from the third-quarter. Analysts on average were expecting sales to decline 14% YoY to $161 million.
The 3D printing major added that it would take a goodwill and intangible assets write-down of $510 million to $570 million. The goodwill and intangible assets reflect the premiums 3D Systems paid for acquisitions over their liquidation value. Companies typically evaluate the value of these assets in the fourth quarter to see if they are still worth their carrying value. If the acquisitions fail to live up to management’s previous growth assumptions, companies are required to take write-downs.
3D Systems’ acquisition strategy fails to sustain growth
3D Systems has grown largely on the back of acquisitions. At the end of the third quarter, the company carried $890 million in goodwill and intangible assets. It means 3D Systems will be writing off about 57% to 64% of these assets. It indicates that the company’s acquisition-led growth has failed to live up to the management’s expectations. The 3D printing company also expects to take a $27 million inventory charge as it is exiting the consumer 3D printing business.
Interim CEO Andy Johnson said industry conditions remain challenging. He expects demand to be uneven in the next few quarters. However, Johnson believes long-term prospects are promising.