3D#Systems#(DDD) Investment Research Presentation · PDF...
Transcript of 3D#Systems#(DDD) Investment Research Presentation · PDF...
Investment Research PresentationMonth Day, 20XX
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3D Systems (DDD)
Senior Analyst: Matt SorientoJunior Analysts: Triston Waiss, Jose Grullon, Siqi Xu, Sophia Kryloff, Shubham Koradia
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Recommendation
Slowing Top Line Momentum of Diverse Product Portfolio
Movement Into The Healthcare Industry Will Offset Slowing Revenue
Stronger Cash On Hand Will Allow For More Acquisitions
Recommendation Summary
Company (Ticker) DDDCurrent Trading Price (MM-DD-YYYY) 15.28$
Recommendation HoldTarget Price 15.29$ Upside Potential 0.1%
Valuation Summary
Method Price Weight
Discounted Cash FlowPerpetuity Growth Method 10.51$ 15%Exit Multiple Method (0.64)$ 0%
Comparable Company AnalysisP/E 3.54$ 0%EV/EBITDA (0.21)$ 0%EV/Revenue 16.14$ 85%
Target Price 15.29$
Recommendation HOLD
Current Price $15.28
% Upside 0.1%
Target Price $15.29
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3D Printing Industry OverviewIndustry Definition§ The industry includes manufacturers of 3D printers and offer prototyping and printing services§ The process involves using digital data to print three-‐dimensional products using an additive
layering process§ 3D printing has been around since 1984 and has been developed over a 30 year span § With the exception of some household names, the industry is fairly small and contains niche small
cap companies§ Revenue contribution is relatively small compared to the overall tech industry but total sales are set
to grow at a CAGR of 12.55% into 2021
IBIS World, Deloitte, Bloomberg
Nasdaq: SYSSMkt Cap: $1106.60M
NYSE: DDDMkt Cap: $1647.20M
Nasdaq: ONVOMkt Cap: $295.50M
Nasdaq: XONEMkt Cap: $152.20M
Key Industry Drivers§ Material inputs are are expected to increase at a 1.62% CAGR§ The market size of downstream buyers of 3D printing products and
services is projected to grow at a CAGR of 21%
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Revenue Generation
MetalsPlastic/Resin
Organic/Inorganic Chemicals
Prototyping Manufacturing
Design/Edit SoftwareOptical Machinery
Plastic/ResinMetals
Prototyping Manufacturing
ConsumersManufacturing Companies Healthcare
Construction Aerospace Automobile
IBIS World
Suppliers
Buyers
3D Printing
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Revenue ($M)
3D Systems Total Revenue
3D Systems Overview
35%
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2016 Revenue Breakdown
Printers & Other Products Materials Services
Company Background:3D Systems is a small cap tech company focused on manufacturing 3D printers, 3D design software, on demand product prototyping, and selling printing materials§ Founded in 1986 with HQ in South Carolina (2,445 employees) § Product and services sales are done through a direct sales force,
distributors, and partner channels§ Recently moved out of consumer 3D printer space§ Management predicts revenue growth from 2-‐8% in 2017
Key FinancialsMarket Cap $1,647.2M2016 Sales $632.97M2016 YoY Sales Growth (5%)5Y Sales Growth 78.99%5Y Avg. Gross Margin 48.92%
DDD 10K, S&P CapIQ
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Slowing Top Line Momentum of Diverse Product Portfolio
Movement Into The Healthcare Industry Will Offset Slowing Revenue
Stronger Cash On Hand Will Allow For More Acquisitions
Trends and Drivers
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§ Product revenue peaked in 2014 at $284M and was $223 through 2016– Weaker demand for production printers and
on-‐demand services § 3D Systems cut its consumer printer segment,
which accounted for ~3% of the decrease in revenue for 2016
§ Increasing exposure to new geographical segments allows an opportunity to increase growth– 3D has seen increasing growth in Europe (excl.
Germany)– European sales as a % of total revenue will
decrease offset by an increase in Asian sales § Rising rates and a strengthening dollar will create a
FX headwind with more exposure to Asian markets§ 3D Systems did not hedge with any currency
contracts abroad in 2015 and 2016
Slowing Top Line Momentum of Diverse Product Portfolio
Sources: Goldman, DDD 10k
Weakening sales will pick up in the coming quarters and FX headwinds may have a small, negative impact on revenues
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United States Asia Pacific Europe
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Revenue ($M)
Revenue Breakdown ($millions)
Printers & Other Products Materials Services
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Slowing Top Line Momentum of Diverse Product Portfolio
Movement Into The Healthcare Industry Will Offset Slowing Revenue
Stronger Cash On Hand Will Allow For More Acquisitions
Trends and Drivers
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§ 3D Systems recently acquired Vertex Global Holdings -‐ Next Dent
§ Management expects this acquisition to increase revenue by ~2%
§ In 2016, they opened a facility in Denver to focus solely on healthcare operations
§ Acquired Symbionix in 2014 for $120M– Symbionix develops surgical simulators and
training programs for medical professionals§ YoY healthcare revenue has increased 5%
since 2015 and is projected to grow with recent acquisitions
§ 3D Systems reduced the price of its ProXSLS 500 – This move will allow them to gain market
share among manufacturers§ New introduction of Figure 4 technology
to increase market share on assembly line
Movement Into Healthcare Industry And Strengthening Product Pipeline
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Total Healthcare Solutions Revenue Percentage Of Revenue
Sources: Goldman, S&P CapIQ
Healthcare solutions and new product developments have the potential to drive revenue in the next few years and offset weakening sales
PwC ManufacturerSurvey
Not Implementing
Prototyping + Production
2015 28.9% 13.2%
2014 33.3% 9.6%
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Trends and Drivers
Slowing Top Line Momentum of Diverse Product Portfolio
Movement Into The Healthcare Industry Will Offset Slowing Revenue
Stronger Cash On Hand Will Allow For More Acquisitions
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2012 2013 2014 2015 2016 2017 2018 2019Free Cash Flow
($M)
Free Cash Flow Growth
201311 Acquisitions
$162.3M
201410
Acquisitions$345.4M
20154 Acquisitions
$91.8M
20160 Acquisitions
2017Vertex -‐ Next
Dent
Stronger Cash On Hand Will Allow For More Acquisitions
§ Management and analysts expect increasing GM and stronger NWC
§ More cash for acquisitions has potential to drive top line growth
§ 3D Systems acquired no companies in 2016 due to a $565.2M impairment of goodwill in 2015– We expect this to negatively
impact revenue growth in coming years
§ FCF is expected to reach $70M by 2019 and grow
Sources: DDD 10k, DDD Earnings Call, Needham
Acquisitions will drive business growth in the coming years and increase market share in diverse markets but weak acquisition volume in past quarters
will hurt revenue
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Risks to 3D Systems
• HP is planning to invest in the 3D printing industry• Room to undercut costs and operate at a loss
HP’s 3D printing business is successful
• Stratasys currently holds more market share • Similar products and services
Increasing competition from Stratasys and smaller printer
companies
• Healthcare is representing a larger amount of revenue and can cripple growth if not adopted
Slower than expected adoption of healthcare
products
• Management expects better margins in coming quarters and stronger cost control
Smaller than expected margins
These risks can be detrimental to 3D System’s performance. Each risk isn’t fully priced in and is a main reason for our hold recommendation.
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Comparable Companies
Comparable Company Analysis
LTM data (12-31-2016)Company Ticker EV Market Cap Revenue EBITDA Net Income P/E EV/EBITDA EV/Revenue
3D Systems DDD 1,574.2 1,729.1 633.0 27.9 (38.4) -45.0x 56.4x 2.5x
1 Stratasys SYSS 815.4 1,067.6 672.5 27.2 (77.2) -13.8x 30.0x 1.2x
2 ExOne XONE 126.2 152.2 47.8 (8.5) (14.6) -10.4x -14.8x 2.6x
3 Organovo ONVO 225.5 295.5 4.0 (35.2) (36.2) -8.2x -6.4x 56.4x
High 815.4 1,067.6 672.5 27.2 (14.6) -8.2x 30.0x 56.4x
Mean 389.0 505.1 241.4 (5.5) (42.7) -10.8x 2.9x 20.1x
Median 225.5 295.5 47.8 (8.5) (36.2) -10.4x -6.4x 2.6x
Low 126.2 152.2 4.0 (35.2) (77.2) -13.8x -14.8x 1.2x
Analysts primarily use EV/Sales to value 3D Systems
EV/RevenueLTM Revenue 633.00$ Implied Price Target $16.14Upside (Downside) % 5.6%
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DCF Valuation
Forecasted2017 2018 2019 2020 2021
EBIT 83.28$ 94.62$ 103.50$ 113.23$ 119.46$ - Taxes (7.66)$ (8.70)$ (9.52)$ (10.42)$ (10.99)$
75.62$ 85.92$ 93.98$ 102.82$ 108.47$ + D&A 18.25 19.34 20.40 21.53 22.71 - CAPEX (14.21) (23.90) (24.83) (26.20) (27.64) - Δ in NWC 3.60 (5.00) (5.25) (5.92) (7.18) Unlevered FCF 83.26$ 76.36$ 84.31$ 92.23$ 96.36$ Net Present Value $318.43
ForecastedWACC Calculation:
Cost of Debt 4.21%% Weight 2%
Cost of Equity 10.89%% Weight 98%
WACC 10.77%
Perpetuity Growth Method
Growth Rate 2.50%Undiscounted TEV 1,193.74$ Discounted TEV 715.68$ DCF Value 1,034.11$ Equity Value 1,189.06$ Share Price 10.51$ Implied Exit Multple 8.40x
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Valuation and Recommendation
HOLDSlowing Top Line Momentum of Diverse Product Portfolio
Movement Into The Healthcare Industry Will Offset Slowing Revenue
Stronger Cash On Hand Will Allow For More Acquisitions
Trends Driving Valuation
Recommendation Summary
Company (Ticker) DDDCurrent Trading Price (MM-DD-YYYY) 15.28$
Recommendation HoldTarget Price 15.29$ Upside Potential 0.1%
Valuation Summary
Method Price Weight
Discounted Cash FlowPerpetuity Growth Method 10.51$ 15%Exit Multiple Method (0.64)$ 0%
Comparable Company AnalysisP/E 3.54$ 0%EV/EBITDA (0.21)$ 0%EV/Revenue 16.14$ 85%
Target Price 15.29$
§ High growth is expected, but unclear due to industry uncertainties and volatility
§ EV/Revenue is the strongest way to value
§ Price jumped 6% since Monday § We expect stronger strategic moves
to follow
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THANK YOU
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APPENDIX
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Income StatementHistorical Forecasted
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
Revenue 353.63 513.40 653.65 666.16 632.97 670.95 711.21 750.32 791.59 835.13 % growth 0.45 0.27 0.02 (0.05) 0.06 0.06 0.05 0.06 0.06
COGS (excl. D&A) (151.21) (215.37) (281.03) (291.28) (262.67) (268.38) (284.48) (296.45) (316.64) (334.05) % of Revenue 0.43 0.42 0.43 0.44 0.41 0.40 0.40 0.40 0.40 0.40
Gross Profit 202.42 298.03 372.62 374.88 370.30 402.57 426.73 453.87 474.95 501.08
% Margin 0.57 0.58 0.57 0.56 0.59 0.60 0.60 0.60 0.60 0.60
R&D (23.20) (43.49) (75.40) (92.77) (88.40) (73.08) (71.12) (75.03) (71.24) (75.16) % of Revenue 0.07 0.08 0.12 0.14 0.14 0.11 0.10 0.10 0.09 0.09
SG&A (97.42) (143.24) (207.73) (283.23) (254.04) (227.96) (241.64) (254.93) (268.95) (283.74) % of Revenue 0.28 0.28 0.32 0.43 0.40 0.34 0.34 0.34 0.34 0.34
EBITDA 81.80 111.30 89.50 (1.11) 27.87 101.53 113.96 123.91 134.76 142.17
% Margin 0.23 0.22 0.14 (0.00) 0.04 0.15 0.16 0.17 0.17 0.17
Depreciation (8.66) (10.00) (14.73) (20.98) (24.33) (18.25) (19.34) (20.40) (21.53) (22.71) Amort. of Intangibles (12.57) (20.45) (40.46) (62.09) (36.20) - - - - -
Total D&A (21.23) (30.45) (55.19) (83.07) (60.53) (18.25) (19.34) (20.40) (21.53) (22.71) Other Operating Expenses - - - - - - - - - -
Total Operating Expenses (141.86) (217.18) (338.32) (459.07) (402.96) (319.29) (332.10) (350.37) (361.72) (381.62) Operating Income (EBIT) 60.57 80.85 34.31 (84.18) (32.67) 83.28 94.62 103.50 113.23 119.46
% Margin 0.17 0.16 0.05 (0.13) (0.05) 0.12 0.13 0.14 0.14 0.14
Interest Expense (12.50) (3.40) (1.20) (2.00) (1.30) (1.28) (1.28) (1.28) (1.28) (1.28) Interest Income 0.17 1.26 0.48 0.52 0.81 0.65 0.65 0.65 0.65 0.65
Net Interest Inc. (Exp) (12.33) (2.14) (0.72) (1.48) (0.49) (0.63) (0.63) (0.63) (0.63) (0.63)
Other Non-Operating Income 0.70 (1.00) (6.40) (4.10) 0.30 - - - - - EBT Excl. Unusual Items 48.94 77.71 27.19 (89.76) (32.86) 82.65 93.99 102.87 112.60 118.83
% Margin 0.14 0.15 0.04 (0.13) (0.05) 0.12 0.13 0.14 0.14 0.14
Unusual Items (5.70) (13.80) (9.80) (565.20) (6.90) - - - - - EBT Incl. Unusual Items 43.24 63.91 17.39 (654.96) (39.76) 82.65 93.99 102.87 112.60 118.83
Income Tax Expense (4.34) (19.89) (5.44) (8.97) 0.50 7.60 8.65 9.46 10.36 10.93 Earnings from Cont. Ops 38.90 44.02 11.95 (663.94) (39.26) 90.25 102.63 112.33 122.96 129.76
Earnings from Discounted Ops. - - - - - - - - - - Extraord Item & Acct. Change - - - - - - - - - -
Net Income to Company 38.90 44.02 11.95 (663.94) (39.26) 90.25 102.63 112.33 122.96 129.76
Minority Int. in Earnings - (0.30) 8.43 0.85 (1.94) (2.21) (2.42) (2.65) (2.80) Net Income 38.90 44.02 11.65 (655.50) (38.41) 88.31 100.42 109.91 120.31 126.96
% Margin 0.11 0.09 0.02 (0.98) (0.06) 0.13 0.14 0.15 0.15 0.15
EPS 0.42 0.43 0.10 (5.84) (0.34) 0.78 0.89 0.97 1.06 1.12
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Balance SheetHistorical Forecasted
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
Cash And Equivalents 155.96 306.32 284.86 155.64 184.95 280.9 371.8 472.0 581.7 696.6 Accounts Receivable 79.87 132.12 168.44 157.41 127.11 158.1 167.6 176.8 186.5 196.8 Other Recievables - - - - - - - - - -
Total Receivables 79.9 132.1 168.4 157.4 127.1 158.1 167.6 176.8 186.5 196.8 Inventory 41.82 75.15 96.65 105.88 103.33 92.7 98.2 102.4 109.3 115.3 Prepaid Exp. 4.01 7.20 15.77 13.54 17.56 12.3 13.1 13.6 14.5 15.3 Other Current Assets 5.87 6.07 14.97 - - 6.5 6.8 7.1 7.6 8.0
Total Current Assets 287.5 526.9 580.7 432.5 433.0 550.4 657.4 771.8 899.7 1,032.0
Gross Property, Plant & Equipment 71.38 87.69 134.61 156.99 164.82 179.0 202.9 227.8 253.9 281.6 Accumulated Depreciation (37.03) (42.48) (52.73) (71.00) (84.84) (103.1) (122.4) (142.8) (164.4) (187.1)
Net Property, Plant & Equipment 34.4 45.2 81.9 86.0 80.0 75.9 80.5 84.9 89.6 94.5
Long-term Investments - - 11.97 10.69 9.12 9.1 9.1 9.1 9.1 9.1 Goodwill 240.31 370.07 589.54 187.88 181.23 181.2 181.2 181.2 181.2 181.2 Other Intangibles 108.38 141.71 251.56 157.47 121.50 121.5 121.5 121.5 121.5 121.5 Deferred Tax Assets, Current & LT 0.11 0.55 0.82 1.90 8.12 8.1 8.1 8.1 8.1 8.1 Deferred Charges, LT - - - - - - - - - - Other Long-Term Assets 6.85 13.47 13.85 15.57 16.26 16.3 16.3 16.3 16.3 16.3
Total Assets 677.5 1,097.9 1,530.3 892.0 849.2 962.6 1,074.2 1,193.0 1,325.5 1,462.8
Accounts Payable 32.10 51.73 64.38 46.87 40.51 53.5 56.7 59.1 63.1 66.6 Accrued Exp. 18.75 20.72 34.79 43.22 36.90 36.6 38.8 40.9 43.2 45.5 Curr. Income Taxes Payable 3.38 1.83 8.58 11.32 9.83 24.3 27.6 30.2 33.0 34.9 ST Debt - - 0.16 - -Other Current Liabilities 20.80 36.00 39.40 43.50 42.60 40.6 43.0 44.8 47.9 50.5
Total Current Liabilities 75.0 110.3 147.3 144.9 129.8 154.9 166.1 175.0 187.2 197.5
Long Term Debt 80.53 11.42 - - - - - - - -Capital Leases & Current Portion 7.62 7.46 9.43 8.72 8.16 8.2 8.2 8.2 8.2 8.2 Unearned Revenue, Non-Current 2.79 4.22 7.63 7.96 7.46 7.5 7.5 7.5 7.5 7.5 Def. Tax Liability, Non-Curr. 23.14 19.71 30.68 17.94 17.60 17.6 17.6 17.6 17.6 17.6 Other Non-Current Liabilities 8.05 10.98 32.28 48.88 50.52 50.5 50.5 50.5 50.5 50.5
Total Liabilities 197.2 164.1 227.3 228.4 213.6 238.7 249.9 258.8 271.0 281.3
Common Stock 0.06 0.10 0.11 0.11 0.12 0.1 0.1 0.1 0.1 0.1 Additional Paid In Capital 460.24 866.55 ####### ####### ####### 1,307.4 1,307.4 1,307.4 1,307.4 1,307.4 Retained Earnings 16.41 60.49 72.12 (583.40) (621.80) (533.5) (433.1) (323.2) (202.9) (75.9) Treasury Stock (0.20) (0.30) (0.40) (1.00) (2.70) (2.7) (2.7) (2.7) (2.7) (2.7) Comprehensive Inc. and Other 3.87 5.79 (24.40) (39.50) (53.20) (53.2) (53.2) (53.2) (53.2) (53.2)
Total Common Equity 480.4 932.6 1,292.9 656.0 629.8 718.2 818.6 928.5 1,048.8 1,175.8
Minority Interest - 1.15 10.08 7.61 5.70 5.7 5.7 5.7 5.7 5.7 Total Equity 480.4 933.8 1,303.0 663.6 635.5 723.8 824.3 934.2 1,054.5 1,181.4
Total Liabilities and Equity 677.5 1,097.9 1,530.3 892.0 849.1 962.5 1,074.1 1,193.0 1,325.5 1,462.7
Balance Check OK OK OK OK OK OK OK OK OK OK
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Capital Asset Pricing Model
Beta 1.04Risk-free Rate 2.18%Base Risk Premium 6.70%Market Cap 1,729.14$ Size Premium 1.74%
CAPM 10.89%
Debt – $150M Revolving Credit from PNC Bank
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Porter’s Five Forces
§ Low = § Medium = § High =
Rivalry• Products don’t have too much
differentiation• Potential for a company to
break through to new markets (High R&D necessary)
• Prototyping services are spread across the industry
Threat of New Entrants• Cost of capital to enter is high• High R&D costs to keep high
with rapid innovation• Brand recognition is high• Matured companies with
larger capex potential could step in at any moment
Threat of Substitution• Prototyping still is not
perfected but is time effective• Traditional manufacturers still
have a foothold but are losing market share as 3DPs become more available
Buyer Power• High buyer concentration and
diversified buyers• No single major buyers that
supply the industry• Not many companies buying
Supplier Power• Input materials are on the rise
and creating more difficulties for 3DP companies
IBIS World, PwC
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Decreasing costs of 3D printers and more accessibility will be offset by increasing input prices
§ Desktop 3D printers are predicted to be or demanded in 15% of homes – Several printers are below $1,000 and have decreased hundreds of dollars from past years
§ Consumer printers are still too expensive and consumers will look to prototyping for a cost effective option§ Input prices to manufacture systems and build material prices
– Plastic, resin, steel and aluminum are set increase at an average CAGR of 1.62% from 2017 to 2022§ Resin and plastic are heavily correlated to the price of oil§ The input prices account for 47.1% of prototyping costs and 29.5% of 3D manufacturer’s costs
Deloitte, 3D Hubs, Makerbot, IBIS World
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Increasing input prices can hurt the trend of 3D printers a slowly becoming more affordable
**other materials include biomaterials and ceramics
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Risks - Sensitivity Analysis
DCF - Perpetuity Growth SensitivityWACC
– 9% 10% 10% 11% 11% 12% 12% 13%3.5% 13.98$ 13.00$ 12.16$ 11.45$ 10.83$ 10.29$ 9.81$ 9.39$ 3.0% 13.16$ 12.31$ 11.58$ 10.95$ 10.40$ 9.91$ 9.48$ 9.10$ 2.5% 12.45$ 11.71$ 11.07$ 10.51$ 10.01$ 9.58$ 9.19$ 8.84$ 2.0% 11.85$ 11.19$ 10.62$ 10.12$ 9.67$ 9.28$ 8.92$ 8.60$ 1.5% 11.32$ 10.74$ 10.22$ 9.77$ 9.37$ 9.01$ 8.68$ 8.39$ 1.0% 10.85$ 10.33$ 9.87$ 9.46$ 9.09$ 8.76$ 8.46$ 8.19$
DCF - EV/EBITDA Exit Multiple SensitivityWACC
– 9% 10% 10% 11% 11% 12% 12% 13%-4.4 x 0.64$ 0.72$ 0.79$ 0.87$ 0.94$ 1.01$ 1.08$ 1.15$ -5.4 x (0.17)$ (0.07)$ 0.02$ 0.12$ 0.21$ 0.29$ 0.38$ 0.46$ -6.4 x (0.98)$ (0.86)$ (0.75)$ (0.64)$ (0.53)$ (0.43)$ (0.32)$ (0.22)$ -7.4 x (1.78)$ (1.65)$ (1.52)$ (1.39)$ (1.27)$ (1.15)$ (1.03)$ (0.91)$ -8.4 x (2.59)$ (2.44)$ (2.29)$ (2.14)$ (2.00)$ (1.87)$ (1.73)$ (1.60)$ -9.4 x (3.40)$ (3.23)$ (3.06)$ (2.90)$ (2.74)$ (2.59)$ (2.44)$ (2.29)$
CompCo - Price/Earnings SensitivityImplied Share Price
$3.54 #REF!($8.42) 2.86$ ($9.42) 3.20$
($10.42) 3.54$ ($11.42) 3.88$ ($12.42) 4.22$ ($13.42) 4.56$
CompCo - EV/EBITDA SensitivityImplied Share Price
($0.21) ($0.21)($4.41) 0.28$ ($5.41) 0.04$ ($6.41) (0.21)$ ($7.41) (0.46)$ ($8.41) (0.70)$ ($9.41) (0.95)$
CompCo - EV/Revenue SensitivityImplied Share Price$16.14 #REF!
$4.64 27.32$ $3.64 21.73$ $2.64 16.14$ $1.64 10.54$ $0.64 4.95$
($0.36) (0.64)$
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Types of Printing§ Stereolithography (SLA)
– Uses layers of liquefied resin and UV lasers to build models, prototypes and patterns– Uses a support structure and elevator platform to hold the structure in place– Accounts for the least amount of revenue and has been slowly decreasing in popularity compared to other
techniques
§ Selective Laser Sintering (SLS)– Uses high power laser to combine small particles of plastic, metals, ceramic and glass to form 3D shapes– The printer bases off of a scan of a Computer Aided Design (CAD) – Can use a wide range of materials relative to other techniques– Accounts for 40.4% of revenue and has grown over the past 5 years
§ Fused Deposition Modeling (FDM)– Additive manufacturing technique that uses a software process to slice and orient a model for building– Uses a support structure and melts thermoplastics that are deposited based on a CAD– Fastest growing segment and the technique name is trademarked by Stratasys
IBIS World, 3DP IndustryFDMSLSSLA
**not including less popular techniques