Buried in its Q3 financial report for 2023, 3D Systems (NYSE: DDD) highlighted the possibility of a major move that was missed by most of the general public and media: the potential sale of its software business, Oqton. In its Form 10-Q, filed on November 9, 2023, 3D Systems noted:
“During the quarter ended September 30, 2023, the Company concluded that it is more likely than not that it will sell or otherwise dispose of Oqton MOS, a business which the Company acquired in 2021. Oqton MOS represents a discrete asset group within the Industrial Solutions segment, as its identifiable cash flows are largely independent of the cash flows of other groups of assets and liabilities within the Industrial Solutions segment. Based upon the Company’s expectation that it will sell or otherwise dispose of Oqton MOS, the long-term cash flow forecast for this asset group was revised. The revised long-term cash flow forecast indicated that the carrying amounts of Oqton MOS’s long-lived assets, consisting primarily of product technology and trade name intangible assets initially recorded when Oqton MOS was acquired, may not be recoverable. Accordingly, the carrying value of Oqton MOS’s long-lived assets was tested for impairment based upon an estimate of the associated discounted future cash flows. This fair value measurement approach required the use of Level 3 fair value measurement inputs, as defined in Note 19. As the present value of the estimated future cash flows expected to result from the use and eventual disposition of the asset group is less than the carrying value of the asset group, during the quarter ended September 30, 2023, the Company recognized $13,597 of impairment charges related to the acquired technology and trade names included in the Oqton MOS asset group.”
The Belgian firm was an exciting player in the software segment, having developed artificial intelligence (AI) for manufacturing execution systems (MES). Upon the purchase of the company in 2021, 3D Systems bundled it with its other software divisions, including Geomagic, and other acquisitions, like Additive Works. Altogether, the Oqton business now represents a comprehensive suite of tools.
The decision to likely sell the unit, therefore, doesn’t seem to necessarily reflect on Oqton itself, but 3D Systems’ need to shed assets and streamline its operations. The move comes amid a period of financial challenges, as evidenced by a decrease in total revenue and a net loss. By focusing on more profitable or core areas of its business, 3D Systems seems to think that it could strengthen its financial position either through immediate capital generation or by reducing operational complexities and costs.
Additionally, the company announced plans to reduce its headcount by about 6 percent, primarily of employees in corporate and business support roles. Along with the job cuts, 3D Systems said it aimed to in-source the manufacturing of some metal printer platforms to improve cycle time from development to production by co-locating engineering and manufacturing.
While it’s difficult to determine just how effective Oqton is as software suite and business from the outside, it seemed like an ideal package at least on paper. Who wouldn’t want a single provider of tools for simulation, quality control, print preparation, and fleet management? The very concept of “AI” as a key piece of the suite also seems as though it would drive customer adoption and further investment, given how much hype the technology has received.
It could be that the idea of AI isn’t all that it’s cracked up to be, lending credence to the philosophy of non-AI software firms like Dyndrite, or that Oqton wasn’t applying AI in the right places, like AI autocorrect startup 1000 Kelvin. Or Oqton may be a perfectly great software developer, but that 3D Systems just isn’t in a position to hang onto it in the current economic climate.
If this last scenario is the case, whoever does end up buying the business unit could pick up a valuable asset and turn themselves into an AM software leader and conquer what Additive Manufacturing Research suggests is currently a $1.2 billion market, according to its “Opportunities in Additive Manufacturing Software Markets 2023” report. Who would buy it is anyone’s guess, but because private equity (PE) took 3D Systems’ Quickparts service bureau, it wouldn’t be out of the question for a PE firm to acquire Oqton.
Given the fact that 3D Systems isn’t the only one being hampered by the current financial situation, one wonders if its long-time competitor, Stratasys (Nasdaq: SSYS), might end up selling its software division, GrabCAD. This would echo the pattern followed earlier, in which 3D Systems divested its service bureau division only for its competitor to do the same for large chunks of Stratasys Direct Manufacturing.
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