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3D Systems Earnings Preview: 4 Things to Watch

By Beth McKenna - Jul 27, 2017 at 10:18AM

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On Wednesday, Aug. 2, investors' top focus should be on revenue generated from 3D printer sales when the diversified 3D printing company reports second-quarter earnings.

3D Systems (DDD 2.31%) is slated to report its second-quarter 2017 earnings after the market closes on Wednesday, August 2. If all goes as planned, it will be the first of the two largest publicly traded pure-play 3D printing companies to report, as Stratasys is on deck for August 9.

Shares of 3D Systems are up nearly 29% in 2017 and in the green 31% for the one-year period through July 26. For context, Stratasys stock has gained nearly 50% in 2017 and nearly 26% for the same one-year period. The S&P 500 has returned 11.9% and 16.7%, respectively, in 2017 and over the last year.

Benchmark quarterly numbers 

Here are the year-ago quarterly results to use as benchmarks. 

Metric

Q2 2016 Result

Revenue

$158.11 million

Adjusted earnings per share (EPS)

$0.12

Data source: 3D Systems.

To provide some context -- though investors shouldn't place too much importance on Wall Street's near-term estimates -- analysts expect 3D Systems to deliver adjusted EPS of $0.12 on revenue of $162.47 million, representing year-over-year growth of 0% and 2.8%, respectively.

For additional context, in the first quarter, 3D Systems grew adjusted EPS and revenue 20% and 2.5%, respectively. 

Along with the headline numbers, here's what to focus on in the report.

A 3D printer printing the letters "3D."

Image source: Getty Images.

1. 3D printer sales 

Investors should remain laser-focused on 3D printer sales. The company's business isn't likely to sustain a lasting turnaround, in my opinion, unless and until we see revenue from 3D printer sales increasing. Sales of 3D printers are central to the company's razor-and-blade-like business model, as they drive sales of the high-margin consumables, or print materials, over the life of the printers.

In the first quarter, revenue from sales of 3D printers declined 4%. In 2016, revenue from 3D printer sales dropped 21% from 2015, which was considerably larger than the overall 9.5% decline in revenue. So the declines in 3D printer sales have been getting less steep.

2. Figure 4 sales and outlook

This item ties into the above 3D printer sales category, since 3D Systems' newly launched Figure 4 is both a technology and a 3D printing system. Figure 4 is a robotic, modular stereolithography (SLA) 3D printing system designed for the production of polymer parts (polymers include plastics). The company has claimed it's up to 50 times faster than conventional SLA 3D printing systems, and that the technology opens up a wide array of materials possibilities.

In March, 3D Systems announced that it had recently shipped its first system to a "Fortune 50 industrial customer." It also said that it planned to ramp up deliveries in the second half of this year. While the second quarter isn't in the second half of the year, the company will be reporting its earnings for the quarter a month into the second half of the year. So, hopefully, management will provide some color on its progress with sales or at least interest in the system.

3. Healthcare solutions results

3D Systems' healthcare business has generally been a bright spot over the last few challenging years. That is, at least from a revenue growth perspective, as the company doesn't provide any measure of profitability for this business, which comprises both products and services. 

In the first quarter, healthcare revenue jumped 29% from the year-ago period. However, this number got a boost from the company's acquisition in the quarter of Vertex Global, which has a portfolio of dental materials. 3D Systems didn't disclose sales data for this acquisition, so we don't know the organic revenue growth rate for the healthcare business. (Organic growth excludes the revenue contribution from acquisitions made within the last year, so it provides an apples-to-apples comparison.) In 2016, healthcare revenue increased 5% from 2015, which was considerably better than the company's overall revenue decline of 9.5%.

4. Color about the metals business' performance

If I were an investor in 3D Systems, I'd want to know how its metals business is performing, especially because metal 3D printing is the fastest-growing space within the industry. However, I think management will continue to withhold hard numbers. The best investors can probably hope for is for management to provide some color on the analyst conference call about how this business is performing. What we know about the metals business is that it accounted for about 6% of the company's total revenue in 2014 and that CEO Vyomesh Joshi, who came on board in April of last year, views it as one of the company's long-term growth drivers.

Wrapping it up

To summarize, the main focus when 3D Systems reports second-quarter earnings on Wednesday should be on overall 3D printer sales, progress with Figure 4 sales, healthcare results, and on any information that management provides about its metal business.

Beth McKenna has no position in any stocks mentioned. The Motley Fool recommends 3D Systems and Stratasys. The Motley Fool has a disclosure policy.

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3D Systems Corporation Stock Quote
3D Systems Corporation
DDD
$12.40 (2.31%) $0.28
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SSYS
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