3D Systems (NYSE:DDD) released its third-quarter 2018 results after the market close on Tuesday.
Shares plummeted 21.3% in after-hours trading on Tuesday, which we can attribute to both revenue and adjusted earnings per share (EPS) coming in lower than most investors were probably expecting. The fact that cash from operations was negative also likely weighed on the stock.
Here's how the quarter worked out for the 3D printing company and its investors.
3D Systems' key quarterly numbers
|Metric||Q3 2018||Q3 2017||Year-Over-Year Change|
|Revenue||$164.5 million||$152.9 million||7.6%|
|Operating income||($11.0 million)||($32.3 million)||N/A|
|Net income||($11.6 million)||($37.7 million)||N/A|
|Adjusted net income||$2.4 million||($22.6 million)||N/A|
|GAAP earnings per share||($0.10)||($0.34)||N/A|
Foreign currency had a 1% negative impact on revenue.
GAAP gross margin came in at 47.3%, compared with 38.3% in the year-ago quarter. However, that period included a $12.9 million charge related to portfolio realignment and product discontinuations. In the third quarter, gross margin declined 150 basis points (1.5 percentage points) sequentially, as it was 48.8% in the second quarter.
The company used $12.1 million of cash in operations and ended the quarter with $92.1 million of unrestricted cash on hand. In total, the company burned through $27.2 million in cash in the period, as it ended the second quarter with $119.3 million in unrestricted cash and cash equivalents. In the press release, management attributed the cash burn to the company increasing "inventory in support of new product shipments and the ramp of printer manufacturing, and [the payment of] a previously accrued, $9.1 million liability related to a litigation settlement in connection with a prior acquisition."
For context -- though long-term investors shouldn't pay too much attention to Wall Street's near-term estimates -- analysts had been looking for adjusted EPS of $0.03 on revenue of $171.9 million, so 3D Systems fell short on both the top and bottom lines.
|Segment||Q3 2018 Revenue||Q3 2017 Revenue||Year-Over-Year Change|
|Product||$99.9 million||$90.7 million||10.1%|
|Service||$64.6 million||$62.2 million||3.9%|
|Total||$164.5 million||$152.9 million||7.6%|
On the earnings call, management reviewed how key categories performed:
- 3D printers (within product): Revenue increased 17% year over year to $34.5 million, while the number of units sold soared 93%.
- Healthcare solutions: Revenue grew 14% to $53.1 million. (This category spans both segments and overlaps other categories.)
- Software (within product): Revenue jumped 8% to $22.9 million.
- On-demand part manufacturing (within service): Revenue declined 3% to $26.3 million.
- Materials (within product): Revenue edged up 2% to $40.3 million.
For some additional context, in the second quarter, total revenue increased 10.7% year over year to $176.6 million. 3D printer revenue surged 41% year over year on unit growth of 37%, healthcare revenue grew 26%, software revenue was approximately flat with the year-ago period, on-demand part manufacturing revenue rose 6%, and materials revenue went up 3%.
Management attributed the sequential revenue decline largely to two factors:
- Demand for the new ProX DMP (direct metal printer) 350, the next generation of the DMP 320, outstripped the company's manufacturing capacity. CEO Vyomesh Joshi said on the earnings call that demand is expected to exceed supply again in the fourth quarter, but that manufacturing capacity should be adequately ramped up in 2019.
The company changed its "approach and processes related to global sourcing of orders, and as a result, put significant negative pressure on on-demand sales," CFO John McMulen said on the call. He added that management believes this factor "will remain a negative impact on sales in the fourth quarter."
What management had to say
Here's what Joshi had to say in the press release:
We are pleased with our continued strong growth in printer units and printer revenue, in both metals and plastics, as we continue to have balanced execution across all regions. At the same time, we are starting to see cost structure improvements as a result of actions we have taken over the last year.
3D Systems didn't provide any guidance.
In short, this was a challenging quarter, though with some bright spots. While revenue increased at a fair pace year over year, growth slowed from the second quarter. And while adjusted EPS came in positive, it was accompanied by cash from operations coming in negative. Moreover, once again, management pushed back the timeline for starting to ship modular Figure 4 systems. (Figure 4 is a fast, scalable stereolithography 3D printing system for producing small plastic parts.) Originally, it was late 2017/early 2018, then it was the second half of 2018, and now it's 2019.
Notable bright spots were healthcare revenue and demand for metal 3D printers.