3D Systems (DDD 4.46%) released its fourth-quarter and full-year 2018 results after the market closed on Thursday.
Shares of the 3D printing company were up 5.9% in after-hours trading on Thursday. We can probably attribute the market's initial reaction to adjusted earnings per share (EPS) coming in higher than most investors were expecting and investor satisfaction with the company's high-level 2019 outlook provided on the earnings call. The stock has gained 48.6% for the one-year period through Thursday's regular trading session, versus the S&P 500's 4.7% return.
3D Systems was the first of the two big 3D printing companies to report, as Stratasys is scheduled to release its earnings on Thursday, March 7.
Here's how the quarter worked out for 3D Systems and its investors.
Click here for the latest earnings call transcript for 3D Systems.
3D Systems' key numbers
| Metric | Q4 2018 | Q4 2017 | Year-Over-Year Change |
|---|---|---|---|
| Revenue | $180.7 million | $177.3 million | 1.9% |
| Operating income | ($7.0 million) | ($5.7 million) | N/A |
| Net income | ($4.1 million) | ($10.1 million) | N/A |
| Adjusted net income | $11.4 million | $5.3 million | 115% |
| GAAP earnings per share (EPS) | ($0.04) | ($0.08) | N/A |
| Adjusted EPS | $0.10 | $0.05 | 100% |
Data source: 3D Systems. GAAP = generally accepted accounting principles.
Both the GAAP loss and adjusted EPS gain include a $4.9 million tax benefit "related to the release of reserves resulting from the expiration of open tax periods," according to the earnings release.
GAAP gross margin in the quarter was 45.75%, down from 48.2% in the year-ago period. During the quarter, the company generated $7.7 million of cash from operations and ended 2018 with $110.0 million of cash on hand. In 2017, it generated $8.2 million of cash from operations and ended the year with $136.3 million of cash on hand.
For context (though long-term investors shouldn't place too much weight on Wall Street's near-term estimates), analysts had been looking for adjusted EPS of $0.07 on revenue of $180.8 million, so earnings surpassed expectations while revenue came in on target.
For full-year 2018, 3D Systems' revenue increased 6.4% to $687.7 million, its GAAP loss per share narrowed to $0.41 from $0.59 in 2017, and it posted adjusted EPS of $0.15, versus a loss per share of $0.02 in 2017.
Image source: Getty Images.
Segment results
| Segment | Q4 2018 Revenue | Q4 2017 Revenue | Year-Over-Year Change |
|---|---|---|---|
| Product | $113.1 million | $102.3 million | 10.6% |
| Service | $67.7 million | $74.9 million | (9.6%) |
| Total | $180.7 million | $177.3 million | 1.9% |
Data source: 3D Systems.
On the earnings call, management reviewed how key categories performed:
- 3D printers (within product): Revenue increased 17% year over year to $40.7 million, while the number of units sold soared 113%.
- Healthcare solutions: Revenue grew 16% to $58.4 million. (This category spans both segments and overlaps other categories.)
- Software (within product): Revenue edged up 3% to $26.7 million.
- On-demand part manufacturing (within service): Revenue rose 5% to $27.7 million.
- Materials (within product): Revenue declined 2% to $42.0 million.
For full-year 2018, 3D printer revenue jumped 25% year over year on a 76% increase in printer unit sales, healthcare solutions revenue grew 19%, software revenue increased 5%, on-demand manufacturing went up 2%, and materials got a 1% boost.
What management had to say
Here's what CEO Vyomesh Joshi had to say in the earnings release:
We are pleased with our continued strong growth in printer revenue and units across platforms, in both plastics and metals, as well as continued growth in healthcare and software solutions. We are also pleased with the significant portfolio enhancements we made throughout 2018, our improved execution and the cost structure opportunities available to us as we enter 2019.
Looking ahead
In the quarter and year, 3D Systems made some solid progress on its turnaround. Neither the results for the quarter nor year, however, could be characterized as anything approaching "strong."
3D Systems didn't provide exact 2019 guidance, but on the earnings call, CFO John McMullen provided a self-described "high-level 2019 outlook":
We continue to expect growth to be driven by printer revenue growth, including the expected ramp of sales of new products launched throughout 2018, materials growth with higher growth beginning in the second half of 2019, continuing healthcare revenue growth, and software growth continuing and improving over time. We are pleased with the overall progress we have made. But we continue to focus on additional operational efficiencies and cost reduction opportunities. We... expect continued revenue growth, improved profitability, and cash generation.
McMullen also commented on the company's 2019 priorities:
With multiple 2018 product launches now behind us, we are shifting our investment focus to materials innovations and software growth opportunities. We are very focused on reducing our cost structure and driving cash generation during 2019.
