3D Systems (DDD +4.67%) released weak first-quarter 2019 results after the market closed on Tuesday.
Shares of the 3D printing company plunged 16.4% in after-hours trading on Tuesday. We can attribute the market's initial reaction to both revenue and adjusted earnings per share (EPS) coming in lower than most investors were probably expecting.
3D Systems was the second of the two big 3D printing companies to report, as Stratasys (SSYS +1.85%) released its results (which were the better of the two) on May 2.
Here's how the quarter worked out for 3D Systems and its investors.
3D Systems' key numbers
| Metric | Q1 2019 | Q1 2018 | Year-Over-Year Change |
|---|---|---|---|
| Revenue | $152 million | $165.9 million | (8.4%) |
| GAAP operating income | ($21.3 million) | ($17.5 million) | N/A -- loss widened |
| GAAP net income | ($24.4 million) | ($21 million) | N/A -- loss widened |
| Adjusted net income | ($10.1 million) | ($3.4 million) |
N/A -- loss widened |
| GAAP earnings per share (EPS) | ($0.22) | ($0.19) | N/A -- loss widened |
| Adjusted EPS | ($0.09) | ($0.03) | N/A -- loss widened |
Data source: 3D Systems. GAAP = generally accepted accounting principles.
GAAP gross margin was 43.2%, down from 46.9% in the year-ago period and also down from 45.7% last quarter. The company attributed the year-over-year decline to "under-absorption of overhead driven by lower revenue and production combined with mix of sales."
During the quarter, 3D Systems used $15.2 million of cash in operations and ended the period with $157.3 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 an adjusted loss of $0.01 per share on revenue of $164.7 million. So, both top- and bottom-line results fell short of these expectations.
For additional context, Stratasys' first-quarter revenue edged up 1% year over year, its GAAP net loss narrowed considerably, and its adjusted EPS doubled.
Image source: Getty Images.
Segment results
| Segment | Q1 2019 Revenue | Q1 2018 Revenue | Year-Over-Year Change |
|---|---|---|---|
| Product | $92.3 million | $105.4 million | (12.4%) |
| Service | $59.6 million | $60.4 million | (1.3%) |
| Total | $152 million | $165.9 million | (8.4%) |
Data source: 3D Systems.
On the earnings call, management reviewed how key categories performed:
- 3D printers (within product): Revenue dropped 29% year over year to $28 million, while the number of units sold soared 90%.
- Healthcare solutions: Revenue slipped 5% to $50 million. (This category spans both segments and overlaps other categories.)
- Software (within product): Revenue fell 8% to $20.8 million.
- On-demand part manufacturing (within service): Revenue declined 12% to $22.6 million.
- Materials (within product): Revenue edged down 3% to $41.4 million.
Healthcare results were particularly disappointing, as this is one category that nearly always shows year-over-year growth. In the earnings release, the company said that "healthcare services and simulation increased, however timing of large customer orders for printers and materials offset the increases."
For context, in 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 edged 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:
While we expected seasonality in our revenue this year from ordering patterns of enterprise customers, the first quarter was lower than anticipated as a result of shipment timing and additional on-demand weakness. We are taking actions to improve performance for the balance of the year, including accelerating cost reductions.
With the breadth and strength of our portfolio, we continue to have significant market opportunities to expand our market share and are committed to executing our plans to drive long-term profitable growth.
Looking ahead
In short, 3D Systems turned in an anemic quarter. That said, a quarter is just a quarter. Investors should place much more emphasis on annual results.
The company doesn't provide guidance. Last quarter, however, CFO John McMullen provided a "high-level 2019 outlook," which bears repeating:
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.
