3D Systems (DDD +5.42%) announced earlier this month that CEO Vyomesh Joshi notified the board of directors that he has decided to retire. This news comes just five months after Todd Booth joined the 3D printing company as its CFO -- its third financial leader in less than four years.
Here's what investors should know.
3D Systems' C-suite has had a revolving door in recent years. Image source: Getty Images.
Joshi's retirement
Joshi will continue in his roles as president, CEO, and board member of the South Carolina-based 3D printing company until a successor is selected, according to the press release. He will then "transition to be a strategic advisor to the company."
How long it will take to find a new leader is anyone's guess, though at least several months seems probable. The company operated without a permanent CEO for about five months until Joshi came on board in April 2016. (During that time, 3D Systems Chief Legal Officer Andrew Johnson was the interim CEO.)
We can't know if Joshi's retirement was entirely his decision or if he was nudged along by the board. It's probably safe to say, however, that he wasn't outright fired, as he'd almost surely be gone as soon as the decision and announcement were made. The press release does mention his age, which is typical retirement age, so he simply may be ready to leave the workaday world. Moreover, it's not uncommon for one CEO to be brought in to help stabilize a troubled company and another one then hired to lead during the next phase.
Joshi's tenure
Joshi's tenure began in April 2016, about five months after the company's longtime former CEO Avi Reichental abruptly left. It was widely believed at the time that Reichental was fired by 3D Systems' board. It's been speculated that a main reason that he was let go stems from the company's acquisition spree during the last few years of his tenure. The extreme focus on "buying" revenue probably resulted in top management not devoting enough time to nurturing the company's existing businesses.
As to Joshi's background, he had a 30-plus-year career at the former Hewlett-Packard, culminating in leading the company's imaging and (2D) printing business for 11 years through 2012. That business became a part of HP Inc. after Hewlett-Packard split into two companies.
How well has 3D Systems' performed under Joshi's leadership?
Joshi and former CFO John McMullen, whom Joshi brought on board in June 2016, were handed a troubled company. Like competitor Stratasys (SSYS +1.29%), 3D Systems had been (and still is) struggling to grow revenue since 2015 after a few-year boom period. Moreover, the company had been (and still is) unprofitable on a trailing-12-month basis since early 2014. In addition, product quality issues were popping up frequently.
"Under [Joshi's] leadership, the company has stabilized financially, significantly improved product quality and reinvigorated innovation across its portfolio," according to the press release. Indeed, Joshi did improve product quality and stabilized the company financially to some degree, though 3D Systems continues to have a negative free cash flow (FCF) and had about 27% less cash on its balance sheet at the end of the third quarter than it did at the end of the quarter during which Joshi took the helm.
Revenue has been flat during Joshi's tenure. For context, Stratasys' revenue has slipped about 4% during this period. Both companies exited some businesses deemed undesirable, which is a positive. Nonetheless, no revenue growth during a 3.5-year period remains concerning. The main reason behind 3D Systems' stalled revenue is probably increased competition, primarily from HP Inc. and venture-backed Carbon. However, we can't discount the fact that some companies may be hesitant to do business with any company that has had some significant product quality issues. This is a hurdle that takes some time to overcome.
Data by YCharts.
3D Systems' bottom-line performance also is a concern. The efforts by Joshi and McMullen were probably responsible for helping improve a very bad profitability picture in 2016. However, after an initial improvement, the company's net loss has remained relatively stable. Meanwhile, Stratatsys' net loss has improved considerably over this period. To be fair, 3D Systems was likely in notably worse shape than Stratasys at the start of this period from a couple standpoints, namely product quality and employee morale.
Data by YCharts.
What investors care most about is a company's stock performance. So far during the Joshi era at 3D Systems, the company's stock is down more than 25% -- roughly in line with Stratasys stock's performance. Both stocks have significantly underperformed the broader market, with the S&P 500 returning nearly 77% during this period.
Data by YCharts.
Does a new CEO matter?
The short answer to this question is yes. A CEO sets the strategy for a company and monitors execution, so they have a good deal of control over a company's performance. Investors and potential investors in 3D Systems should monitor the CEO situation.
On a related note, Stratasys will have a new CEO effective Tuesday, Feb. 18. In December, the company announced the appointment of Yoav Zeif to that role. Stratasys has been operating without a permanent CEO since the unexpected departure of Ilan Levin in June 2018.
