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3D Systems Earnings Beat Expectations; Stock Pops

By Beth McKenna - Feb 27, 2020 at 7:00AM

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A bright spot amid quite a few weak areas: Revenue in the high-margin materials business rose more than 7% year over year.

3D Systems (DDD -14.28%) released fourth-quarter and full-year 2019 results after the market closed on Wednesday. 

While the results were nothing to cheer about, shares of the 3D printing specialist were up 3.5% in Wednesday's after-hours trading session. We can attribute the market's positive initial reaction to quarterly results that beat Wall Street consensus estimates for both the top and bottom lines. 

Here's how the quarter worked out for 3D Systems and its investors.

A 3D printer printing a yellow plastic object.

Image source: Getty Images.

3D Systems' key numbers

Metric Q4 2019 Q4 2018

Change

Revenue $164.6 million $180.7 million (8.9%)
GAAP operating income ($4.7 million) ($7.0 million) Loss narrowed 33%
GAAP net income ($4.7 million) ($4.1 million) Loss widened 15%
Adjusted net income $5.5 million $11.4 million (52%)
GAAP earnings per share (EPS) ($0.04) ($0.04) --
Adjusted EPS $0.05 $0.10 (50%)

Data source: 3D Systems. GAAP = generally accepted accounting principles. 

For the fourth quarter, Wall Street was looking for adjusted EPS of $0.01 on revenue of $163.7 million. So 3D Systems beat both expectations.

For the quarter, GAAP gross margin was 43.6%, down from 45.7% in the year-ago period but slightly higher than last quarter's 43.3%. Adjusted gross margin landed at 43.8%, down from 46.3% in the year-ago quarter and also lower than the third quarter's 44.4%.

During the quarter, 3D Systems generated $21.5 million of cash from operations, up from $6.5 million last quarter, and ended the period with $133.7 million of cash on hand.

"Cash generation was driven by improvements in working capital, including planned reductions of inventory," the company said in the earnings release.

For full-year 2019, revenue fell 8.5% year over year to $629.1 million. GAAP loss widened 49% to $0.61 per share, and the company posted an adjusted loss of $0.08 per share compared to adjusted EPS of $0.15 in 2018. 

Segment quarterly results 

Segment Q4 2019 Revenue Change (YOY)
Product $104.0 million (8%)
Service $60.6 million (10.4%)
Total $164.6 million (8.9%)

Data source: 3D Systems. YOY = year over year.

Here's how key categories performed:

  • 3D printers (within product): Revenue dropped 22.8% year over year to $33.6 million.
  • Healthcare solutions: Revenue fell 5.9% to $54.9 million. (This category spans both segments and overlaps other categories.)
  • Materials (within product): Revenue rose 7.3% to $45.0 million.
  • Software (within product): Revenue declined 10.2% to $25.8 million. 
  • On-demand part manufacturing (within service): Revenue fell 17.2% to $23.0 million.

The quarterly decline in 3D printer revenue was driven by "the delay in factory metals printing shipments, timing of large enterprise customer orders, and the softer macro industrial environment," the company said in the earnings release. As for the factory metals situation: The company paused the shipping of these products a few quarters ago because it experienced some quality issues. 

For context, last quarter, 3D printer revenue dropped 17.2% year over year, healthcare revenue rose 6.3%, materials revenue edged up 2.8%, software revenue was flat with the year-ago period, and on-demand manufacturing revenue declined 12%. So the year-over-year performances of all the categories except for materials worsened from the third quarter. 

What management had to say

Here's what CEO Vyomesh Joshi had to say in the earnings release:

In 2019 we demonstrated how our digital manufacturing strategy has come alive, with customers realizing the benefits of our production solutions across a range of industries and creating over 200 million production parts using 3D Systems' solutions. Despite macroeconomic headwinds, I'm pleased with the growth in materials in the second half and our continued focus on cost structure. Now in 2020 we believe we have the right products and solutions, including our planned shipment of factory metals printers in the second quarter, to accelerate the adoption of additive manufacturing technology and drive profitable revenue growth.

Looking ahead

3D Systems capped off a weak year with a pretty weak quarter. The only notable bright spot in the fourth quarter was that materials revenue grew 7.3% year over year. Growth in this category particularly helps the bottom line because materials have high profit margins. In addition --- while I'd not go as far as calling this a bright spot -- it was a positive that Q4 revenue increased 6% sequentially, or from the third quarter.

Investors should know that Joshi notified the board of directors earlier this month that he has decided to retire. He will continue in his roles as president, CEO, and board member until a successor is selected.

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

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