Investors in 3D Systems (DDD +4.67%) are likely in for a tough day on Tuesday. The 3D-printing company released a disappointing second-quarter report on Monday after the market close.
Shares fell 11.9% in Monday's after-hours trading session. This is attributable to the quarter's revenue and earnings missing Wall Street consensus estimates. Management also lowered its full-year 2022 guidance, which was likely the biggest factor in the sell-off.
It's safe to assume shares will drop on Tuesday. The magnitude of the decline will likely depend on information shared on the analyst earnings call, which is scheduled for Tuesday at 8:30 a.m. ET.
Image source: Getty Images.
3D Systems' key metrics
| Metric | Q2 2022 | Q2 2021 | Change |
|---|---|---|---|
| Revenue | $140.0 million | $162.6 million | (14%) |
| GAAP operating income | ($32.0 million) | ($10.1 million) | Loss widened 217% |
| Adjusted operating income | ($7.6 million) | $7.3 million | Flipped to negative from positive |
| GAAP net income | ($33.0 million) | ($9.6 million) | Loss widened 244% |
| Adjusted net income | ($8.5 million) | $8.0 million | Flipped to negative from positive |
| GAAP earnings per share (EPS) | ($0.26) | ($0.08) | Loss widened 225% |
| Adjusted EPS | ($0.07) | $0.06 | Flipped to negative from positive |
Data source: 3D Systems. GAAP = generally accepted accounting principles.
Investors should focus on the adjusted metrics, as they strip out one-time items.
Excluding the divestitures of noncore assets made last year, revenue grew 3.3% year over year, and 7.8% in constant currency. Given the challenging macroeconomic environment, this latter result is fairly decent.
The strengthening of the U.S. dollar relative to other currencies over the last year took a big bite out of the company's sales growth because it has a sizable international business.
Wall Street was looking for revenue of $146.8 million and adjusted earnings per share of $0, as outlined in my earnings preview. So the company missed both estimates.
In the first six months of the year, 3D Systems used cash of $38.2 million running its operations. It ended the period with cash and short-term investments of $638.2 million and long-term debt of $448.1 million.
For context, in the first quarter, 3D Systems' revenue fell 9% year over year to $133 million. Excluding the impact of divestitures, however, revenue increased 10%.
Segment results
| Segment | Q2 2022 Revenue | Change YOY |
|---|---|---|
| Industrial | $68.3 million | (14%) |
| Healthcare | $71.7 million | (13%) |
| Total | $140.0 million | (14%) |
Data source: 3D Systems. YOY = year over year.
Adjusted for divestitures, sales in the industrial and healthcare segments rose 3.8% and 2.9%, respectively. Adjusted for divestitures and changes in foreign-exchange (forex) rates, the two segments grew revenue 11% and 4.7%, respectively.
The company attributed the overall 7.8% growth in "core revenue" (which excludes divestitures and forex changes) to continued solid demand across both segments, "partially offset by continuing global supply chain disruptions and the Russia-Ukraine war, which has impacted demand in the European region and led to our exit from the Russian market."
NYSE: DDD
Key Data Points
What the CEO had to say
Here's part of CEO Jeffrey Graves' statement in the earnings release.
Our second quarter results came in below our expectations, due in large part to continuing supply chain disruptions that constrained our ability to fill customer orders, input cost inflation that reduced our gross profit margins and a significant negative impact of foreign exchange on our international business. In addition, we are seeing evidence that macro factors are causing selected key customers to spend more cautiously, and we now believe, as reflected in our reduced FY 2022 guidance, that this softer demand environment is likely to continue at least through the balance of the year. We have already taken certain cost and efficiency-related actions and will take additional measures as we move through 2022, with the goal of mitigating the impact of reduced near-term demand on our financial results.
2022 guidance lowered
| Metric | 2021 Result | Current 2022 Guidance | Initial 2022 Guidance | Annual Change Implied by Current Guidance* |
|---|---|---|---|---|
| Revenue | $615.6 million | $530 million to $570 million | $580 million to $625 million | (14%) to (7.4%) |
| Adjusted gross margin | 43% | 39% to 41% | 40% to 43% | Decline of 3 percentage points to flat |
| Adjusted operating expenses | $214.7 million | $245 million to $250 million | $235 million to $250 million | 14% to 16% increase in expenses |
Data source: 3D Systems. *Calculated by author.
The reduced revenue guidance "reflects an estimated $20 million of negative foreign exchange impact, as well as additional negative impacts from reduced customer spending in selected end markets such as dental, elective surgeries and European and Asia Pacific manufacturers caused by the challenging macro-environment," the company said in the earnings release.
A disappointing Q2 report
In short, 3D Systems turned in a subpar Q2 report. The most disappointing part of the report was the lowering of 2022 guidance. However, this action shouldn't come as much of a surprise, given the deterioration in some aspects of the macro environment and the further strengthening of the U.S. dollar since early in the year when the company issued its initial outlook.
