Shares of 3D Systems (DDD 0.45%) fell 11.7% in Monday's after-hours trading session, following the 3D printing company's release of its first-quarter 2023 results. The stock's decline is largely attributable to the quarter's revenue and adjusted earnings missing the analyst consensus estimates.
As to 2023 guidance, management reiterated its annual outlook for revenue and free cash flow and increased its expectation for the profitability metric that it provides. However, absent the upcoming layoffs announced on Monday, it seems highly unlikely that management would have raised its guidance for the profitability metric. These layoffs will reduce costs and, thus, should boost earnings.
3D Systems' stock performance on Tuesday will likely not only be influenced by the earnings report, but also by information that management shares on the analyst earnings call. This call is scheduled for Tuesday at 8:30 a.m. ET.
3D Systems' key metrics
| Metric | Q1 2022 | Q1 2023 | Change |
|---|---|---|---|
| Revenue | $133.0 million | $121.2 million | (8.8%) |
| GAAP operating income | ($23.2 million) | ($33.4 million) | Loss widened 44% |
| GAAP net income | ($26.8 million) | ($29.4 million) |
Loss widened 10% |
| GAAP earnings per share (EPS) | ($0.21) | ($0.23) | Loss widened 10% |
| Adjusted EPS | ($0.06) | ($0.09) | Loss widened 50% |
Data source: 3D Systems. GAAP = generally accepted accounting principles.
Revenue declined 6.5% year over year, excluding the impact of foreign exchange rates. Investors should focus on the adjusted EPS, which excludes one-time items.
Wall Street was looking for revenue of $128 million and adjusted loss per share of $0.07. So the company fell short of both expectations.
GAAP gross margin was 38.8%, down from 40.4% in the year-ago quarter. Adjusted gross margin was 39%, down from 40.6% in the same period last year. The company attributed these declines primarily to input cost inflation and product mix.
In the first quarter, 3D Systems used cash of $27.7 million running its operations, compared with using cash of $15.1 million in the year-ago period. It ended the period with cash and short-term investments of $529.9 million and long-term debt of $450.2 million.
Segment results
| Segment | Q1 2023 Revenue | Change YOY | Change in Constant Currency YOY |
|---|---|---|---|
| Industrial | $72.5 million | 5.6% | 9.3% |
| Healthcare | $48.7 million | (24%) | (23%) |
| Total | $121.2 million | (8.8%) | (6.5%) |
Data source: 3D Systems. YOY = year over year.
The healthcare segment's results were significantly hurt by the poor performance of the company's dental business -- specifically, its sizable dental orthodontic business, whose revenue plunged 46% year over year. The uncertain macroeconomic environment has dampened demand for elective dental procedures.
Excluding the dental business, the healthcare segment's revenue jumped 22% in constant currency and total revenue grew 12% in constant currency.
CEO Jeffrey Graves said in the earnings release that industrial segment revenue growth was driven by the commercial rocketry and aerospace propulsion, industrial products, and consumer goods markets.
NYSE: DDD
Key Data Points
Layoffs
3D Systems announced that its "next evolution of restructuring" will reduce its workforce by about 6%. Most of the layoffs will be in its corporate and business support functions and most will occur in the second quarter.
The company expects this move to decrease operating expenses by about $4 million to $6 million in 2023 and to provide annualized savings of approximately $9 million to $11 million beginning in 2024. It plans to incur cash charges in the range of $3.5 million to $4.5 million for severance-related costs during 2023.
2023 guidance revised
Management reiterated its 2023 guidance for revenue and free cash flow and increased its outlook for adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA).
| Metric | 2022 Result |
Prior 2023 Guidance (Set in late February) | Current 2023 Guidance | Annual Change Implied by Current Guidance* |
|---|---|---|---|---|
| Revenue | $538 million | $545 million to $575 million | $545 million to $575 million | 1% to 7% |
| Adjusted gross margin | 39.8% | 40% to 42% | 40% to 42% | Increase of 0.2 to 2.2 percentage points |
| Adjusted EBITDA | $5.8 million | Breakeven or better | $2 million or better |
(66%) or better |
| Free cash flow |
($90.9 million) | Breakeven or better | Breakeven or better | Flip to positive from negative |
Data source: 3D Systems. *Calculations by author.
Excluding the dental business, revenue growth was solid
3D Systems' Q1 report was far from a good one. However, given the challenging macro environment, the company did a decent job limiting the downside. The dental business significantly dragged down overall results. Excluding this business, revenue grew 12% year over year in constant currency.
Investors will want to see the company start generating positive cash flows. Remember, "earnings" is simply an accounting metric, whereas cash flows actually measure how much cash a company is generating running its operations (operating cash flow) and how much cash it has left after investing in growth initiatives (free cash flow).
