3D printing and digital manufacturing solutions provider 3D Systems beat expectations for its third-quarter earnings but marked a year-over-year revenue decline as the coronavirus pandemic slowed economic growth, disrupted the equipment and services market, and impacted operations, ushering in a host of challenges worldwide.
3D Systems reported its third-quarter revenue dropped 13% from the same time last year to $135.1 million. It also informed a loss of $72.9 million, or 61 cents per share, notably higher than the $38 million loss in the prior quarter. Moreover, cash on hand decreased by $58.4 million since December 31, 2019, now at $75.3 million. Mainly due to the uses of cash, which included $26.5 million for debt repayments, $32.6 million for operations, $12.5 million for payments to purchase noncontrolling interests, and $11 million for capital expenditures, but were partially offset by proceeds of $25 million from the issuance of common stock during Q3.
The Rock Hill, South Carolina-based company said it had losses of 61 cents per share, while losses adjusted for non-recurring costs and stock option expense were 3 cents per share. Luckily for the company, this figure surpassed estimates by four analysts surveyed by Zacks Investment Research, who predicted a loss of 8 cents per share in the Q3 period.
So far in 2020, the company’s stock was down 24.8% and hit some slumps during the year, mainly in March and September, with stocks tumbling again in late October after an analyst questioned the sudden upturn of 3D Systems’ shares. William Blair analyst Brian Drab considered the 46% rally had a lot to do with a job posting at Tesla advertising it was seeking to hire a “highly motivated additive manufacturing technician,” which had investors assuming 3D Systems had something to do with the electric car maker’s 3D printing equipment operations. Moving past this and ahead of the 2020 Q3 report release, 3D Systems’ stock closed up 10% at $6.54 per share on November 5, 2020.
Commenting on the quarter, CEO Jeffrey Graves said that “with restructuring efforts on track to deliver a targeted $60 million in savings on a run-rate basis by year-end, the company is pleased with our progress in the quarter and believe we will exit the year a much more efficient, highly focused additive manufacturing company that is well-positioned as a market leader in this exciting industry.”
During the previous quarterly report, we learned that the business had reorganized to focus on two market verticals, healthcare and industrial, which include sectors like medical, dental, aerospace, defense, automotive, and durable goods. At the time, revenue from healthcare had decreased by 11.4%, but during Q3, revenue from healthcare has increased by 6.1% to $59.8 million – compared to the same period last year. This was mainly driven by stronger sales to the dental market. Instead, sales from the industrial segment slumped 23.8% to $75.3 million as demand for materials and services across all geographies plummeted, mainly due to COVID-19-related lockdown and severely restricting commercial activities.
As a result of customer pullbacks amid the pandemic, 3D Systems reduced hiring and cut back on travel spending that resulted in savings to its operating expenses. This was part of an aggressive cost restructuring plan announced during Q2 aimed at reducing operating expenses by $100 million per year. Part of the plan also foresees a 20% workforce reduction, with most of the layoffs completed by the end of this year, as well as a reduction in the number of facilities.
A few months back, the company was considering the divestiture of parts of the business that did not align with its new strategic new focus. In line with this, 3D Systems recently sold its software business subsidiaries, Cimatron and GibbsCAM, which mainly focus on subtractive manufacturing technology. Moreover, in the Q3 earnings report, Graves suggests that this sale is expected to strengthen the company’s balance sheet and help ensure the ability to execute the planned restructuring activities while maintaining critical investments for growth in core businesses. The executive also revealed that the company will continue with other divestitures of non-core assets in the months ahead.
Even though the company is reporting serious headwinds due to pandemic-related slowed economic growth, 3D Systems was already struggling to increase revenues in 2019. Last year, the company’s full-year report showed revenues were down 9% from the previous year. This was mainly due to a decline in printer sales caused by a delay in factory metals printing shipments, the timing of large enterprise customer orders, and the softer macro industrial environment.
Amid rising cases of coronavirus worldwide, and a relentless disruption to businesses, the equipment and services markets, as well as systems manufacturers, need to recover fast. Nonetheless, potential impacts could go on well into 2021, depending on the evolution of the virus, and both vaccine and treatment responses available to the population. Due to this uncertainty, the company was cautious as it moves ahead into the last quarter of the year but anticipated that growing trends in the healthcare segment could continue, strengthening the core business towards a more robust revenue outcome.
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