AMS Spring 2023

3D Printing Financials: 3D Systems Posts Q3 Losses, Narrows Full-Year Guidance Once Again

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Macroeconomic headwinds continue to impact many companies negatively. For its third quarter ending September 30, 2022, 3D Systems (NYSE: DDD) reported losing $37.4 million, and revenue decreased 15.3% to $132.3 million year over year. From an operating standpoint, high inflation impacts purchase components and labor costs. Management also communicated to investors that the quarter remained challenging due to recessionary fears, persistent supply chain challenges, and geopolitical tensions. However, the biggest headwind for the company’s third quarter was a significant year-over-year decline in revenues from dental market customers.

“We were aware that this decline was coming,” explained 3D Systems CEO Jeffrey Graves in an earnings call with analysts. “Our general results for the third quarter, while disappointing, were roughly in line with our expectations. It’s difficult to gauge how long this softer demand might last because it’s so dependent on how macroeconomic conditions evolve over the coming quarters. We expect this business to eventually recover and to be a strong contributor to our growth and profitability.”

But the company narrowed its production guidance for the entire year and declined to provide guidance for 2023. The updated guidance for 2022 is expected to be between $535 million and $545 million. This is the second time during the year that 3D Systems has trimmed its revenue outlook. A few months ago, when it posted second-quarter earnings, the company lowered its full-year 2022 guidance to a range of $530 million and $570 million, reduced from the previous range of $580 million to $625 million.

Low dental sales are partly to blame

The Rock Hill, South Carolina-based company said revenue for the third quarter was $132.3 million, a decrease of 15.3% versus the prior year. However, CFO Michael Turner said that when excluding divestitures and the unfavorable impact of foreign exchange, revenue increased by 2.7% compared to the preceding year. The executive believes this top-line growth reflects “continued solid demand” in both the industrial and healthcare segments, partially offset by weakness in dental market sales, representing a significant portion of the overall business.

Even so, industrial revenue decreased 14.6% to $68.1 million compared to the same period last year, while healthcare revenue decreased 16.0% to $64.2 million year over year. The biggest driver of the decline in healthcare solutions was a sharp reduction in spending by specific key dental customers in the market for elective orthodontic procedures. According to Turner, high inflation reduced consumer confidence, and geopolitical factors negatively impacted patient demand for elective courses, resulting in lower caseloads.

3D Systems DMP Flex 350 Dual (left) and DMP Factory 350 Dual (right) 3D Systems DMP Flex 350 Dual (left) and DMP Factory 350 Dual (right). Images courtesy of 3D Systems.

Outside of dental, 3D Systems saw healthy growth in some of the other major business lines within the healthcare segment, including solid sales to customers that make medical devices, like orthopedic implants and surgical guides. Also, virtual surgical planning and point-of-care solutions sales grew in the third quarter.

On the industrial side, revenue growth was driven by precision microcasting applications and demand for energy and commercial space production machines. However, outweighing the positive demand was lower sales in automotive. In Europe, the war in Ukraine and uncertainty regarding recession and energy supplies continue to pressure 3D Systems customers, suggests Graves. Given the company’s historically strong market presence in Europe and Germany in particular, this impacts the industrial segment.

Graves also pointed out that “while this is still a great business that we’re fully committed to, key customers have slowed their spending, which, while largely anticipated in our previous guidance, can clearly be seen in our financials. Fortunately, we expect this business to strengthen once the economy normalizes, but this may take some time.”

On the downside, Turner indicated that the business experienced headwinds of over $8 million related to the sharp appreciation of the U.S. dollar that occurred during the third quarter, which reduced the value of 3D Systems’ international sales made in foreign currencies (typically representing 40% of total sales).

On the supply chain front, it was able to catch up significantly on many of the late shipments from the second quarter, and as a result, it had roughly $2 million of customer printer orders that couldn’t be shipped. However, supply chains are showing signs of initial stabilization, commented Graves, and if no further disruptions occur, 3D Systems expects this trend to continue.

It’s not all bad

Despite the downturn reported in the third quarter, the Rock Hill, South Carolina-based company sees a “strong balance sheet” that positions it to continue investing in high-margin, high-growth areas of the business, like new opportunities for large-scale AM and bioprinting. Graves also points out that because he chose to divest its non-core businesses in 2021 and took other actions in the capital markets, 3D Systems entered 2022 with “an excellent cash position,” one it has mainly maintained throughout the year.

Although 3D Systems ended the quarter with $609 million of cash and short-term investments on hand, a decline of approximately $180 million since the end of 2021, Graves believes they continue to have a strong balance sheet with sufficient cash to support organic growth

“We regard 2022 as an investment year, during which we will make additional targeted investments at high potential growth areas of our business and in our corporate infrastructure. This is part of our overall strategy to profitably grow revenue in both the industrial and healthcare segments, as well as to enter new businesses such as regenerative medicine. While we are always willing to consider M&A opportunities as they arise, we are currently focused on integrating and growing the businesses that we have acquired over the last year and a half,” said Graves.

3D Systems President and CEO Dr. Jeffrey Graves. 3D Systems President and CEO Dr. Jeffrey Graves. Image courtesy of 3D Systems.

Stating that the company has “enough liquidity to weather any near-term storm,” it seems Turner said just what investors and analysts needed to hear. The executives made sure the message that the company has “all the normal levers to pull if times get harder” and “we will pull them,” emphasized Graves. Top-line growth is the priority, and the message was understood by Wall Street as well, considering that 3D Systems stock went up 14% after markets opened on November 9, 2022, and following the release of the third quarter report.

“I’ll end by saying we are heavily focused on execution. We own the assets we need to own. We now need to execute with those assets, and we’re focused on profitability and cash performance. Our priority now is executing on what we’ve invested in and driving profitability and cash performance,” concluded Graves.

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