3D Printing Financials: 3D Systems Shares Up Amid Revenue and Profit Losses

Despite reporting sunken revenues for both the 2022 fourth quarter and full year, 3D Systems (NYSE: DDD) stock was up almost 17% the morning after the company posted its latest financial report. Investors were initially pleased with 3D Systems’ results, especially since net losses were better than expected.

After market closing on February 28, 2023, the pioneering 3D printing firm announced its fourth quarter revenue in 2022 decreased 12% year-over-year, primarily due to a slowdown in the dental orthodontic business, a direct result of the staggering inflation. To top it, full-year results also showed a 12.6% decline in revenues from $615.6 million in 2021 to $538 million in 2022.

A negative adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) and net losses of $122.7 million for 2022 were also significant setbacks for the South Carolina 3D printer manufacturer. This was primarily the result of enduring inflation, manifesting itself in higher labor and material costs which created challenges in gross profit margins. In addition, it prompted consumers to shift their spending to more basic necessities, reducing the demand for many elective medical and dental procedures.

As a result, the brand experienced an unexpected and significant decline in dental market revenue during the second half of 2022, which was particularly impactful since dental sales represent a large portion of the total business. In addition, other economic uncertainties coupled with recession fears made customers defer new investments in equipment and inventory.

Gross profit margins were 39.8% in 2022 compared to 42.5% in the prior year. This margin decrease was due to multiple factors, including 2021 divestitures of non-core assets, inflationary impacts on input costs, freight, and unfavorable changes in product mix due to selling more printers and fewer materials in 2022 than the prior year.

The report was published after a lawsuit was settled with the U.S. government regarding the possibility that, between 2012 and 2017, the company transferred sensitive files to a branch of its Quickparts subsidiary in China in violation of the Department of Commerce’s Export Control Laws and the Department of Justice’s False Claims Act.

Earnings drop

Despite the setbacks, 3D Systems CEO Jeffrey Graves was optimistic during an earnings call with investors, stating: “while we came in short of our original financial goals set at the beginning of the year, I’m very proud of what our company ultimately achieved, particularly given the headwinds that we encountered during the year.”

Describing the second half of 2022 as “solid,” Graves said the company delivered well on key customer commitments and emphasized that 2022 was planned as an “investment year” for 3D Systems. Therefore, most of the money was spent on refreshing the product portfolio, continuing to build a world-class regenerative medicine business, and improving the corporate and regulatory infrastructure to support future growth.

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

In particular, the hardware team undertook a comprehensive effort to refresh 3D Systems’ most critical printer platforms and have already achieved several important milestones on this front, including the launch of the brand’s fastest-ever, large-format SLA 750 and SLA 750 Dual stereolithography printers for high-volume polymer applications; and a major upgrade to its industry-leading jetting printer, the MJP 2500W which is ideally suited for jewelry and other small precision casting applications.

Outside of the dental setbacks, 3D Systems saw healthy growth during 2022 in some other major business lines within its healthcare segment, including strong sales to customers that 3D print various types of medical devices, such as orthopedic implants and surgical guides. In addition, sales in virtual surgical planning and point-of-care solutions to doctors, surgeons, and hospitals also grew in the fourth quarter, mainly since these two areas of the healthcare business often involve medical procedures that are less elective in nature and, therefore, have been proven resilient even in times of economic uncertainty, indicated Executive Vice President and Chief Financial Officer (CFO) Michael Turner.

ProJet MJP 2500W Plus. Image courtesy of 3D Systems.

Financial trends

On another front, most of the growth in the industrial segment was driven by continued strength in precision microcasting applications for jewelry customers, growth in semiconductors and electronics, and demand for production machines in energy and commercial space applications. However, Turner further explained to investors that these gains were partially offset by relatively weaker sales to aerospace and motorsports customers compared to a very strong fourth quarter in 2021 for both end markets.

That said, the company expects 2023 to “harvest the near-term benefits” of last year’s technology investments and accelerate the cycle of performance upgrades during 2023, with several new platforms scheduled for launch throughout the year.

For 2023, given the continued inflationary environment and the pressure it inevitably puts on consumer discretionary spending, Graves pointed out that revenue guidance “assumes continued softness in the dental orthodontic market.”

Although the executives said they would not provide any quarterly guidance for 2023, they anticipate breakeven to positive adjusted EBITDA and free cash flow after fully incorporating expected headwinds. Based on the current forecast, 2023 will result in revenue between $545 million and $575 million and a gross profit margin of at least 40%.