3D Systems (NYSE: DDD) has finally shared its financial details for the second quarter of 2024 after a long delay. The company had been unusually quiet, with no updates on its performance since the end of 2023. This silence was broken with an earnings call held on the same day it reported its second-quarter results, which followed shortly after the long-overdue posting of its first-quarter numbers.
During the call, CEO Jeffrey Graves told investors that this period of silence was due to a significant change in its auditing process, which took much longer than expected to finish. According to the executive, 3D Systems switched to a new, larger auditing firm, a complicated and costly process that took several months to complete. With the audit behind them and their financial reporting back on track, it is ready to move forward and focus on what’s next.
“On December 4th of last year, we announced that following a comprehensive months-long proposal and evaluation process, our audit committee had ultimately decided to dismiss the company’s independent auditor following the 2023 year-end audit and moved to a ‘big four’ audit firm beginning in 2024. This decision was based upon many factors, including assessing each firm’s capabilities in the context of our growing size and complexity as a company,” explained Graves.
3D Systems President Jeffrey Graves (L) at Systemic Bio’s new headquarters. Image courtesy of 3D Systems.
With the audit now complete, we can finally look at how 3D Systems did in the second quarter of 2024. The company reported a net loss of $27.3 million for the quarter, slightly smaller than last year’s loss of $28.9 million.
Revenue for the quarter declined by 11.7% compared to the same period last year, mainly due to a drop in printer sales. This decline was particularly noticeable in the healthcare segment, where revenue fell by 19.7% due to reduced printer sales to a major dental customer. However, the company saw some positive movement in other areas, with its industrial segment showing promise, especially in services, even though hardware and materials sales were down.
Graves acknowledged the difficulties, noting that “the weakness we were seeing in our end markets with respect to customer CapEx [capital expenditures] spending was driven largely by high levels of uncertainty among our customers in forecasting consumer demand in the face of high inflation and rising interest rates, combined with a tense geopolitical environment in Europe, Asia, and the Middle East. These uncertainties translate into softer sales of printer hardware across virtually all of our major end markets, with sales reaching near nadir for our company in the first quarter.”
Despite these challenges, there are signs of recovery. Graves also pointed out that the company is seeing improvement as its “opportunity pipeline has consistently strengthened since it bottomed down in the first quarter of the year.” This has translated to meaningful sales growth in the second quarter, with revenues up 10% sequentially. If this trend continues and CapEx spending increases, management expects further sales growth in the last two quarters of the year.
“While we won’t fully make up for the weakness of Q1, the trends are clearly moving in our favor. From an industry perspective, given the scale of our company across multiple end markets and the breadth of our polymer and metal technology offerings, I believe we have a unique perspective on the trends in adopting production scale additive manufacturing,” Graves told investors.
3D Systems creates implantable medical devices. Image courtesy of 3D Systems.
Amid this progress, the company is also focused on managing costs. The delayed 2023 audit impacted operating expenses heavily, pushing them higher in the first half of 2024. However, Graves reassured investors that these costs would decrease in the latter half of the year as the company “normalizes its operations.”
He highlighted the benefits of in-sourcing and restructuring actions, which have already benefited the company’s gross margins. As part of this effort, Graves mentioned that the company has closed and consolidated over 15 sites worldwide and reduced its non-finance-related workforce costs. These efforts are expected to continue driving margin expansion in the coming quarters.
3D Systems also aims to reduce its operating expenses to below $60 million by the fourth quarter, a substantial decrease from the elevated levels seen earlier in the year. This reduction, combined with anticipated revenue growth, positions the company to approach breakeven adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) by the fourth quarter of 2024. For Q2, adjusted EBITDA decreased by $6 million to a loss of $12.9 million
Finally, over the past several months, leadership has taken actions to strengthen the balance sheet, including reducing long-term debt by over 50% by repurchasing convertible notes. This financial “derisking,” along with ongoing R&D investments, puts 3D Systems in a solid position to capitalize on future opportunities.
3D Systems at Formnext. Image courtesy of 3D Systems via LinkedIn.
While the broader economic environment remains challenging, the brand’s financial performance is expected to improve in the second half of 2024, with a clear path toward reduced operating expenses and better margins.
In fact, Graves pointed to a record backlog of new application development requests from customers, reflecting increasing interest in 3D printing on an industrial scale. He attributes this rise in customer interest to the economic advantages of additive technology, including metal and engineered polymers.
“The versatility, quality, and cost of producing components with additive technology, including metal and engineered polymers, has become economically compelling. This is true for our entire industry and across all markets,” Graves said.
This trend is particularly strong in healthcare, semiconductor equipment manufacturing, aerospace, and defense markets, where 3D Systems is seeing significant gains. In addition, Graves highlighted a trend: using additive manufacturing to replace key process steps within existing manufacturing processes, such as employing polymer printing to create cores for metal castings.
“For decades, cores have been a difficult high-value element of the casting process. With our newest production printers and materials, we can produce complex cores for casting at a very attractive cost, on-demand, to match the casting production rates. If we counted this in the metals technology category, the volumes would dwarf even the largest direct metal printing applications today,” concluded the CEO.
With strength in the industrial and healthcare sectors, leadership has updated its revenue guidance for the full year, expecting between $450 million and $460 million. This outlook is supported by a strong customer pipeline and anticipated continued revenue growth in the third and fourth quarters.