3D Systems (DDD) recently released disappointing first quarter earnings results. The 3D printing company’s stock dropped about 16 percent after the weaker-than-expected earnings were revealed. The investing community is clearly disappointed with 3D System’s adjusted earnings per share and quarterly revenue.
3D System’s first quarter year-over-year revenue increased by $13.9 million. The company’s gross margin dropped to 43.2 percent from 46.9 percent in the same period a year ago. This decline also represents about a 45 percent decrease from the prior quarter.
3D Systems executives blame the decline on overhead costs, reduced revenue and unexpected sales declines. The company burned through about $15 million of operations cash, ending the period with slightly more than $157 million cash on-hand. All in all, 3D Systems’ top and bottom line first quarter results did not meet expectations.
As most readers would guess, much of 3D Systems’ revenue stems from 3D printers. Revenue stemming from 3D printers decreased 29 percent on a year-over-year basis to $28 million. The total number of 3D printers sold spiked 90 percent. 3D Systems also makes money from software that facilitates the use of its products. Revenue from software decreased eight percent this past quarter. Revenue stemming from materials dipped three percent.
Though few would guess it, 3D Systems also makes money from healthcare solutions. Revenue from this category decreased 5 percent to the $50 million mark. The investing community is especially disappointed with these first quarter healthcare results, as 3D Systems has enjoyed consistent year-over-year growth. The company’s earnings release states healthcare services have increased yet the timing of significant customer orders for printers and materials nullifies these boosts.
All of this news has analysts asking the obvious: can 3D Systems bounce back from a disappointing first quarter?
Investors considering a position in 3D Systems should not be scared away by the company’s first quarter earnings. This seasonality in revenue can be partially attributed to enterprise customers’ unique order patterns. 3D Systems’ CEO, Vyomesh Joshi, states issues with shipment timing combined with flaws with on-demand services are partially to blame. The company will continue to hasten its cost reductions for improved performance across the rest of the year. Look for the 3D Systems to bounce back as it takes advantage of new market opportunities, captures that much more market share and follows through on its plan to spearhead growth across the long haul.
3D Systems’ CFO, John McMullen, anticipates growth to be spurred by printer revenue, materials growth and new products that will hit the market in the year ahead. McMullen recently stated the company’s materials growth will likely exceed expectations in the second half of 2019. It appears as though the remainder of 2019 just might turn out to be a pleasant surprise for 3D Systems investors. The bottom line is one weak quarter should not permanently steer investors away from this intriguing company.
Investors should pay close attention to 3D Systems cash flows in the quarters-to-come. The business generated nearly $5 million in cash through its operations. This figure is quite paltry compared to the $64 million in cash generated by Stratasys. These two companies are worth comparing as they are in the same sector and have nearly the same yearly revenue. Making matters worse is the fact that 3D Systems’ 2018 cash flow was negative. The company finished out the year with $110 million in cash, a major reduction from the $136 million in cash it had on-hand back in 2017. 3D Systems executives blame the debut of several new products for the lack of cash on-hand. The question is whether 3D Systems’ spending will spur meaningful returns for investors down the line.
Hold off on investing your hard-earned money in 3D Systems for the time being. The fact that the company is struggling to generate a meaningful amount of cash from operations is concerning. Sit on the sidelines until you are certain this company can rebound from its disappointing quarter, gain market share and ultimately generate a consistent profit. Pay close attention to the company’s quarterly numbers on the next go-round, zero in on its cash from operations and reconsider your stance at that point.
Regards,
Ethan Warrick
Editor
Wealth Authority
