3D Systems (DDD) Sinks, Lags Q3 Earnings, Withdraws Guidance
3D Systems Corporation’s DDD posted another huge earnings miss — the company’s third after a streak of three back-to-back quarters of impressive beats. The company reported a loss of 34 cents per share for third-quarter 2017, in stark contrast to the Zacks Consensus Estimate of earnings of 5 cents. The figure fared dismally in year-over-year comparison as well, having tanked 78.9% from the prior-year quarter loss of 19 cents.
Non-GAAP loss came in at 20 cents per share, down significantly from the year-earlier quarter figure of earnings of 14 cents, dragged by top-line contraction and a disproportionate rise in cost of sales. Investors abandoned the stock in droves after the miserable quarterly numbers, and the company’s shares had plunged 19.4% at one point in pre-market trading.
In light of the miserable results, the company’s management withdrew its full-year 2017 guidance.
Inside the Headlines
The 3D printer maker reported revenues of $152.9 million, reflecting a year-over-year decrease of 2.2%. Steady demand for the company’s healthcare solutions and industrial offerings and strength in the EMEA region was more than offset by softer revenues in the Americas and the Asia-Pacific region. Revenues also missed the Zacks Consensus Estimate of $163 million.
3D Systems’ Healthcare revenues were up 10% to $46.6 million year over year, primarily attributable to high demand for materials and services, including the Virtual Surgical Planning and contract manufacturing services, which were slightly offset by weaker sales of high-margin simulators. Also, the timing of system orders remains lumpy. Software revenues remained flat on a year-over-year basis, while On-demand manufacturing revenues rose 3% year over year to $27.2 million.
Material revenues rose 4% to $39.4 million, thanks to strong production orders and robust contribution from the previously acquired Vertex-Global. Printer revenues fell 11% to $29.4 million, dragged by the mix of sales which carried lower ASPs.
In the reported quarter, gross margin contracted a whopping 580 basis points on a year-over-year basis to 38.3%, wing in part to inventory write-downs. The company plans to drive further reductions in cost of sales from its supply-chain betterment initiatives and manufacturing improvements, in order to drive margins higher.
3D Systems Corporation Price, Consensus and EPS Surprise
The company’s operating expenses were nearly flat at $90.9 million, as SG&A expenses rose and R&D expenses dropped.
Earlier this year, 3D Systems rolled out a next-generation additive manufacturing platform, based on the company’s Figure 4 technology and NextDent materials. The company believes the new platform will bring down cost of operations, reduce fabrication times and produce far less material waste.
In the third quarter, 3D Systems launched a recent version of industry-leading Geomagic Control X inspection software. The company plans to roll out the Figure 4 modular and scalable platform in the first half of 2018, which will offer stand-alone products to highly customized in-line production systems with price points ranging from $25,000 to over $1 million.
The company also plans to introduce a dental-specific solution for dental labs, which will leverage the combined capabilities of Figure 4 and the recently acquired Vertex. Other plans in the pipeline include 3D Systems’ next-generation metals platform and a follow-on SLS Production system.
Cash Flow and Balance Sheet
3D Systems ended the quarter with cash and cash equivalents of $138.3 million, down significantly from $184.9 million as at Dec 1, 2016. At the end of June, net cash generated from operating activities came in at $17.7 million, significantly lower than the year-earlier figure of $38.2 million.
The company has conducted a deep and extensive review of inventory based on year-to-date demand, customer data and market trends, and has consequently recorded a significant adjustment to inventory. It has also implemented organizational changes to improve execution, and increased investments as it shifts to a worldwide go-to-market structure.
In light of such major, transformational initiatives, the company has decided that it is not able to predict its earnings and sales numbers accurately, and has thus decided to withdraw guidance for now.
Despite steady momentum of healthcare offerings, robust demand for production printers and materials, and higher efficiency in “demand manufacturing services”, 3D Systems looks in for a rough ride in the near future.
Still, we believe the acquisition of Vertex-Global Holding B.V will unlock multiple opportunities for the billion-dollar digital dentistry space. Also, the company’s efforts to streamline its cost structure by focusing on IT infrastructure, go-to-market and innovation are likely to stoke growth.
Despite these positives, 3D Systems’ broader market concerns have thwarted growth of the premium 3D printing company. The industry is battling a widespread decline in demand for enterprise 3D printers over the past two years. Other headwinds, including economic slowdown, inflation, currency fluctuations and commodity price vagaries, also marred the performance of most players in the industry.
3D Systems currently carries a Zacks Rank #3 (Hold).
Stocks to Consider
Some better-ranked stocks in the broader space include Kemet Corporation KEM, Universal Display Corporation OLED andZAGG Inc ZAGG, each sporting a Zacks Rank of 1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Kemet Corporation generated huge, consecutive beats in the last four quarters, for an average positive surprise of 64.8%.
Universal Display also has a striking earnings surprise history, with an outstanding average beat of 534.2% for the trailing four quarters, driven by three massive beats.
ZAGG has beaten earnings estimates thrice over the trailing four quarters. Last quarter, it beat estimates by 20%.
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