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3D Systems Stumbles on Top and Bottom Lines; Stock Drops 16%

Beth McKenna, The Motley Fool

3D Systems (NYSE: DDD) released weak first-quarter 2019 results after the market closed on Tuesday.

Shares of the 3D printing company plunged 16.4% in after-hours trading on Tuesday. We can attribute the market's initial reaction to both revenue and adjusted earnings per share (EPS) coming in lower than most investors were probably expecting.

3D Systems was the second of the two big 3D printing companies to report, as Stratasys (NASDAQ: SSYS) released its results (which were the better of the two) on May 2.

Here's how the quarter worked out for 3D Systems and its investors.

3D Systems' key numbers

Metric Q1 2019 Q1 2018 Year-Over-Year Change
Revenue $152 million $165.9 million (8.4%)
GAAP operating income ($21.3 million) ($17.5 million) N/A -- loss widened
GAAP net income ($24.4 million) ($21 million) N/A -- loss widened
Adjusted net income ($10.1 million) ($3.4 million)

N/A -- loss widened

GAAP earnings per share (EPS) ($0.22) ($0.19) N/A -- loss widened
Adjusted EPS ($0.09) ($0.03) N/A -- loss widened

Data source: 3D Systems. GAAP = generally accepted accounting principles.

GAAP gross margin was 43.2%, down from 46.9% in the year-ago period and also down from 45.7% last quarter. The company attributed the year-over-year decline to "under-absorption of overhead driven by lower revenue and production combined with mix of sales."

During the quarter, 3D Systems used $15.2 million of cash in operations and ended the period with $157.3 million of cash on hand. 

For context (though long-term investors shouldn't place too much weight on Wall Street's near-term estimates), analysts had been looking for an adjusted loss of $0.01 per share on revenue of $164.7 million. So, both top- and bottom-line results fell short of these expectations.

For additional context, Stratasys' first-quarter revenue edged up 1% year over year, its GAAP net loss narrowed considerably, and its adjusted EPS doubled.

A 3D printer printing a yellow plastic object.

Image source: Getty Images.

Segment results

Segment Q1 2019 Revenue Q1 2018 Revenue Year-Over-Year Change
Product $92.3 million $105.4 million (12.4%)
Service $59.6 million $60.4 million (1.3%)
Total $152 million $165.9 million (8.4%)

Data source: 3D Systems. 

On the earnings call, management reviewed how key categories performed: 

  • 3D printers (within product): Revenue dropped 29% year over year to $28 million, while the number of units sold soared 90%.
  • Healthcare solutions: Revenue slipped 5% to $50 million. (This category spans both segments and overlaps other categories.)
  • Software (within product): Revenue fell 8% to $20.8 million.
  • On-demand part manufacturing (within service): Revenue declined 12% to $22.6 million.
  • Materials (within product): Revenue edged down 3% to $41.4 million.

Healthcare results were particularly disappointing, as this is one category that nearly always shows year-over-year growth. In the earnings release, the company said that "healthcare services and simulation increased, however timing of large customer orders for printers and materials offset the increases."

For context, in 2018, 3D printer revenue jumped 25% year over year on a 76% increase in printer unit sales, healthcare solutions revenue grew 19%, software revenue increased 5%, on-demand manufacturing edged up 2%, and materials got a 1% boost.

What management had to say

Here's what CEO Vyomesh Joshi had to say in the earnings release:

While we expected seasonality in our revenue this year from ordering patterns of enterprise customers, the first quarter was lower than anticipated as a result of shipment timing and additional on-demand weakness. We are taking actions to improve performance for the balance of the year, including accelerating cost reductions.

With the breadth and strength of our portfolio, we continue to have significant market opportunities to expand our market share and are committed to executing our plans to drive long-term profitable growth.

Looking ahead

In short, 3D Systems turned in an anemic quarter. That said, a quarter is just a quarter. Investors should place much more emphasis on annual results.

The company doesn't provide guidance. Last quarter, however, CFO John McMullen provided a "high-level 2019 outlook," which bears repeating:

We continue to expect growth to be driven by printer revenue growth, including the expected ramp of sales of new products launched throughout 2018, materials growth with higher growth beginning in the second half of 2019, continuing healthcare revenue growth, and software growth continuing and improving over time. We are pleased with the overall progress we have made. But we continue to focus on additional operational efficiencies and cost reduction opportunities. We... expect continued revenue growth, improved profitability, and cash generation.

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Beth McKenna has no position in any of the stocks mentioned. The Motley Fool recommends 3D Systems and Stratasys. The Motley Fool has a disclosure policy.