Why Is 3D Systems (DDD) Down 25.5% Since Last Earnings Report?
A month has gone by since the last earnings report for 3D Systems (DDD). Shares have lost about 25.5% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is 3D Systems due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
3D Systems Q2 Loss Meets Estimates, Revenues Miss
3D Systems reported mixed second-quarter 2023 results, wherein the bottom line matched the Zacks Consensus Estimate, but the top line fell short of the same. The company reported a second-quarter 2023 non-GAAP loss of 7 cents per share, in line with the consensus mark.
The bottom line was also flat with the year-ago quarter as the negative impact of reduced revenues was fully offset by the benefits of an improved gross margin and higher interest income earned on cash and cash equivalents due to an increased interest rate.
In the second quarter of 2023, 3D Systems reported revenues of $128.2 million, down 8.5% from the year-ago quarter, which missed the consensus mark of $134.3 million. On a constant-currency basis, revenues decreased 8.7% year over year. The dismal top-line performance reflects lower sales to certain dental orthodontic market customers due to macroeconomic headwinds that are negatively impacting the demand for elective dental procedures.
Second-Quarter in Detail
In the second quarter, Product revenues represented 69.6% of the total revenues and decreased 14.1% to $89.2 million. Revenues from Services, which accounted for the remaining 30.4% of revenues, climbed 7.6% year over year to $39 million. Our estimates for the Product and Services segments revenue were pegged at $95.6 million and $40.9 million, respectively.
On the basis of market type, revenues from the Healthcare segment fell 15.2% year over year to $60.9 million. On a constant-currency basis, the segment’s revenues plunged 15.4% year over year, mainly due to continued softness across the dental orthodontic market. Our model estimate for Healthcare division was pegged at $63.4 million.
The Industrial Division’s revenues decreased 1.4% year over year to $67.3 million. On a constant-currency basis, the segment’s revenues declined 1.7%. Our model estimate for Industrial division was pegged at $73.1 million.
In the second quarter of 2023, 3D Systems’ non-GAAP gross profit decreased 6.3% year over year to $49.9 million. However, the non-GAAP gross profit margin expanded 110 basis points to 39%, mainly driven by favorable pricing, a product mix and the benefits of cost optimization initiatives.
Adjusted EBITDA was negative $6.9 million, $4.3 million higher than the year-ago quarter. An increased adjusted EBITDA loss reflects the negative impact of lower sales volumes, an inflationary impact on input costs and continued investments for portfolio & business growth.
Balance Sheet Details
The company exited the second quarter with cash, cash equivalents and short-term investments of $491.6 million, lower than the previous quarter's $529.9 million. As of Jun 30, 2023, 3D Systems had total debt of $450.8 million, slightly up from the previous quarter’s $450.2 million.
In the first half of 2023, the company utilized $46.3 million of cash from operational activities.
Lowered 2023 Guidance
Battered by the dismal second-quarter performance, 3D Systems lowered its revenue guidance for the full-year 2023. The company now expects 2023 revenues in the range of $525-$545 million, down from the previous guidance in the band of $545-$575 million.
It now projects to exit the fourth quarter with positive adjusted EBITDA. Earlier, the company had projected adjusted EBITDA of $2 million or better in 2023.
However, 3D Systems still forecasts the non-GAAP gross profit margin in the 40 range.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates review.
VGM Scores
At this time, 3D Systems has a poor Growth Score of F, however its Momentum Score is doing a lot better with an A. However, the stock was allocated a grade of F on the value side, putting it in the bottom 20% quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, 3D Systems has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.
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