3D Systems Takes a Step in the Right Direction

By Markets Fool.com

Shares of3D Systems Corporation(NYSE: DDD) climbed as much as 10% early Thursday, then settled to close up around 3% after the company released solid third-quarter 2016 results. But that's not to say 3D Systems is completely out of the woods yet as it forms its strategy to return to sustained, profitable growth over the long term. Let's have a closer look, then, at what the additive manufacturing specialist had to say.

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A 3D clock printed from 3D Systems' ProJet MJP 2500. Image source: 3D Systems Corporation.

3D Systems' headline numbers

Quarterly revenue climbed 3.2% year over year to $156.4 million. Based on generally accepted accounting principles (GAAP), that translated to a net loss of $21.2 million, or $0.19 per share, compared to a wider net loss of $32.2 million, or $0.29 per share, in last year's third quarter.

On an adjusted (non-GAAP) basis, 3D Systems generated net income of $15.8 million, or $0.14 per share, up from adjusted earnings of a penny per share in the same year-ago period.

As I noted in my earnings preview, 3D Systems did not provide specific financial guidance. But for perspective -- and while we don't pay close attention to Wall Street's near-term expectations -- analysts' consensus estimates predicted 3D Systems would turn in lower adjusted earnings of $0.09 per share on higher revenue of $160.2 million.

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Digging deeper

Looking more closely at 3D Systems' top line, revenue from the products segment climbed 7.7% year over year to $94.5 million, more than offsetting a 3.1% decline to $61.8 millionin revenue from the services segment.

"We believe strong demand for our production printers, materials, and software, as well as healthcare solutions during the quarter, is indicative of our growth potential and market opportunities," added 3D Systems CEO Vyomesh Joshi.

More specifically, on the one hand, overall growth was driven by a 6% increase in healthcare revenue to $42.5 million, a 9% increase in materials sales to $38.1 million, and 11% growth in software revenue to $21.4 million.

On the other hand, on-demand manufacturing revenue fell 16% year over year to $26.5 million, and overall printer revenue declined 6% to $33 million. Even then, however, total printer unit growth was 12%, with strong growth in production unit sales on both a sequential and year-over-year basis. After three straight quarters of printer unit declines leading up to today,this is a welcome step in the right direction.

On cash, liquidity, and looking forward

3D Systems also remains cash flow positive, generating cash flow from operations of $7.2 million during the quarter. The company ended the period with cash of $179.4 million, up sequentially from $176.2 million at the end of Q2. Inventory also declined $9.5 million sequentially to $113.7 million at the end of September. 3D Systems plans to achieve additional reductions through the end of 2016.

During the subsequent conference call, 3D Systems CFO John McMullen once again insisted, "Athough we continue to see opportunities to improve working capital performance and cash flow over the balance of the year and into 2017, I remain comfortable with our cash balance and overall liquidity position."

And though 3D Systems opted not to provide specific financial guidance as per usual, Joshi did remind investors of his prior discussion of the company's general outlook and strategic direction at this year's International Manufacturing Trade Show. In short, 3D Systems believes its full 3D printing ecosystem offers an effective end-to-end solution and represents a crucial source of competitive differentiation. This differentiation should become much more evident as the industry transforms over the next few years from primarily prototyping use cases -- which Joshi noted will "remain a critical application for our technology and an important part of our business" -- to that of actual end-use production using 3D printed technology.

"As we have begun implementing our strategic plans," Joshi stated, "our third-quarter results are reflective of progress toward making 3D production real."

In the end, this appears to mark the beginning of a more tangible turnaround for the additive manufacturing industry. And as 3D Systems positions itself to capitalize on what it believes is an impending ramp in demand for its technology as a viable mass-manufacturing platform, it's no surprise to see investors bidding up 3D Systems stock today.

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Steve Symington has no position in any stocks mentioned. The Motley Fool recommends 3D Systems. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.