3D Systems (NYSE: DDD) reported its first-quarter2017 earnings after the market close on Wednesday. The diversified 3D printing company's revenue increased 2.5% and adjusted earnings per share (EPS) rose 20% from the year-ago period. It also reiterated its previously issued full-year 2017 guidance.
Continue Reading Below
The report covered the fourth quarter, for which Vyomesh Joshi has been CEO.
Shares of 3D Systems declined 3% in after-hours trading on Wednesday.We can probably attribute the decline to disappointment among some investors that adjusted earnings didn't come in somewhat stronger.
3D Systems' key quarterly numbers
|Metric||Q1 2017||Q1 2016||Year-Over-Year Change|
|Sales||$156.4 million||$152.6 million||2.5%|
|Operating income||($9.1 million)||($16.8 million)||N/A|
|Adjusted operating income||$8.0 million||$4.7 million||70%|
|Net income||($9.9 million)||($17.8 million)||N/A|
|Adjusted net income||$7.1 million||$5.1 million||39%|
|GAAP earnings per share (EPS)||($0.09)||($0.16)||N/A|
Data source: 3D Systems.GAAP = generally accepted accounting principles.
Continue Reading Below
While year-over-year revenue grew 2.5%, the company's organic growth rate is less than this because the quarter's results include revenue generated from sales of the Vertex Global dental material brands acquired in the quarter. Based on information that CFO John McMullen provided on the earnings call, organic growth rate was probably in the ballpark of 1.5%.
For some context,analysts were looking for 3D Systems to post adjusted EPS of $0.11 on revenue of $156.3 million. So the company hit the revenue consensus nearly on the bull's-eye but fell short on earnings.
3D Systems generated $19.4 million of cash from operations in the quarter, up from $18.1 million in the year-ago period. It ended the quarter with $161.7 million of cash and equivalents on its balance sheet after paying for the acquisition of the Vertex dental material brands, compared with $184.9 million at the end of 2016. The company paid $34.3 million for this acquisition, net of the cash it acquired with it.From a balance sheet standpoint, the company remains in great shape, as it has no long-term debt.
GAAP gross profit margin edged up to 51.3% from 50.8% in the year-ago period, driven by continued cost savings from supply chain and manufacturing improvements. Adjusted gross profit margin increased to 51.3% from 50.9%.
Image source: Getty Images.
|Segment||Q1 2017 Revenue||Q1 2016 Revenue||Year-Over-Year Change|
|Product||$94.7 million||$91.0 million||4.1%|
|Service||$61.7 million||$61.6 million||0%|
Data source: 3D Systems.
The segment results flipped from the previous quarter: The product segment was the worse performer in the fourth quarter of 2016, as its revenue dropped 13.8% year over year, whereas service revenue declined 2.1%. So products had a notable sequential improvement.
Drilling down further, here's how some key categories performed by year-over-year revenue changes in the reported quarter:
- Healthcare solutions (which span both products and service): up 29% to $43 million. This category will overlap with other categories.
- Materials (within products segment): up 11% to $43 million. This category got a bump from the Vertex acquisition.
- Software (within products): flat at $20 million
- 3D printers (within products): down 4% to $31 million
- On-demand part manufacturing (within service): down 6% to $25 million
Healthcare and materials continue to be growth drivers. Along with software, they were the growth drivers during 2016.
Revenue from sales of 3D printers tumbled 4% year over year. This is a decisive improvement over the declines we saw throughout 2016 and suggests that 3D printer sales might have bottomed out or are close to it. Year-over-year changes for 3D printer sales in 2016 were as follows:
- Full-year 2016: down 21%
- Q1: down 24%; down 17% excluding discontinued consumer printers
- Q2: down 30%
- Q3: down 6%
- Q4: not provided
McMullen said on the call that while revenue from sales of 3D printers decreased year over year, revenue from sales of production printers went up. (Production printers include the polymer printers powered by sterelithography (SLA) and selective laser sintering (SLS) technologies, and direct metal printers.) This is a notable positive since production printers typically use more material than do professional printers.
What management had to say
Here's what Joshi had to say in the press release about the quarter:
We are pleased with the continued growth in healthcare and strong demand for our production printers and materials as well as the improvement in [on-demand] manufacturing services in the first quarter. We are delighted with early positive industry and customer feedback received during the quarter on our breakthrough Figure 4 technology platform and expansion in the healthcare market with the acquisition of Vertex.
Figure 4 is the company's new scalable, robotic SLA 3D printing system, which is touted to be up to 50 times faster than conventional SLA printers. Its first systems shipped in March to an unnamed "Fortune 50 industrial customer."
3D Systems' adjusted earnings likely fell short of some investors' expectations. The good news, however, is that key year-over-year financial metrics moved in the right direction, including revenue, operating income (adjusted and GAAP), and EPS (adjusted and GAAP). Moreover, sales of production 3D printers increased and healthcare remains a pocket of strength.
The company reiterated itsfull-year 2017 guidance, which it released last quarter, as follows:
|Metric||2017 Guidance||Projected Year-Over-Year Change|
|Revenue||$643 million to $684 million||2% to 8%|
|GAAP EPS||$0.02 to $0.06||N/A (loss of $0.35 in 2016)|
|Adjusted EPS||$0.51 to $0.55||10% to 20%|
Data source: 3D Systems.
It also reiterated that it expects to continue to generate positive cash flow from operations in 2017.
3D Systems' prospects over the long term, in my opinion, will highly depend on the success of its next-generation Figure 4 technology and its healthcare business.
Investors will get a more clear picture of how well 3D Systems performed in the quarter when main rival Stratasysreports its earnings on May 16. The two companies have quite similar business mixes and operate in the same environment, so it's fair to use one company's performance as a rough benchmark when gauging how well the other performed.
10 stocks we like better than 3D Systems
When investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*
David and Tom just revealed what they believe are the 10 best stocks for investors to buy right now... and 3D Systems wasn't one of them! That's right -- they think these 10 stocks are even better buys.
Click here to learn about these picks!
*Stock Advisor returns as of May 1, 2017