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3D Systems Posts an Adjusted Earnings Loss on Writedown and Other Factors; Stock Plummets

3D Systems (NYSE: DDD) reported disappointing third-quarter 2017 earnings after the market closed on Tuesday. The diversified 3D-printing company's revenue edged down 2.2% and its loss per share widened year over year. Adjusted for one-time factors, the company's per-share results turned negative from a positive in the year-ago quarter.

Earnings were negatively impacted by a $12.9 million legacy products and parts inventory writedown, execution issues in the Americas and Asia-Pacific regions, and pricing pressure in some businesses, particularly metals and on-demand manufacturing.

Shares of 3D Systems plunged 15.4% in after-hours trading, which we can attribute to results falling short of Wall Street's expectations and the company withdrawing 2017 guidance. Management said the unpredictability surrounding the legacy product quality and reliability issues, which have proven deeper and broader than expected, make providing an outlook difficult. The stock should be under pressure during the regular trading session on Wednesday.

Image source: 3D Systems.

3D Systems' key quarterly numbers

Metric

Q3 2017

Q3 2016

Year-Over-Year Change

Revenue (or sales)

$152.9 million

$156.4 million

(2.2%)

Operating income

($32.3 million)

($22.0 million)

N/A

Net income

($37.7 million)

($21.2 million)

N/A

Adjusted net income

($22.6 million) $15.8 million N/A

GAAP earnings per share (EPS)

($0.34)

($0.19)

N/A

Adjusted EPS

($0.20)

$0.14

N/A

Net income and EPS were significantly negatively impacted by the $12.9 million charge from the writedown previously mentioned. The products and parts written down primarily fall within the company's polymer business.

For some context -- though long-term investors shouldn't place too much weight on Wall Street's near-term estimates -- analysts were looking for 3D Systems to post adjusted EPS of $0.12 on revenue of $162.8 million. The company fell significantly short on both metrics.

On the cash flow front, 3D Systems used $0.7 million of cash in operations and ended the quarter with $138.3 million of cash on hand.

Gross margin in the quarter was 38.3%, which included the $12.9 million charge previously noted, compared with 44.1% in the year-ago quarter, which included $10.7 million of expenses related to discontinued products and projects.

Data source: 3D Systems. *Total here adds up to $156.3 million, rather than the reported $156.4 million, due to rounding.

More specifically, here's how key categories performed by year-over-year revenue changes in the quarter:

  • Healthcare solutions: Up 10%, to $47 million. (This category spans both segments and overlaps other categories.) This isn't all organic growth, as results, once again, got a boost from an acquisition in the first quarter of a company that makes dental materials.
  • Software (within product): Flat at $21 million.
  • Materials (within product): Up 4%, to $39 million. This category also got a boost from the above-mentioned acquisition. Excluding the acquisition, materials revenue was at best flat with the year-ago period, as per my take of an exchange on the analyst conference call.
  • On-demand part manufacturing (within service): Up 3%, to $27 million.
  • 3D printers (within product): Down 11%, to $29 million.

What management had to say

Here's what Joshi had to say in the press release:

While third quarter results did not meet our expectations, we believe actions taken during the quarter both organizationally and operationally better position the company for long term success. During the quarter, we reorganized the [go-to-market] team, changing key leadership positions in both the Americas and the Asia Pacific region while shifting to a worldwide [go-to-market] structure. We also completed a deep and comprehensive review of our portfolio based on [year-to-date] demand, market trends and a solid understanding of where we meet and will continue to meet customers' expectations.

In short, 3D Systems posted a poor quarter for a variety of reasons: a products and inventory writedown, execution issues in the Americas and Asia-Pacific regions, and pricing pressure in some businesses -- notably, metals and on-demand manufacturing -- due to increasing competition.


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