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Dire Results From 3D Systems

Dire Results From 3D Systems

Excerpt from the cover page of 3D Systems’ 2019Q2 financial report filing

Excerpt from the cover page of 3D Systems’ 2019Q2 financial report filing

3D Systems announced their 2019 Q2 results this week, and I see many negative indications.

The company has been struggling to become profitable for several years now, and following a trend seen in recent reports, many metrics in their most recent financial report seem to be going the wrong way.

Publicly-traded companies such as 3D Systems must formally file their financial reports quarterly, and 3D Systems has done so here, as always. The normal approach is to compare this quarter’s results with those of the corresponding quarter for the prior year. This way seasonal effects are reduced and a proper comparison can be made.

So what happened this quarter?

3D Systems Loss

The most notable metric is that the company’s revenue dropped significantly from US$176.6M in 2018 Q2 to US$157.3M in 2019 Q2. That’s a drop of almost 11%.

The actual loss was US$23.9M, as compared to a much smaller US$8.8M in 2018 Q2. The loss per share was correspondingly high as well.

The company reports their unit sales of 3D printers have significantly increased by some 46.6% during the second quarter. This sounds very good, but when you match that against the declining revenue it suggests that the per-unit revenue is decreasing very significantly. If all of their revenue was due to unit sales (and it’s not, we’re just doing this as a representative exercise to gain perspective), that would suggest the unit price has dropped by around 40%.

Certainly their per-unit revenues have not dropped 40%, but there is likely an enormous decline. Why would this be happening? I suspect it is due to competition from all the alternative vendors, who typically offer less expensive equipment, and sometimes without the requirement for use of expensive proprietary materials.

While those proprietary materials might help ensure high-quality prints, it may be that the market is saying they’d rather have cheap materials.

3D Systems Healthcare Prospects

But 3D Systems isn’t just about selling 3D printers; they provide a number of other services.

One area they’ve been focusing on strongly in the past few years is the healthcare market, where they’ve constructed some interesting solutions based on equipment, software and partnerships. However, in 2019 Q2 the revenue from their healthcare operations declined 8.1%.

The filing also provides some insight into ongoing and finalized legal matters involving 3D Systems. The good news is that they seem to have, or are about to, conclude a settlement with shareholders who sued the company some years ago after the stock price collapsed. There is mention elsewhere that a US$3.5M legal matter was paid, so perhaps that is the settlement amount:

”GAAP SG&A expenses increased 0.7 percent to $71.7 million, including a $3.5 million dollar litigation settlement during the second quarter of 2019.”

3D Systems Suspended by USAF

However, there is also this ominous statement from 3D Systems:

“On July 19, 2019, the Company received a notice of immediate suspension of federal contracting from the United States Air Force, pending the outcome of an ongoing investigation. The suspension applies to 3D Systems, its subsidiaries and affiliates, and is related to the potential export controls violations involving the Company’s On Demand manufacturing business described above. Under the suspension, the Company is generally prohibited from receiving new federal government contracts or subcontracts from any executive branch agency as described in the provisions of 48 C.F.R Subpart 9.4 of the Federal Acquisition Regulation. The suspension allows the Company to continue to perform current federal contracts, and also to receive awards of new subcontracts for items under $35 and for items considered commercially available off-the-shelf items. The Company has implemented significant compliance enhancements related to export controls designed to address the issues raised by the June 2018 disclosure and are engaging with the Air Force to lift the federal contracting suspension as soon as possible.”

Future of 3D Systems

It sounds like they are rapidly making corrections to allow work with the US government to continue, as they expect to have the suspension lifted soon.

What’s very puzzling to me is that with a US$24M loss this quarter, one has to look at their remaining on-hand cash, which is said to be near US$150M. If you do the arithmetic, they can continue to produce quarterly results at this level for only six more quarters. That’s less than a year and a half away.

I’m expecting some dramatic changes at the company in the next while.

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