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3D Systems (DDD) Q3 Earnings Match, Revenues Beat Estimates

3D Systems Corporation DDD reported third-quarter 2019 non-GAAP loss per share of 4 cents against earnings of 2 cents a year ago. The bottom line matched the Zacks Consensus Estimate.

This 3D printer maker’s revenues of $155.3 million declined 5.6% year over year. However, the top line beat the Zacks Consensus Estimate of $152 million. Modest growth in Materials and Healthcare, led by customer demand for core and new product solutions, was a tailwind for the top line.

However, weakness in the automotive sector in Europe and China was a major overhang on the company’s printer hardware and on-demand printing businesses. Further, trade tariffs adversely impacted the company’s business in Asia.

Decline in manufacturing activity and industrial production, which led to an overall fall in customer demand, affected the business.

Continued headwinds due to ordering patterns of a large enterprise customer and the temporary suspended operations of factory metal systems were an overhang on revenues from the Americas and Asia Pacific.

Suspended shipments of Powder Management units, due to a technical snag in the same, dented revenues.

However, the company’s efforts to simplify cost structure by lowering headcount and trimming cost of sales and operating expenses were a positive.

The sale of 3D Systems’ entertainment business hurt revenues as well.

3D Systems Corporation Price, Consensus and EPS Surprise

3D Systems Corporation Price, Consensus and EPS Surprise

3D Systems Corporation price-consensus-eps-surprise-chart | 3D Systems Corporation Quote

Quarterly Details

3D Systems’ Healthcare services and simulation revenues increased 6.3% year over year to $56.4 million. Excluding the order of the larger enterprise customer, healthcare revenues grew 15%, driven by strong demand for Virtual Surgical Planning, medical simulators and advanced manufacturing.

The company’s on-demand manufacturing revenues were down 12% to $23.1 million. Headwind associated with the suspension of federal contracting by the U.S. Air Force was a dampener. Softness in demand from automotive customers in Europe was also a downside.

Printer revenues dropped 17.2% to $41.4 million due to the order timing of a large enterprise customer and the tepid macroeconomic industrial environment.

Software revenues rose 0.1% year over year to $24.6 million. However, lower Cimatron product revenues owing to automotive weakness remained an overhang. The company anticipates software to be a long-term catalyst, and is evidently looking at enhancing its software portfolio.

Material revenues increased 2.8% to $41.4 million. This was attributed to strong momentum in NextDent materials. Management plans to scale the industrial Figure 4 platforms in the forthcoming months.

3D Systems introduced eight new production materials for the Figure 4 platform, including application-specific resins like EGGSHELL, medical resins like MED-AMB and MED-WHT and production resins like PRO-BLK 10 and HI TEMP 300. These products are expected to create new production workflows in health care, automotive, consumer electronics and other industrial segments, enabling the company to shift from prototyping to production.

Margins

In the reported quarter, non-GAAP gross margin contracted 300 basis points on a year-over-year basis to 44.4%. This decrease was primarily due to factory utilization, unfavorable revenue mix and inventory adjustments.

In the quarter under consideration, the company’s non-GAAP operating expenses declined 6% to $69.3 million. Moreover, non-GAAP SG&A costs were down 4.9% and non-GAAP R&D expense was 8.3% lower.

Notably, 3D Systems lowered its net inventory by $11.2 million sequentially.

Cash Flow and Balance Sheet

3D Systems ended the third quarter with cash and cash equivalents of $127.6 million compared with $150.4 million in the prior quarter.

The company generated $6.5 million of cash from operational activities during the third quarter compared with $18.7 million in the second quarter.

Guidance

For the fourth quarter, the company expects mid-single-digit sequential revenue growth. Macro uncertainty, current slowdown in the market and large capital purchases are persistent challenges to the top line.

Despite the current revenue headwinds, 3D Systems expects printers, materials, healthcare and software to be long-term drivers.

Although the suspension from the Air Force was lifted in September, it is expected to continue to affect revenues in the fourth quarter due to its impact on the pipeline.

Lower Cimatron product revenues are expected to remain a downside in the fourth quarter.

Zacks Rank and Key Picks

3D Systems currently has a Zacks Rank #3 (Hold).

A few better-ranked stocks in the broader technology sector are Five9, Inc. FIVN, Hewlett Packard Enterprise HPE and Benefitfocus, Inc. BNFT, each flaunting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term earnings growth rate for Five9, Hewlett Packard and Benefitfocus is 10%, 7.35% and 20%, respectively.

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