3D Systems Corporation (NYSE: DDD) — Q2 2021 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2021. The company provides 3D printing and digital manufacturing products and services, reporting Healthcare and Industrial segments beginning in 2021. Prior-year segment revenue was recast, but comparable prior-period segment operating results were unavailable.
Financial performance
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Revenue | $162.6 million | $112.8 million | $308.7 million | $248.4 million |
| Gross profit / margin | $69.0 million / 42.4% | $35.2 million / 31.2% | $133.2 million / 43.2% | $92.3 million / 37.2% |
| Operating loss | $10.1 million | $33.9 million | $12.0 million | $52.1 million |
| Net income (loss) | $(9.6) million | $(38.0) million | $35.6 million | $(56.9) million |
| Diluted EPS | $(0.08) | $(0.33) | $0.28 | $(0.49) |
| Cash from operations | Not separately stated for the quarter | Not separately stated for the quarter | $42.0 million | $(21.0) million |
Q2 revenue rose 44.1% year over year: Healthcare revenue increased 68.6% to $82.8 million and Industrial revenue increased 25.3% to $79.7 million. Product revenue grew 74.6%; services revenue grew 6.6%. Management attributed growth primarily to recovery from pandemic-affected comparisons, product volume and favorable price/mix and currency effects. Higher product capacity utilization and a prior-year end-of-life inventory charge supported gross-margin improvement; services gross profit declined, reflecting lower on-demand volume and divestitures.
For the first half, net income included a $32.9 million gain on the Cimatron sale and a $6.5 million foreign-currency translation gain reclassified upon sale. Thus, the six-month profit does not represent operating profitability: the company still reported a $12.0 million operating loss. Segment operating profit was $22.3 million for Healthcare and $9.9 million for Industrial in Q2, before $42.2 million of net general corporate expense.
Liquidity, debt and balance sheet
- At June 30, cash and cash equivalents were $131.8 million; cash including restricted cash was $132.5 million. The company reported no outstanding debt and a fully available $100 million revolving facility, maturing in February 2024. It was in compliance with facility covenants.
- Cash and cash equivalents increased from $75.0 million at year-end 2020. First-half cash generation included $54.7 million of net proceeds from the Cimatron sale and $42.0 million of operating cash flow; uses included $21.4 million of debt repayment, $10.9 million for acquisitions and $8.2 million of capital expenditures.
- Current assets were $370.9 million and current liabilities $158.9 million. Stockholders’ equity was $466.5 million. Cash held outside the U.S. was $57.3 million.
- First-half operating cash flow benefited from working-capital management, although accrued and other liabilities declined, partly due to tax withholding payments related to the Cimatron sale.
Material changes, outlook and notable items
- The company completed the Cimatron sale on January 1, 2021 for approximately $64.2 million, excluding cash transferred to the buyer, and used part of the proceeds to repay and terminate its term loan.
- A June 2021 agreement provides for the sale of the On Demand Manufacturing business for $82 million, subject to adjustments; closing was expected in Q3 2021. A July 28 agreement to sell Simbionix for $305 million, subject to customary conditions and adjustments, was expected to close in August 2021. These transactions were not completed as of the reporting date.
- The company acquired Allevi and Additive Works in May and June; management described their purchase prices and expected financial effects as immaterial. The 2020 restructuring, including nearly 20% workforce reduction, was completed in Q2 2021; total charges were approximately $21.1 million.
- No specific revenue or earnings guidance was provided. Management said cash from operations, cash on hand, announced divestiture proceeds and other liquidity sources were expected to cover foreseeable cash requirements.
- COVID-19 continued to affect reported results. Management cited uncertainty around future pandemic conditions, global economic conditions and supply-chain disruption, including critical-component shortages. Other stated risks include litigation and investigations, product and technology execution, foreign currency, and the ability to generate cash and comply with credit covenants.
- Disclosure controls were deemed ineffective at June 30, 2021 because of material weaknesses involving non-standard contracts and review of internally prepared financial-close reports and analyses. Remediation was underway; the company could not specify when it would be completed.
- Ongoing export-control and sanctions compliance reviews include government investigations and monitoring under a two-year U.S. Air Force administrative agreement. The company also disclosed a putative securities class action and derivative suits, which it said it would defend vigorously.
- The filing corrected a prior-period presentation error that reclassified certain costs between product and services cost of sales; total cost of sales, gross profit and earnings were unaffected. The company said the error was not material.
Important facts for investors to verify
- Whether the ODM and Simbionix divestitures closed on the expected timelines, and their final proceeds and adjustments.
- How much of first-half earnings and cash growth reflects recurring operations versus asset-sale gains and proceeds.
- Whether revenue growth and product margins are sustained as pandemic comparisons normalize, and whether services performance improves.
- Progress toward remediating the material weaknesses in financial reporting controls.
- Developments and potential costs from export-control, sanctions and shareholder litigation matters.