3D Systems Corporation — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; unaudited, consolidated U.S. GAAP results. 3D Systems sells 3D printers, materials, software and related services through Healthcare Solutions and Industrial Solutions.
Financial performance
| Metric | Q1 2023 | Q1 2022 |
|---|---|---|
| Revenue | $121.2 million | $133.0 million |
| Gross profit / margin | $47.1 million / 38.8% | $53.8 million / 40.4% |
| Operating loss | $33.4 million | $23.2 million |
| Net loss attributable to 3D Systems | $29.4 million; $0.23 per share | $26.8 million; $0.21 per share |
| Adjusted EBITDA | $(10.1) million | $1.9 million |
| Cash used in operating activities | $27.7 million | $15.1 million |
Revenue declined 8.8%. Product revenue fell 16.1% to $84.4 million, while services revenue rose 13.5% to $36.8 million. Product and services gross margins were 40.9% and 34.2%, respectively, versus 41.8% and 36.1% a year earlier.
Healthcare Solutions revenue decreased 24.3% to $48.7 million and segment Adjusted EBITDA fell to $5.1 million from $15.8 million. Management cited a 46.2% decline in dental orthodontic sales amid weaker demand for elective procedures. Industrial Solutions revenue increased 5.6% to $72.5 million and segment Adjusted EBITDA rose to $6.9 million from $6.6 million.
At March 31, cash and cash equivalents were $525.9 million and short-term investments were $4.0 million, down a combined $38.8 million from year-end. Current liabilities were $154.0 million. Long-term debt, net of deferred financing costs, was $450.2 million; the notes have $460 million principal, bear 0% regular interest and mature in November 2026. The company reported compliance with their covenants. Cash and short-term investments exceeded note principal by approximately $69.9 million.
Material changes and management commentary
- Lower product volume, especially in Healthcare Solutions, drove the revenue and gross-profit decline. Product margins also faced input-cost inflation and unfavorable mix; services growth was partly offset by inflation and mix.
- SG&A increased 5.2% to $58.3 million; R&D increased 2.8% to $22.2 million. Management attributed part of both increases to acquisitions completed after Q1 2022. SG&A also reflected higher professional-services, audit and tax fees.
- Operating cash use worsened by $12.6 million year over year, reflecting $8.5 million of legal-settlement payments and seasonal inventory growth. Capital expenditures were $9.0 million.
- One customer accounted for 13.5% of Q1 revenue, compared with 26.7% a year earlier. Revenue by region was $68.6 million Americas, $42.8 million EMEA and $9.8 million APAC.
Outlook, risks and unusual items
- No specific revenue or earnings guidance is provided in the filing. Management said it believes available resources are sufficient to meet cash requirements for the next 12 months; longer-term needs depend partly on profitability and working-capital management.
- In February 2023, the company settled export-control matters with DDTC, BIS and DOJ, agreeing to $15.0 million in civil penalties and $10.0 million in suspended penalties tied to required compliance measures. It paid $8.5 million during Q1. Any suspended amount not spent on required measures by the end of the three-year term may become payable.
- A putative securities class-action settlement remained subject to court approval; the company also disclosed an SEC investigation and stayed derivative litigation. The company says it intends to defend the claims.
- Disclosure controls were assessed as ineffective because of two material weaknesses in internal control over financial reporting, involving revenue, receivables and deferred revenue controls, and review of financial-close reports. Remediation is ongoing; management gave no assurance as to when the weaknesses will be resolved.
- Subsequent events: a proposed acquisition of Wematter for approximately $11 million in cash, expected to close in July 2023, with possible contingent consideration; and a restructuring announced May 9, expected to reduce headcount by about 6% and incur $3.5–$4.5 million of 2023 severance cash charges.
- Other disclosed exposures include uneven printer order timing, macroeconomic and foreign-exchange risks, acquisition integration, inventory management, litigation, and development and commercialization risks in regenerative medicine. The filing reports no material change in market-risk assessment from year-end.
Most important facts for investors to verify
- Whether Healthcare Solutions demand, particularly dental orthodontics, stabilizes and whether services and Industrial Solutions growth can offset product weakness.
- Progress toward restoring positive Adjusted EBITDA and operating cash flow, including the effects of inventory, cost inflation and restructuring.
- Cash and investment levels after the Dussur joint-venture funding, planned acquisition and other cash commitments; monitor the 2026 convertible notes and lease obligations.
- Completion of internal-control remediation and any subsequent developments in the SEC investigation, shareholder litigation and export-compliance settlement obligations.
- Final terms and closing of the Wematter acquisition, and whether expected restructuring savings justify its severance costs.