3D Systems Corporation (NYSE: DDD) — Q3 2023 Form 10-Q
Reporting period: Three and nine months ended September 30, 2023. Figures below are in millions of dollars unless stated otherwise. The company sells 3D printers, materials, software and related services through Healthcare Solutions and Industrial Solutions.
Financial performance
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | $123.8 | $132.3 | $373.2 | $405.3 |
| Gross profit / margin | $55.4 / 44.7% | $52.7 / 39.8% | $152.5 / 40.9% | $159.6 / 39.4% |
| Operating loss | $(13.6) | $(33.7) | $(78.7) | $(89.0) |
| Net loss attributable to 3D Systems | $(11.7) | $(37.4) | $(70.0) | $(97.2) |
| Loss per diluted share | $(0.09) | $(0.30) | $(0.54) | $(0.77) |
| Adjusted EBITDA | $4.7 | $(0.3) | $(12.3) | $(1.0) |
Q3 revenue fell 6.4%; product revenue declined 16.5% while services revenue rose 20.7%. For the nine months, revenue fell 7.9%, with products down 15.6% and services up 14.0%. Product weakness was concentrated in Healthcare Solutions, especially dental and medical-device printer sales; management cited softer demand for elective dental procedures amid economic conditions.
Q3 gross margin improved mainly on higher services contribution, cost reductions and a $4.5 million collaboration-related revenue catch-up that had no direct associated cost. The company remained loss-making. Q3 operating loss included a $13.6 million impairment of Oqton MOS intangible assets.
- Segments, Q3: Healthcare Solutions revenue was $52.4 million, down 18.3%, and Adjusted EBITDA was $13.9 million, broadly flat. Industrial Solutions revenue was $71.4 million, up 4.9%, and Adjusted EBITDA was $7.7 million, up 6.7%.
- Segments, nine months: Healthcare revenue declined 19.1% to $162.0 million and Adjusted EBITDA declined 33.6% to $30.3 million. Industrial revenue increased 3.0% to $211.2 million and Adjusted EBITDA rose 2.2% to $16.8 million.
Cash, debt and liquidity
- At September 30, cash and cash equivalents were $445.6 million; the company had no short-term investments, versus $180.6 million at year-end 2022. Cash plus short-term investments therefore decreased $123.2 million from year-end.
- Nine-month operating cash use was $71.9 million, versus $52.4 million in the prior-year period. Investing activities provided $130.7 million, primarily reflecting $180.9 million of short-term investment maturities and sales; capital expenditures were $21.0 million and acquisitions and other investments used $29.2 million. Financing activities used $5.2 million.
- Current assets were $739.7 million and current liabilities were $137.9 million. The company reported operating working capital of $602.7 million.
- Convertible notes had $460 million principal outstanding, mature in November 2026 and bear 0% stated interest; their carrying value, net of financing costs, was $451.5 million. No conversion conditions were met, and the company reported covenant compliance.
- Operating and finance lease obligations, including interest, totaled $111.3 million. Management said it believed available resources were sufficient for foreseeable cash needs and the next 12 months.
Material changes, outlook and risks
- Restructuring: A 2023 workforce reduction of approximately 6% generated $3.7 million of accrued severance costs. The company estimated $9–$11 million of annual operating-expense reductions beginning in 2024 from this phase and manufacturing insourcing. On October 25, 2023, it announced a further restructuring phase targeting $45–$55 million of annualized savings by the end of 2024, with most reductions expected by the end of Q1 2024. These are targets, not guaranteed results; the filing provides no consolidated revenue or earnings guidance.
- Unusual earnings items: The company reversed previously accrued Volumetric earnout and related performance-award compensation after concluding the relevant R&D milestone was no longer probable. The reversals reduced reported net loss by $21.5 million in Q3 and $18.4 million for the nine months. Separately, an amended collaboration agreement supported recognition of $4.5 million of incremental Q3 services revenue; a further $2.0 million related to the milestones is expected over the contract’s remaining term.
- Impairment exposure: The company concluded it was more likely than not to sell or dispose of Oqton MOS and recorded a $13.6 million impairment. It reported no goodwill impairment at September 30 after a qualitative assessment, but warned that a further stock-price and market-capitalization decline could lead to a potentially material non-cash goodwill impairment, including at its November 1 annual test. The October restructuring could also trigger additional asset-group impairment testing.
- Acquisitions and investments: Wematter was acquired in July for approximately $10.2 million cash, with a possible contingent €2.0 million payment; its reported post-acquisition revenue was immaterial. The company invested $8.0 million in Theradaptive and funded its initial $6.5 million Dussur joint-venture commitment. Management described the near-term impact of several recent acquisitions as dilutive.
- Legal and regulatory: The company settled U.S. export-control matters for $15.0 million in civil penalties; $8.5 million of the recorded liability was paid during the first nine months. A further $10.0 million suspended penalty is tied to remedial compliance measures and may be payable to the extent not spent. A securities class-action settlement had preliminary court approval, with a final hearing scheduled for November 21, 2023; an SEC investigation related to allegations in that case remained ongoing, and the company said it was cooperating.
- Controls: Management concluded disclosure controls were not effective at September 30 due to material weaknesses in financial reporting controls, including revenue, receivables and deferred revenue processes and review of financial-close analyses. Remediation was underway, but the company could not assure when the weaknesses would be resolved.
- Other developments: The company’s binding Stratasys acquisition offer expired October 5, 2023 without further engagement. The filing identifies macroeconomic and geopolitical conditions, uneven sales cycles, customer concentration, acquisition integration, cash generation, debt servicing, litigation, cybersecurity and control remediation among relevant risks. One customer represented 10.7% of Q3 and 14.4% of nine-month revenue.
Key facts for investors to verify
- Whether product demand, particularly in dental and medical devices, stabilizes and services growth can offset further product-revenue declines.
- How much of the reported margin and loss improvement is repeatable, given the collaboration revenue and Volumetric earnout and award reversals.
- Progress toward restructuring savings and the cash costs, execution effects and possible further asset impairments associated with the plan.
- Results of the November 1 goodwill impairment test and any subsequent impairment assessments.
- Operating cash burn, liquidity needs and the company’s ability to manage the 2026 convertible-note maturity and lease obligations.
- Remediation of material weaknesses, final approval and costs of the securities settlement, and developments in the SEC investigation and export-control compliance obligations.