3D Systems Corporation (NYSE:DDD) could become an investment again after finding a bottom in its second-quarter earnings report. The company still lost money, 4 cents per share, on revenue of $158.1 million, but that was far less than the losses it had been sustaining over the previous year, and there was a $5.6 million revenue gain from the last quarter.
It had a gross margin on those sales of 50.9%, said new CFO John McMullen, who joined the company just a month ago.
Without accounting adjustments for past mistakes, the company actually earned 12 cents per share, double what was expected. DDD stock rose almost 18% in Wednesday trading from $12.18 per share to $14.35, after new CEO Vyomesh Joshi said he would lay out a detailed growth program at an industry meeting Sep. 12.
3D got the June result by cutting research and administrative expenses, and growing its health care systems sales 11% during the second quarter. It is looking for other niches like health care, where accuracy counts more than speed in making things like replacement teeth and knees.
3D Systems: Consumer 3D Printing Was a Mistake
The mistake was getting involved in the consumer hype over “3D Printers,” which sound nifty but in practice turned out to be less than useful, essentially dripping liquid plastic onto small “build plates” to create models.
3D Systems’ entry in this space was called the Cube. It competed with a similar product called the MakerBot, whose founder Bre Pettis became a media darling early this decade, a symbol of the “new Brooklyn” and sold his company to 3D’s archrival, Stratasys Ltd. (NASDAQ:SSYS) for $400 million in 2013.
But the consumer divisions of both companies had to be written off, Pettis is back on his own with a start-up called Bold Machines, and the financial hangover has taken two years to recover from.
3D Systems founder Chuck Hull had called his own industry additive manufacturing, not 3D printing, and his process stereolithography, when he patented the technique in 1986. The concept of computer-controlled manufacture has advanced since, with new materials and techniques, and the whole consumer market is now thought of as an unwelcome distraction for a technology that was not ready for prime time.
DDD Stock: Evolution, Not Revolution
The question for investors was whether there is a there, there. Many of those pounding the table for DDD stock before earnings were technicians looking at price charts, not market fundamentals. It seems the field has stopped the bleeding, but it remains fairly primitive, and niche-driven.
There is hope that HP Inc (NYSE:HPQ), the printer-PC part of the split-up with Hewlett Packard Enterprise Co (NYSE:HPE), can reboot the space with its MultiJet Fusion device, due out this fall, which fuses powder rather than depositing liquids. But neither 3D nor Stratasys has anything like the MultiJet, so it’s hard to see how even that success could drive their businesses forward.
What is more likely is that new 3D CEO Vyomesh Joshi, who joined the company in April from HP, will be able to evolve from simple prototyping machines into light manufacturing, in specific niches and use cases where accuracy is more important than speed. Joshi seems to have achieved success this quarter in “right-sizing” the company, but that does not mean you should expect to buy a fast-growth, speculative stock.
On the call, Joshi said “On demand manufacturing solutions,” which declined 20%, “can serve as a platform” for system sales. The company’s exit from the consumer business, on the other hand, is permanent.
“We have powerful, synergistic and differentiated technology,” he said. “We will have end-to-end solutions for aerospace, health care, automotive, consumer goods, and training.” McMullen emphasized that the company has the financial strength to execute its plans.
3D Systems could turn a small profit for the September quarter, and could grow organically in 2017, getting back on the track it was on before the mass-market dream distracted everyone. “We have a lot of work to do,” Joshi concluded, but the turnaround has now begun.
Dana Blankenhorn is a financial journalist who dabbles in fiction, his latest being The Reluctant Detective Travels in Time. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. At the time of this writing, he did not hold a position in any of the aforementioned securities.
