3D Systems Corporation: Assessing its transformation (NYSE: DDD)
No great mind ever existed without a bit of madness. ”― Aristotle
Today we take an in-depth look for the first time 3D Systems Corporation (DDD). Shares have more than halved in the past year as some of the air has moved out of the 3D printing space and the company has had its own challenges. Is the bottom closed? We try to answer this question through the analysis below.
3D Systems Corporation is based in South Carolina. The company provides 3D printing and digital manufacturing solutions. Through a recent transformation, the company focuses on regenerative medicine, 3D software, bio-printing and industrial solutions. The stock trades at $17.50 per share and has an approximate market valuation just south of $2.3 billion.
The pandemic prompted the company to restructure to focus on the healthcare and industrial markets. Partly for this reason, the company has been very busy on the M&A front in 2021. In early May, the company announcement two small microphones. Allevi, which will expand its focus on regenerative medicine by accelerating the growth of medical and pharmaceutical research labs, and Germany-based Additive Works, which will augment 3D System’s simulation capabilities for rapid optimization of 3D printing processes at home. industrial scale.
Then, four weeks later, the company agreed to sell its on-demand manufacturing business to Trilantic North America. These assets were sold for $82 million and included manufacturing facilities in the United States and Europe. At the end of July, 3D Systems also sold its medical simulation business, Simbionix, to Surgical Science Sweden AB in a deal valued at $305 million.
3D Systems then concluded a OK in September to acquire software company Oqton in a deal valued at $180 million. Oqton is at the forefront of a new generation of intelligent, cloud-based manufacturing operating system platforms. 3D Systems believes it will see a run rate of $100 million in annual software sales from this acquisition by fiscal year 2025.
Finally, at the end of October, the company disclosed that it is considering buying Volumetric Biotechnologies. Volumetric’s goal is to develop the ability to manufacture human organs using bioprinting methods. The deal only required an upfront payment of $45 million. An additional $355 million in milestone payments (half cash/half stock) can be paid out if Volumetric achieves significant milestones in demonstrating human applications over the next few years. As part of this effort, 3D Systems plans to establish a world-class research facility in Houston.
On November 8, the company announced the third quarter results. 3D Systems had non-GAAP EPS of $0.08, which slightly beat consensus. GAAP EPS of $2.34 was well above expectations, which predicted a small loss. Revenue rose more than 14% on a yearly basis to just over $156 million, easily beating analyst consensus. GAAP earnings were inflated due to proceeds from the aforementioned disposals. Sales adjusted for these disposals were 36% higher than in 3Q2020 and 21% higher than in the pre-pandemic third quarter of 2019.
|Quarter ended September 30|
|(in millions, expect data per share)||2021||2020|
|Net profit (loss)||$||292.7||$||(72.9)|
|Net earnings (loss) per share – basic||$||2.39||$||(0.61)|
|Net earnings (loss) per share – diluted||$||2.34||$||(0.61)|
Despite the titleto beat‘, the title fell sharply during the publication of the results. The CEO of the company commented that he sees ‘ongoing challenges with Covid-19 and new challenges around supply chains.’. These are issues that most manufacturers in all industries seem to be facing right now. Adjusted gross profit margins in the quarter also declined to 41.5% from 43.2% a year ago.
Analysts’ comments and review:
It’s hard to find a stock less favored by Wall Street analyst firms than 3D Systems right now. Over the past six months, eight analyst firms, including JPMorgan and Needham, have reissued Hold or Sell ratings. Only Lake Street, which initiated shares as a new buy with a price target of $36 on Nov. 8, is currently bullish on the stock.
The company ended the third quarter with just over $500 million in cash and marketable securities on its balance sheet and no debt after taking into account planned divestitures. The company had nearly $21 million in operating cash flow in the third quarter. In mid-November, the company raised just under $400 million in a convertible debt issue.
Insiders have been frequent and consistent sellers of the stock over the past year, although trading has been largely small relative to their top holdings. Insiders have sold about $200,000 of shares so far in 2022 after selling about $600,000 of shares in total in 4Q2021. The CEO has occasionally made between $100,000 and $125,000, but that’s largely been all over the past two years when it comes to insider buying.
The current analyst consensus has earnings roughly halved to 10 to 20 cents per share in fiscal 2022 on a mid-single-digit drop in revenue as a result of all the rejiggering 3D Systems has done with its business portfolio over the of the past year. Sales are expected to be around $575 million in fiscal 2022, leaving the stock valued at around four times forward sales. Considering cash, DDD sells about three times forward earnings.
Management said its acquisition and disposal spree is now largely over. It is now focusing on high-margin sectors like the software space as well as priority areas like regenerative medicine, which is a cutting-edge and exciting field. However, based on recent analyst comments and the stock’s performance over the past year, the jury still seems to be on whether this transformation will ultimately be successful. Insiders are certainly not up to the task even though the stock has halved from 52-week highs.
Therefore, I think discretion is the best part of the value around this name at the moment and I don’t have any investment recommendations around the stock at this time. The company seems to have potential and its balance sheet looks solid. Fourth quarter results are expected to be released shortly, providing investors with another set of updated data points to consider.
Any clever fool can make things bigger, more complex, and more violent. It takes a touch of genius – and a lot of courage to go in the opposite direction. – E. F. Schumacher
Bret Jensen is the founder and author of articles for the Biotech Forum, the Busted IPO Forum and the Insiders Forum