Summary Comments on Third Quarter Results
Commenting on the quarter, CEO, Dr. Jeffrey Graves, said, “While the challenges of the pandemic persist, we were pleased to deliver strong sequential quarterly growth in both our Healthcare and Industrial businesses of approximately 20%, as markets incrementally opened around the world. While volatility continues, we anticipate these trends continuing as we move forward through our fourth quarter. With our restructuring efforts on track to deliver our targeted $60 million in savings on a run-rate basis by year end, we are pleased with our progress in the quarter and believe we will exit the year a much more efficient, highly focused additive manufacturing company that is well positioned as a market leader in this exciting industry.”
Dr. Graves continued, “From a balance sheet perspective, we have made substantial progress in our divestiture of non-core assets, and, earlier this week, were pleased to announce an agreement on the sale of our Cimatron and GibbsCAM software businesses, the focus of which is subtractive manufacturing technology. This sale, which we expect will close in the coming weeks, will strengthen our balance sheet and help ensure our ability to execute our planned restructuring activities, while maintaining critical investments for growth in our core businesses. We continue to pursue further divestitures of non-core assets to occur in the months ahead.”
Summary of Third Quarter Results
Revenue for the third quarter of 2020 decreased 13.0% compared to the same period last year and increased 20.6% compared to the second quarter of 2020. The results reflect a rebound in customer activity from the worst of the pandemic-related shutdowns. Revenue from Healthcare increased 6.1% to $59.8 million, compared to the same period last year, driven by stronger sales to the dental market. Industrial sales decreased 23.8% to $75.3 million, compared to the same period last year, as decreases were in all products, materials and services across all geographies.
Gross profit margin in the third quarter of 2020 was 43.4% compared to 43.3% in the same period last year. Non-GAAP gross profit margin was 43.5% compared to 44.4% in the same period last year. Products gross profit margin decreased primarily due to the under absorption of supply chain overhead, resulting from lower production, while services gross profit margin improved.
Operating expenses increased 59.4% to $126.2 million in the third quarter of 2020, compared to the same period a year ago. On a non-GAAP basis, operating expenses were $58.8 million, a 15.2% decrease from the third quarter of the prior year. The lower non-GAAP operating expenses reflect savings achieved from cost restructuring activities as well as reduced hiring and lower travel expenses resulting from the coronavirus pandemic.
Included in operating expenses is a $48.3 million pre-tax non-cash goodwill impairment charge. The goodwill impairment was identified in connection with an interim goodwill impairment test. The interim test was necessitated by our identification of certain impairment triggering events associated with the decline of the company’s share price ultimately due to the impact on the business environment from the COVID-19 pandemic. The impairment charge will not result in any cash expenditures and will not affect the company’s cash position, liquidity, availability or covenant test under its senior secured term loan facility and its senior secured revolving credit facility.
Financial Liquidity
At September 30, 2020, the company had cash on hand of $75.3 million, total debt of $21.7 million and a $100 million unused revolving credit facility with approximately $30.6 million of availability based on the terms of the agreement. Cash on hand has decreased $58.4 million since December 31, 2019. The uses of cash included $26.5 million for repayments of debt, $32.6 million for operations, $12.5 million for payments to purchase noncontrolling interests and $11.0 million for capital expenditures, partially offset by proceeds of $25.0 million from the issuance of common stock.
Under its at-the-market equity program (“ATM Program”), the company issued $25 million of common stock during the third quarter and has a further $125 million available. However, given the company's improving performance, the anticipated completion of the sale of the Cimatron and GibbsCAM businesses and receipt of proceeds from the sale, 3D Systems does not expect to issue shares of its common stock as part of its ATM Program during the fourth quarter of 2020. Following completion of the sale of the Cimatron and GibbsCAM businesses, 3D Systems plans to evaluate the continued need for the ATM Program and may ultimately elect to terminate such program.
Q3 2020 Conference Call and Webcast
3D Systems expects to file its Quarterly Report on Form 10-Q for the quarter ended September 30, 2020 with the Securities and Exchange Commission today, November 5, 2020. The company will host a conference call and simultaneous webcast to discuss these results tomorrow morning, which may be accessed as follows:
Date: Friday, November 6, 2020
Time: 10:00 a.m. Eastern Time
Listen via webcast:
www.3dsystems.com/investor
Participate via telephone: 201-689-8345
A replay of the webcast will be available approximately two hours after the live presentation at www.3dsystems.com/investor.
Forward-Looking Statements
Certain statements made in this release that are not statements of historical or current facts are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the company to be materially different from historical results or from any future results or projections expressed or implied by such forward-looking statements. In many cases, forward looking statements can be identified by terms such as “believes,” “belief,” “expects,” “may,” “will,” “estimates,” “intends,” “anticipates” or “plans” or the negative of these terms or other comparable terminology. Forward-looking statements are based upon management’s beliefs, assumptions and current expectations and may include comments as to the company’s beliefs and expectations as to future events and trends affecting its business and are necessarily subject to uncertainties, many of which are outside the control of the company. The factors described under the headings “Forward-Looking Statements” and “Risk Factors” in the company’s periodic filings with the Securities and Exchange Commission, as well as other factors, could cause actual results to differ materially from those reflected or predicted in forward-looking statements. Although management believes that the expectations reflected in the forward-looking statements are reasonable, forward-looking statements are not, and should not be relied upon as a guarantee of future performance or results, nor will they necessarily prove to be accurate indications of the times at which such performance or results will be achieved. The forward-looking statements included are made only as the date of the statement. 3D Systems undertakes no obligation to update or review any forward-looking statements made by management or on its behalf, whether as a result of future developments, subsequent events or circumstances or otherwise.
Presentation of Information in this Press Release
To facilitate a better understanding of the impact that strategic acquisitions, non-recurring charges and certain non-cash expenses had on its financial results, the company reported non-GAAP measures excluding the impact of amortization of intangibles, acquisition and severance expenses, stock-based compensation expense, litigation settlements and charges related to strategic decisions and portfolio realignment. A reconciliation of GAAP to non-GAAP results is provided in the accompanying schedule.
About 3D Systems
More than 30 years ago, 3D Systems brought the innovation of 3D printing to the manufacturing industry. Today, as the leading Additive Manufacturing solutions partner, we bring innovation, performance, and reliability to every interaction - empowering our customers to create products and business models never before possible. Thanks to our unique offering of hardware, software, materials and services, each application-specific solution is powered by the expertise of our application engineers who collaborate with customers to transform how they deliver their products and services. 3D Systems’ solutions address a variety of advanced applications in Healthcare and Industrial markets such as Medical and Dental, Aerospace & Defense, Automotive and Durable Goods. More information on the company is available at
www.3dsystems.com
