2 Key Things From 3D Systems Earnings Call That Investors Should Know
Earlier this month, 3D Systems (NYSE:DDD) reported fourth-quarter and full-year 2020 results. For the quarter, the 3D printing company’s revenue rose 2.7% year over year to $172.7 million, driven by strength in the healthcare segment. Adjusted for one-time items, net income widened 93% to $10.6 million, which translated to an 80% jump in earnings per share (EPS) to $0.09.
Shares plunged 19.6% the following day. The fact that the results were preliminary and that management didn’t issue revenue or earnings guidance probably helped drive the market’s negative reaction. “Both these things add to uncertainty — and the market hates uncertainty,” as I wrote in my earnings article.
Some investors also might have been concerned that the slight Q4 adjusted EPS — by just $0.01 — missed the Wall Street expectation, though it seems unlikely that was a noble factor. In addition, general market dynamics probably played at least a minor role. During the time the company reported, investors were rotating out of highly valued so-called growth stocks, particularly those in the technology realm, because of concerns about heating up inflation.
Despite its more recent pullback, 3D Systems stock is still up 174% this year through March 19. The S&P 500 has returned 4.6% over this period.
Earnings releases tell only part of the story. Following are two key things from the company’s Q4 earnings call that investors should know.
1. Revenue growth in the double-digit percentages is “attainable” in 2021
From CEO Jeffrey Graves’ remarks:
I think the double-digit [year-over-year revenue] growth rate is perfectly attainable in our core business. … [There could] be some short-term noise as we may or may not choose to divest some assets. … But when you look at our core additive manufacturing business, I’m very bullish on double-digit growth.
As to this comment, the “core business” would exclude any acquisitions or divestitures the company makes in 2021. Graves prefaced his assertion by saying it’s based on the negative impacts of the receding COVID-19 pandemic and rebounding global economies.
2. Pent-up demand for healthcare is poised to be a growth driver in 2021 and beyond
From Graves’ remarks:
I’m particularly excited around healthcare. I think a lot of folks put off healthcare treatments during the COVID period, and [in the fourth quarter] they’ve come back strongly in both dentistry and other medical applications.
I think, once we get through summertime, unless these variants in the virus prove to be substantial, it looks like that momentum will continue and just continue to accelerate as the world opens.
I agree with Graves that the company’s healthcare business has significant growth potential over the near and intermediate terms, for the reason he outlined.
It’s a given that increased revenue growth in the healthcare segment would be a good thing. But it’s an even better thing when you consider that the healthcare business “brings a bit higher gross margin on average than our industrial business,” as Graves said. In other words, revenue growth in the healthcare business should have an outsize positive effect on the company’s bottom-line results.
That said, competition in the 3D-printing healthcare arena is heating up. Last week, for instance, Desktop Metal (NYSE:DM) announced the launch of Desktop Health when it released its fourth-quarter results. This new business unit will focus on patient-specific healthcare products.
Desktop Metal now has polymer 3D-printing capabilities thanks to its recent acquisition of EnvisionTEC, meaning it can compete in a wider variety of healthcare applications. Moreover, it’s flush with cash because it just joined the public markets in December. It went public through a reverse merger with a special-purpose acquisition company, which is faster and less expensive than the traditional initial public offering route.
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