3D Systems Beats on Q1 Earnings, Revs - Analyst Blog

3D Systems Inc. DDD reported first-quarter 2014 non-GAAP earnings of 15 cents a share, which surpassed the Zacks Consensus Estimate of 12 cents. However, the company's adjusted income declined 28.6% year over year.

On a GAAP basis, 3D Systems reported net-income of $4.9 million compared with $5.9 million in the prior-year quarter. The company's GAAP earnings came in at 5 cents per share, down 16.7% from 6 cents in the prior-year quarter. The year-over-year decline in earnings per share was due to a significant increase in the number of weighted average shares in this year.

Quarterly Details

The company reported quarterly revenues of $147.8 million, reflecting a year-over-year increase of about 45%. Revenues also beat the Zacks Consensus Estimate of $146 million. The revenue increase was primarily attributable to an increased demand across all its categories, which translated into organic growth of 28%.

Growth was driven by 76% rise in the demand for design and manufacturing printers. Moreover, the continuing placement of advanced 3D printers drove up the growth rate of materials to 41% in the quarter.

For the reported quarter, product-wise, revenues are as follows. Sales in the 3D printers and other products category grew 53% to $60.8 million while print materials revenues grew 41% to $40.4 million. Further, service revenues increased 38% to $46.6 million, while healthcare and consumer solutions recorded growth of 53% and 150% respectively.

At the end of the quarter, 3D Systems had backlog levels of $28.8 million that included the recent printer orders worth $17.9 million.  The increased demand for the company's Direct Metal 3D printers pushed up the backlog levels.

Gross margin declined 130 basis points (bps) to 51.1% year over year. The operating margin also contracted to 6.4% from 17.2% in the prior-year quarter. The decline in operating margin was due to a significant increase in research and development (R&D) expenditures as well as selling, general and administrative expenses.

Cash and Balance Sheet

3D Systems ended the year with cash and cash equivalents of $306.7 million compared with $306.3 million in the past year. Net cash flow from operating activities fell to $0.3 million from $6.4 million in the prior-year quarter.

Outlook

Along with its earnings release, the company reiterated the guidance for fiscal 2014. Management expects revenues in fiscal 2014 to be in the range of $680 million to $720 million. GAAP earnings per share are projected in the range of 44–56 cents and non-GAAP earnings per share in the band of 73–85 cents.

Further, management is optimistic about garnering higher revenues and earnings in the latter half of 2014, as then its new products and services are likely to be at the peak of their cycles.

Management also believes that despite short–run headwinds due to increased expenses, the company is favorably positioned to reap immense benefits from the R&D investments by the end of 2015.

Currently, 3D Systems has a Zacks Rank #4 (Sell). However, some better-ranked stocks in the computer and peripheral sector that look promising include Logitech International LOGI, Hewlett Packard HPQ and Dassault Systemes SA (DASTY). While Logitechsports a Zacks Rank #1 (Strong Buy), Hewlett Packard and Dassault Systemes both have a Zacks Rank #2 (Buy).