Second Quarter Financial and Operational Results
Reorganizing to focus on two market verticals — Healthcare and Industrial
Restructuring to reduce operating costs by $100 million per year
Q2 2020 GAAP revenue of $112.1 million, compared to $157.3 million in Q2 2019
Q2 2020 GAAP loss of $0.33 per share compared to a loss of $0.21 per share in Q2 2019
Q2 2020 Non-GAAP loss of $0.13 per share compared to $0.00 per share in Q2 2019
In a separate press release also issued today, 3D Systems announced a new strategic focus to accelerate the adoption of additive manufacturing solutions.
“We have a tremendous opportunity in this industry, and I am excited by the passion, the breadth of technology and the exceptional capabilities within our company,” said Dr. Graves. “In the two months since I joined 3D Systems, I have held many reviews and discussions with our employees and key customers to understand the value we deliver and the markets that we serve. This has enabled us to state a clear purpose for our company moving forward - one that builds on our unique history and core strengths, which will guide us to an exciting future ahead: We are the leaders in enabling additive manufacturing solutions for applications in growing markets that demand high reliability products.”
Dr. Graves added, “In connection with this organizational realignment we have an opportunity to maximize efficiencies with a need to align our operating costs with current revenue levels. As such, we will reduce our workforce by nearly 20%, with the majority being completed by year-end. This reduction in force is a difficult but essential step in our ongoing strategic process, designed to better position the company for sustainable and profitable growth. I would like to express my appreciation to each of the employees impacted by this decision for their dedicated service."
The company expects the resizing effort, in conjunction with other cost reduction measures, to reduce annualized costs by approximately $100 million by the end of next year. This should enable the company to be profitable at current revenue levels, and be well positioned to leverage the sales growth as it returns. Other cost reduction efforts include reducing the number of facilities and examining every aspect of the company’s manufacturing and operating costs. The company will incur a cash charge in the range of $25 to $30 million for severance, facility closing and other costs, primarily in the second half of this year. The company may incur additional charges in 2021 as it finalizes all the actions to be taken. Non-cash charges related to these actions are expected to be less than $5 million. The company is also evaluating the divestiture of parts of the business that do not align with this strategic focus.
"In response to the COVID-19 pandemic, we have implemented clear protocols across the company and have incorporated measures to further keep our employees safe. Our top priority is to keep our employees, communities and customers safe," continued Dr. Graves.
Second Quarter Results
"Our results in the second quarter reflect continued impact from the COVID-19 pandemic; however, the pandemic has also demonstrated a clear role for flexible supply chain enabled by additive manufacturing, particularly in the medical field, which speaks to our unique capabilities as a provider of hardware, software, materials and services to drive application-specific solutions. 3D Systems was founded on Chuck Hull's focus on application processes, which is the bedrock of our culture. Our technology produces the largest number of production parts by additive manufacturing, with up to half a million parts produced per day. Redirecting the company is intended to bring us back to a sharp application focus on key markets that are growing. With a clear statement of purpose and a return to the ideals we were founded on, I believe 3D Systems will be successful," said Dr. Graves.
Revenue for the second quarter of 2020 decreased 28.7% compared to the same period last year and decreased 16.8% compared to the first quarter of 2020. The lower demand was across all products and services due primarily to the COVID-19 pandemic, as many customers were shutdown or on a significantly reduced level of activity. Revenue from Healthcare decreased 11.4% to $50.0 million, compared to the same period last year, driven by the decrease in the dental market. Industrial sales decreased 38.5% to $62.1 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 second quarter of 2020 was 31.4% compared to 46.6% in the same period last year. Non-GAAP gross profit margin was 41.3% compared to 47.4% in the same period last year. During the second quarter of 2020, the company recorded a charge of $10.9 million to costs of sales, primarily attributable to inventory, accessories and inventory commitments for certain product lines that reached their end-of-life. The company has ceased production for these items.
Operating expenses decreased 25.3% to $69.0 million in the second quarter of 2020, compared to the same period a year ago. Selling, general and administrative expenses decreased by 27.4% to $52.0 million and research and development expenses decreased by 18.3% to $17.0 million. Lower operating expenses reflect an employee furlough program in the second quarter, reduced hiring and lower travel expenses as a result of the COVID-19 pandemic as well as savings achieved from cost structuring activities originated in 2019.
On June 30, 2020, the company executed an amendment to its $40 million interest rate swap that reduced the notional amount to $15 million and resulted in a mark-to-market settlement of $1.2 million and a corresponding increase in interest expense for the second quarter of 2020.
Financial Liquidity
At June 30, 2020, the company had cash on hand of $63.9 million, total debt of $21.5 million and a $100 million unused revolving credit facility with approximately $24 million of availability based on the terms of the agreement. Cash on hand has decreased $69.7 million since December 31, 2019. The uses of cash included $26.3 million for repayments of debt, $21.0 million for operations, $12.5 million for payments to purchase noncontrolling interests and $7.2 million for capital expenditures.
