3D Systems Corporation announced its financial results for the fourth quarter and full year ended December 31, 2022.
Fourth Quarter Financial Results and Recent Business Highlights
(All numbers are unaudited and are presented in thousands, except per share amounts or otherwise noted)
- Q4 2022 revenue of $132,732 decreased 12.0% compared to Q4 2021; Non-GAAP Q4 2022 revenue on a constant currency basis(1) decreased 7.6%, reflecting weakness in the dental orthodontics market
- Net loss of $25,553, diluted loss per share of $0.20, and diluted non-GAAP loss per share of $0.06 (1)
- Negative adjusted EBITDA(1) of $4,808 reflects inflationary impacts on our input costs, unfavorable product mix, and continued investments in growth areas of our business and product portfolio
Full Year 2022 Financial Highlights
- 2022 revenue of $538,031 decreased 12.6% compared to 2021 revenue of $615,639; Non-GAAP revenue adjusted for divestitures and on a constant currency(1) basis increased 3.3%, reflecting solid demand in both the Industrial and Healthcare segments despite macroeconomic challenges, offset by lower sales to certain dental market customers
- Net loss of $122,711, diluted loss per share of $0.96, and diluted non-GAAP loss per share of $0.23(1)
- Negative adjusted EBITDA(1) of $5,781 reflects inflationary impacts on our input costs and continued investments in growth areas of our business and product portfolio
- Cash and short-term investments of $568,737 position the company for continued growth investments
2023 Outlook
- Continued softness in dental orthodontic market fully offset by strong performance in Industrial and non-dental Healthcare Solutions markets leading to mid-single digit revenue growth
- Positive full year Adjusted EBITDA and free cash flow support an already-strong balance sheet
- Sustained investments in core technologies and emerging regenerative medicine markets
Summary Comments on Results
Commenting on 2022 results and the outlook for 2023, Dr. Jeffrey Graves, President and CEO of 3D Systems said, "2022 was a year of strong investment in our development of next generation hardware, materials, and software platforms despite facing significant macroeconomic and geopolitical headwinds as well as softness in our key dental orthodontic market attributable to inflationary pressure on consumer discretionary spending. By sustaining this investment focus, we made major progress on the refresh of our printer portfolio, as evidenced in part by recent new product announcements. More such announcements will follow throughout 2023 as we complete the refresh of virtually our entire product portfolio. This organic development was complemented by our acquisition of three early-stage technology platforms over the last 18 months, which further broadened the range of customer applications we can now address. Continuity in these initiatives was essential given the continued momentum we are seeing in the adoption of additive manufacturing in production environments across both our Healthcare and Industrial Solutions markets. Sustaining these investments in the face of 2022's many headwinds required us to target our investment spending carefully, control operating costs, and leverage our strong balance sheet. This focus, combined with our improved operational execution gained through selective in-sourcing of manufacturing, has reinforced our industry-leading breadth of additive manufacturing technologies, our unparalleled applications expertise, and scale needed to meet our expanding customer needs for years to come."
"For 2023, given the continued inflationary environment and the pressure it inevitably puts on consumer discretionary spending, our revenue guidance assumes continued softness in the dental orthodontic market. On a positive note, we expect this softness in dental to be more than offset by the strong growth we currently anticipate in virtually all other key markets across our Healthcare and Industrial Solutions segments. This strength is being driven by a rapid expansion of new production applications and the accelerating efforts by our global customers to restructure their supply chains and reduce enterprise risk. The net result of these effects is an expected consolidated 2023 revenue growth rate in the mid-single digits, with mid-teens growth across all our non-dental markets."
"In 2023 we will place a high priority on profitability and cash performance as we increasingly harvest the gains in efficiency that our operations in-sourcing has provided. This focus will enable us to offset headwinds in our dental orthodontic market and to support our increasing investment in Systemic Bio and other regenerative medicine initiatives. From these investments, we expect to make meaningful announcements in these areas over the next 12 to 24 months as we move through pre-clinical trials for our biological applications and customer acceptance tests in the pharmaceutical markets. To further our gains in operating efficiency, this morning we announced a multi-pronged restructuring initiative designed to realize additional cost synergies in multiple parts of our business. We will complete these actions in the first half of this year. Based on our projected growth profile, combined with the cost actions completed last year and in early 2023, we expect to generate positive Adjusted EBITDA and positive free cash flow for full year 2023, excluding one-time restructuring costs."
"By executing on our strategic plan, we have positioned our Healthcare and Industrial Solutions segments for strong financial performance against the backdrop of an additive manufacturing industry that is poised for rapid future growth. In addition to this exciting trajectory for our current core business, we increasingly understand the remarkable potential of our long-term partnership with United Therapeutics to manufacture human organs for transplantation, and the growth benefits we expect from Systemic Bio, our early-stage business whose unique 3D printed organ-on-a-chip technology has the potential to revolutionize drug development in the pharmaceutical industry."
Dr. Graves concluded, "In designing our budget for 2023, we believe our investment strategy represents the best balance between short term profitability and sustained revenue growth in the current economic and geopolitical environment that we are experiencing. By delivering positive Adjusted EBITDA and free cash generation this year, which will further enhance our already strong balance sheet, while making the most critical investments in R&D and corporate infrastructure required to meet rapidly expanding adoption of additive manufacturing across our Industrial, Healthcare, and emerging biological markets, we believe we are well positioned to deliver sustained value creation to our customers and shareholders in 2023 and the years to follow."
Summary of Fourth Quarter Results
Revenue for the fourth quarter of 2022 decreased 12.0% to $132,732 compared to the same period last year, and non-GAAP revenue on a constant currency basis decreased 7.6%. The decline of non-GAAP revenue on a constant currency basis primarily reflects lower sales to certain dental market customers due to macroeconomic factors that are negatively impacting the demand for elective dental procedures, partially offset by continued solid product and service demand across other areas of the business.
Industrial Solutions revenue decreased 5.7% to $72,038 compared to the same period last year, however non-GAAP revenue on a constant currency basis increased 1.1% year over year. Healthcare Solutions revenue decreased 18.5% to $60,694 and non-GAAP revenue on a constant currency basis decreased 16.6% year over year.
Gross profit margin in the fourth quarter of 2022 was 41.2% compared to 43.9% in the same period last year. Non-GAAP gross profit margin was 40.9% compared to 44.1% in the same period last year. Gross profit margin decreased primarily due to input cost inflation and unfavorable product mix.
Operating expenses increased 18.0% to $82,674 in the fourth quarter of 2022 compared to the same period a year ago. On a non-GAAP basis, operating expenses were $64,144, an 18.2% increase from the same period a year ago. The increase in non-GAAP operating expenses primarily reflects spending in targeted areas to support future growth, including expenses from acquired businesses, research and development, and investments in corporate infrastructure.
Summary of Full-Year 2022 Results
Revenue for 2022 of $538,031 decreased 12.6% compared to the prior year. Non-GAAP revenue adjusted for divestitures and on a constant currency basis increased 3.3%. The increase in non-GAAP revenue reflects solid demand in both the Industrial and Healthcare Solutions segments despite macroeconomic challenges, offset by lower sales to certain dental market customers.
Industrial Solutions revenue decreased 10.5% to $277,043 compared to the prior year, and non-GAAP revenue adjusted for divestitures and on a constant currency basis increased 9.7%. Healthcare Solutions revenue decreased 14.8% to $260,988, and non-GAAP revenue adjusted for divestitures and on a constant currency basis decreased 2.9%.
Gross profit margin for the full year 2022 was 39.8% compared to 42.8% in the prior year. Non-GAAP gross profit margin was 39.8% for the full year 2022 compared to 42.5% in the prior
year. Gross profit margin decreased primarily due to input cost inflation and unfavorable product mix.
Operating expenses for the full year 2022 increased 11.6% to $331,252 compared to the prior year. The higher operating expenses reflect spending in targeted areas to support future growth, including expenses from acquired businesses, research and development, and investments in corporate infrastructure, as well as a $19,888 increase in legal and other settlement costs, partially offset by the absence of expenses from divested businesses. Non-GAAP operating expenses were $241,124 in 2022, a 22.1% increase from the prior year. The higher non-GAAP operating expenses primarily reflect spending to support future growth.
2023 Outlook
The company is providing full-year 2023 financial guidance as follows:
Revenue: $545 - $575 million
Non-GAAP Gross Profit Margin: 40% - 42%
Adjusted EBITDA: Break even or better
Free Cash Flow: Break even or better
For purposes of the above guidance, Free Cash Flow is defined as Adjusted EBITDA less changes in working capital less capital expenditures.
Financial Liquidity
At December 31, 2022, the company had cash and cash equivalents and short-term investments of $568,737, a decrease of $220,920 since December 31, 2021. The decrease resulted primarily from cash paid for acquisitions and other investments of $103,647, cash used in operations of $68,395, capital expenditures of $22,499, and taxes paid related to net share settlement of equity awards $10,864. At December 31, 2022, the company had total debt net of deferred financing costs of $449,510.
Subsequent Events
Yesterday, the company resolved its ongoing export controls investigations with the U.S. Department of State, the U.S. Department of Commerce, and the U.S. Department of Justice. The company entered into individual settlement agreements which resulted in civil monetary penalties as well as certain remedial compliance measures to be completed as part of a three year consent agreement.
Q4 and FY 2022 Conference Call and Webcast
3D Systems will delay the filing of its Annual Report on Form 10-K for the fiscal year ended December 31, 2022 and file a Form 12b-25, Notification of Late Filing, with the Securities and Exchange Commission, which extends the deadline to file the Form 10-K. The delay in filing is primarily due to additional time required by the Company to complete its financial reporting close procedures. As a result, the Company's independent registered public accounting firm has not yet completed its audits of the Company's financial statements as of December 31, 2022. It has no impact on the company's operations or on its ability to discuss its 2022 results and 2023 outlook.
The company will host a conference call and simultaneous webcast to discuss these results on March 1, 2023, which may be accessed as follows:
Date: Wednesday, March 1, 2023
Time: 8:30 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.
