3D Systems Forecasts 2014 Declines

3d

3D Systems announced preliminary fourth quarter and full year 2013 results Wednesday morning, with revenue in line with expectations and a full-year adjusted EPS range of $0.83-$0.87, below previous guidance and consensus expectations. Management’s previous full-year adjusted EPS guidance range was $0.93-$1.03 and consensus was $0.97. GAAP EPS for the full year are expected to be $0.43-$0.45.

The earnings shortfall was attributed to gross margin contraction, as well as a “substantial increase in R&D expenditure related to accelerated new product developments, a step up in sales and marketing expenses related to rapid products channel expansion, and higher costs related to acquisition concentration during the quarter.” The consensus expectation for gross margin was year-over-year expansion of 170 basis points in the fourth quarter. It appears the company is not seeing margin expansion related to growth in higher-margin software and materials sales, which management had previously forecast. We now project a contraction of 130 basis points. To build up to an earnings estimate within management’s fourth-quarter EPS guidance, we now project an 82% year-over-year (55% sequential) increase in operating expenses in the fourth quarter.

Management expects revenue in full year 2013 to be $513 million-$514 million, which implies fourth-quarter revenue of $155 million (up 52%; we estimate up about 36% organic, as reported by the company), in line with consensus. The company saw strong demand for professional printers and materials in the quarter, while seeing softer-than-expected demand from consumer-related products and its services business. No quantification regarding sales of printers, materials, or services was provided.

Management also provided initial 2014 guidance, with revenue above expectations and adjusted EPS well below expectations. Management forecasts revenue of $680 million-$720 million in 2014, representing growth of 36% at the midpoint (we estimate about 32% organic, as reported by the company). The consensus expectation prior to Wednesday morning’s release was for revenue of $674 million in 2014. Adjusted EPS are expected to be $0.73-$0.85, compared with the consensus estimate of $1.27. GAAP EPS are expected to be $0.44-$0.56. At the midpoint of the 2013 and 2014 adjusted EPS ranges, earnings are expected to decline 7% in 2014. The release indicated that management is willing to tolerate gross margin compression and earnings reduction to accelerate the company’s growth rate and market share.

 

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