richard johnson/iStock via Getty Images
richard johnson/iStock via Getty Images
This is my first article focused exclusively on 3D Systems (NYSE:DDD ), a pure play company in the long developing 3D printing/additive manufacturing [AM] world. This is an environment I covered at length in an early article, "The Additive Manufacturing/3D World: Vast And Valuable" ("Vast And Valuable"). Vast and Valuable includes detailed discussion of the technology underlying these processes and 3D Systems as an early pioneer in the field.
3D Systems, founded in 1986 by 3D printing pioneer Chuck Hill, touts itself as the world's first "3D printing company". This current article provides a brief overview of its struggles during the years since 2010 and follows with an analysis of its current investment merits.
3D Systems has lasted over the years, but has never prospered for long. Its stock chart (since 2010 as shown below, and even before though not shown) pictures repeated enthusiastic upward thrusts with no long term follow-through or conviction:
Those who have mistimed their participation in the 3D story have paid dearly. Those who have traded deftly have taken the prize.
3D Systems' first run for the roses (spike #1) began in early 2011; then in September 2011 it began sputtering. As January 2012 progressed it started to regain its footing and continued an upward path right on past its 3:2 stock split. It climaxed near, but never quite reaching, $100 (spike #2), on January 03, 2014.
Its long downward trek began within a few short weeks. On April 11, 2014 it touched below $50, lingering until 10/22/2014 when it traded <$40 breaking below <$10 on 10/11/2015. It continued on its resolute downward trajectory until it bottomed at $4.66 on September 25, 2020.
In 05/2020 it hired new CEO and President, Dr. Jeffrey Graves. Under his tutelage in 08/2020 the company announced a restructuring to better align its costs with its business operations. The plan included a workforce reduction of 20% along with other measures to reduce annual costs by ~$100 million.
On December 4, 2020, it was recovering following a Q3, 2020 beat, and it broke above $10. Buoyed by positive preliminary Q4, 2020 numbers on January 07, 2021, it doubled on high volume of ~193 million shares, closing the day at $22.96. By February 09 it had more than doubled again, closing the day at ~$55.35 (spike #3).
The happy days did not last. Within days it was trading in the $40's and within weeks the $30's (yikes). It meandered for the rest of the year with a downward bias. It closed 2021 in the low $20's. As I write on 10/11/2022 it is trading at ~$8.00. And so it [comes and] goes for 3D Systems.
Its price movements are seldom predictable. They are often not driven by breaking news. As an example, Seeking Alpha has no 3D Systems news items for the 103-day period from 11/12/2021 to 02/23/2022. During this period, it slid in price from ~$26 to ~$17, a decline of >33%. Over this span the iShares Core S&P Small-Cap ETF (IJR), the ETF with the largest exposure to 3D Systems, dropped a mere 12.5% from ~$120 to ~$105.
How many companies has 3D swallowed up in its long life? Dozens upon dozens, for sure. During the short period towards the beginning of my post-2010 focus in this article, from May 2011 to October 2012, 3D scooped up no fewer than 16 companies. These were mostly acquired for undisclosed purchase prices.
It has brought its acquisitive urge forward. Just in recent years, it has made the following significant acquisitions:
And so life goes on for 3D Systems as it works to realize the full potential of the long nascent processes of 3D printing/AM. One way to view it is as an aggregator of 3D/AM technologies.
As noted by interim CFO Pensky during its Q2, 2022 earnings call (the "Call"):
...with dp polar, that will make our seventh acquisition a little over last year. And each of those comes with a little bit of SG&A and R&D costs. And so we’ve added those into the mix. And the most of them are early stage development companies or early stage of commercialization. We’re not yet bringing in a lot of revenue. So, as those guys progressed, we’ll get a little bit more leverage from those in the interim, we just need to manage them as best we can.
After we complete the acquisition of dp polar that Jeff discussed, we will likely take a pause in acquisitions to make sure we focus on execution and fully integrate the recent acquisitions we have made. Nonetheless, we will always remain alert for any game-changing investments.
3D Systems has been wheeling and dealing for decades with but little overall success; its technology has great long term prospects. Over the short term, it is at best an "interesting", highly speculative bet. During the Call, it reduced forward guidance and pointed to a witches' brew of near term obstacles:
...the strengthening of the U.S. dollar, persistent supply chain issues and geopolitical factors such as the Russia-Ukraine war...
As shown by its Q2, 2022 earnings presentation slide 12, 3D operates in two discrete revenue generating segments, Healthcare and Industrial. In Q2, 2022 Healthcare generated $71.7 million, up 2.9% from $69.7 million in Q2, 2021. Industrial rose 3.8% during the same period from $65.8 to $68.3 million.
Its Q2, 2022 earnings release describes its expenses for the quarter as:
Operating expenses increased 7.7% to $85.2 million in the second quarter of 2022, compared to the same period a year ago. 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. ... Non-GAAP operating expenses increased from $48.9 million in Q2 2021 to $60.9 million in Q2 2022. The higher non-GAAP operating expenses reflect spending in targeted areas to support future growth. About half of the increase is from acquired businesses, and the remainder is primarily due to investments in research and development and corporate infrastructure.
In terms of liquidity, the company has:
...cash and short-term investments on hand of $638.2 million. Cash and short-term investments have decreased $151.4 million since December 31, 2021, driven primarily by $83.3 million paid for acquisitions and equity investments, cash used in operations of $38.2 million, capital expenditures of $10.4, and other cash used for financing activities of $12.7 million.
Its acquisitions have been directed towards two areas that should be of great interest for investors. In its Healthcare sector, in 04/2017 it entered into a collaboration with United Therapeutics to develop solid-organ scaffolds for human transplantation. It expanded this in 10/2021 to become effective upon closing of 3D's acquisition of Volumetric Biotechnologies.
The goal of the expanded collaboration is lofty, being no less than the supply of "an unlimited supply of biocompatible human organs". In 06/2022 the collaboration had succeeded to the point that United Therapeutics was targeting "human clinical trials of 3D-printed, cellularized lungs" within 5 years.
Investors should take note. This project, as exciting as it is, represents a long range undertaking with no obvious financial reward as it progresses. Say ~5 years to start clinical trials. Then another ~5 years as the trials proceed.
The company's project for its industrial sector is of a piece with its medical ambitions. During the Call, CEO Graves described its industrial vision as follows:
...dp polar’s technology is an ideal fit with 3D Systems’ broad portfolio of polymer materials and production-focused software systems. We believe that integrating this platform with our existing industry leading solution set will drive its rapid adoption into a wide range of high-speed automated production environments.
In order to support an investment in 3D Systems, one needs to inject oneself with a high dose of hopium. Perhaps there are undiscovered gems hidden in the recesses of one or more of 3D's recent acquisitions. Perhaps it will be able to monetize one of its glitzy long range projects.
I don't believe it. Why should you? Steer clear from this one in an ordinary market; even more so in today's touchy high risk market.
This article was written by
Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.