It was not a happy day for 3D Systems when they faced financial analysts early, to pre-announce that Q1 revenues were down, way down. Wall Street had expected a profit of $0.17/share, but the company instead expects a loss of $0.13 - $0.15. Projected revenues are falling from a projected $182.2 million to an expected $158 - $160.
CEO Avi Reichental explains:
We were surprised and disappointed by the abrupt interruption in customer demand late in the quarter from several economic factors that we believe caused many of our industrial customers to defer their planned investments.
He explained the factors...
The aftershock of lower oil prices caused the majority of our aerospace, automotive and healthcare customers to curb new trend to repurchases during the quarter and to curtail their materials in service purchases.
Other reasons revenues fell at 3D Systems include the following:
- Strong US dollar lost the company $12 million in that last quarter alone.
- Problems with certain metal and nylon materials lost some sales.
Note that there is a connection between lower oil prices and a stronger American dollar. When a company is located in the USA and expects to be paid in US$, the strong dollar is like cutting the value of revenues from other countries. Instead of getting $14 thousand from a European customer, 3DS might now be getting just $11 thousand, after the Euro is converted to US$.
As for the problem materials, some customers found they were unable to 3D print complex parts made of certain metals; other customers found their ProX 500 printer had quality problems, and a thermal distribution anomaly. Some problems are solved; others to be solved shortly.
Financial analysts wanted to know if this slowdown was indicative of the entire 3D printing industry. Mr Reichental insisted it was temporary, and specific to Q1:
I think that what we experienced in the first quarter is indicative of periodic pauses in the fast growing industry, some that are out of our control; some that are probably indicative of the ebbs and flows of the whole industry; and some that are fully in our control and depend on our execution.
His plan to deal with "good and not so good cycles" consists of:
- Continue to invest in R&D, especially in new materials
- Continue to add positions
- Continue to eliminate some redundancy acquired from acquisitions
- With technology in place, substantially reduce acquisitions
An analyst wondered, "Is the lower end consumer or prosumer unit good enough for prototyping application and cannibalizing some of the higher end used cases?" Mr Reichental replied in the affirmative:
There is no question that our consumer printers [are] part of self cannibalization that is planned. We will continue to lead ASP [average selling price] reduction as we introduce new systems.
But then he added:
With all of that said, I don’t believe that the current success that we’re enjoying in consumer revenue and in consumer unit placement, in any way is cannibalizing sales of our higher end systems.
A follow-up conference call is scheduled to May 8 with full Q1 results. In the meantime, the company is seeing those customers who deferred purchases last quarter now buying equipment in the second.
You can read the entire 7,000-word transcript at http://seekingalpha.com/article/3101316-3d-systems-ddd-ceo-avi-reichental-on-q1-2015-preliminary-results-call-transcript?all=true&find=3dsystems