Summary Comments on Results
Commenting on second quarter results, Dr. Jeffrey Graves, President and CEO of 3D Systems stated, “Looking at the state of the additive manufacturing market today, it is increasingly clear to us that the industry is at an exciting inflection point, with 3D printing now moving into factory production environments world-wide. What we and many others in our space agree upon is that scale is increasingly necessary, not only to deliver sustainable profitability, but also to diversify end markets and smooth out quarterly results, such that one market, technology, or customer does not have an outsized impact on consolidated financial results. For our company, the dramatic success we have experienced in the dental orthodontics market over many years has now translated into an outsized negative impact as consumer discretionary spending on dental aligners has plummeted. Over the last four quarters this has created a significant headwind to our performance, with total revenues from this market declining by over $50 million. While we are pleased to see this market now showing signs of stabilization, the ultimate answer is to broaden market exposure and continue to expand the sales, service and technology expertise that our customers require. Unfortunately, our 3D printing industry today remains highly fragmented and, until this is rectified, all companies will be exposed to similar volatility over time.
Dr. Graves continued, “At 3D Systems, we see two distinct paths to achieving scale. The first is an immediate step-function change through our proposed combination with Stratasys, which has the added benefits of significant short-term cost synergies and an outstanding breadth of combined technology platforms for sustained, long-term growth. The second path is to attain scale organically, leveraging our current metal and polymer technology portfolio, which is the broadest in the industry, and our groundbreaking development efforts in regenerative medicine, which you will hear much more about over time. Either path can be successful, but the combination with Stratasys clearly accelerates the benefits to our customers and shareholders, which is why we have been working on this concept for the last two years, and so passionately over the last two months. Candidly, we expected this transaction to be announced by now and are frustrated by the pace and the lack of any engagement on the merger agreement we delivered to Stratasys signed in escrow on July 13. We remain committed to pursuing this powerful combination for the benefit of our collective shareholders, but can only conclude the merger if Stratasys shares our commitment.”
“As it relates to our quarterly results, we felt some of the challenges related to this lack of scale in the second quarter. That said, we were pleased that, excluding our dental orthodontics business, we continued to see organic revenue growth of roughly 2% year-to-date, even in the midst of a difficult macroeconomic environment. Most companies in our industry, given their size and narrower focus, cannot make this same statement. Last quarter, we forecasted a full-year decline of roughly 35% in our dental business and our expectations remain unchanged for that portion of our business at mid-year. In our non-dental business, during the last few weeks of the quarter, we started to notice that sales cycles for new, large printers had begun to extend as customers began to be more cautious with their capital spending. Countering these headwinds there were also pockets of strength throughout the first half, particularly in our Personalized Healthcare Solutions business where we have delivered over 15% revenue growth year-to-date and are uniquely positioned versus our competition. Additionally, in our Industrial segment, we continued to see growth in our Aerospace & Defense, Consumer and Durable Goods, Foundries and Semiconductor markets, as well as with our Titan extrusion printing platform across virtually all industrial markets. Lastly, we continued to make significant investments in our emerging Regenerative Medicine development efforts, which we believe has the ability to drive significant long-term growth and value creation. Our core efforts, directed toward the manufacture of human organs, are proceeding very well, in partnership with United Therapeutics, and our newly established Systemic Bio business, which is focused on acceleration of new drug therapies for customers in the pharmaceutical industry continues meeting its aggressive objectives. After announcing our first contract with a major pharmaceutical company last quarter, we’ve also seen the FDA announce that animal testing is no longer required prior to human trials. This gives us even more confidence in the demand we expect for our h-VIOS, or organ-on-a-chip, technology. We expect to close our second major pharma contract later this year with many more now in the pipeline. Finally, in non-organ tissues, earlier this week we signed an exclusive partnership with Theradaptive, a protein engineering company focused predominantly on orthopedic regeneration, to combine our expertise in orthopedics and soft tissue additive manufacturing with Theradaptive’s breakthrough technology in material binding.”
Dr. Graves concluded, "Given all of these market dynamics, we believe it is prudent to adjust our full year 2023 revenue expectation to $525 million to $545 million, and would now expect positive adjusted EBITDA in Q4’23. This includes the full year investment of roughly $10 million in our regenerative medicine business. While our results in the first half of the year have been more challenging than originally expected, we are encouraged by our year over year organic revenue growth excluding our dental business. We firmly believe that, with the steps we are taking to manage our costs while scaling the business, the long-term future at 3D Systems is incredibly bright."
Summary of Second Quarter and Year-to-Date Results
Revenue for the second quarter of 2023 decreased 8.5% to $128,194 compared to the same period last year, and revenue on a constant currency basis decreased 8.7%. The decline in revenue primarily reflects lower sales to certain dental orthodontic market customers due to macroeconomic factors that are negatively impacting demand for elective dental procedures. Second quarter 2023 revenue from our non-dental markets decreased 2.1%, and 2.4% on a constant currency basis, compared to second quarter 2022.
Revenue for the first half of 2023 decreased 8.6% to $249,430 compared to the same period last year, and revenue on a constant currency basis decreased 7.7%. The decline of revenue primarily reflects lower sales to certain dental orthodontic market customers due to macroeconomic factors that are negatively impacting demand for elective dental procedures, as expected. Revenue from our non-dental markets increased 3.3%, and 4.7% on a constant currency basis, compared to first half of 2022.
Healthcare Solutions revenue for the second quarter 2023 decreased 15.2% to $60,874 compared to the same period last year. Healthcare Solutions revenue decreased 15.4% year over year on a constant currency basis due to continued softness in our dental orthodontic market, as expected. Healthcare Solutions revenue from our non-dental markets decreased 3.6%, and 3.9% on a constant currency basis, versus the same period last year.
For the first half of 2023, Healthcare Solutions revenue decreased 19.5% to $109,599 compared to the same period last year due to continued softness in our dental orthodontic markets, which was down 34.7% versus the first half of 2022. Healthcare Solutions revenue for the first half of 2023 from our non-dental markets increased 6.7%, and 7.1% on a constant currency basis, versus the first half of 2022.
Industrial Solutions revenue for the second quarter 2023 decreased 1.4% to $67,320 compared to the same period last year. Industrial Solutions revenue on a constant currency basis decreased 1.7% year over year.
For the first half of 2023, Industrial Solutions revenue increased 2.1% to $139,831 compared to the same period last year. Industrial Solutions revenue on a constant currency basis increased 3.8% versus the first half of 2022.
Gross profit margin in the second quarter of 2023 was 39.0% compared to 37.9% in the same period last year. Non-GAAP gross profit margin was 38.9% compared to 38.0% in the same period last year. Gross profit margin increased primarily due to favorable pricing, product mix and cost optimization efforts to in source production.
Gross profit margin in the first half of 2023 was 38.9% compared to 39.2% in the same period last year. Non-GAAP gross profit margin was 38.9% compared to 39.3% in the same period last year. Gross profit margin decreased primarily due to expected dental orthodontics related volume, partially offset by price increases and cost optimization efforts to in source production.
Net loss attributable to 3D Systems Corporation decreased by $4,066 to a loss of $28,895 in the second quarter of 2023 compared to the same period in the prior year. The decrease in Net loss attributable to 3D Systems Corporation primarily reflects an increase in interest income earned on cash and cash equivalents resulting from increased interest rates.
