Muted 2025 Outlook and Falling Margins Signal Tough Road Ahead for 3D Systems

Key 4Q24 Earnings Takeaways ⬇️

3D Systems $DDD reported 4Q24 revenue of $111M, down 3% Y/Y and below consensus expectations of $115M. The shortfall was primarily driven by an $9M reduction related to a change in accounting estimates within the Regenerative Medicine program. This change reflects a change in milestone revenue recognition, deferring revenue until more stringent criteria are met, rather than indicating a loss of actual business activity. In turn, Healthcare Solutions revenue declined 21% to $40M, while Industrial Solutions grew 11% to $71M. Non-GAAP gross margin fell to 31.3% from 39.8% in the prior year, though would have been 36.3% excluding the accounting adjustment. Adjusted EBITDA declined by $5M to a loss of $19M, reflecting lower revenue and margins. For 2025, the company guided revenue to a range of $420 - 435M, implying a ~2% decline at the midpoint and falling short of consensus expectations of $462M. However, adjusting for the divestiture of the Geomagic business, the outlook suggests a return to flat to modest organic growth. Management also announced a new $50M cost reduction initiative aimed at achieving breakeven or better adjusted EBITDA by 4Q25. Additional guidance includes non-GAAP gross margins of 37% to 39% and operating expenses between $200 million and $220 million.

While it was encouraging to see 11% growth in the Industrial segment during the quarter, the company’s outlook, which calls for flat to modest organic growth, suggests 2025 will remain an uphill battle. We are not surprised by the soft demand outlook, which aligned with the trends highlighted in our 4Q24 Additive Manufacturing Executive Survey. In our view, part of the broader challenge stems from macro headwinds, including a tough manufacturing environment and uncertainty around tariffs. However, we also believe 3D Systems is facing increasing competitive pressure, particularly in the prototyping market, where lower-priced systems from companies like Formlabs and Bambu Lab are gaining share. Furthermore, gross margins remain a concern, declining for the third consecutive quarter and now reaching levels not seen in at least five years. We believe this erosion is further evidence of intensifying competition, which is weighing on pricing power and profitability. While management expects to achieve breakeven adjusted EBITDA in Q4 through a combination of modest growth and a $50M cost reduction plan, we remain skeptical. Historically, the company has struggled to deliver on forward guidance that is given at the beginning of year, and we question whether cost cuts alone can offset top-line pressures. We do believe the company's Regenerative Medicine could be transformative for the stock, but we believe we are "years" away from meaningful contribution and expect the Regenerative Medicine segment to remain a cash drag in the near term. 3D Systems’ largest market opportunity remains in Dental, led by its key customer Align Technology. While the company signed a $250M, 5-year contract with Align last year, which we believe primarily covers materials, the dental segment is becoming increasingly competitive. Moreover, there are long-term concerns with Align transitioning toward direct aligner printing, rather than the current indirect method that relies heavily on 3D Systems’ technology. All that said, even in a potentially improving macro backdrop, we believe there are better-positioned additive manufacturing companies in the market.