AIQUY

Moat: 2/5

Understandability: 3/5

Balance Sheet Health: 4/5

Aiqus has a unique platform that enables the design, manufacture, and distribution of customized prosthetic and orthotic devices. While the market and the business have interesting prospects, the long term sustainability is still uncertain.

Investor Relations Previous Earnings Calls

The moat, understandability, and balance sheet health scores reflect a conservative evaluation to ensure a margin of safety in any assessment.

Business Overview

Aiqus, formerly known as 3D Systems, is a healthcare company focused on advancing personalized patient care through innovative digital manufacturing and distribution solutions for medical devices like prosthetics and orthotics.

Aiqus utilizes a comprehensive digital platform, which connects physicians and care facilities to its manufacturing network. This system enables the rapid design and creation of personalized prosthetics and orthotics. This customisation could enhance patient fit and comfort, therefore improve clinical outcomes.

Aiqus doesn’t only produce the devices itself but uses a distributed manufacturing network, which reduces the need to have massive capital expenditures in its operations, and also enables fast delivery and reduces logistical bottlenecks.

Aiqus is not just a manufacturing company but provides its users with software and digital tools that they can use in their practice for various purposes, such as designing personalized devices and also patient management. This integration with existing patient workflows helps reduce the time needed to adapt their solutions to new users.

Revenue Distribution

Aiqus’ revenue mix can be broken down into products (like software, devices, and consumables used in the manufacturing process) and services, such as trainings, installations, and maintenance contracts. In the most recent 10-Q filing (Q1 2024), the company reported total revenue of $154.3 million, with product revenue accounting for $113.2 million and service revenue contributing $41.1 million.

The company’s sales are concentrated across three main geographic segments: North America, Europe, and Asia Pacific. In 2023, North America was the largest region, generating 55 percent of revenue, followed by Europe with 32 percent, and the remaining 13 percent came from the Asia Pacific region.

The prosthetic and orthotic industry is experiencing a shift towards digitization and custom fabrication because of higher need for more personalized patient care. This trend creates a big opportunity for Aiqus, but it also attracts newer and more well-funded companies to compete for this market.

The market is largely fragmented, featuring traditional manufacturers, smaller startups focused on specific technology, and some companies offering new and more advanced solutions, such as 3D-printed devices.

Aiqus is in direct competition with traditional manufacturers in the P&O field, but there is also the risk of being disrupted by new and innovative companies. What distinguishes Aiqus is its integrated digital platform, custom-manufacturing approach, and wide geographic reach— but there is no guarantee of sustained success.

Profit Margins

The company’s gross profit margins have shown some variations over the last few quarters, ranging from 47% to 52%, and are influenced by factors such as product mix and manufacturing efficiency. While they have improved, they do not show a significant improvement to establish high profitability.

Operating expenses, including research and development, sales and marketing, and general administrative costs, consume a substantial percentage of revenue. As a result, Aiqus has been struggling with sustained profitability, with net income fluctuating considerably and frequently being negative.

What Makes AIQUY Different

The key advantage of Aiqus is its ability to combine digital design, manufacturing, and distribution. That means less time and resources spent on manufacturing and logistics, and more focus on new products and new revenue streams. This unique approach, supported by a distributed manufacturing network, gives the company flexibility and speed, as it can rapidly produce customized devices based on patient-specific requirements.

The software platform is another point of differentiation, as it integrates well with hospitals and care facilities, creating switching costs that make the company’s products very attractive. This helps the company improve its margins and build stronger relationships with its customers.

Financial Analysis

In the most recent quarterly results (Q1 2024), Aiqus showed a revenue of $154.3 million with a net loss of $24.3 million. While sales have been increasing, profitability has not. A deeper look into the expenses shows how much the company spends on R&D and marketing.

The balance sheet is reasonably healthy and improving, with assets outweighing the liabilities. The company had $187.1 million in cash and equivalents. The working capital was $125.7 million. They also had goodwill and intangible assets of $753.9. Total debt was roughly $850 million, so the ratio of debt to total capital (debt and equity) remains at an acceptable level.

A notable element of the financial position is the company’s history of acquisitions. For many years, 3D Systems used acquisitions as a key part of its growth strategy- this also led to high amounts of intangible assets and goodwill. In this kind of situation it is important for the company to prove its strategy and show organic growth in the long term. It seems that the company is focusing on that now, but we are yet to see proof.

In short, their ability to operate and scale the business efficiently, especially in the new global scenario, will determine the success of this strategy and the future prospects of the company.

Understandability: 3 / 5

The complexity of the technology involved in 3D printing and healthcare combined, may make some investors unable to follow and fully understand it and the financial statements may also be confusing if the accounting adjustments are not properly analyzed. But the underlying business itself is quite simple: custom manufacturing, selling to healthcare facilities and professionals, and enabling personalized patient care.

Moat Rating: 2 / 5

Based on the framework discussed previously the moat of AIQUY is:

  1. Intangible assets: AIQUY possesses some intangible assets such as patents for the tech used in the production, and it seems like they have a relatively strong brand name. But all these are not unique to the industry. Competitors can easily make similar devices and offer them at the same level of quality and at potentially lower prices.
  2. Switching costs: While there are some switching costs involved in using the company’s software and workflow tools, these costs do not seem to be strong or long-lasting. Competitors could easily offer a similar service and at a better price or with better support.

Given those two factors, the current moat of the business is pretty weak. The company should be able to generate a positive ROIC for a couple of years. That’s why the moat gets the current rating of 2/5.

Balance Sheet Health: 4 / 5

Aiqus’ balance sheet can be defined as healthy. Even with all the previous acquisitions and the large debt, they still have a good net worth and cash balance, making a stable and reliable operation, with some leverage. They will have the ability to withstand unexpected downturns and have the flexibility to follow the next opportunities to generate growth.

Risks to the Moat and Business Resilience

Aiqus faces legitimate risks that could negatively impact its moat. Intense competition from both traditional and new players is a huge threat to the company. If the company can’t manage to compete on the basis of price, features and quality, their profits and growth rate will surely shrink.

Technological obsolescence and the high pace of change in technology, poses a risk because competitors might introduce new disruptive technologies that will lower the value of the current ones and lower costs of production for competing devices.

The regulatory environment surrounding medical devices is complex and stringent. Delays in regulatory approvals or changes in rules can materially hurt or delay the company’s growth.

Macroeconomic instability and financial headwinds may negatively impact the spending of potential customers in the medical area, which means a lower level of sales for Aiqus. It is also important to take into account a potential recession, or a global slowdown.

A final risk that comes to mind is the dependency of the company on its customer concentration. If a small number of clients are responsible for a huge part of their revenues, any loss of business from those clients would severely harm the company.

Overall Assessment

Aiqus offers a compelling case as a company that is leveraging technology to improve medical procedures and personalized patient care. However, the company faces challenges like high competition and the need to improve profitability. For the future, Aiqus has to improve its economic moat, to build more sustainable revenue and profit streams, and improve its financial results.