4 Quotes From 3D Systems' Conference Call That Investors Shouldn't Miss

If you're following 3D Systems (NYSE: DDD  ) , you've likely already read the company's earnings release, as well as perhaps an article or two summarizing and analyzing the leading 3-D printing company's first-quarter 2014 results, which were released yesterday. You can read my view on why investors drove shares of the stock down more than 9%, despite the company meeting earnings' estimates and edging past revenue estimates.

My purpose here isn't to rehash the earnings' results, but to supplement the information you've likely read with some additional color from 3D Systems' conference call. There's a wealth of information an investor can glean from what is said -- and often what isn't said -- during such a call. There were too many valuable nuggets shared during the call to cover, but here are four you should know about:

1. More information about gross margins
This quote is from CFO Damon Gregoire's prepared remarks:

Even with the 200 basis point expansion of materials' gross profit margin to 74.7% and 140 basis point expansion in services' gross profit margin, it was not enough to overcome the 510 basis point compression in printers' and other products' gross profit margin...

Gregoire is explaining the reason for the company's overall gross margin decreasing to 51.1% from the prior-year period's 52.4%. The reason for this dip was spelled out in the release: Printer sales grew faster than sales of print materials, and materials have the highest profit margin. It was only on the call, however, that the additional metrics and color were shared.

The fact that the gross margin for materials rose 200 basis points -- which is 2% -- to a whopping 74.7% is significant. This is because sales of materials accelerated in the quarter, and should continue to accelerate. That the segment with the highest margin is experiencing accelerating growth means that at some point, likely relatively soon, the overall margin should steadily rise. 

The caveat to the above statement, of course, has to do with the margin in the company's printer business. If it continues to compress, it could continue to drag down the overall margin. While this margin did compress significantly in the quarter, 3D Systems expects this situation to right itself once the slew of new products it recently rolled out gain traction. If we see further compression in this margin throughout the year, however, we can probably safely assume that increased competition is the reason. Depending upon the magnitude of the compression, this might signal trouble ahead.  

2. Higher-speed, larger-format, metals printer to roll-out
This quote is from a response by CEO Avi Reichental to an analyst's question:

[W]e're also fast-tracking to the market ... much larger format higher-speed direct metal printer. This will probably come into the markets toward the end of this year...

The fact that 3D Systems plans to introduce a higher-speed larger-format metals printer to the market toward the end of the year is naturally a positive, and something investors wouldn't learn by just reading the earnings release. Speed and size of components able to be produced are two primary factors holding 3-D printing back from making increased inroads into mass manufacturing applications. So, a metals printer that addresses both these hurdles should be well received in the market.

3. Metal printers business making inroads into automotive manufacturing
This quote is from a response by Reichental to an analyst's question:

[O]ver the last several periods, we have made significant inroads into automotive applications and specifically higher manufacturing applications... [J]ust over the last several periods we shipped over two dozen direct metal systems just into major tire design and manufacturing applications.

The auto industry is one of the top users of 3-D printing, so making inroads into this market is obviously a positive. I would have liked for an analyst to have followed up on this topic with a question as to whether the company has seen any orders for its metal printers from the major automakers, and whether it has received multiple orders from any one customer.

4. Project Ara on track and expected to lead to other opportunities
For background, 3D Systems teamed with Google on Project Ara last November. The goal of this project is to create a large-scale 3-D printing manufacturing platform capable of producing customizable, open-source, modular smartphones.

This quote is from a response by Reichental to an analyst's question:

[W]e believe that this high-speed continuous 3D printing platform and polymers would have wide applications into a variety of both industrial and consumer goods type manufacturing applications.

Prior to giving this response, Reichental answered "yes" to the analyst's question about whether the company "would be ready in time to support the project Ara ramp in Q1 2015." So, we know that not only is progress on Project Ara on schedule, but that 3D Systems is developing new polymers, in addition to the high-speed continuous 3-D printing platform. Further, the company believes that the new formulations will be transferable to other printers in its line-up -- which was another question to which Reichental responded "yes." 

Investing in megatrends your style? 3 stocks to benefit from 3 megatrends
The one sure way to get wealthy is to invest in a groundbreaking company that goes on to dominate a multibillion-dollar industry. Our analysts have found multi-bagger stocks time and again. And now they think they've done it again with three stock picks that they believe could generate the same type of phenomenal returns. They've revealed these picks in a new free report that you can download instantly by clicking here now.


Read/Post Comments (4) | Recommend This Article (14)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On April 30, 2014, at 11:16 PM, uyutnaya wrote:

    Beth McKenna's article is a precise direction for many investors to invest into the most advanced 3D tech-universe.

  • Report this Comment On May 01, 2014, at 1:02 AM, TMFMcKenna wrote:

    @uyutnaya,

    While I am very bullish on 3-D printing itself, I'd not characterize this article as direction for "many

    investors to invest" in 3DS. I wanted to respond, as I'd not want anyone to get that message.

    Investors who don't have a long-term investing horizon and the more risk-adverse shouldn't be investing in 3DS or other such highly-valued, high growth stocks, IMO.

    For a balanced (or what I think is a balanced) look at 3D Systems' earnings report, you might consider reading my take on 3DS's earnings (link in this piece). While the company certainly has many positives going for it, I'm not without concern, and certain metrics need to be watched closely in the next couple quarters.

    Thanks for reading.

    Beth McKenna

  • Report this Comment On May 01, 2014, at 5:52 PM, selliott76 wrote:

    Good article, as was yesterday's; but I have one small bone to pick. In the articles you refer to "investor's" driving the stock price down. Wouldn't it be more appropriate, in keeping with the teachings and philosophy of this site, to say traders drove the price down? Investors, at least Foolish ones, don't buy and sell their stocks on the basis of a single quarterly report. Traders will do so on the basis of just about anything. I don't generally nit pick but I think the distinction between investor and trader is very important when looking at their influence on a stock or the marked as a whole.

    Other than that, thanks for the good work. I learn a lot here.

  • Report this Comment On May 01, 2014, at 7:20 PM, TMFMcKenna wrote:

    selliott76,

    Glad you found the articles helpful. Your point is excellent. I used commonly-used language, but agree that "traders" are almost always responsible for the volatility surrounding quarterly earnings report. It doesn't seem to me, however, that many folks recognize that they are traders. It's also kind of hard to define the line between being a "short-term investor" and a "trader."

    Your point is well taken, though, and I may reconsider my wording choice in the future.

    Thanks for commenting,

    Beth McKenna

Add your comment.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2937508, ~/Articles/ArticleHandler.aspx, 12/22/2014 7:21:43 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement