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

The call provided additional information about 3D Systems' fast-growing metals printer business, margins, and progress on its teaming with Google for Project Ara.

Apr 30, 2014 at 6:30PM

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." 

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Beth McKenna has no position in any stocks mentioned. The Motley Fool recommends 3D Systems and Google (C shares). The Motley Fool owns shares of 3D Systems and Google (C shares). Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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