One of the biggest disappointments surrounding 3D Systems' (NYSE: DDD ) first-quarter 2014 earnings was that it didn't raise its 2014 full-year guidance, already calling for impressive top-line revenue growth of between 33% and 40% over 2013 results. During the conference call, 3D Systems CEO Avi Reichental was asked by an analyst why the company didn't decide to raise guidance when it issued its first-quarter results, considering it recently announced plans to acquire Robtec, the largest Latin American 3-D printing service bureau. Because the deal hasn't officially closed, Reichental believes it would be premature for the company to reevaluate its full-year guidance metrics for the remainder of the year.
However, Reichental did acknowledge that the company will reevaluate its full-year guidance sometime after the deal is closed. Considering how the Robtec deal will be immediately accretive to cash generation upon closing, and it's expected to close within 90 days, it's possible 3D Systems may issue updated guidance in the June-July time frame.
The importance of Robtec
After distilling it down, there are three main reasons 3D Systems wants Robtec to become part of its family: expertise, sales distribution, and customer relationships. Because there's currently a lack of talent in the entire 3-D printing industry, it often makes the most sense to acquire already established service providers rather than start from scratch. With locations in Brazil, Argentina, Chile, Uruguay, and Mexico, Robtec gives 3D Systems a head start in the region and provides an avenue for prospective customers to get more acquainted with the company's product portfolio. Time and time again, 3-D printing service centers often act as gateways to future 3-D printer sales.
On the customer front, Robtec has many high-profile customers including Embraer, Siemens, Volkswagen, Fiat, and Mercedes. While these big-name clients attract media attention, it's the well-established customer relationships that will likely provide 3D Systems with its biggest opportunity to generate future 3-D printing sales and tap into the burgeoning Latin American industry.
Earlier last month, Stratasys announced a similar deal when it acquired Solid Concepts and Harvest Technologies, two leading U.S. 3-D printing service providers. Although Stratasys may have been primarily motivated by the fact that these deals give it access to direct manufacturing expertise with metals, it nevertheless gives Stratasys an expanded retail footprint, sales channel, and customer base. With a greater push into the service center space on the industry level, it's becoming clear that expertise around 3-D printing will be extremely valuable longer term, especially as a way to offset any potential product pricing pressures brought on by increased competition.
Although shortsighted 3D Systems investors didn't get the coveted "beat and raise" they wanted, long-term investors should be pleased that the Robtec acquisition will be accretive to adjusted earnings results within the first 12 months of closing, and will open up new growth opportunities for the company in Latin America. Assuming the Robtec deal closes in a timely manner, investors may ultimately get the guidance bump they were originally hoping for. As always, investors will be better served focusing on 3D Systems' underlying business results rather than the noise surrounding earnings season.
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