After surprising investors by releasing preliminary third-quarter earnings results a few weeks ago, 3D Systems' (DDD 2.36%) official third-quarter earnings results didn't offer any new surprises when they were released on Monday. 3D Systems' earnings conference call did, however, offer interesting insights for investors to mull over. Below are the most important takeaways from the call.
HP entering the 3D printing space is "enormously validating" to 3D Systems
During the Q&A segment, 3D Systems' management was asked about the ramifications of Hewlett-Packard (HPQ -0.25%) entering the 3D printing market.
CEO Avi Reichental weighed in:
Well, let's start by saying that you know we see the HP announcement as enormously validating to us and personally we think it's a net-net positive. We've been expecting their announcement actually for quite some time, it's been delayed multiple times and the question is whether or not their technology can find a sweet spot between part performance, material cost, unit cost and speed.
What we've seen from them so far is more of a technology announcement or a technology concept looking for [a] sweet spot. We don't think that it in any way impacts our ability to continue to differentiate and drive adoption in manufacturing applications that include aerospace, automotive, health care, consumer electronics, and the at-home demand, we really don't see what they announced as being flight-ready, or fitting under the hood of automotive companies or in people's bodies anytime soon.
While it's true that HP's entrance into the 3D printing space may attract additional interest in 3D Systems' products, it may also highlight the shortcomings of competing technologies relative to HP's Multi Jet Fusion, which boasts being 10 times faster than leading selective laser sintering- and material extrusion-based 3D printers currently available. In my opinion, 3D Systems shouldn't discount HP's ability to translate its decades of 2D printing experience into a compelling 3D printing technology platform.
Headwinds that pressured results in recent quarters have been largely resolved
For two consecutive quarters, 3D Systems has highlighted issues around manufacturing constraints for its direct-metal 3D printers and product shipment delays for its some of its consumer-oriented 3D printers, both of which have weighed on quarterly results. Reichental doesn't expect these issues to bear as much weight on operating results going forward:
We have now closed our recent product availability gaps in consumer and metal printers and expect those categories to contribute favorably to our growth in the fourth quarter end.
Throughout the call, management highlighted that it should have ample manufacturing capacity for its direct-metal 3D printers in both the short and long term, and that the company has begun shipping its previously delayed consumer 3D printers.
Expect a big splash at EuroMold 2014 in the coming weeks
Later this month, 3D Systems is expected to introduce several new products at EuroMold 2014, the world's largest 3D printing conference, held in Frankfurt, Germany.
According to Reichental:
[Y]ou can expect to see several significant announcements in connection with EuroMold of the expansion of our SLA [stereolithography], SLS [selective laser sintering], and direct metal platforms and materials and software capabilities.
Reichental also revealed that 3D Systems' larger-format direct-metal 3D printer is going to be called the ProX 400, which should help it better cater to large-scale industrial manufacturers:
[W]e plan to unveil [at] EuroMold 2014 a larger direct metal machine that we are going to call the ProX 400; we will provide more details on it in the coming days, and that will further expand the attractiveness and open new applications for our direct metal platform as we go forward.
3D Systems' operating leverage should begin to take hold in 2015
During the call, 3D Systems' CFO Damon Gregoire highlighted that the company's operating leverage is beginning to be restored, which he defines as revenues growing at a faster rate than operating expenses.
And as you can see on this slide after four consecutive quarters of stepped up investments, our operating expenses flattened and our operating leverage is on an expansion trajectory. Consistent with our previous statements we expect operating leverage to continue to expand through the end of this year and into 2015.
The slide that Gregoire is referring to:
Source: 3D Systems.
3D Systems' high-speed continuous 3D printing platform has a lot of potential
In order to meet the needs of Google's Project Ara, a highly customizable modular smartphone component concept, 3D Systems was tasked with creating a high-speed continuous 3D printing platform capable of producing thousands of unique components daily.
While answering an analyst's question about acquisition of Xerox's Wilsonville, Oregon, research and development team, Reichental also shed some light on the potential of this high-speed continuous 3D printing platform:
[Xerox's R&D team] are obviously leading our developments in high-speed continuous 3D printing, which we believe will completely shift the landscape in terms of what's possible to manufacture at convincing scales with functionality and precision, the kind of functionality and precision that is relevant and pertinent to aerospace and automotive and medical device and consumer electronics at convincing scales.
In other words, 3D Systems' innovative "racetrack" design, whereby print beds move on a track to different print head stations and can print components in a matter of minutes, could eventually cater to a wide variety of manufacturing applications.
