Source: 3D Systems

It's no accident that the word healthcare comes up 17 times during 3D Systems(NYSE:DDD) third quarter conference call. 3D Systems has made a big-time push into healthcare over the past year in order to grab a toehold in what the company believes may prove to be one of the largest markets for 3D printing. 3D Systems' spending spree suggests that healthcare may be a major driver of the company's future success, so let's take a closer look.

A big bet on medical
According to 3D Systems CEO Avi Reichental, the company's big push into healthcare is already paying off. During the company's quarterly earnings call Reichental said, "Our bold investments in healthcare and metals are delivering category growth rates that substantially outperformed current industry growth validating our early and decisive move into this space."

During the third quarter, revenue from healthcare products and services jumped 121% to $37.4 million. The acquisition of Medical Modeling, a company that provides virtual 3D surgical planning and printing products, was a major reason sales more than doubled. But even without Medical Modeling, 3D Systems still notched organic growth of 79% across its healthcare products and services.

The company's healthcare growth rate is expected to pick up by even more in the fourth quarter given late third quarter integration of both LayerWise, which expanded the company's medical and dental business, and Simbionix, another surgical 3D virtual reality and printing player. While LayerWise and Simbionix didn't have a very big impact on third quarter results, they should have a more meaningful impact this quarter.

Importantly, 3D Systems' healthcare deals aren't just boosting its top line growth. They also appear to be panning out in the form of cost synergies, too. According to Reichental, the "integration of acquisitions is already delivering synergies and expanded margins in our Quickparts and Healthcare businesses."

That suggests that 3D Systems appears to have constructed an end-to-end medical 3D company that can train the next generation of doctors through virtual 3D, help plan medical procedures through the production of 3D replicas of vital organs, and construct durable 3D printed medical and dental implants and devices, all while driving higher sales and profit.

Source: 3D Systems

Mixed messages
Investors largely ignored 3D Systems' strong showing in healthcare last quarter. That's because healthcare strength failed to offset the drag of production delays for 3D Systems' metal printers and consumer printers. As a result, 3D Systems' third quarter results were a bit more anemic than investors were hoping for.

Sales of consumer products, for example, fell 13% to $11.8 million in the quarter from last year. That, combined with capacity constraints for metal printing, contributed to total organic growth of just 12%. As a result, overall revenue growth grew a less-than-expected 23% to $167 million.

The combination of expenses tied to 3D Systems' acquisitions and headwinds from its consumer and metals business resulted in 3D Systems posting net income of $3.1 million last quarter. After adjusting for one-time items, EPS totaled $0.18. That led to net income of $10.1 million and adjusted EPS of $0.48 through the first nine months of this year.

Those earnings numbers weren't horrible, especially when considering that the company is plowing considerable money back into its business. Regardless, investors appear unimpressed given that shares have traded 21% lower since the company warned of less-than-expected earnings on Oct. 22.

That decline, however, may prove to be a bit of an over-reaction; management thinks it has a handle on the consumer and metals headwinds. The company's new consumer product has begun shipping and a second manufacturing line was added to boost capacity for its metals printers. As a result, 3D Systems still expects to deliver revenue in the range of $650 million-$690 million. If that proves correct, then it would represent sales and earnings-per-share growth of 26.7% versus 2013. And it's not like the company is losing money. Its non-GAAP EPS outlook of $0.70-$0.80 would mark a drop off from the $0.85 earned last year, but growth and acquisitions should allow the company's earnings to return to growth next year. Overall, analysts are estimating that 3D Systems EPS will reach $1.04 in 2015.

Source: Yahoo!Finance and author's calculation

Fool-worthy thoughts
Thanks to acquisitions, 3D Systems' healthcare revenue surged by 36% between the second and third quarter, and that growth should accelerate in the fourth quarter as recent deals begin to contribute. If so, then future opportunity from healthcare expansion may move the needle next year. At least that's what Reichental seems to think. During the third quarter call he said, "patient specific healthcare or patient specific medicine is truly an open ended opportunity, it's one of the core areas that we invested in decisively and well ahead of the crowd and we believe that that will bode extremely [well] both in terms of topline and bottom-line contributions in the coming years."