5 Key Takeaways From 3D Systems Corporation's Earnings Call

By MarketsFool.com

Image source: 3D Systems.

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Last Wednesday, 3D Systems' (NYSE: DDD) second-quarter earnings highlighted several positive developments that suggest the company is making notable improvements in its business despite falling 3D printer sales.

Along with its earnings release, 3D Systems' management hosted a conference call to provide deeper insights about the underlying health of its business and future prospects. It marked the second time that investors got to hear from 3D Systems' recently appointed CEO, Vyomesh Joshi, a 32-year HP (NYSE: HPQ) executive with a history of improving operational performance.

There were five main takeaways from the call.

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1. Differentiation

Having only been at the helm for four months, Joshi is still getting his bearings about the value proposition of 3D Systems' offerings. Early on the call, Joshi made it clear how he thinks 3D Systems is differentiated:

In 3D printing, an end-to-end solutions-based approach enables customers to digitize, design, simulate, prototype, inspect, and manage their entire workflow. In the context of the competitive environment, which is intensifying with the entrance of HP and Carbon, this diversified approach can help it mitigate the threat that these entrants pose to its competitive position.

2. Becoming a world-class organization

During the two years before Joshi was hired, 3D Systems struggled with myriad execution and quality issues, which weighed on its overall performance. In hindsight, it's clear that former CEO Avi Reichental's overly aggressive acquisition strategy came at the expense of operational excellence. To right those wrongs, Joshi has developed and begun implementing guiding principles to help build a world-class organization:

Along with a major restructuring, 3D Systems has been spending to improve the quality and reliability of its products, which suffered some reputational damage under previous leadership.

3. Plunging printer orders

Although 3D Systems' total revenue fell 7% year over year, its printer sales fell 30% and unit sales fell 16%. This undermines the attractiveness of 3D Systems' razor-and-blade model, where 3D printer sales fuel the recurring sales of consumable materials, which tend to command higher profit margins. During the call, Joshi explained that the timing of orders and the mix of printers being sold were mainly to blame -- and that he expects unit growth to improve in the second half:

4. The future

Throughout the call, it's became clear that 3D Systems will be focused on a solutions-based approach to the market going forward, emphasizing higher utilization rates and production (i.e., manufacturing) uses over lower utilization rates and prototyping. Essentially, production uses tend to command higher utilization rates than prototyping uses, which in turn, fuel more recurring sales of materials.

Vyomesh Joshi. Image source: LinkedIn.

Here's how Joshi spelled it out:

5. Competition

During the Q&A section, management was asked about its views on the competitive landscape, specifically around HP's and Carbon's offerings. Overall, Joshi believes that customers want more than a one-material 3D printer, which reinforces its solutions-based approach:

More to come

While Joshi and his team are optimistic about 3D Systems' future, they also made it clear that the company has its work cut out before it can create long-term shareholder value. More details will be available on Sept. 12, when the company hosts a special event outlining its market-based strategy to drive profitable growth. Based on this conference call, investors should expect to management to expound upon its solution-based approach to increase the lifetime value of its customers.

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Steve Heller owns shares of 3D Systems. The Motley Fool recommends 3D Systems. 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.