Business

Stratasys beats earnings expectations, 3D printing still has “untapped potential”

Stratasys (NASDAQ:SSYS) has posted financial returns for second quarter of 2017. Revenue at the 3D printing company was $170.0 million, a $2 million decrease on the comparative quarter.

However, with EPS of $0.17 the results exceeded forecasts by $0.10.

Highlights

  • Pleased with progress on customer engagement in key verticals. Believes higher quality revenue opportunities are available
  • Paris Airshow showcased ability to leverage 3D printing expertise for manufacturing.
  • Reception of F123 positive with orders around 1,000.
  • Rapid prototyping still contains untapped opportunities.
  • Q2 traditionally strong – in part due to education sector purchases.
  • Infinite Build and Robotic Composite projects are progressing.

On a call with investors, CEO Ilan Levin was joined by CFO Lilach Payorski and Shane Glenn VP, Investor Relations. While the call was interrupted twice by a fire alarm and connection difficulties, there was less excitement in the numbers.

The market’s initial reaction has also been uneventful, with the company’s share price flat at the time of writing.

The Stratasys Continuous Build 3D Demonstrator at RAPID + TCT 2017. Photo by Michael Petch
The Stratasys Continuous Build 3D Demonstrator at RAPID + TCT 2017. Photo by Michael Petch

Services revenue increased by 1.35% to $49 million, the figure includes revenue generated by maintenance contracts which increased by 6% and was driven by growth in the installed base.

Products revenue fell by $2.74 million or 2.21%. One reason given was that demand in the APJ region was softer than anticipated.

“Adoption cycles in APJ are different,” remarked CEO Ilan Levin. Earlier this month 3D Systems also pointed to lower demand in APJ on their earnings call, albeit for different reasons.

$ millionVariance
 Q2 2017Q2 2016$ million
Revenue169.99172.02-2.03
Operating profit/(loss)-5.05-17.1312.08
Net profit/(loss)-6.15-18.6512.5
Non-GAAP Net Income9.26.23
Basic EPS-0.11-0.35
Non-GAAP EPS0.170.12

Data source: Stratasys Q2 2017 Financial Returns

Untapped opportunities

Opening the call Ilan Levin stated he was pleased with progress at Stratasys. Specifically, the 1,000 F123 series systems ordered since the range of 3D printers were launched earlier this year. The majority of these orders coming from new customers.

Stratasys says that the F123 launch is one of the most successful in the company’s long history. The 3D printer range addresses a segment that the company still believes has more potential. In research conducted by Stratasys it was found that 3D printing has less than 10% penetration in design workshops, a group the F123 range is targeting.

Levin explained that the, “rapid prototyping market in terms of 3D printing in general is much more mature, so pricing dynamics are different.”

“We see a maturation in the market in general.”

Aerospace advancing

The CEO also highlighted achievements in the aerospace vertical.

Revealed at the 2017 Paris Air Show the Fortus 900mc Aircraft Interiors Certification Solution brings together ULTEM 9085 thermoplastic and an updated Fortus 900mc Production 3D Printer with specialized hardware and software. This allows for the production of certifiable aircraft interior parts- leveraging a qualification program underway with the FAA, National Institute of Aviation Research, and America Makes.

Airlines need to maintain enormous inventories for aircraft parts to keep their fleets in the air. Using 3D printing for on-demand manufacturing is a promising alternative. (Photo courtesy of Stratasys).
Airlines need to maintain enormous inventories for aircraft parts to keep their fleets in the air. Using 3D printing for on-demand manufacturing is a promising alternative. (Photo courtesy of Stratasys).

Levin refused to be drawn on speculation from an analyst that the use of this system might result in $5000-$10,000 per plane in parts.

$ millionVariance
Revenue by segmentQ2 2017Q2 2016$ million%
Products121.02123.76-2.74-2.21%
Services48.9748.320.651.35%
Total169.99172.08-2.09-1.21%

Data source: Stratasys Q2 Financial Returns

Market consolidation and takeover opportunities?

CFO Lilach Payorski reported that Stratasys generated $10.9 million during the quarter, bringing the balance sheet cash figure to $305.3 million. Payorski said, “We are well positioned to leverage our strong cash position to capture new opportunities going forward.” Whether this translates into acquisitions remains to be seen. While today’s call discussed a number of key verticals for Stratasys, executives did not mention the medical sector – an area where competitors are increasingly active.

Speaking about Stratasys’ investment in 3D printing unicorn, Desktop Metal, Levin said there is a “lot of excitement about the upcoming launch” and Stratasys are looking to “see how we can better serve our customers together”. As announced at RAPID 2017, part of this collaboration will see Stratasys resellers offer Desktop Metal 3D printers to customers.

Stratasys ULTEM Airduct at NATO COTC. Photo by Michael Petch
Stratasys ULTEM Airduct at NATO COTC. Photo by Michael Petch

Responding to questions about the competitive landscape and what is the sales channel is saying about activity from 3D Systems, HP and Carbon Levin responded that as the company continued “down the application path it is less a question of vendor, and more an application fit.”

Full year results likely to be at high end of guidance

Stratasys gave Non-GAAP operating margin guidance of 3% to 5% and capital expenditures guidance of $40 to $50 million.

“Q3 is seasonally weak, also have issues around variably around product mix and impact on gross margin,” said Shane Glenn, VP Investor Relations. However, with a traditionally strong Q4 Stratasys are confident they will end the year at the high end of previously announced guidance, specifically.

  • Revenue guidance of $645 to $680 million.
  • GAAP net loss guidance of $53 to $39 million, or ($1.00) to ($0.73) per diluted share.
  • Non-GAAP net income guidance of $10 to $20 million, or $0.19 to $0.37 per diluted share.

On the horizon?

Analysts were curious about the Infinite Build and Robotic Composite technology demonstrators. Having announced last year that revenue could be expected in 2018, Stratasys are now playing their cards much closer.

Levin was positive about the projects, with the Infinite Build in particular closer to generating revenue. Speaking about the newly named H2000, the CEO said Stratasys are Already seeing enhanced growth and deeper engagement.” Continuing he adding the company is working well with existing customers and also to put more in hands of key customers.

For Robotic Composite the only information given was that Stratasys are, “Working on customisation and tuning with customers” and “working hard to expand the list of collaborators.”

The numbers game

An uneventful – on the whole – earnings call this may have been, but as the 3D printing industry continues to mature and additive manufacturing finds its place within the broader manufacturing world this is not a bad thing.

While the technology is frequently exciting with new research showing the potential for what once seemed like science fiction, the business of 3D printing should not be expected produce revolutionary developments every quarter without fail.

Stratasys are still looking to the future as their technology demonstrators clearly show, however they also recognise that meeting – and beating – financial forecasts is the short-term is necessary.

Stratasys consolidated statement of operations Q2 2017.
Stratasys consolidated statement of operations Q2 2017.

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Featured image shows a Stratasys booth demo at Formnext 2016. Photo by Michael Petch.