Stratasys Releases Q1 2016 Earnings, Forecasts Improvements Due to New Operating Structure

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stratasys_logo_transparentAmidst all the euphoria and almost magical energy surrounding 3D printing recently, there was bound to be a fall somewhere; and while indeed there has been in terms of financial reports being issued by 3D printing industry titans over at least the past year, this is confusing to many. As one innovation after another is churned out, and revolutions are proclaimed to be happening in nearly every sector from medical to automotive to fashion—and far beyond—why do the biggest companies seem to be faltering while so many other smaller, often international ones, are dancing with delight over financials?

We must continue to ask that question even as we do see some light ahead in viewing first quarter 2016 financial results for the mega-manufacturer of 3D printing solutions, Stratasys, headquartered in Minneapolis, Minnesota and Rehovot, Israel. While Non-GAAP net income for the first quarter was $0.6 million, or $0.01 per diluted share, compared to non-GAAP net income of $2.0 million, or $0.04 per diluted share, reported for the same period last year, the powers that be at Stratasys recommend viewing their progress in terms of operating profit growth, as that is what they project as offering the best performance measurement for this year.

Q1-2016 Financial Results Summary:

  • Revenue for the first quarter of 2016 was $167.9 million.
  • GAAP operating loss for the first quarter was $21.1 million, compared to a loss of $220.9 million for the same period last year.
  • Non-GAAP operating income was $4.0 million, compared to a loss of $0.8 million for the same period last year.
  • GAAP net loss for the first quarter was $23.1 million, or ($0.44) per diluted share, compared to a loss of $216.3 million, or ($4.24) per diluted share, for the same period last year.
  • Non-GAAP net income for the first quarter was $0.6 million, or $0.01 per diluted share, compared to non-GAAP net income of $2.0 million, or $0.04 per diluted share, reported for the same period last year.
  • The Company generated $31.6 million in cash from operations during the first quarter, and currently holds approximately $280.2 million in cash and cash equivalents and short-term bank deposits.
  • The Company invested a net amount of $22.8 million in R&D projects (non-GAAP basis) during the first quarter, representing 13.6% of net sales.
  • Non-GAAP EBITDA for the first quarter amounted to $12.6 million.
  • The Company sold 5,125 3D printing and additive manufacturing systems during the quarter, and on a pro-forma combined basis, has sold a total of 151,149 systems worldwide as of March 31, 2016.

“Although the overall market environment remains challenging, we made significant progress in improving our operating efficiency during the first quarter, which is demonstrated by the favorable trends we observed in operating expenses and cash generation during the period,” said David Reis, chief executive officer of Stratasys. “We believe the recent refinements to our operating structure will make us more productive and better position us for future growth.”

The new Stratasys J750 3D printer allows for more than 360,000 color combinations.

The new Stratasys J750 3D printer allows for more than 360,000 color combinations.

There has been great positive excitement around the release of the Stratasys J750 3D printer, for which 3DPrint.com was in attendance at the OtterBox headquarters in Fort Collins, Colorado. This should continue to be a major boon for business as it allows users so many more options with full-color and multi-material capabilities. Seeing this as another reinvention for 3D printing, the J750 3D printer is the one that’s really meant to do it all for streamlining workflow, offering much better speed and turnaround, and doubling capabilities while offering a color palette of over 360,000 colors.

Continued operational improvement initiatives have been underway, and as we reported recently, this includes outsourcing of MakerBot desktop 3D printer production to Jabil.

We’ve also been following the new Thingiverse Developer Program, which has just recently been launched, expanding the platform’s functionality by allowing developers to create apps in three different categories: print services, model customization and tools and utilities. It also includes includes documentation, resources, and enrollment for developers and gives instruction for developers regarding creating Thingiverse apps, submitting apps to MakerBot, as well as testing and managing apps and analytics.

Also making headlines was the announced agreement between Stratasys Direct Manufacturing (SDM) and Somos, a leading stereolithography materials provider, through which both parties will seek to accelerate materials development and provide SDM customers with a wider range of advanced material options. And in another development which we are following closely, Stratasys too announced the impending creation of a Center of Excellence in collaboration with the Jacobs Institute. Both companies will bring their considerable years of expertise together, along with 3D printing, to develop and test prototypes and models for the 3D printed medical devices of the future.

“As we transform our business, we are focused on investing for the future, which includes developing new technologies and innovative new products. The recent launch of the Stratasys J750, which offers unmatched color and multi-material printing capabilities, is a great example of that commitment,” continued Reis. “We are also excited about additional products we plan to launch in 2016. These products will support our long-term strategy to develop a comprehensive solutions-based business that targets new applications across key vertical markets. While our near-term visibility remains low, we believe our strategy and improved operating structure will position us for future success in our dynamic industry.”

J750-3D-Printer-1024x941

Stratasys J750 3D Printer

Stratasys provided the following information regarding the company’s projected revenue and net income for the fiscal year ending December 31, 2016:

  • Revenue guidance of $700 to $730 million
  • Non-GAAP net income of $9 to $23 million, or $0.17 to $0.43 per diluted share
  • GAAP net loss of $84.0 to $67.0 million, or ($1.60) to ($1.28) per diluted share

Stratasys provided the following additional information regarding the company’s potential performance and strategic plans for 2016:

  • Gross margins to improve modestly to a range of 54% to 55%
  • Operating margins of 3% to 5%
  • Tax expense of $10 to $11 million, which includes the negative impact of the planned accounting treatment for tax valuation allowance
  • Capital expenditures are projected at $60 to $70 million, with approximately $45 million designated for completing the company’s new facility in Israel

Stratasys foresees an improvement in 2016 regarding their operating structure which will result in better operating profits this year. They recommend looking at those numbers, considering the ‘expected ongoing negative impact on net income of the planned accounting treatment for valuation of deferred tax assets.’ Also according to Stratasys, Non-GAAP earnings guidance excludes $59.0 million of projected amortization of intangible assets; $25.0 to $27.0 million of share-based compensation expense; $7.0 million in merger and acquisition related expense; $4.0 to $5.0 million in reorganization and other related costs; and includes $5.0 million in tax expenses related to non-GAAP adjustments.

See the table below for an itemized detail of the non-GAAP financial measures.

The company held a conference call and live webcast in regards to these financial results earlier today, May 9th, and the webcast will be available at Stratasys for 90 days. To gain access, click here. Discuss in the Stratasys First Quarter Report forum over at 3DPB.com.

Consolidated Balance Sheets
(in thousands, except share data)
March 31, December 31,
2016 2015
(unaudited)
ASSETS
Current assets
Cash and cash equivalents $ 213,176 $ 257,592
Short-term bank deposits 67,000 571
Accounts receivable, net 109,132 123,215
Inventories 124,479 123,658
Net investment in sales-type leases 12,833 11,704
Prepaid expenses 7,362 8,469
Other current assets 20,243 21,864
Total current assets 554,225 547,073
Non-current assets
Goodwill 386,559 383,853
Other intangible assets, net 238,431 252,468
Property, plant and equipment, net 200,704 201,934
Net investment in sales-type leases – long term 18,569 17,785
Deferred income taxes and other non-current assets 14,313 11,243
Total non-current assets 858,576 867,283
Total assets $ 1,412,801 $ 1,414,356
LIABILITIES AND EQUITY
Current liabilities
Accounts payable $ 37,549 $ 39,021
Accrued expenses and other current liabilities 34,510 31,314
Accrued compensation and related benefits 41,380 34,052
Income taxes payable 11,951 11,395
Obligations in connection with acquisitions 5,058 4,636
Deferred revenues 52,031 52,309
Total current liabilities 182,479 172,727
Non-current liabilities
Obligations in connection with acquisitions – long term 4,658 4,354
Deferred tax liabilities 14,694 16,040
Deferred revenues – long-term 8,463 7,627
Other non-current liabilities 24,571 22,428
Total non-current liabilities 52,386 50,449
Total liabilities 234,865 223,176
Redeemable non-controlling interests 2,281 2,379
Equity

Ordinary shares, NIS 0.01 nominal value, authorized 180,000 thousands shares; 52,107 thousands shares and 52,082 thousands shares issued and outstanding at March 31, 2016 and December 31, 2015, respectively

141 141
Additional paid-in capital 2,611,612 2,605,957
Accumulated deficit (1,429,847 ) (1,406,706 )
Accumulated other comprehensive loss (6,502 ) (10,774 )
Equity attributable to Stratasys Ltd. 1,175,404 1,188,618
Non-controlling interest 251 183
Total equity 1,175,655 1,188,801
Total liabilities and equity $ 1,412,801 $ 1,414,356
Stratasys Ltd.
Consolidated Statements of Operations
(in thousands, except per share data)
Three Months Ended March 31,
2016 2015
(unaudited) (unaudited)
Net sales
Products $ 118,634 $ 126,667
Services 49,272 46,064
167,906 172,731
Cost of sales
Products 56,938 98,371
Services 29,799 28,272
86,737 126,643
Gross profit 81,169 46,088
Operating expenses
Research and development, net 25,115 27,238
Selling, general and administrative 76,387 102,608
Goodwill impairment 150,400
Change in the fair value of obligations in connection with acquisitions 727 (13,256 )
102,229 266,990
Operating loss (21,060 ) (220,902 )
Financial income (expenses), net 180 (5,124 )
Loss before income taxes (20,880 ) (226,026 )
Income taxes 2,291 (9,622 )
Net loss (23,171 ) (216,404 )
Net loss attributable to non-controlling interest (30 ) (116 )
Net loss attributable to Stratasys Ltd. $ (23,141 ) $ (216,288 )
Net loss per ordinary share attributable to Stratasys Ltd.
Basic $ (0.44 ) $ (4.24 )
Diluted (0.44 ) (4.24 )
Weighted average ordinary shares outstanding
Basic 52,098 50,956
Diluted 52,098 50,956
Stratasys Ltd.
Reconciliation of GAAP to Non-GAAP Results of Operations
(in thousands, except per share data)
Three Months Ended March 31, 2016 Three Months Ended March 31, 2015
GAAP Non-GAAP GAAP Non-GAAP
(unaudited) Adjustments* (unaudited) (unaudited) Adjustments* (unaudited)
Net sales
Products $ 118,634 $ $ 118,634 $ 126,667 $ $ 126,667
Services 49,272 49,272 46,064 46,064
167,906 167,906 172,731 172,731
Cost of sales
Products 56,938 (10,836 ) 46,102 98,371 (45,912 ) 52,459
Services 29,799 (442 ) 29,357 28,272 (1,409 ) 26,863
86,737 (11,278 ) 75,459 126,643 (47,321 ) 79,322
Gross profit 81,169 11,278 92,447 46,088 47,321 93,409
Operating expenses
Research and development, net 25,115 (2,270 ) 22,845 27,238 (2,817 ) 24,421
Selling, general and administrative 76,387 (10,738 ) 65,649 102,608 (32,844 ) 69,764
Goodwill impairment 150,400 (150,400 )
Change in the fair value of obligations in connection with acquisitions 727 (727 ) (13,256 ) 13,256
102,229 (13,735 ) 88,494 266,990 (172,805 ) 94,185
Operating income (loss) (21,060 ) 25,013 3,953 (220,902 ) 220,126 (776 )
Financial income (expenses), net 180 180 (5,124 ) (5,124 )
Income (loss) before income taxes (20,880 ) 25,013 4,133 (226,026 ) 220,126 (5,900 )
Income taxes 2,291 1,276 3,567 (9,622 ) 1,814 (7,808 )
Net income (loss) (23,171 ) 23,737 566 (216,404 ) 218,312 1,908
Net loss attributable to non-controlling interest (30 ) (30 ) (116 ) (116 )
Net income (loss) attributable to Stratasys Ltd. $ (23,141 ) $ 23,737 $ 596 $ (216,288 ) $ 218,312 $ 2,024
Net income (loss) per ordinary share attributable to Stratasys Ltd.
Basic $ (0.44 ) $ 0.01 $ (4.24 ) $ 0.04
Diluted (0.44 ) 0.01 (4.24 ) 0.04
Weighted average ordinary shares outstanding
Basic 52,098 52,098 50,956 50,956
Diluted 52,098 53,143 50,956 52,341

The Company considers these non-GAAP measures to be indicative of its core operating results and facilitates a comparison of operating results across reporting periods. The Company uses these non-GAAP measures when evaluating its financial results as well as for internal planning and forecasting purposes, however these measures should not be viewed as a substitute for the Company’s GAAP results.

* Refer to the “Reconciliation of Non-GAAP Adjustments” herein for further information regarding adjustments.

Stratasys Ltd.
Reconciliation of Non-GAAP Adjustments
(in thousands)
Three Months Ended March 31,
2016 2015
Cost of sales, products
Acquired intangible assets amortization $ (10,414 ) $ (14,905 )
Acquired intangible assets impairment (29,782 )
Non-cash stock-based compensation expense (362 ) (1,225 )
Reorganization and other related costs (60 )
(10,836 ) (45,912 )
Cost of sales, services
Non-cash stock-based compensation expense (361 ) (608 )
Reorganization and other related costs 280
Merger and acquisition related expense (361 ) (801 )
(442 ) (1,409 )
Research and development, net
Non-cash stock-based compensation expense (1,359 ) (1,868 )
Merger and acquisition related expense (911 ) (949 )
(2,270 ) (2,817 )
Selling, general and administrative
Acquired intangible assets amortization (3,760 ) (6,456 )
Non-cash stock-based compensation expense (3,541 ) (6,059 )
Merger and acquisition related expense (2,342 ) (6,906 )
Reorganization and other related costs (1,095 )
Acquired intangible assets impairment (13,423 )
(10,738 ) (32,844 )
Goodwill impairment (150,400 )
Change in the fair value of obligations in connection with acquisitions
Change in the fair value of obligations in connection with acquisitions (727 ) 13,256
Income taxes
Corresponding tax effect and other tax adjustments 1,276 1,814
Net income $ 23,737 $ 218,312
Stratasys Ltd.
Reconciliation of GAAP to Non-GAAP Forward Looking Guidance
Fiscal Year 2016
(in millions, except per share data)
GAAP net loss ($84) to ($67)

Adjustments

Stock-based compensation expense $25 to $27
Intangible assets amortization expense $59
Merger and acquisition related expense $7
Reorganization and other related costs $4 to $5
Tax expense related to Non-GAAP adjustments ($5)
Non-GAAP net income $9 to $23
GAAP loss per share ($1.60) to ($1.28)
Non-GAAP diluted earnings per share $0.17 to $0.43
[Source: Business Wire]

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