Stratasys Releases Q2 2016 Earnings, Beating Expectations; Improving Finances Remains Priority

While we’ve already seen what industry titans such as 3D Systems have going on for second quarter results, all eyes have been on Stratasys, assuming nothing too drastically negative was in store as analysts had predicted earnings per share of $0.06 on revenue of $175.78 million. What we see as results are released is an even higher EPS at $0.12 with $172.1 million in revenue. It would seem that the prognosis is rather positive as Stratasys exceeded expectations and is doing better than last year, but still taking some hits blamed on an industry slowdown and a marketplace growing fierce with competition and an inventory overload.

As we’ve reported over the last year, Stratasys has been notably turbulent in the financial arena. While positive progress has been undeniable with new products and even a new CEO, we’ve historically witnessed a string of dismal reports. The last quarter signaled some light ahead, however, featuring similar revenues at $167.9 million and greater operating losses at $21.1 million. In comparison to Q2 for 2015, progress is noted, as promised, but it’s certainly not monumental.

Q2-2016 Financial Results Summary:

• Revenue for the second quarter of 2016 was $172.1 million.
• GAAP gross margins were 46.2% for the second quarter, compared to 45.5% for the same period last year.
• Non-GAAP gross margins were 55.9% for the second quarter, compared to 54.7% for the same period last year.
• GAAP operating loss for the second quarter was $17.1 million, compared to a loss of $33.5 million for the same period last year.
• Non-GAAP operating income for the second quarter was $10.2 million, compared to $3.7 million for the same period last year.
• GAAP net loss for the second quarter was $18.5 million, or ($0.36) per diluted share, compared to a loss of $22.9 million, or ($0.55) per diluted share, for the same period last year.
• Non-GAAP net income for the second quarter was $6.2 million, or $0.12 per diluted share, compared to non-GAAP net income of $8 million, or $0.15 per diluted share, reported for the same period last year.
• The Company generated $6.9 million in cash from operations during the second quarter, and currently holds approximately $253.9 million in cash and cash equivalents.
• GAAP R&D expenses for the second quarter amounted to $24.4 million, representing 14% of net sales.
• GAAP EBITDA for the second quarter amounted to $6.9 million.
• Non-GAAP EBITDA for the second quarter amounted to $19.5 million.

Ilan Levin, Stratasys CEO

In major news for Stratasys this year, new CEO Ilan Levin came on board as of July 1. Already a member of their board of directors, he is succeeding David Reis, who has held the position since 2009. Regarding this quarter’s financial results, the newly minted Levin said:

“We were pleased to achieve further improvements in our operational performance during the second quarter. Compared to the first quarter, we observed stronger margins and a substantial increase in non-GAAP operating profit. Our margins benefitted from a sales mix that favored our higher-end systems, including the recently launched J750, the industry’s most advanced full-color, multi-material 3D printer, as well as our ongoing efforts to improve operations, and reduce operating expenses.”

With the J750 3D printer serving as the star headline for last quarter, Stratasys has made some other substantial strides recently too. Four enhancements were offered for the lineup of professional-grade Fortus FDM 3D printers, allowing for use with high-end, demanding industrial applications and the following features:

• New tooling capabilities
• Acceleration kit for more rapid 3D printing of large models
• Aerospace designation for ULTEM 9085, offering production traceability

Also released, GrabCAD Print is now in beta testing in North America, the product of a 2014 Stratasys purchase, acquiring a cloud-based platform originally meant for engineers to share a free CAD library. Compatible with all Stratasys printers, the app allows for greater ease in workflow (design to print), streamlining preparation, scheduling, and monitoring.

They have also added, as we recently reported on, a Professional Services program with their indirect subsidiary, Stratasys Direct Manufacturing. Through this, OEMS receive consulting on how to transition to using 3D printing in their businesses.

The GrabCAD application, now in beta testing for North America.

“We believe that our technological platforms and customer reach are unmatched within the industry and represent assets with significant potential for further development,” continued Levin. “The central principle of our strategy is meeting the needs of customers by further leveraging our core assets to cultivate new and more advanced capabilities for prototyping and manufacturing applications within key vertical markets. Providing enhanced additive manufacturing value to our customers is our number one priority.”

Regarding prospective revenue and net income (loss) for the fiscal year ending December 31, 2016:

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

Prospective performance and strategic plans for fiscal 2016:

• Gross margins in a range of 54% to 55%.
• Operating margins of 3% to 5%.
• Tax expense of $15 to $17 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.

“Over the past four years, since the merger of Stratasys and Objet, our company has undergone a major transformation, driven by initiatives that we believe are essential to our long-term success. Enhancing the value of additive manufacturing for our customers will require significant investments in time and other resources to fully develop. Operational efficiency and improved financial performance will remain a priority as we continue to execute our strategy. As CEO of Stratasys, I am excited about our future and I look forward to the challenge of building on our company’s legacy as the industry leader in additive manufacturing,” Levin concluded.

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.

A conference call was held on August 4th to discuss the second quarter results, with the webcast available online. What do you think of these results? Were you surprised by anything? Discuss further in the Stratasys Q2 2016 Results forum over at 3DPB.com.

The Stratasys J750 3D Printer should continue to provide a strong stream of income.