3D Printing Financials: Stratasys Q3 Earnings Beat Revenue Expectations; Sales Still Down YoY

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The 2020 earnings reporting season is drawing to a close after a year of government-ordered lockdowns to slow the spread of the coronavirus pandemic, forcing global economies into a sudden recession. As the pandemic begins to recede sufficiently to allow the lifting of some control measures, companies are slowly seeing a wave of growing strength in their earnings reports, and maybe even a chance to recuperate some of the yearly losses.

For Stratasys, one of the leading global providers of 3D printing solutions, its third-quarter earnings report reflected a sequential improvement and a positive trend that could continue into the last quarter of the year, revealing what the company believes is the beginning of a recovery from the pandemic as customers return to their pre-COVID-19 utilization levels.

Nonetheless, sales for the third quarter of 2020 were down 20% compared to Q3 in 2019. While revenue was $127.9 million, compared to $157.5 million for the same period last year. The 18.8% decline year-over-year was primarily driven by the adverse impact of COVID-19 on the company’s customers in leading industries, like aerospace and automotive. Yet, during Stratasys’ earnings call on November 12, CEO Yoav Zeif said he was encouraged by the improved sales of hardware and consumables in government, specifically it’s aerospace sector, as well as in the healthcare and education segments.

The Stratasys 3D printing ecosystem of solutions and expertise includes 3D printers, materials, software, expert services, and on-demand parts production. The product side for this year’s third quarter saw revenue of $83.5 million, a decrease of 21.4%, compared to the same period last year. Within product revenue, system revenue decreased by 20.8%, while consumable revenue decreased by 22% year-over-year. Service revenue was also down 13.2% to $44.3 million, compared to last year’s third quarter at $51.1 million.

3D printing with Stratasys. Image courtesy of Stratasys

Earnings results for Q3 represent an improvement from the last quarter. Sales were up 13%, from $73.8 million in Q2 to $83.5 million in the quarter ended September 30, 2020. Similarly, revenue increased 8.8% in three months since the second quarter, from $117.6 million to $127.9 million, and represents a marked improvement from last quarter’s 27.9% year-over-year decline.

The revenue figure also managed to surpass analyst predictions of $120.4 million. In fact, surveys of eight analysts by The Banker’s Tribune produced estimates for a net loss of 7 cents a share, while the company reported a non-GAAP loss of 5 cents per share in the third quarter. Since the last quarter of 2019, Stratasys has managed to beat market expectations, proving its polymer additive manufacturing technology roadmap is still strong, as well as its expanding portfolio poised to generate incremental revenue.

Last quarter, management had announced a number of cost mitigation efforts to help offset the impact of COVID-19, including a 10% reduction in force, a 5% salary reduction for the executive team, and a four-day work-from-home week for most personnel. During the Q3 earnings call, Zeif said it had implemented all these measures successfully to achieve its savings goal of reducing operating expenses.

Stratasys’ new EMEA headquarters in Germany. Image courtesy of Stratasys

“We are laser-focused on leading the polymer 3D printing market by delivering the most innovative, next-gen technologies to address the fastest-growing and most transformative manufacturing applications, while leveraging the strongest go-to-market infrastructure in our industry,” suggested Zeif. “We believe that our innovations of today will drive competitive production advantages for the factories of tomorrow, resulting in growth and value creation for our customers and shareholders.”

For the fourth quarter, the company is expecting to see sequential revenue growth of about 5% to 7%, closer to $135 million, encouraged by the initial signs of recovery seen in Q3 (as companies learn to live with the ongoing virus), as well as on its latest launch, the J55 3D printer which is beginning to add more revenue. Working toward that revenue goal, Stratasys plans to launch next year what it believes will be the best powder bed fusion system in the market, as part of its joint venture with Xaar. It is also considering inorganic best-in-class technology opportunities to help complete the full range of polymer addressable market.

The J55 3D Printer operates using a first-of-its-kind rotational printing platform. Image courtesy of Stratasys

Also, in order to remain a leader in Fused Deposition Modeling (FDM) technology, the company expects to focus on aerospace production, particularly the reproduction of engine parts, with a long-term strategy to create a software ecosystem that will support Stratasys’ full workflow solution. For that to happen, Zeif said there will continue to be collaborations to create the best polymer solution available in the market.

Stratasys’ Chief Financial Officer (CFO) Lilach Payorski said she expects to see short term growth, in the next two to three years, within FDM and PolyJet. Returning to pre-2019 levels will take time, said the expert, since “there will not be an immediate V-shaped recovery,” highlighting that this projection is not just for Stratasys, but an economic expectation worldwide. Moreover, Payorski said that for the company, she sees a stronger recovery in Eastern countries, even though that is where the pandemic started.

The third-quarter results are an indication of an initial recovery in the broader market from the impact of COVID-19. However Stratasys, like many other manufacturing businesses, remain cautiously optimistic regarding the recovery, especially since there are still lockdown measures in various countries around the world and businesses face tough decisions as they learn to deal with much of the unknown effects of a post-pandemic society.

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