Stratasys (SSYS) Buys Origin: Interview with Chris Prucha & Analysis


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Today, Stratasys (SSYS) announced that it is acquiring Origin. By buying the open stereolithography (SLA) startup, the company is moving into manufacturing with SLA in a big way. Origin co-founder Chris Prucha also told us in an interview that this is a “major strategic shift for Stratasys and will shake up the industry.” He maintains, “that by focusing more on open materials, Stratasys will make more production possible.”

The Origin One 3D printer. Image courtesy of Origin.

Prucha told that the Origin team is staying in San Fransisco, which, if you’ve ever experienced a winter in Stratasys’s home state of Minnesota, will not be a surprise. Prucha thinks that the startup-turned-subsidiary will benefit from being a part of a larger corporate entity, share corporate functions, and lean on Stratasys’s extensive reseller network. He said that, at the same time, “we will not be engulfed. We’re not going to be completely integrated or grafted on.”

Origin was founded in 2015, creating a unique production process for near-field communication (NFC) tags that it used in such products as the Beast Mode line of shoes for Raiders running back Marshawn Lynch. By 2018, it had evolved to develop a new type of digital light processing (DLP) 3D printer that doesn’t rely on an oxygen-dependent interface, like other continuous DLP technologies from firms such as Carbon. This opens the technology up to a potentially wider array of materials. This, along with an open materials approach, set Origin apart from other companies in the space.

“Our mission was to make 3D printing collaborative, and we’ve seen others opening up due to this. We brought a different business model to the industry that enabled production. We worked together with materials companies and we will continue to maintain and expand our partnerships with materials companies. And we will bring these relationships and this collaborative way of working with materials companies to Stratasys,” Prucha said. “Our combined company will embrace the ecosystem model. This will mean better pricing, new applications, and more manufacturing with 3D printers. We’ve brought open material development to the industry and we will continue to do this. We’re also committed to having an open system as well.” 

The company now boasts a team of 40 people, with activity across nine countries. Prucha sees Origin continue to develop more products dedicated to its technology, with a focus on parts with high grain strength and full polymerization with the Origin One 3D printer because, according to the Origin CEO, that’s where the company has process control. Additionally, he hopes to expand the company’s materials portfolio beyond acrylate-based polymers.

An F-16 clamp made for the U.S. Air Force’s Advanced Manufacturing Olympics undergoes UV post cure. Image courtesy of Origin.

“A lot of the team has been with us this entire journey, and I’m very proud of everyone, especially since we brought a new business model to the industry and competed by being lean and efficient.”

He also said that for him Stratasys founder Scott Crump was key. Conversations with Crump helped convince Prucha to join up with Stratasys.

Right now “we’ve reached a level of maturity where we’re able to build a scalable future,” Prucha said.

We also interviewed Stratasys’ EMEA head Andy Langfeld and he is excited about using Stratasys’ existing channel partners to cross-sell Origin equipment and distribute Henkel, BASF, and DSM materials to customers.

“We can complement our existing offering, and meet new customer requirements filling a gap in our offering. We expect that this will also now be able to address new customers’ needs using our existing channel network,” Langfeld said. 

He continued, “We’re going to be focusing on four print technologies. We’re strong in Polyjet and FDM, which is our DNA. Next year, we will have powder bed fusion and, now, we have Origin.”

This means that Stratasys hopes to commercialize and sell Xaar’s HSS technology in a year or so. The company is also looking at what to do with its existing SLA/DLP machine offering now. 

Generally, however, the future is “in integrated product teams and segmented business units focussed on the application. We will continue to build on that and continue to work on parts fit for purpose and to better understand use cases. We’re going to listen to engineer’s requirements and be oriented to the segments that we are serving. Before we had gaps in our portfolio and we’re filling them now,” Langfeld said. 

In total, Stratasys may spend up to $100 million on the acquisition. The press release disclosed the following:

“$60 million paid on closing ($6 million of which is subject to the founders’ retention over 3 years) and $40 million that is subject to performance-based earnouts over 3 years. The acquisition will be paid using a combination of stock [approx. $45 million] and cash [approx. $55 million] at closing and throughout the earnout period. Approximately $32 million of the cash expenditure will be at closing. The acquisition is expected to accelerate Stratasys’ growth rate and be slightly dilutive to non-GAAP earnings per share in 2021, and accretive to Stratasys’ non-GAAP earnings per share by 2023. The Origin team will join Stratasys and lead the development of its technology and product platform, with a full global launch via the Stratasys go-to-market organization towards mid-2021.”

So, what do we make of this? Given the market conditions and global uncertainty, it seems like a well-considered exit for the team. To go it alone, Origin would have to dilute and grow rapidly while burning through much more new cash. Somewhere, the math here works for founders and current investors. With retention bonuses, metered pay out, and a radically different valuation, Stratasys on the M&A side seems much more conservative and careful this time when compared to the Makerbot acquisition.

Having a high quality software and hardware SLA/DLP solution with open materials should be a huge boon to Stratasys’s channel. I really think that they are the big winners here. They have often been bereft of an SLA offering, while selling to customers that buy a lot of SLA printers. Companies such as car OEMs and service bureaus have long lasting relationships with Stratasys and its channel and can now be cross-sold printers.

If they do this successfully, this will put pressure on 3D Systems. 3D Systems currently benefits disproportionately from high margins on closed systems where companies pay dearly for its resins. Stratasys’s Origin systems will put pressure on both machine and material margins. For materials companies, such as DSM and Henkel, Stratasys’s success can now lead to huge volumes in SLA manufacturing that are now essentially the private reserve of SLA leader 3D Systems.

If Stratasys can resell materials apart from printers into existing customers, then this will be huge for the company. It has the contacts and could even resell materials meant for 3D Systems machines through channel, as well. If this is not the case, the company will have to fight to establish Origin globally, pitting it against a fast-rising low-cost Asian set of startups, Formlabs, Envisiontec, and 3D Systems.

Formlabs is a formidable competitor and will come up from below with a closed way of doing things in terms of software and materials. 3D Systems will face pressure to open up more of its printers to other people’s materials, as well, or be displaced. For now, the lower cost firms are selling to local customers, but they are gunning for international business. Envisiontec is happy going it alone, but perhaps this move will pressure it into more alliances or to sell.

All in all, this is not a sure thing for Stratasys, but it seems like a very logical extension of its portfolio and a very logical move toward more open systems. For shareholders, in my mind, this acquisition should be seen as a positive development which has given Stratasys a real chance of capturing global market share in SLA for a relatively affordable price.

With Origin as an open platform, materials will be more available and available at lower cost, which will really matter in manufacturing applications. With spreads on materials ranging from between $150 and $900 a liter, having an open system can really make a huge difference in part cost.

For $100 million, I struggle to think who else they could have bought that would have been more advantageous for them. Given investors’ previous valuations of Carbon, this makes the unicorn look almost un-bearably expensive. Given that Carbon could have a huge impact if it went public and raise even more money to out-R&D Stratasys, buying Origin serves another purpose as well: it deflates investor expectations for Carbon. If Origin sells for a song, does the choir still believe that Carbon is a unicorn?

Besides channel, the big winner is the 3D printing industry, of course. We need open printers and open materials for manufacturing. We need resilience in supply chains and redundancy, as well. Open systems and the ecosystem approach is the only real way to hit huge volumes on the factory floor. Only open gives large customers the confidence that they won’t be locked into one system or materials vendor and depend too much on them forever. As an industry, any investment in open is good for everyone.

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