Stratasys (Nasdaq: SSYS) shares opened with a sharp high after the company reported its third consecutive quarterly revenue growth on August 5, 2021. The second quarter of 2021 reflects a steep increase in hardware and material revenues, returning to near-2019 levels as Stratasys’ customers get closer to a full recovery of their manufacturing operations. Powered by new materials, events, and systems – that will begin shipping in the fourth quarter – Stratasys anticipates incremental growth and earnings in the next few years and sequentially linear revenue growth, hoping to maintain a leadership position as the 3D printing industry expands and shifts from prototyping to mass production.
Stratasys revenue grew 25% year over year, well above its previously shared expectations and driven by a surge of 32% in hardware and 39% in consumables, and offset by slower growth in its parts business due primarily to the relatively slow recovery of the aerospace market. Product revenue was $100 million for the period, a 35.7% increase year-over-year, while services brought in $46.7 million, a roughly 7% increase compared to the same period in 2020.
This upward trend was primarily due to stronger than expected performance in Europe (with sales close to pre-Covid 2019 levels), customer support revenues exceeding those in 2019, and “good reception” of three recently launched systems, the DentaJet and MediJet, specifically destined for the healthcare sector and the RPS stereolithography systems that Stratasys acquired at the beginning of 2021.
Although the 3D printing business has exceeded analyst’s revenue expectations with sales of $147 million for the second quarter of 2021, it continues to post losses. For the period ending on June 30, 2021, net losses reached $20.2 million, or 31 cents per share. That’s a significant improvement of 27% from the second quarter of 2020 when Stratasys posted net losses of $28 million, or 51 cents per share.
Stratasys earnings report for the second quarter of 2021. Image courtesy of Stratasys.
Stratasys CEO Yoav Zeif said the strong second-quarter results reflected growth from all regions and business lines. One of the highlights of the period was an expansion of the medical and dental offerings, advancing plans to further capture a bigger share of the healthcare industry. Following an accelerated adoption of 3D printing in the medical and dental communities, Stratasys introduced new healthcare systems DentaJet and J5 MediJet, in March and May, respectively.
Zeif said in an earnings call with investors that he believes mass customization is a key benefit of 3D printing and ideal for providing personalized healthcare, and added, “given the range of products we are bringing to the market, we view healthcare as a key growth component for our portfolio going forward.”
The J5 MedJet is smaller than the J750 and offers only five materials max, with a narrower material range. Image courtesy of Stratasys.
During the reporting period, Stratasys generated operating expenses of $86 million, an increase of 17.8% compared to the same period last year. Operating expenses were up primarily due to the return to a five-day workweek, post-Covid 19 expenses as the market started opening up, and commissions due to more revenue. Additional operating costs were associated with the inclusion of two new acquisitions. However, these costs were funded by a resizing plan implemented in May 2020, which allowed Stratasys to allocate resources to areas expected to generate stronger growth. From an earnings perspective, GAAP operating loss for the quarter was $22.7 million, compared to a loss of $29.3 million years over year.
In addition, in Q2, the earnings report reflected cash from operations of $5.6 million, compared to cash use of $9.7 million in the same quarter last year. This totals $52.1 million generated in the last three quarters. This positive cash generation supports the firm’s growing optimism around the continuing economic recovery from Covid-19 and its leadership position in the market. Management expects that “much of the cash flow benefit will come in 2022 and beyond.”
For the third quarter, Stratasys said it expects sales to grow between 17% and 18% compared to the same period last year. At the same time, fourth-quarter revenue is expected to be sequentially higher than the third quarter.
“We have a proven and resilient business model designed to scale across a range of macro-economic conditions. These key advantages, combined with the new technologies that will launch primarily in the fourth quarter and beyond, position Stratasys to continue delivering on our growth strategy,” highlighted Zeif during an earnings call with investors.
Stratasys supplied 60 industrial-grade FDM printers to the largest in-hospital 3D printing center in France. Image courtesy of Stratasys.
Stratasys said its operating expenses for the full year 2021 would be in the range of $24 million to $30 million, approximately $30 million higher than 2020, notably due to the return of the regular workweek and operating costs as the markets are gradually opening post-pandemic.
So far, given the increase in hardware and consumables growth, the overall sales margin benefited from a change of mix. However, this was partially offset by increased global cost pressures that included logistics and raw materials inflation, which were more costly in the second quarter than the first, and ramped-up production costs for new product introductions.
“At this point, it looks like these issues will continue to be a negative impact for the back half of this year. However, due to the ongoing uncertainty of these macro issues, along with the introduction in the second half of new systems and the anticipated associated upfront margin pressure, we expect gross margins for the balance of the year to remain similar to what we saw in Q2,” explained Chief Financial Officer Lilach Payorski.
As for the longer term, the company continues to anticipate a notable leveraged benefit from its investments as revenue growth should accelerate in 2022 and beyond, with significantly higher revenues, which could drive consumption and generate higher profit. Moreover, in the next year, Payorski hopes to see some positive impact on margins from the monetization of the software business resulting from an increase in paid subscriptions and the introduction of new products towards the end of 2021.