Stratasys (Nasdaq: SSYS) reported last week that sales rose by 2% for the quarter ending September 30, 2022, thanks to a laser-focused strategy on cost management and a combination of incremental revenues from new technologies and organic growth. The 3D printing service provider posted a profit of $18.7 million, or 28 cents per share, up from a loss of $18.1 million, or 28 cents per share, a year earlier, beating Wall Street’s expectations for the quarter.
In an earnings call with investors, CEO Yoav Zeif said the company delivered its highest third-quarter revenue in seven years, as well as five consecutive quarters of positive earnings, demonstrating what he described as “unique capabilities to generate profitable growth.”
Much of Stratasys’ revenue growth and profitability this last fiscal third quarter came from new technologies like the GrabCAD cloud-based software-as-a-service (SaaS) application that simplifies the 3D printing workflow, P3 automated production cell that aims to improve the efficiency of operating fleets of Origin One 3D printers, and the Neo Stereolithography 3D printers. These three solutions have more than doubled the firm’s addressable market and opened up new use cases and opportunities to replace traditional manufacturing across verticals, said Zeif.
“We are expanding and improving our line of FDM systems and materials, as well as seeing positive progress on P3 and SaaS, our more recently launched mass production solution. FDM delivered solid growth this quarter and is still the largest technology in 3D printing today,” commented the executive.
For the third quarter, revenue was $162.2 million, up from $159. Roughly 70% of that total comes from product sales, which rose 3% in the third quarter to $112.1 million from $108.9 during the same period last year. Within product revenue, CFO Eitan Zamir pointed out that system revenue grew by 7.7% to $56.3 million compared to the same period last year. In comparison, consumables revenue declined by 1.4% to $55.8 million year over year.
Given the lower hardware sales for the five years before 2021, Zamir says it will take time for Stratasys’ installed base to drive sales back to the level before that period. The good news is that the business reported hardware sales have been growing again and expects consumables to grow steadily beginning next quarter and beyond.
Although management considers they have a strong engagement from both the installed base and new customers, Zeif highlights a few obstacles in the current macro environment as customers face challenges impacting their purchasing behavior. First, he acknowledges that the market has slowed, resulting in longer sales cycles and occasional deferral of orders.
This challenging backdrop has led the company to adjust its full-year outlook to reflect that beat. Zamir told analysts that market conditions have become more difficult since the second quarter earnings report, and currency exchange rates continue to pressure the business. Additionally, the guidance now excludes any contributions from MakerBot now that the merger with Ultimaker is closed.
“We believe this challenging backdrop will continue for the balance of the year and well into the next, primarily affecting our prototyping business. The impacts include delayed purchases of systems and materials, longer sales cycle, and overall inflationary and recessionary concerns reflected in buyers’ behavior,” described Zamir.
Revising 2022 Outlook
Given the year-to-date results and current visibility of the year-end market, the team has decided to lower the full-year revenue guidance to between $648 million and $652 million. The new outlook represents roughly 10% full-year growth over 2021 after adjusting for the $17 million impact from its MakerBot divestiture. From a gross margin perspective, Stratasys expects full-year 2022 to be flat to slightly higher as compared to 2021 and net losses to reach between $48 million, or 72 cents per share, to $39 million, or 59 cents per share.
Encouraged by several milestones and achievements reached since the end of the first half of 2022, including the acquisition of Covestro’s AM materials business and FDA 510(k) approval of a new revolutionary resin for its J5 DentaJet, management believes that AM is the solution to many of the challenges that businesses face today.
In challenging times, the players that will shine are those that have long-term relationships with a substantial installed base and are part of the customers’ daily activities, says Zeif. Although his business, like many others in the industry, is being affected by the global economic slowdown, Zeif believes Stratasys is doing well in many sectors, especially automotive, defense, medical and dental, and gaining traction in aerospace.
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