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3D Printing Financials: Stratasys Posts Six Straight Quarters of Profit

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Pioneering 3D printer manufacturer Stratasys (NASDAQ: SSYS) reported profit for the sixth quarter in a row, overcoming inflationary pressures and tightened financial conditions, which have slowed down the global economy and subdued customer spending growth. In its recently posted earnings report for the fourth quarter and full year of 2022, the Israeli-American firm disclosed revenue for the year of $651.5 million, up 7.3% compared to 2021, and a net income of $10.3 million, or 15 cents per share.

For the year ending December 31, 2022, Stratasys’ adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) was $36.1 million compared to $22.6 million in 2021, a reflection of Stratasys’ improved profitability levels. However, the number is a bit under the $38 million – $41 million range that the company had anticipated going into 2022.

Shedding some light on the company’s performance, Stratasys CEO Yoav Zeif told investors during a conference call that concerns about a potential recession, among other financial impacts, resulted in headwinds in the second half of 2022 that are still felt today, including longer sales cycles and occasional deferrals of orders.

“While these challenges are causing near-term headwinds, the benefits of 3D printing, such as improved production efficiency, better-performing parts, reduced logistics costs, and faster time to market, become even more apparent in times like these,” reassured Zeif. “Our engagement with customers around all our technologies remained strong, and the results in our service business were the best in eight quarters.”

Over the last year, the company focused on investments for future growth. Zeif says the plan is to unlock new sales opportunities in materials, expand 3D printing software offerings, and embrace the dental opportunities ahead, which he considers one of the largest and most exciting growth avenues for Stratasys. Considering that the dental industry has an overall total addressable market of well over $50 billion and produces the highest volume of end-use parts in additive manufacturing, Zeif considers the dental sector will become one of Stratasys’ strongest growth drivers in the future.

Stratasys’ Richard Garrity (right) discusses AM with other executives during the AMS Executive Panel in New York. Image courtesy of 3DPrint.com.

Ramping up profitability

According to Chief Financial Officer (CFO) Eitan Zamir, the business achieved solid results against an increasingly challenging environment in the last quarter of the year and 2022. More importantly, its OEM (original equipment manufacturer) business grew 3.2% in the fourth quarter of 2022 compared to the same quarter the year before. The executive says he is particularly proud of the reduction in operating expenses as a percentage of revenues to its lowest level in eight quarters, proving Stratasys is making progress in driving efficiencies across the platform.

Although revenue for the entire year was up 7.3% compared to 2021, during the fourth quarter, it was lower than the same period last year, down 4.6%. For this period, net income was $4.6 million, or seven cents per share, a quarterly improvement from the third quarter’s net income of $3.3 million, or five cents per share. As the executives describe, this is the sixth consecutive period of profitability for the company, proving with each quarter that Stratasys is strengthening its balance sheet.

The Stratasys Parts Provider Network provides access to volume discounts on Stratasys systems, materials, service contracts, and software. Image courtesy of Stratasys.

Also, during the fourth quarter, the business used $18.1 million of cash in its operations, compared to generating $4.4 million from operations in the same quarter last year. The use of cash was primarily driven by increased inventory purchases, which, from now on, are expected to return to more normalized levels. With strong customer engagement, the service business results were considered the best in eight quarters.

“While there may be a quarter or two lag effect, this change will contribute toward us returning to positive cash flow from operations for 2023. We ended the quarter with $327.8 million in cash, cash equivalents, and short-term deposits, compared to $348.7 million at the end of the third quarter of 2022. During the quarter, we used cash to make investments in companies that we believe will help further advance our strategic goals,” highlighted Zamir during the earning call with investors. “Our balance sheet and cash generation profile remains strong. We are well funded and well positioned to weather near-term challenges and capitalize on value-enhancing market opportunities as they are identified.”

It is also noteworthy to mention that in 2022, recurring revenue increased meaningfully, with consumables up 7.7% over 2021 (excluding contributions from MakerBot, which has now merged with Ultimaker) and customer support up 11%. According to the executives, these numbers reflect how the hardware growth of Stratasys’ install base in 2021 and 2022 drives utilization, which should positively impact long-term sales of higher-margin consumables as initial supplies are exhausted.

Competitive advantage

Turning to the initial outlook for 2023, the executives anticipate 2023 revenue to be between $620 million and $670 million, subject to potential fluctuations in foreign exchange. With low expectations for its first quarter (typically the weakest), Zamir reassured investors that expectations for the year’s second half are notably stronger than the first due to several new products to be launched.

Users showing large parts produced by Stratasys F770 3D printer. Stratasys’ F770 can build sizable parts. Image courtesy of Stratasys.

From a gross margin perspective, the full year 2023 is expected to improve modestly to a range of 48% to 49%, with the second half stronger than the first half, based primarily on higher revenue. The executives predict gross margins will exceed 50% in the next few years, assuming market conditions improve and newer technologies and materials ramp.

Improving long-term profitability is an essential objective for Stratasys. For 2023, we could expect to see continued improvement in earnings, foreseeing a net income of between $9 million and $17 million, or 12 cents to 24 cents per share. As for the adjusted EBITDA in 2023 is expected to be in the range of $35 million to $50 million, reaching up to 15% of the longer-term revenue.

“We have the balance sheet strength to continue investing in an expanding portfolio of hardware, materials, and software solutions to broaden our market presence as the relevance and adoption of 3D printing grows. Our management team began to forge our path to make Stratasys the leader in polymer 3D printing solutions over two years ago, and the actions we have taken ever since reflect our ongoing execution,” concluded Zeif.

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