3D Printing Financials: Stratasys Reveals Strong Q1 Earnings Ahead of $1.8B Merger with Desktop Metal

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Following Nano Dimension (Nasdaq: NNDM)’s numerous failed attempts to acquire Stratasys (Nasdaq: SSYS), the 3D printing pioneer finally announced its merger with Desktop Metal (NYSE: DM) in a staggering deal valued at $1.8 billion. This merger is set to create waves in the industry,  projecting revenue synergies of $1.1 billion by 2025 and a significant growth opportunity in a total addressable market predicted to exceed $100 billion by 2032.

Alongside the merger news, Stratasys’ recent financial performance deserves attention in its own right. The deal announcement came just days after Stratasys posted its earnings results for the first quarter of the year. Despite an increasingly challenging macroeconomic backdrop, the company reported its seventh consecutive quarter of adjusted profitability, showcasing robust financial results for the year’s first quarter. Notably, Stratasys informed investors of an adjusted net income of $1.1 million, or 2 cents per share, and adjusted EBITDA of $7 million.

For the first quarter, Stratasys reported a decline in first-quarter revenue to $149.4 million, an 8.6% decrease compared to the same period last year. The decline in product revenue was primarily attributed to a 25.8% drop in system revenue, which amounted to $40.5 million. Product revenue in the first quarter also declined by 10.7% to $101 million compared to last year’s period. However, consumables revenue saw a positive trend, rising by 3.3% to $60.5 million.

An engineer using the Stratasys V650 3D printing system. An engineer using the Stratasys V650 3D printing system. Image courtesy of Stratasys.

Anticipating a Desktop Metal merger?

During an earnings call with investors on May 16, Stratasys CEO Yoav Zeif briefly commented on Nano Dimension’s three unsolicited proposals to acquire Stratasys, initially for $18, then $19.55, and subsequently for $20.05 per share in cash. Zeif referred to the Stratasys Board’s careful review and evaluation of each proposal and said the rejection was unanimous since each proposal “substantially undervalued Stratasys” given its standalone prospects. Zeif also referenced Nano Dimension’s ongoing legal disputes with shareholders for the control and governance of the company, emphasizing the legitimacy of Stratasys’ decision.

Zeif expressed confidence in Stratasys’ future prospects, emphasizing the company’s progress toward becoming a highly profitable $1 billion revenue company. Zeif pointed out that Stratasys is “making strong progress towards becoming a highly profitable $1 billion revenue company as part of its fiduciary duties” and that the Board would review any “Bonafide proposal for the company and weigh it against our standalone plan.”

This statement aligned with the projected revenue synergies expected from the Desktop Metal merger. The fact that the timeline for the merger goes back at least a few weeks could explain why Zeif was so confident with his projection. Additionally, during the same earnings call, CFO Eitan Zamir echoed the $1 billion revenue target for 2025, underpinned by organic growth and a projected adjusted EBITDA margin of over 15%.

Credit Suisse Managing Director Shannon Cross raised questions about the company’s confidence in achieving the revenue target, considering past industry volatility. Cross points out, “This industry has set targets in the past and then not achieved them, and it’s caused volatility, to say the least.”

In response, Zeif outlined Stratasys’ long-term plan, three-year strategy, and quarters that consistently exceed market expectations, suggesting that the merger with Desktop Metal aligns with the company’s efforts to reach the $1 billion revenue milestone. Moreover, looking closely at his comment today, it cements the idea of a strategic merger with Desktop Metal, which Stratasys might view as one of its moves toward reaching its billion-dollar target.

Of course, consumables are also an essential part of that target and profitability as well, and Zeif noted throughout the entire earnings call presentation that the company is seeing a stronger utilization by customers than ever before, which drove all-time record revenues in both consumables and customer service in many different verticals, like automotive and aerospace.

The Stratasys Parts Provider Network (PPN) provides access to volume discounts on Stratasys products. Image courtesy of Stratasys.

Earnings pulse

Overall, the first quarter of 2023 left Stratasys with $287.6 million in cash, cash equivalents, and short-term deposits. In addition, Zamir indicated tStratasys’sys’ balance sheet and cash generation remain strong. Despite the ongoing challenging macroeconomic backdrop causing delayed purchases and longer sales cycles, Stratasys maintains a strong balance sheet and cash generation. As a result, the company updated its full-year revenue guidance, raising it from $630 million to $670 million.

While Stratasys anticipates continued softness in the second quarter, it expects notable growth in the second half of the year. Gross margin is projected to be between 48% to 49% for the entire year, with an improved year-over-year increase in the second half. Operating expenses are foreseen to fall within the range of approximately $290 million to $300 million. The company envisions adjusted EBITDA in the range of $35 million to $50 million for the year.

Looking ahead, Zamir emphasizes Stratasys’ target of surpassing $1 billion in revenue from organic growth by 2026, with adjusted EBITDA margins exceeding 15%. This growth will be driven by innovative strategies and expansion into manufacturing and healthcare applications.

Stratasys expects its merger announcement and strong financial performance to position the company for continued growth and success within the 3D printing industry.

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