3D Printing Financials: Pioneers Stratasys and 3D Systems, Earnings Insights & Merger Potentials

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In what was expected to be pivotal day for the additive manufacturing industry, Stratasys (Nasdaq: SSYS) and 3D Systems (NYSE: DDD) published their second quarter 2023 financial results. While Stratasys showcased resilience with revenue growth and continued profitability, 3D Systems reported a decline, mainly impacted by challenges in the dental orthodontics sector. During their respective earnings calls, CEOs of both companies discussed the potential merger between Stratasys and 3D Systems, emphasizing its strategic importance and the value it could bring to stakeholders. This simultaneous release and merger talk highlight the near future of these additive manufacturing giants.

Quarterly activities

During a recent earnings call, Stratasys CEO Yoav Zeif gave investors an update on the company’s M&A activities, revealing that the board is “evaluating an unsolicited proposal from 3D Systems.” While this proposal could potentially substitute the existing merger agreement with Desktop Metal, the board has yet to confirm its “superiority.”

Zeif highlighted Stratasys’ stellar Q2 performance, driven by record recurring revenues, and painted an optimistic future, expecting to achieve over $1 billion in organic revenue by 2026. Despite global economic challenges, Stratasys has shown resilience, backed by a strong balance sheet and a recent acquisition of Covestro assets. Zeif remains confident in its combination with Desktop Metal, citing synergy between the two firms.

“As the board continues to support our efforts to maximize value for all Stratasys shareholders, it is important to remember that our board has not determined that 3D Systems’ proposal constitutes a superior proposal. Furthermore, the board has not changed its unanimous recommendation to pursue the transaction with Desktop Metal, and we will continue to work toward closing it,”

During the call, Zeif highlighted the company’s determined posture on its previously announced merger with Desktop Metal. Zeif is confident about the synergy between the two firms. He says that Desktop Metal stands out in the industry, particularly with its leading metal solutions suitable for mass production. They also dominate the dental sector and are pioneers in digital casting for large-format metal parts. Their innovative prowess, combined with Stratasys’ leading position in polymers, unmatched go-to-market strategy, and robust infrastructure, showcases a powerful alliance. This combination of skills is the main reason for the deal.

Stratasys CEO Yoav Zeif

On the other hand, 3D Systems CEO Jeffrey Graves says he sees a bright future in the company’s potential merger with Stratasys. This union, which has been in the works for over two years, is expected to accelerate the company’s growth trajectory. The CEO pointed out the strategic advantages of this merger, noting that it would accelerate growth and cut down expenses, potentially contributing $110 million to the bottom line.

Even though the company has a solid stand-alone strategy around critical sectors like aerospace, defense, and orthodontics, joining forces with Stratasys offers a promising way to speed things up. That is why Graves says he is deeply invested in this union. Even though the review between the two companies took a long time, they are almost done. While Stratasys still discusses the potential of a merger with Desktop Metal, and despite the absence of a definitive announcement regarding the merger, 3D Systems remains determined, driven by feedback from both companies’ shareholders supporting the proposition.

When asked by analysts about the merger’s strategic advantages, the CEO pointed out that the merger doesn’t change the overall direction but speeds things up. This partnership makes the most of today’s top chances for 3D printing in factories, offering a wider range of technologies and a better financial position for ongoing investments. A key perk of this pairing is the expected savings, which could add a remarkable $110 million to the profits, indicating the potential for a long-term and profitable venture.

3D Systems verifies the performance of NASA’s new super alloy GRX-810. Image courtesy of 3D Systems.

Financially, Stratasys has posted another impressive quarter, setting record revenues, predominantly from consumable sales and customer services. Zeif anticipates generating over 1 billion in organic revenue by 2026 without major M&A activities. While there was a modest revenue increase from the previous year, the company reported a net loss of $38.6 million, or 56 cents per share. A highlight remains Stratasys’ positive adjusted earnings per share for an uninterrupted eight-quarter stretch. Furthermore, they ended the quarter with a balance sheet of over 200 million in cash and no debt.

The company remains positive about the future, forecasting full-year revenue between $630 million and $670 million, net loss between $115 million and $96 million, and profitability in the coming years.

Challenging quarter

In comparison, 3D Systems’ financial results showed a decline in performance compared to the prior year. The downturn was mainly due to challenges in the dental orthodontics markets. Graves acknowledged the importance of achieving scale in the AM market. The company’s focus on the dental orthodontics market resulted in reduced revenues, but there were signs of market stabilization. Graves remains hopeful, citing growth in areas like personalized healthcare solutions.

The company’s Q2 revenue was $128 million marking a decrease of 8.5% from the prior year. However, excluding the dental orthodontics segment, the year-to-date revenue grew by over 3%. The net loss for the quarter stood at $28.8 million, or 22 cents per share. The adjusted EBITDA for the period was negative $6.9 million, which, despite being an improvement over 30% sequentially, saw a decline year-over-year due to reduced sales volumes, inflationary impacts, and significant investments in organic growth.

Graves emphasized that the AM market is at a pivotal moment, transitioning to factory production on a global scale. He mentioned that achieving scale is vital for sustainable profitability and diversifying end markets. The company’s past success in the dental orthodontics market has recently been overshadowed by a significant decline in consumer spending on dental aligners, which has led to an over $50 million reduction in revenues over the past four quarters. While the market is showing signs of stabilizing, Graves believes that broadening market exposure and expanding sales and service expertise is the key to resilience against market fluctuations. He also shed light on the company’s strategies to achieve scale, highlighting the proposed merger with Stratasys, which has faced delays.

Given the market dynamics, 3D Systems adjusted its full-year 2023 revenue projection to between $525 million and $545 million, anticipating a positive adjusted EBITDA in the last quarter of 2023.

The AM landscape is witnessing potential landmark changes, with stalwarts like Stratasys, 3D Systems, and Desktop Metal considering strategic mergers and partnerships. As both companies navigate economic challenges, their decisions in the coming months could profoundly affect the industry’s future.

Disclaimer on No Investment Advice:

The Content is for informational purposes only, you should not construe any such information or other material as legal, tax, investment, financial, or other advice. Nothing stated in this article constitutes a solicitation, recommendation, endorsement, or offer by the writer to buy or sell any securities or other financial instruments in this or in any other jurisdiction in which such solicitation or offer would be unlawful under the securities laws of such jurisdiction. The information in this article is of a general nature that does not address the circumstances and risk profile of any individual or entity and should not constitute professional and/or financial advice.

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