Stratasys (SSYS 2.19%) reported its second-quarter 2016 earnings before the market opened on Thursday. The leading 3D printing company posted a modest year-over-year revenue decline of 5.6%, though crucial 3D printer sales dropped 19%. GAAP and adjusted earnings per share increased 35% and declined 20%, respectively.
This report was the first under Stratasys' new CEO, Ilan Levin, who took the helm on July 1.
Shares of Stratasys surged to a 7.8% gain at the open, but by late morning had given back their gains and moved into negative territory. The stock is down 4.3% in late-afternoon trading.
Rival 3D Systems (DDD 5.39%) released results on Wednesday that significantly beat most expectations on the bottom line, resulting in shares closing the day with a nearly 18% gain. Both companies continue to struggle to grow revenue, as they have since the first quarter of 2015, in the wake of a widespread slowdown of 3D printer purchases among enterprise customers.
Image source: Stratasys. This true product-matching athletic shoe prototype was produced with full color, smooth surfaces, and a rubber-like sole in a single-print operation on the new J750 3D printer.
Stratasys' Q2 headline numbers
|
Metric |
Q2 2016 |
Q2 2015 |
Growth (YOY) |
|---|---|---|---|
|
Revenue |
$172.1 million |
$182.3 million |
(5.6%) |
|
GAAP operating income |
($17.1 million) |
($33.5 million) |
49% |
|
Adjusted operating income |
$10.2 million |
$3.7 million |
176% |
|
GAAP net income |
($18.5 million) |
($22.9 million) |
19.2% |
|
Adjusted net income |
$6.2 million |
$8 million |
(22.5%) |
|
GAAP earnings per share (EPS) |
($0.36) |
($0.55) |
34.5% |
|
Adjusted EPS |
$0.12 |
$0.15 |
(20%) |
Data source: Stratasys. GAAP = generally accepted accounting principles. YOY = year over year.
The company generated $6.9 million in cash from operations and currently holds approximately $253.9 million in cash and cash equivalents.
Analysts expected Stratasys to deliver adjusted EPS of $0.06 on revenue of $175.78 million. So, the company fell a bit short on the top line, but it beat bottom-line estimates by a factor of two. It can be helpful to keep these estimates in mind since they often help explain market reactions, but long-term investors shouldn't pay them much heed since Wall Street is focused on the short term.
Segment results
|
Segment |
Revenue |
Growth (YOY) |
|---|---|---|
|
Product |
$123.8 million |
(8%) |
|
Service |
$48.3 million |
(1%) |
Data source: Stratasys. YOY = year over year.
Within the product category, 3D printer sales fell 19%, while sales of consumables (materials) rose 11%. (Stratasys doesn't break out 3D printer sales by enterprise vs. MakerBot. However, since overall MakerBot sales were roughly flat on a year-over-year basis, we can assume enterprise 3D printer sales declined in the general ballpark of 19%.) As a point of comparison, 3D Systems' printer sales plunged 30% while its materials sales grew 11%.
Like materials, customer support revenue was another bright spot, increasing 11%. These two revenue sources are very attractive since they're recurring, with materials at least sporting margins higher than the company average. However, both of these revenue streams are driven from sales of 3D printers, which is why the slowdown in printer sales is particularly concerning.
The 11% growth in material sales might suggest that customers are increasing their utilization of their 3D printers, indicating that a bounce-back in demand could be on the horizon. However, it's also possible a fair chunk of this rise is because of the initial sales of the new J750 printer, discussed below.
MakerBot: Steady as she goes
MakerBot product and service revenue declined 2% from the prior year's period. However, MakerBot sales increased sequentially by 8%, driven by the positive impact of the ongoing reorganization of that business, and the trend toward the use of desktop systems for modeling applications. Last quarter, MakerBot also saw a sequential rise, suggesting the worst is likely over for the beleaguered desktop 3D printer unit.
Gross margin rises on cost-cutting and J750 sales
Stratasys' management called out sales of the J750, launched last quarter, and improved operating efficiency, thanks in part to cost-cutting, as the primary drivers of the year-over-year improvement in the gross margin. The GAAP gross margin increased to 46.2% from 45.5% in the year-ago period, while the adjusted gross margin rose to 55.9% from 54.7%.
The J750 is the world's first full-color, multimaterial 3D printer, and it can automatically map more than 360,000 colors from design software or photorealistic models and load six materials at once without changing canisters. The printer is an addition to Stratasys' highly regarded Objet Connex line, arguably its line that sports the highest moat to keep competitors at bay.
3D Systems does not offer a product similar to the J750, nor does it appear that start-up Carbon's (formerly Carbon3D) impressive Continuous Liquid Interface Production (CLIP) technology will be able to produce multicolor or multimaterial objects. It remains to be seen if and when HP Inc.'s newly launched 3D printer, powered by its reportedly speedy Multi Jet Fusion tech, will sport multimaterial combined with multicolor capabilities. At its May launch, HP's printer, which will be available in the fall, had just one material capability, and that material was only available in black.
Full-year 2016 guidance reiterated
Stratasys reiterated its previously issued 2016 guidance as follows:
- Revenue of $700 million to $730 million.
- GAAP net loss of $84 million to $67 million, or ($1.60) to ($1.28) per share.
- Non-GAAP net income of $9 million to $23 million, or $0.17 to $0.43 per share.
Takeaway
As widely expected, Stratasys had another tough quarter. There were some bright spots: the market reaction to the J750, solid material sales, and continued improvements in operating performance driven largely by cost-cutting measures. Nonetheless, the company's overall results won't improve meaningfully until there is a significant rebound in sales of its critical enterprise 3D printers.
