Stratasys (SSYS 0.91%) reported disappointing third-quarter results before the market opened on Wednesday, Nov. 13. It was the second of the two leading 3D printing companies to report, as rival 3D Systems released its results on Oct. 30.
Shares of the Israel and Minneapolis area-based company plunged to a closing loss of 11.2% on Wednesday. We can attribute the market's ire to revenue falling short of Wall Street's consensus estimate and management's paring back of full-year 2019 revenue guidance.
Image source: Getty Images.
Stratasys' key numbers
|
Metric |
Q3 2019 |
Q3 2018 |
Change (YOY) |
|---|---|---|---|
|
Revenue |
$157.5 million |
$162.0 million |
(2.8%) |
|
GAAP operating income |
($6.0 million) |
$3.4 million |
NA; Flipped to negative from positive |
|
Adjusted operating income |
$8.1 million |
$8.2 million |
(1.2%) |
|
GAAP net income |
($6.9 million) |
($0.7 million) |
N/A; Loss widened 886% |
|
Adjusted net income |
$6.3 million |
$5.7 million |
11% |
|
GAAP earnings per share (EPS) |
($0.13) |
($0.01) |
N/A; Loss widened 1,200% |
|
Adjusted EPS |
$0.12 |
$0.11 | 9.1% |
Data source: Stratasys. GAAP = generally accepted accounting principles. YOY= year over year.
Analysts were looking for adjusted EPS of $0.11 on revenue of $162.1 million. So in a repeat of last quarter, Stratasys slightly exceeded the profit expectation, but fell short of the top-line consensus.
GAAP gross margin was 49.2%, up from 48.7% in the year-ago period but lower than 49.7% in the second quarter. Adjusted gross margin came in at 52.4%, up from 52.1% in the third quarter of 2018 but a bit lower than last quarter's 52.5%.
Stratasys used $8.6 million in cash from operations during the quarter compared with generating cash of $5.0 million in the year-ago period. CFO Lilach Payorski said on the earnings call that this was "primarily due to proactive steps to increase inventory levels in order to improve fulfillment time and support product demand as well to prepare for new product launches in 2020." The company ended the period with $347.1 million in cash and cash equivalents.
For context, last quarter, revenue fell 4.1% year over year, GAAP EPS flipped to positive from negative, and adjusted EPS rose 6.7%.
Segment results
|
Segment |
Q3 2019 Revenue |
Change (YOY) |
|---|---|---|
|
Product |
$106.3 million |
(3%) |
|
Service |
$51.1 million |
(2.5)% |
|
Total |
$157.5 million |
(2.8%) |
Data source: Stratasys. YOY = year over year.
Within products, 3D printer revenue dropped 9% year over year and print materials increased 3%, or 5% in constant currency. Within services, customer support revenue, which mainly includes revenue from service contracts, rose 3%, or 4% in constant currency. (Stratasys provides whole-number percentages only for these metrics.)
For some context, last quarter, 3D printer revenue declined 10% and materials fell 4% year over year. These two metrics are particularly important because sales of 3D printers drive sales of materials (and service contracts), which sport high profit margins.
What happened in the quarter?
In September, Stratasys announced plans to increase its ownership stake in Xaar 3D from 15% to 45%. Moreover, the deal includes an option for Stratasys to fully acquire the London-based provider of 3D printing technology and services. Xaar 3D will use the strategic investment to speed up the development of solutions based on its high speed sintering 3D printing technology.
What management had to say
Here's what interim CEO Elan Jaglom had to say in the earnings release:
Our results in the third quarter reflect a continuation of our track record of delivering earnings and profitability, despite challenging global economic conditions that have impacted customer investments in our target verticals in Europe and Asia. In the third quarter we continued to observe strong performance in our core professional and production-focused business in the Americas, our largest market, with specific strength in high-end FDM and PolyJet systems, our F123 Series, and our target verticals of automotive and aerospace. We continue to believe that when macro conditions improve we will see a return to growth in Europe and Asia, and believe we are well positioned with an impressive portfolio of new products as we finish 2019."
Stratasys has been without a permanent CEO since June 2018. The CEO search process is ongoing.
An anemic quarter, but some bright spots
Stratasys turned in another weak quarter on the revenue front, which management attributed primarily to a challenging macroeconomic climate in Europe and Asia. That said, there were bright spots in the report: The Americas region, the company's largest geographic market, continues to perform solidly, and materials revenue increased year over year, albeit modestly. Moreover, adjusted earnings increased slightly over the year-ago period despite the decline in revenue, driven by the company's focus on increasing efficiencies and cutting costs.
Full-year 2019 guidance
Management lowered its full-year revenue outlook and reiterated its previously issued earnings guidance as follows:
- Revenue of $640 million to $655 million, compared to the previous outlook of $670 million to $700 million. This represents a decrease of 3.5% to 1.2%.
- GAAP net loss of $0.31 to $0.05 per share.
- Adjusted EPS of $0.55 to $0.70, representing growth of about 6% to 35%.
