If you're following Stratasys (NASDAQ:SSYS), you've probably already read the company's first-quarter 2014 earnings release, as well as perhaps an article or two summarizing and analyzing the leading 3-D printing company's results, which were released last Thursday. You can read my earnings article here.
Briefly, Stratasys significantly beat both revenue and earnings estimates, and increased 2014 revenue and adjusted earnings guidance. My purpose here isn't to rehash the results, but to supplement the information you've probably read with some additional color from Stratasys' conference call. There's a wealth of information you can glean from tuning in to these calls. There were too many valuable nuggets shared on Stratasys' call to cover them all, but here are five that you should know about.
1. Organic growth expectations account for more than half of the $90 million increase in 2014 revenue guidance
An analyst asked if the $90 million increase in 2014 revenue guidance was due to the expected contributions from the two 3-D printing service bureaus (these provide on-demand 3-D printing for customers) that Stratasys acquired. Both deals have recently closed. In response, CFO and COO Erez Simha said that "$35 million to $40 million is a result of the acquisition of Solid Concepts and Harvest (Technologies) and the rest is part of the organic growth that we expect."
Simha's response is great news, as it means that $50 million-$55 million of the guidance bump up is due to organic growth that was stronger than originally expected. (Organic growth is growth in businesses owned for at least one year.)
As for 2014 revenue guidance, the company increased it to a range of $750 million-$770 million, up from its previous range of $660 million-$680 million.
2. Revenue growth was not significantly affected by inventory growth in the sales channel
Here's a snippet from Simha's response to an analyst's question:
Of course, we have a very, very strict policy here ... I would say that this quarter as well as previous quarters, 2% to 3% of our revenue [was] in the channel.
And here's CFO David Reis:
It's being followed, Troy, by channel, by territory, and we are extremely strict in this respect. So we have no excess inventories whatsoever into channel.
The reason they both chimed in is that this is an extremely important issue.
Companies can "book" revenue when they ship out product to retailers or other intermediaries in their sales channel. So a company's quarterly revenue can include product that is in the sales channel, but not yet "sold." Thus, a company's quarterly revenue can paint a rosier-than-accurate picture of how well its products are selling. This is why the analyst wanted to know how much Stratasys benefited in the quarter from inventory in its channel. According to both responses, Stratasys' revenue is painting a very accurate picture of how well its products are selling.
3. Augmented manufacturing applications are driving Fortus printer sales
This quote is from Reis' prepared remarks:
One area of increased utilization for our systems is for augmented manufacturing applications. These include the production of molds, patterns, jigs, and fixtures used throughout the manufacturing and product assembly process.
From surveying our customers, we have learned that approximately 80% of Fortus system owners in the U.S. are using the technology for these types of manufacturing applications. This continues a positive trend of customers discovering new applications for 3D printing after they have brought the technology into their organization. In addition, these types of applications typically drive higher system utilization, which has a positive impact on consumables sales.
We have learned further from our survey that organizations can realize between 40% and 90% reduction in lead times for production of jigs and fixtures, and between 70% and 90% cost savings for finished part by utilizing our additive manufacturing and 3D printing solutions.
There are two main takeaways here. First, all manufacturing operations need some type of component or components to help them manufacture their finished products. So the potential market for the Fortus printer is huge. Second, the fact that Stratasys is collecting such positive information from its customer surveys should be very beneficial in helping to sell its printers to potential buyers.
4. There's also growth in use of printers for manufacturing end-use parts
This quote is from Reis' response to an analyst's question:
We have more than a few quite a lot of customers which today are manufacturing end-use parts plastic-based, mainly with FDM technology, but also with PolyJet for the manufacturing of end-use part and we expect this phenomena to continue to grow.
Later in the call, in response to another question, Reis added the following:
And we see more than a few end-use parts applications, mainly in aerospace, in the auto industry, which are developing. So again in those segments we see growth.
5. The company believes demand for the new "bot farms" offering will accelerate
This quote is from Reis' response to an analyst's question:
Bot farms ... [are] a large number of printers which are connected together and creating innovation centers in universities and colleges across the U.S. and other places around the world. It's a new offering, but I expect it to accelerate in demand in the coming quarters and years.
In this case, the analyst's question was just as telling:
[I]t seemed like Florida Polytechnic was a major order of over 50 MakerBots. I was wondering if you are seeing kind of any increased inquiries around large-scale orders in the MakerBot line specifically.
This is a new offering that I don't believe many Stratasys investors know about, which is why I included it. One of Stratasys' primary target markets is the educational market, which should turn out to be a very attractive market in and of itself. It could also lead to additional sales. Those who are exposed to Stratasys' printers in an educational or other institutional setting would probably favor buying the same brand if they were in the market for a personal 3-D printer.