Stratasys (NASDAQ:SSYS) reported its official first-quarter 2015 results last week (here's my take on earnings). The headline numbers were anticlimactic because the leading 3D printing company had released preliminary results and 2015 guidance that fell significantly short of analysts' expectations.
Our purpose here is to supplement the earnings release data with color from Stratasys' conference call. Here are four key things you should know about.
Company's razor-and-blades business model appears to be on track
From CFO Erez Simha's prepared remarks:
[C]onsumable revenue grew according to the plan during the quarter, expanding by 18% over the same period last year, or 25% on a constant currency basis, driven by increased system utilization, as well as our growing installed base of systems. ...
Within service revenue, customer support revenue, which includes the revenue generated mainly by maintenance contracts on our systems, increased by 28% compared to the same period last year, reflecting our growing installed base of systems. Despite the challenges our company faced due to market softness, we believe that our material and customer service sales successfully demonstrated how our business model can continue to generate recurring revenue from the installed base, even in a period of slower than expected industry growth.
Long-term operating model's goals remain unchanged
From the prepared remarks of VP of Investor Relations Shane Glenn:
Finally, we want to reiterate the following goals for the company's long-term operating model, which include annual organic revenue growth of at least 25%, non-GAAP operating income as a percentage of sales of 18% to 23%, non-GAAP effective tax rate of 10% to 15%, [and] non-GAAP net income as a percentage of sales of 16% to 21%.
Stratasys pared back its 2015 revenue, generally accepted accounting principles earnings, and non-GAAP earnings guidance when it issued its preliminary first-quarter results, and it further decreased its GAAP expectations again when it released its official results. However, on a positive note, the company reiterated its long-term expectations.
Integration of the three 3D-printing service bureaus is complete
From CEO David Reis' prepared remarks:
During the first quarter, we combined Solid Concepts, Harvest Technologies, and RedEye to form the company's newly branded Stratasys Direct Manufacturing division, or SDM. Now, we believe [it's] the largest custom manufacturing service organization built around additive manufacturing in North America. Our goal with SDM remains to leverage the platform into manufacturing applications, as well as across our large installed base of systems beginning in 2016.
Many of you were probably aware that Solid Concepts was reportedly the largest on-demand 3D-printing service bureau when Stratasys acquired it last summer. However, a reminder seems in order, given that MakerBot has hogged the spotlight for the past two quarters. Also, given that the integration of the three service operations is now complete, it seems likely that we might see service gross margins firm up going forward.
Decrease in gross margin was not due to a drop in average selling prices or the competitive environment
Reis' response to an analyst's question:
We do not see any change in the competitive environment [or] an impact on ASP.
This answer was in response to a question about the drop in the company's gross margin, which Reis also commented was "mainly, mainly, mainly due to our mix of product."
There was plenty of negative news in Stratasys' first-quarter results -- namely, the second consecutive MakerBot goodwill impairment charge, the drop in gross margin, and the further ratcheting back of 2015 guidance. However, there were some bright spots, too, as noted above, which investors should be sure to note.