Stratasys' (SSYS -3.93%) second-quarter earnings released yesterday wasn't the quarter to write home about. As Stratasys CEO David Reis put it, "The second quarter represented a continuation of the challenging market environment we began to observe in the first quarter."

The 3D printing maker reported revenue increased by about 2% year over year to $182.3 million, translating to a net loss of $0.55 per share, or an adjusted net profit of $0.15 per share. These results fell in line with Wall Street expectations calling for Stratasys to generate $182 million in revenue and earn $0.15 per share in adjusted earnings.

With shares off as much as 16% promptly after the release, the market didn't seem to like the fact that Stratasys withdrew its full-year guidance, and instead provided guidance for the third quarter that fell well below analyst expectations.

Stratasys now anticipates the third quarter to bring in $175 million and $190 million in revenue and earn between $0.03 and $0.13 per share on an adjusted basis. Wall Street was hoping Stratasys would generate third-quarter sales of $216.5 million and earn an adjusted $0.47 per share.

Digging in the release, it appears the continued uncertainty facing Stratasys' business could be the result of customers having too much 3D printing capacity on hand for their current needs and that's causing them to pump the brakes on new 3D printer orders.

Product revenues fall, services rise
Stratasys' product segment, which is comprised of 3D printing systems and the materials they consume, saw its revenues fall by 13% year over year during the quarter. Breaking it down, systems revenue fell by 21%, while consumable revenue rose by 6%.

All told, the fall in system sales was attributed to a slowdown in hardware sales, negative growth in the Asian-Pacific region, and MakerBot's continued underperformance, which experienced a 57% fall in revenues from the year-ago period.

Since the third quarter of last year, MakerBot's revenue performance has fallen off a cliff, due largely in part to reliability issues from its fifth-generation Replicator 3D printing platform and ongoing restructuring efforts.

Source: Stratasys.

Excluding MakerBot's weak performance, Stratasys' consumable revenue would've increased by 19% year over year, suggesting there's underlying strength in the "blade" aspect of the company's razor-and-blade business model.

On the services front, Stratasys' 3D printing services revenues continued to benefit from the integration of the Solid Concepts and Harvest Technologies acquisitions, which weren't included as part of the results a year ago. Overall, the company's services segment grew by 96% annually to $47.8 million during the quarter.

Source: Stratasys.

Unit sales off 55%
The weakness from Stratasys' product revenue also took a toll on the company's unit sales, which declined by nearly 55% year over year in the second quarter. Lower shipping volumes from MakerBot caused the majority of the decline.

Source: Stratasys.

In total, Stratasys has sold more than 136,000 3D printers across its Stratasys, Objet, and MakerBot brands since their respective inception. This market-leading installed base continues to give Stratasys a large opportunity to generate long-term recurring revenue streams from the repeated sale of high-margin materials over its printers' lifecycles.

Margins stabilize sequentially
Due to the inclusion of Solid Concepts and Harvest Technologies, Stratasys' gross margin declined by 6.5% year over year to 54.7%, but compared to the first quarter, the company's gross margin increased by 60 basis points, driven by a favorable mix toward higher-end and higher-margin 3D printers.

Source: Stratasys.

Expenses outpace revenue growth
Stratasys' second-quarter operating expenses increased by 23% year over year to $96.1 million, an increase of 21 percentage points over its revenue growth rate. Looking ahead, if Stratasys makes a regular habit of growing its operating expenses faster than revenue, it'll likely hurt its profitability prospects, and could mean the company isn't generating a sufficient return from the cost of running its operations.

The heart of the issue
During the conference call, management highlighted on numerous occasions that it believes customers aren't any less enthusiastic about 3D printing -- it's just that they are digesting all the capacity they've acquired in recent years. Consequently, customers are opting to increase utilization rates of their existing 3D printing systems before buying new printers.

Although there's no way to truly validate management's claims, two key figures corroborate the story. First, gross margin from its product segment has increased on a sequential basis – from 58.6% to 61.6% -- indicating Stratasys hasn't taken desperate pricing measures to move 3D printers.

Secondly, Stratasys' consumable revenue growth rate excluding MakerBot clocked in at 19% year over year during the quarter, an encouraging sign that customers are in fact using their 3D printers more frequently.

If Stratasys' story proves to be true, which the numbers make it seem like it is, existing customer capacity will first have to be maxed out before said customers place additional 3D printing orders. Then, it becomes a question of whether an investor buys the story and is willing to wait for a recovery in orders. As always in investing, there's no promise of when -- or if -- that day will come.