Stratasys (NASDAQ:SSYS) announced preliminary third-quarter results following the market close on Thursday that fell significantly short of its results in the year-ago period, as well as analysts' expectations.

The leading 3D printing company didn't release revised full-year 2015 guidance. However, investors can surely expect a sizable 2015 guidance cut when Stratasys releases its official results before the market opens on Wednesday, Nov. 4.

Shares plunged more than 19% in after-hours trading. Not surprisingly, shares of fellow industry leader 3D Systems (NYSE:DDD) fell nearly 7% in after-hours, reflecting the market's belief that the macroeconomic headwinds that affected Stratasys' results will do the same to those of its main rivals. As of midday Friday, Stratasys stock was down nearly 12%, and 3D Systems' stock down 9%.

Preliminary third-quarter results
Here's how the preliminary numbers stack up against the company's year-ago results and analysts' average estimates:

 Metric               Revenue            Adjusted EPS                GAAP EPS               
Preliminary Q3 2015 results $166 million-$168 million ($0.03)- $0.02 ($3.66)- ($2.98)
Year-ago period's results $203.6 billion $0.58 ($0.62)
Percentage change from year-ago period (18%) using midpoint of $167 million N/A (435%) using midpoint of ($3.32)
Analysts' Q3 2015 consensus $184.6 million $0.08 N/A

Data sources: Stratasys and Yahoo! Finance.  

The year-over-year declines on the earnings side are nothing new. However, the expected 18% drop in revenue from the year-ago period marks Stratasys' first year-over-year revenue decline in more than four years.

Reasons cited for anemic results
The company attributed its weak results primarily to the following factors:

  • Continued troubles in its MakerBot desktop 3D printer unit
  • Weak investment in capital equipment by customers within key markets, reflecting a continuation of the macroeconomic environment that negatively affected its results across all regions and most product and service lines during the first half of 2015

3D Systems has also cited decreased capital spending among key industries for its subpar results over the past few quarters. Investors in 3D Systems can probably expect similarly anemic results in its enterprise business when the company also reports before the market opens on Nov. 4.

The nitty-gritty

MakerBot's troubles continue. Image source: Stratasys. 

Yet another goodwill impairment charge for MakerBot
Stratasys expects to take a goodwill impairment charge of between $140 million and $180 million in the third quarter for its beleaguered desktop unit. This will be the third writedown for MakerBot, following a $102 million writedown in the fourth quarter of 2014 and a $194 million one in the first quarter of 2015.  

The total writedown now in the range of $436 million to $476 million is staggering, given that Stratasys paid an initial sum of $403 million for MakerBot in mid-2013. The buyout deal also included performance-based pay for a period of two years following the acquisition. Given MakerBot had been performing very well through the third quarter of 2014, Stratasys certainly had to kick in additional money for this one-year-plus of solid performance. 

Management's decision to enter the primarily consumer and educational space via the purchase of MakerBot indicates poor judgment. Not only is this a low-margin niche, but the consumer space was clearly not ready for prime time -- and I continue to believe that it won't be for some time.

Goodwill impairment charges for other units may be coming
Writedowns on the enterprise side may be on the horizon. As Stratasys' press release said:

In addition, the Company is in the process of performing a goodwill impairment analysis for its other reporting units, which may result in additional impairment charges.

Is competition from expected new entrants a factor?
It seems a core question is whether some enterprise customers are delaying purchases to see what competitive offerings are on the horizon from Hewlett-Packard, well-funded start-up Carbon3D, and perhaps others. HP and Carbon3D both plan to enter the market in 2016 with 3D printers that are significantly faster than the ones currently available.

Through last quarter, Stratasys' management has continued to state that it doesn't believe expected competitive offerings to be a factor in the depressed enterprise capital spending environment in 2015. However, it seems reasonable to believe that it's likely one factor -- especially now that we're in the second half of the year -- even if less of a factor than the overcapacity issue that the company continues to blame as the reason for the decline in capital spending.

Final thoughts
A third MakerBot goodwill impairment charge indicates that investors should expect the unit to be a drag on Stratasys' overall results for quite some time. The extent of the writedown means that Stratasys now views the unit as anywhere from worth extremely little to worthless. It's anyone's guess as to whether the company will continue to pump money into trying to resuscitate MakerBot or will divest of it.

Much more concerning, however, than the MakeBot issue is the possibility that goodwill impairment charges could be coming for Stratasys' enterprise business. This business not only accounts for the vast majority of revenue, but it's also the company's profit engine, sporting higher margins than MakerBot. As such, the company's long-term success hinges on its enterprise business.

Once Stratasys releases its official third-quarter results before the market opens on Nov. 4, we should have more insight.

(Yes, Stratasys and 3D Systems both plan to release results on the same day. Both companies usually hold conference calls at 8:30 a.m. ET, though evidently in order to avoid a conflict for analysts covering the industry, Stratasys scheduled its call for 7 a.m. ET.)