Stratasys (SSYS -2.40%) reported its fourth-quarter and full-year 2015 results last week. In the quarter, the leading diversified 3D printing company continued to face the same macroeconomic challenges it's weathered throughout 2015. Its cost-savings efforts, however, led to adjusted earnings that crushed its guidance and analysts' estimates, and revenue that comfortably beat the consensus.
Shares of Stratasys soared 32% in the two days following the earnings release. Even with the post-earnings pop, Stratasys stock is down 55% over the one-year period through March 4. Shares of 3D Systems rode on their fellow industry bigwig's coattails, rising nearly 7% on the day Stratasys released earnings. 3D Systems' stock is 57% in the red over the last year.
My purpose isn't to rehash the earnings results (you can read my take here), but to supplement the earnings release data with color from Stratasys' earnings call. Here are four things you should know.
Average selling prices (ASPs) increased in core business
From CFO Erez Simha:
For our core products [3D printers sold to enterprise customers], ... ASPs in the fourth quarter improved sequentially and year over year, driven by a product mix that favored higher-value systems compared to prior periods, including strong sales of our Connex line.
That core product ASPs increased was the top positive shared on the call, in my opinion, and reason for relief. Total and product gross margins declined in the quarter on both a sequential and year-over-year basis. These drops can occur for various reasons, though one of the most troubling is a decline in ASPs. While falling gross margins are never a good thing, a margin decline due to falling ASPs is particularly worrisome as it's indicative of a company losing pricing power.
This is just a small victory, however, and not reason to party like it's 2013. As Simha also noted, Stratasys had an easy year-over-year comparable because sales of its high-margin Connex line were particularly weak in Q4 2014.
The decline in gross margin was driven primarily by one-time items, including a large inventory write-off, as well as inefficiencies related to lower production volumes.
No notable changes in the market environment foreseen in 2016
Said VP of Investor Relations Shane Glenn:
[O]ur visibility into the timing and magnitude of a market recovery remains limited. This uncertainty is reflected in our revenue projections and operating budget, which assume no significant market improvement throughout 2016.
This one can be looked at both positively and negatively. The company doesn't see any further notable deterioration in the macroeconomic environment in 2016, though it also doesn't see any significant improvements. Stratasys, along with 3D Systems, experienced a major slowdown in purchasing among industrial customers throughout 2015. It has attributed this weak demand to overcapacity in the field due to the large number of 3D printers purchased during the previous few years.
Stratasys' 2016 guidance includes revenue in the range of $700 million to $730 million, representing year-over-year growth of 0.6% to 4.9%. CEO David Reis emphasized on the call that this slight revenue growth projection is due to the company's belief that its internal efforts will enable it to perform slightly better in 2016, not due to it projecting an improvement in the market environment.
A huge caveat: Reis emphasized that visibility into the company's 2016 prospects remains low.
MakerBot's quarterly performance and 2016 outlook
MakerBot product and service revenue declined by 62% in the fourth quarter over last year, driven by the overall market weakness as well as by the impact of the ongoing restructuring of that business.
Many investors likely wondered exactly how Stratasys' beleaguered desktop 3D printing unit performed in the quarter, as that data wasn't in the earnings release. MakerBot's poor showing was to be expected given the implosion that began in the fourth quarter of 2014.
Reis stated that the company expects "productivity improvements at MakerBot throughout 2016." However, that apparently doesn't mean that it foresees revenue notably increasing, as Simha later said, "There is no top-line improvement -- significant top-line improvement in MakerBot built into our guidance."
Results demonstrate the power of recurring revenue streams
Consumables [print materials] revenue for the quarter was relatively flat [down 1%] when compared to the same period last year.
... Within service revenue, customer support revenue ... which includes the revenue generated mainly by maintenance contracts on our systems, increased by 11% compared to the same period last year, driven primarily by growth in our installed base of systems and the success of our programs to extend service contracts.
Consumables revenue growth that's about flat and customer support revenue growth of 11% year over year are nothing to cheer about. Nonetheless, these figures still demonstrate how the company's razor-and-blades business model continues to generate recurring revenue from the installed base, even in a period of considerable negative growth (total revenue in the quarter decreased 20% from the year-ago period).
Though overall consumables growth declined about 1% in the quarter, there's little doubt that core consumables (excluding MakerBot) growth was at least flat and probably slightly positive. Moreover, it was even more positive from a constant-currency basis. (Simha didn't provide these two numbers as he did last quarter.)
A closing note
There was no direct or veiled mention on the call of competitors, such as 3D Systems, or potential competitors, such as HP and well-funded start-up Carbon3D, both of which plan to launch super-speedy 3D printers for the enterprise market this year.