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Sales Down at Stratasys, Ltd., but So Were Expenses: Key Earnings Takeaways

By Jason Hall - May 10, 2016 at 6:18AM

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The 3D printer maker continues to forge ahead, cutting costs where it can while also investing in the future.

Stratasys sees more students using 3D printing in the classroom as a growth driver.  

3D printing technology manufacturer Stratasys, Ltd. (SSYS -0.58%) reported financial results for its first quarter on May 9, and like competitor 3D Systems Corporation (DDD -1.84%), Stratasys saw revenues decline to start 2016. Also like 3D Systems, Stratasys is faced with the necessity to reevaluate its business, including shedding costs and refocusing on growth after years of growth fueled by mergers and acquisitions as much as by expansion of its core business. 

Let's dig into Stratasys' earnings report. While the company clearly has work to do, if it's going to return to growth, some of the steps management has made are already showing in the numbers. 

The numbers

MetricQ1 2016Q1 2015Change
Revenue $167.9 $172.7 -2.8%
EPS  $(0.44)  $(4.24) -89.6%
Adjusted EPS  $0.01  $0.04 -75%
Operating expenses  $102.2 $116.5 -12.3%

While revenue fell slightly, many of Stratasys' bottom line numbers improved in the quarter. While the company still reported a GAAP loss, the loss narrowed significantly following last year's big writedowns. That's a positive. After backing out non-cash expenses, the company generated $31.6 million in operating cash flows, and also significantly reduced operating expenses (both cash and non-cash) versus last year. 

Stratasys ended the quarter with an improved balance sheet. Cash and equivalents were $280 million, up $22 million. This was mostly from changes in working capital, as accounts receivable declined by $14 million. The company ended the quarter with no long-term debt. 

What happened in the quarter 
Here's how the company performed in several key financial and operational areas:

  • Makerbot -- which is in the midst of a major reorganization -- reported a 23% drop in revenue, though sales increased 27% sequentially.
    • Management said that "renewed focus" and an improved go-to-market strategy are beginning to have a positive impact on this business. 
  • System revenue was the key to the decline, falling 14%. 
    • However, service and consumables revenue both increased, up 7% and 6%, respectively. 
  • Operating expenses declined 4% sequentially as well as the 12% year-over-year decline. 
  • Spent $22.8 million on R&D. 

Key things to note 
There are a handful of interesting comparisons and contrasts with 3D Systems and Stratasys. To start, it's clear that both companies are working hard to move past big -- very expensive -- mistakes in the desktop and consumer 3D printing market. But while 3D Systems is basically walking away from this piece of the market, Stratasys is still attempting to make something from its acquisition of MakerBot. Management said that they are increasingly seeing customers choose desktop over higher-end systems for concept modeling and some rapid prototyping, and called MakerBot both an "opportunity and challenge" for the long term. 

Both companies are taking steps to refocus operations as well, both in cutting costs to lift the bottom line, but also to free up cash to invest in technology and growth. One big difference? Leadership. 3D Systems has a brand new CEO, Vyomesh Joshi, while David Reis has been CEO of Stratasys since it merged with Objet, and was CEO of Objet since 2009. So while Joshi is literally still only weeks on the job at 3D Systems and trying to determine what his strategy will be, Stratasys' management is in the midst of putting their plans into action after years with the company.

That's not to say that Stratasys is necessarily "ahead" of 3D Systems at this stage, as much as the onus is squarely on Stratasys' management team to make good on their plans to cut costs and invest in the next phase of growth. On the earnings call, Reis said that the company is "on track to meet our goals for improved financial performance in 2016." 

Looking ahead 
It's been a tough couple of years for Stratasys investors. The reality is, it's not easy investing in a growth company in a cyclical industry. And as much as Stratasys paid too steep a price for many of its acquisitions, it looks like management is making progress at cutting costs and getting the company pointed the right direction. 

It's also worth keeping this in mind: 

  • Printing system revenues are down, as enterprise, industrial, and commercial users take a step back from buying new equipment. 
  • Aftermarket, service, and supplies revenues are up, as printer owners continue to put their machines to work. 

This isn't just at Stratasys, as most 3D printing companies are reporting the same thing: Printer sales are down, but aftermarket sales are up. 

Eventually demand for new printing systems will bounce back. While the cycle goes through its phases, Stratasys management has plenty of work to do to keep getting its house in order. Frankly, it's possible that investors may look back at this downturn in another decade and realize that it was the best thing that could have happened to Stratasys, forcing management to do a better job of allocating capital, and building a strong business for every part of the demand cycle. They may not be there yet, but progress was made this quarter. 

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Stocks Mentioned

3D Systems Corporation Stock Quote
3D Systems Corporation
$10.12 (-1.84%) $0.19
Stratasys Ltd. Stock Quote
Stratasys Ltd.
$18.89 (-0.58%) $0.11

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