3D printing solutions provider Stratasys Ltd. SSYS reported dismal fourth-quarter 2014 results wherein both the top line and the bottom line fell short of the respective Zacks Consensus Estimate. The company’s adjusted earnings (excluding amortization, impairment and other one-time items but including stock-based compensation) of 31 cents per share missed the Zacks Consensus Estimate of 41 cents. Moreover, adjusted earnings decreased 20.5% year over year.
Quarter Details
Stratasys’ non-GAAP revenues soared 40% from the year-ago quarter to $217.1 million. The company witnessed higher revenues in both Products and Services segments.
However, total revenue fell short of the Zacks Consensus Estimate of $218 million. According to Stratasys, the fourth-quarter results have been negatively impacted by slower revenue growth at its MakerBot business. Challenges associated with the introduction and scaling of its new product platform and Stratasys' rapidly evolving distribution model primarily affected the MakerBot business in the fourth quarter.
Product revenues were up 24.9% from the year-ago quarter to $168.6 million. Apart from this, Services revenues surged 140.9% year over year to $48.5 million.
Stratasys’ adjusted gross margins (excluding amortization and other one-time expenses and including share-based compensation) contracted 400 basis points (bps) to 55.4% primarily due to acquisitions.
The company’s adjusted operating expenses increased 52.8% year over year to $104.2 million. Moreover, as a percentage of revenues, operating expenses increased 400 bps year over year to 48%. The increase was primarily due to acquisitions as well as investments in sales, marketing and research related to product innovations.
This increase in operating expenses impacted operating margins, which contracted 810 bps to 7.4%. Nonetheless, in dollar terms, Stratasys’ adjusted operating income was down 32.6% year over year.
The company exited the quarter with cash and cash equivalents of $442.1 million compared with $383.5 million in the previous quarter. Inventories came in at $123.4 million as against $119.3 million reported in the last quarter. The company does not have any long-term debt.
Guidance
Stratasys has reiterated the 2015 guidance. Management expects non-GAAP earnings per share in the range of $2.07–$2.24. The Zacks Consensus Estimate is pegged at $1.84.
The company continues to project revenues in the range of $940–$960 million. The Zacks Consensus Estimate stands at $951 million.
The company is projecting its operating expenses to increase in 2015 because of its new investment plans which aim at achieving annual revenues of $3.0 billion in 2020. In this regard, Stratasys intends to invest in product and infrastructure development (to offer a wide range of products and solutions across industries, especially to manufacturing-related businesses), and improve customer relations.
As a result, it expects incremental annual operating expenditure of 2% of anticipated revenues over the next two to three years. Total operating expenses for 2015 are expected to come in the range of 46–47% of total expected revenue.
Further, during 2015, the company expects capital expenditure in the range of $160 to $200 million, while the effective tax rate is anticipated to be between 5% and 10%.
Conclusion
According to Stratasys, the lackluster fourth-quarter performance was the result of slower revenue growth at its MakerBot business. Challenges associated with the introduction and scaling of its new product platform and Stratasys' rapidly evolving distribution model primarily affected the MakerBot business.
Once only a conjecture, 3D printing’s potential to revolutionize manufacturing is fast becoming a reality. Companies are now working on solutions that range from simple make-to-stock orders to complex engineer-to-order production strategies. Riding on the demand wave, Stratasys plans to expand the reach and adaptability of 3D printing across various industries.
In a recent research report, PricewaterhouseCoopers predicted that 3D printing technologies will take giant strides over the next three to five years, gaining relevance in manufacturing, commercial, military and complex weapon parts and system components.
According to a report available at ReportsnReports.com, the global 3D printing market is expected to increase at a CAGR of 23% from 2013 to 2020 and hit $8.41 billion buoyed by higher demand in the healthcare and aerospace market. Moreover, pent-up demand for 3D printing products is expected from automotive consumer products, government and defense, industrial/business machines, education research and other (arts and architecture) segments.
Additionally, TechNavio forecasts the global 3D Printer market to grow at a CAGR of 45% (2014-2019). Being the 3D printing industry leader, Stratasys is well poised to grab maximum market share given its sizable installed base.
In order to capitalize on the industry’s robust prospects and consolidate market share, established companies might take the acquisition route for quick growth. Over the last few years, Stratasys has been very active in this space and acquired several 3D printing companies, such as MakerBot and Objet Ltd.
However, rapid growth is bringing financial pressures in its wake, as the company has to constantly invest in research and development while raising funds for acquisitions. Moreover, severe competition in the industry, amid persistent economic uncertainty, coupled with foreign currency risks, remain the concerns.
Currently, Stratasys carries a Zacks Rank #5 (Strong Sell). However, some better-ranked stocks in technology sector include Juniper Networks, Inc. JNPR, InterDigital, Inc. IDCC and Harris Corporation HRS. Juniper and InterDigital sport a Zacks Rank #1 (Strong Buy), while Harries holds a Zacks Rank #2 (Buy).
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