Stratasys Ltd. (SSYS, Financial) recently released the company’s preliminary results for FY2014 along with the 2015 outlook. The report projects revenues for the fiscal year 2014 in the US$748-US$750 million range, down from its earlier guidance of US$750-US$770 million, owing to slower revenue growth at the company’s MakerBot venture and an anticipated goodwill impairment charge. The company also reported a non-GAAP net income (excluding one-time items) in the US$102-US$105 million range or US$1.97-US$2.03 per diluted share, down from the earlier forecast of US$2.21-US$2.31 per share. Stratasys’s net loss for the fiscal 2014 is projected to lie in the US$129-US$116 million range. This would mean a loss of US$2.32-US$2.58 on a per share basis. The report caused the company’s shares to plunge over 27% in a single market day.
MakerBot Platform Affects Q4 Results
Stratasy’s current revenue projection of $748-750 million for FY2014 represents an approximately 54% year-over-year growth, inclusive of a 31% organic growth. The company also foresees a 38% year-over-year growth in its fourth quarter revenue, translating to almost $214 million, inclusive of a 25% organic growth. However, the figure falls well short of expert estimates. The company’s projection of a full-year net loss of $129-116 million, inclusive of one-time charges is considerably wider than the previous projection of a $31.6-24.4 million net loss and is attributed mainly to the fourth quarter impairment charges of $115-125 million levied on Stratasy’s MakerBot unit. The non-GAAP earnings have also been affected by the dilutive impact of the company’s acquisition of GrabCAD.
Although the impairment charge is not likely to affect the company’s ongoing business, the expansion of MakerBot, pegged as one of the strongest brands in the desktop 3D printer segment, into new markets is a growing concern. The company’s rapidly developing distribution model combined with the challenges related to the introduction and scaling of its novel product platform have resulted in a rather sluggish growth at the MakerBot unit, thereby impacting the fourth quarter results. Revenue from the MakerBot unit is estimated to have seen a roughly 7% growth in Q$ 2014 over the prior year, and is likely to represent around 12% of Stratasys’s preliminary total revenue for the quarter.
Further, with the company having to tie up with retailers such as Sam’s Club (WMT, Financial), Home Depot (HD, Financial) and Staples (SPLS, Financial) to spread the reach of the MakerBot, the predictability of sales patterns as well as reorder rates has reduced significantly.
New Investment Plan
Stratasys estimates total revenue in the $940-960 million range for FY2015, with a $109-118 million non-GAAP net income translating to around $2.07-2.24 earnings per diluted share. The weaker-than-expected outlook for the new fiscal is likely the result of Stratasys’s new investment strategies that aim at touching the $3 billion annual revenue mark in the year 2020.
The company’s future investment plan is expected to focus on delivering a wider range of products and solutions with greater industry-specific and global coverage, particularly in the manufacturing sectors. Stratasys foresees the investment plan to result in incremental yearly operating expenses of 2 percent of projected revenues for the next 2-3 years, with an overall operating expenditure of 46%-47% of projected revenues for FY2015. While the company expects to incur around $160-200 million in capital expenditure in 2015, with a 5-10% effective tax rate, Stratasys also projected a GAAP net loss in the $23-10 million range for FY2015, translating to $0.45-0.20 loss on a per share basis. Consensus estimates drawn by experts predict a rather sluggish growth for Stratasys through the next fiscal.
While Stratasys’s weak outlook for the coming fiscal has not gone down well with investors, the negative effect overflowed on to the share prices of rival 3D printing solutions providers as well. While the company’s biggest competitor 3D Systems Corporation (DDD, Financial) saw its shares falling 7.4% in a single day of trading, other rivals such as the ExOne Company (XONE, Financial) and Voxeljet AG (VJET, Financial) reported a 6% and 5% decline in share prices respectively.
Final Thoughts
While consensus for the current year has dropped to $1.76 from $1.85 during the last 90 days, current quarter consensus fell to 61 cents from the earlier 67 cents. With the company dropping guidance for the second time in FY2014, experts are almost unanimous in pegging Stratasys stocks as a ‘sell’.
However, experts are also quick to acknowledge that there is a great future ahead for 3D printing and once the industry gets over its teething troubles, the way ahead would be bright. Consequently, with the global 3D printing projected to grow at a 23% CAGR through to 2020, hitting the $8.41 billion mark on the back of greater demand in the healthcare and aerospace market, Stratasys’s current emphasis on expanding reach and adaptability of its products across various sectors is likely to reap benefits in the long run.
