04.08.15
Talk about pushing the panic button.
It began innocently enough, with the Feb. 2 release of preliminary 2104 earnings by Stratasys Ltd., a global manufacturer of 3-D printing equipment and materials. There was nothing extraordinary about the announcement—it contained the usual marketing drivel and standard addendums—but it rattled nerves for its stunning admission of lower-than-anticipated annual revenue and a disappointing 2015 earnings forecast. It lacked the finality of an official earnings statement yet it was formal enough to incite a mini-panic on Wall Street: Jittery investors frantically sold off shares upon hearing the news, sending stock prices tumbling more than 30 percent within minutes of the market’s open on Feb. 3; then, days later, securities class-action specialists Robbins Geller Rudman & Dowd LLP sued Stratasys, claiming the company deliberately misled shareholders and inflated stock prices by being eternal optimists about its $403 million purchase of 3-D printer manufacturer Makerbot as well as its 2014 earnings.
“Defendants [Stratasys, CEO David Reis and CFO/COO Erez Simha] repeatedly issued positive statements regarding Makerbot and its products…Defendants were highly motivated to conceal the substantial problems with the company’s business, outlook, and Makerbot products, and, in turn, artificially inflate the price of Stratasys stock,” the lawsuit states. “To that end, on April 2, 2014, the company announced merger agreements with Solid Concepts Inc. and Harvest Technologies Inc. After completing the two offerings which netted selling shareholders more than $230 million while the price of Stratasys common stock was artificially inflated, the company stunned the market on Feb. 2, 2015 by warning that its fourth-quarter fiscal revenue would miss analysts’ expectations, largely based on problems with its Makerbot unit.”
Certainly, the company’s Brooklyn, N.Y.-based Makerbot subsidiary was an earnings albatross in the fourth quarter, posting weak revenue growth of 7 percent and triggering a $102 million goodwill impairment charge to cover warranty costs for its newest line of 3-D printers. But it wasn’t quite the dead-weight depicted in the shareholder lawsuit either, having confined its impact mostly within its borders.
Despite Makerbot’s troubles, Stratasys still made a profit last year: Its fourth-quarter revenue jumped 40 percent to $217 million and shares gained 48 cents on an adjusted basis. The company also sold 11,214 additive manufacturing/3-D printing systems during the quarter, bringing its worldwide total to 121,661 systems sold as of Dec. 31. In addition, Stratasys generated $14.9 mil-lion in cash from operations during Q4, and finished the year with roughly $443 million in cash/cash equivalents and short-term bank deposits.
Moreover, annual sales skyrocketed 54 percent to $750.4 million, net income was up 26.3 per-cent to $103.6 million, and backlog was cut in half to $14.3 million.
Market shock indeed. Perhaps the most shocking aspect of Stratasys’ 2014 financial performance was not its failure to please Wall Street but rather its limited vulnerability to Makerbot’s fiscal struggles. Annual revenue nearly beat the company’s forecast of $748 million-$750 million, its GAAP loss of $2.39 per share scaled low within the projected debit range ($2.32-$2.58) and its $102 million goodwill impairment charge for Makerbot barely met the $100 million-$110 million forecast.
The fallout was anti-climactic for Wall Street. The market barely hiccupped when Stratasys released its official earnings statement on March 2—shares, in fact, rose nearly 2 percent in late-morning trading that day (but are still down considerably from their high of $129.28).
Stratasys’ adjusted gross margin ended slightly down on both a sequential and year-over-year basis due mostly to Makerbot, which has been exerting a downward pressure on product gross margins since its August 2013 acquisition. That pressure is expected to linger through much of this year as the company works to resolve the “warranty and quality” issues associated with its temperamental printers, but executives are confident the subsidiary will rebound by 2016.
“Growth in our core business reflects the increasing demand for additive manufacturing,” Stratasys CEO David Reis said. “During the fourth quarter, Makerbot was affected by challenges associated with the introduction and scaling of its new product platform and its rapidly evolving distribution model. As market adoption continues to evolve and to the extent Makerbot continues to establish and expand sales channels, the company expects Makerbot growth rates to ramp up to, or exceed, overall company averages by 2016.”
In the meantime, Stratasys bigwigs expect the company to generate $940 million-$960 million this year, with non-GAAP net income ranging from $109 million to $118 million ($2.07-$2.24 per share) and GAAP net loss totaling $10 million-$23 million (20 cents-45 cents per share). The projections exclude $85 million of projected amortization of intangible assets; $32 million-$35 million of share-based compensation expenses; $41 million-$43 million in non-recurring acquisitions-related expenses; and includes $30 million-$31 million in tax expenses related to non-GAAP adjustments.
This year’s tax rate is forecast to be between 5 and 10 percent, while capital expenditures are likely to stretch from $160 million to $200 million.
“Over the course of the past year we introduced 25 major new 3-D printing systems and materials, expanded our go-to-market initiatives, and completed several strategic acquisitions,” Reis noted. “We are pleased with the progress we have made in integrating our recent acquisitions, and we look forward to enhancing our customer offering through the myriad technologies offered by our newly branded Stratasys Direct Manufacturing service, comprising Solid Concepts, Harvest Technologies and RedEye, as well as GrabCAD. We are positioning Stratasys for long-term growth by assembling best-in-class technologies and teams to build a company with the most comprehensive product and service solutions in the industry.”
It began innocently enough, with the Feb. 2 release of preliminary 2104 earnings by Stratasys Ltd., a global manufacturer of 3-D printing equipment and materials. There was nothing extraordinary about the announcement—it contained the usual marketing drivel and standard addendums—but it rattled nerves for its stunning admission of lower-than-anticipated annual revenue and a disappointing 2015 earnings forecast. It lacked the finality of an official earnings statement yet it was formal enough to incite a mini-panic on Wall Street: Jittery investors frantically sold off shares upon hearing the news, sending stock prices tumbling more than 30 percent within minutes of the market’s open on Feb. 3; then, days later, securities class-action specialists Robbins Geller Rudman & Dowd LLP sued Stratasys, claiming the company deliberately misled shareholders and inflated stock prices by being eternal optimists about its $403 million purchase of 3-D printer manufacturer Makerbot as well as its 2014 earnings.
“Defendants [Stratasys, CEO David Reis and CFO/COO Erez Simha] repeatedly issued positive statements regarding Makerbot and its products…Defendants were highly motivated to conceal the substantial problems with the company’s business, outlook, and Makerbot products, and, in turn, artificially inflate the price of Stratasys stock,” the lawsuit states. “To that end, on April 2, 2014, the company announced merger agreements with Solid Concepts Inc. and Harvest Technologies Inc. After completing the two offerings which netted selling shareholders more than $230 million while the price of Stratasys common stock was artificially inflated, the company stunned the market on Feb. 2, 2015 by warning that its fourth-quarter fiscal revenue would miss analysts’ expectations, largely based on problems with its Makerbot unit.”
Certainly, the company’s Brooklyn, N.Y.-based Makerbot subsidiary was an earnings albatross in the fourth quarter, posting weak revenue growth of 7 percent and triggering a $102 million goodwill impairment charge to cover warranty costs for its newest line of 3-D printers. But it wasn’t quite the dead-weight depicted in the shareholder lawsuit either, having confined its impact mostly within its borders.
Despite Makerbot’s troubles, Stratasys still made a profit last year: Its fourth-quarter revenue jumped 40 percent to $217 million and shares gained 48 cents on an adjusted basis. The company also sold 11,214 additive manufacturing/3-D printing systems during the quarter, bringing its worldwide total to 121,661 systems sold as of Dec. 31. In addition, Stratasys generated $14.9 mil-lion in cash from operations during Q4, and finished the year with roughly $443 million in cash/cash equivalents and short-term bank deposits.
Moreover, annual sales skyrocketed 54 percent to $750.4 million, net income was up 26.3 per-cent to $103.6 million, and backlog was cut in half to $14.3 million.
Market shock indeed. Perhaps the most shocking aspect of Stratasys’ 2014 financial performance was not its failure to please Wall Street but rather its limited vulnerability to Makerbot’s fiscal struggles. Annual revenue nearly beat the company’s forecast of $748 million-$750 million, its GAAP loss of $2.39 per share scaled low within the projected debit range ($2.32-$2.58) and its $102 million goodwill impairment charge for Makerbot barely met the $100 million-$110 million forecast.
The fallout was anti-climactic for Wall Street. The market barely hiccupped when Stratasys released its official earnings statement on March 2—shares, in fact, rose nearly 2 percent in late-morning trading that day (but are still down considerably from their high of $129.28).
Stratasys’ adjusted gross margin ended slightly down on both a sequential and year-over-year basis due mostly to Makerbot, which has been exerting a downward pressure on product gross margins since its August 2013 acquisition. That pressure is expected to linger through much of this year as the company works to resolve the “warranty and quality” issues associated with its temperamental printers, but executives are confident the subsidiary will rebound by 2016.
“Growth in our core business reflects the increasing demand for additive manufacturing,” Stratasys CEO David Reis said. “During the fourth quarter, Makerbot was affected by challenges associated with the introduction and scaling of its new product platform and its rapidly evolving distribution model. As market adoption continues to evolve and to the extent Makerbot continues to establish and expand sales channels, the company expects Makerbot growth rates to ramp up to, or exceed, overall company averages by 2016.”
In the meantime, Stratasys bigwigs expect the company to generate $940 million-$960 million this year, with non-GAAP net income ranging from $109 million to $118 million ($2.07-$2.24 per share) and GAAP net loss totaling $10 million-$23 million (20 cents-45 cents per share). The projections exclude $85 million of projected amortization of intangible assets; $32 million-$35 million of share-based compensation expenses; $41 million-$43 million in non-recurring acquisitions-related expenses; and includes $30 million-$31 million in tax expenses related to non-GAAP adjustments.
This year’s tax rate is forecast to be between 5 and 10 percent, while capital expenditures are likely to stretch from $160 million to $200 million.
“Over the course of the past year we introduced 25 major new 3-D printing systems and materials, expanded our go-to-market initiatives, and completed several strategic acquisitions,” Reis noted. “We are pleased with the progress we have made in integrating our recent acquisitions, and we look forward to enhancing our customer offering through the myriad technologies offered by our newly branded Stratasys Direct Manufacturing service, comprising Solid Concepts, Harvest Technologies and RedEye, as well as GrabCAD. We are positioning Stratasys for long-term growth by assembling best-in-class technologies and teams to build a company with the most comprehensive product and service solutions in the industry.”