Stratasys (SSYS) Prelim. FY14 Numbers Miss Expectations; Guides FY15 Below Views
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Stratasys (NASDAQ: SSYS) announced preliminary fiscal 2014 results as well as full-year 2015 guidance, as it enters a new phase of increased investment in its business. To foster growth and help it secure significant future long-term market opportunities, the Company also announced a new investment plan under which it expects to increase operating expenditures in 2015 and subsequent years, with anticipated increased expenditures in sales and marketing, product development and infrastructure.
Preliminary 2014 Financial Results
The Company expects to report fiscal year 2014 revenue in the range of $748 to $750 million, and non-GAAP net income in the range of $102 to $105 million, or $1.97 to $2.03 per diluted share. The Company expects to report a GAAP net loss for fiscal year 2014 in the range of $129 to $116 million, or ($2.58) to ($2.32) per share.
*** The Street is at FY14 revs of $763.6 million and EPS of $2.25.
During December 2014, Stratasys updated the goodwill impairment analysis of its MakerBot reporting unit. As a result, the Company expects to recognize a non-cash, non-tax-deductible goodwill impairment charge of approximately $100 to $110 million in the fourth quarter. The Company does not expect this accounting write down to affect its ongoing business or future financial performance. These are preliminary and unaudited results based on current expectations and are subject to quarter-end closing adjustments; accordingly, actual results may differ.
Stratasys projects preliminary fourth quarter revenue growth of approximately 38% over the same period last year, including organic revenue growth of 25%. However, the fourth quarter was impacted by slower growth of MakerBot product and services revenue during the period. MakerBot revenue is estimated to have grown by approximately 7% in the fourth quarter over the prior year, and is estimated to represent approximately 12% of preliminary total Stratasys revenue for the fourth quarter.
Throughout 2014, MakerBot invested significantly in the introduction of its 5th Generation Replicator 3D printers and 3D printing ecosystem, and in the development of a multi-tier distribution strategy enabling broader distribution. These continuing investments are intended to provide MakerBot with the ability to further scale and build superior product platforms positioned for long-term growth, as the adoption of 3D printing expands. However, during the fourth quarter, MakerBot was affected by challenges associated with the introduction and scaling of its new product platform and the Company’s rapidly evolving distribution model.
During 2014, and specifically in the fourth quarter, MakerBot made significant hardware and software improvements to its product line. Furthermore, during the second half of 2014, the Company engaged national partners in the United States, including Staples, Home Depot, Sam’s Club and Dell – reaching new audiences through increased exposure for this new product category. Given the nature and scope of these new partnerships compared with MakerBot’s traditional distribution model, less predictable sales patterns and reorder rates have been introduced into the business model.
In 2015, the Company estimates total revenue in the range of $940 to $960 million, with non-GAAP net income in the range of $109 to $118 million, or $2.07 to $2.24 per diluted share. Projected Non-GAAP net income is expected to be derived disproportionately from the second half of fiscal 2015, driven by the projected timing of revenue and operating expenses. The company projects a GAAP net loss for fiscal 2015 in the range of $23 to $10 million, or ($0.45) to ($0.20) per share.
*** The Street consensus is at FY15 revs of $1.01 billion and EPS of $2.91.
Stratasys believes that Additive Manufacturing (“AM”) is poised to enter a new phase of increased adoption by manufacturers in a broad range of industries, including global manufacturing enterprises, by disrupting traditional design and manufacturing processes. Following extensive review of the evolving marketplace and opportunity, the management and the Board of the Company have decided to implement an investment plan with the goal of enabling the Company to offer a broader range of products and solutions with increased global and industry-specific coverage, especially within areas related to manufacturing, and create stronger customer relationships. The investment plan is designed to implement broad product development and infrastructure which would support annual revenues of $3 billion in 2020.
As a result of its new investment plan, Stratasys expects incremental annual operating expenditures of 2% of anticipated revenues for coming two to three years, with total operating expenses in 2015 to be in the range of 46% to 47% of anticipated revenues. Additionally, the Company expects to incur capital expenditures in the range of $160 to $200 million in 2015. The Company also expects an effective tax rate of 5% to 10%.
The Company continues to observe strong demand for its design and manufacturing enterprise solutions and expects growth in 2015 at a rate of more than 25% for these higher-end solutions. There are an increasing number of customer implementations of these systems in manufacturing-related applications where, after their qualification, the adoption of our solutions is expected to increase significantly. These implementations typically require a broad range of solutions, including systems, materials and manufacturing services. An additional opportunity for expansion of our customer base for manufacturing related applications is our newly initiated professional services, where we identify applications and educate our customers on best practices for additive manufacturing workflows.
Leading the new product category of desktop 3D printing, MakerBot has experienced rapid growth since inception, with sales expanding by over 600% from 2012 to 2014. MakerBot has sold over 80,000 units to date, with significant brand leadership. As MakerBot continues to scale, we expect to see continued evolution of, and investment in, its business, including its product development, sales and marketing and organizational structure.
The focus for 2015 in the desktop 3D printing category will be to execute our aggressive investment program designed to further product development, build infrastructures and maintain and expand brand leadership over near-term profitability. 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.
“As a leader in 3D printing, Stratasys’ prospects for 2015 and beyond are strong,” said David Reis, chief executive officer of Stratasys. “Looking forward, we intend to build on our strong track record of execution and integration following the Stratasys-Objet merger. We continue to see additive manufacturing being used to transform manufacturing processes across a wide range of sectors, augmenting our leading position in prototyping applications. We are also excited about our opportunity to build upon MakerBot’s leading position in desktop 3D printing.”
Reis added, “We believe that now is the time to increase our investment in long-term innovation and development, as well as in our global sales and marketing infrastructure. We believe these increased investments will enable us to put greater focus on long-term manufacturing-related opportunities.”
Specific areas of focus and goals for Stratasys’ new investment plan:
- Accelerated efforts around vertical applications and solutions focused on areas of business that Stratasys has identified as having high potential in the AM field, such as aerospace and automotive, healthcare and education.
- Expansion of our newly branded Stratasys Direct Manufacturing (SDM) services (following the integration of Redeye, Solid Concepts and Harvest Technologies) to provide our customers with a broader range of AM technologies and solutions coupled with our in-depth process-specific expertise.
- Expansion of our SDM platform into additional geographies.
- Expansion of our professional services offering to allow customers to benefit from the company’s knowledge base and expertise related to AM and its implementation for design and manufacturing applications.
- Increased focus on long-term innovation and development projects based on proprietary technology platforms, including acceleration of the on-going development of platforms in collaboration with industry-leading manufacturing enterprises.
- Increased focus on software development to drive collaboration and accessibility, thereby enhancing the ease-of-use with respect to the 3D printing process.
- Accelerated product introductions, including the introduction of new systems and additional proprietary materials.
Sales and marketing infrastructure
- Enhanced channel programs designed to increase capacity, productivity and coverage.
- Expansion of our account management efforts to further serve our customers.
- Enhanced brand recognition.
Additionally, the Company intends to continue building the appropriate infrastructure and scale in order to meet the company’s long-term growth opportunity, including in IT and executive management bandwidth and depth.
In light of the investment plan, Stratasys is reiterating the following goals for the Company’s long term operating model:
- Annual organic revenue growth of at least 25%
- Non-GAAP operating income as a percentage of sales of 18-23%
- Non-GAAP effective tax rate of 10-15%
- Non-GAAP net income as a percentage of sales of 16-21%
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