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Stratasys Releases Third Quarter 2017 Financial Results

Company reports $155.9 million in revenue

GAAP net loss of $10.2 million, or ($0.19) per diluted share, and non-GAAP net income of $4.1 million, or $0.08 per diluted share

Company increasing full year 2017 earnings guidance

MINNEAPOLIS & REHOVOT, Israel — (BUSINESS WIRE) — November 14, 2017Stratasys Ltd. (Nasdaq: SSYS), a global leader in applied additive technology solutions, announced financial results for the third quarter of 2017.

Q3 2017 Financial Results Summary:

Revenue for the third quarter of 2017 was $155.9 million, compared to $157.2 million for the same period last year.

“We achieved significant improvements in operating profit during the third quarter compared to the prior year, driven by our continued focus on aligning our resources to support our long-term strategy of deepening customer engagement and developing high-value applications within our key vertical markets,” said Ilan Levin, Chief Executive Officer of Stratasys. ”Our revenue for the third quarter was partially impacted by several large, multi-system orders that were deferred until October. Driven by a more holistic approach to adopting our solutions, we are observing customer behavior characterized by orders for our products that are made up of multiple systems, which introduces higher quarter-to-quarter variations in order timing.”

Product Milestones:

“We continue to focus on growing our addressable market with new product introductions that meet the needs of customers within our key vertical markets,” continued Levin. “We are pleased with the positive traction that our F123 Series and GrabCAD Print are experiencing, and are encouraged by the continued progress towards further commercialization of our H2000 Large Part FDM 3D Production System. In addition, we have increased our earnings guidance to reflect the positive impact of our operating cost alignment initiatives and focus on our core strategy.”

Financial Guidance:
Stratasys today updated previously provided guidance for 2017. The Company’s guidance for projected revenue and net income (loss) for the fiscal year ending December 31, 2017 is as follows:

Stratasys provided the following additional guidance regarding the Company’s projected performance and strategic plans for 2017:

Given the expected ongoing negative impact of not recording a tax benefit on U.S. tax losses on the Company’s non-GAAP net income, the Company believes that the rate of growth in its non-GAAP operating income will be the best measure of performance.

Non-GAAP earnings guidance for 2017 excludes $34 million of projected amortization of intangible assets; $17 to $18 million of share-based compensation expense; $3 to $4 million in merger and acquisition related expense; and $6 to $8 million in reorganization and other related costs; and includes $3 to $4 million in tax expenses related to non-GAAP adjustments.

Stratasys Ltd. Q3 2017 Conference Call Details

The Company plans to hold a conference call to discuss its third quarter financial results on Tuesday, November 14, 2017 at 8:30 a.m. (ET).

The investor conference call will be available via live webcast on the Stratasys Web site at www.stratasys.com under the "Investors" tab; or directly at the following web address: https://edge.media-server.com/m6/p/cvm4w4jn.

To participate by telephone, the domestic dial-in number is (866) 394-5776 and the international dial-in is (409) 350-3596. The access code is 92508829.

Investors are advised to dial into the call at least ten minutes prior to the call to register. The webcast will be available for 90 days on the "Investors" page of the Stratasys Web site or by accessing the provided web address.

Stratasys (NASDAQ: SSYS) is a global leader in applied additive technology solutions for industries including Aerospace, Automotive, Healthcare, Consumer Products and Education. For nearly 30 years, a deep and ongoing focus on customers’ business requirements has fueled purposeful innovations—1,200 granted and pending additive technology patents to date—that create new value across product lifecycle processes, from design prototypes to manufacturing tools and final production parts. The Stratasys 3D printing ecosystem of solutions and expertise—advanced materials; software with voxel level control; precise, repeatable and reliable FDM and PolyJet 3D printers; application-based expert services; on-demand parts and industry-defining partnerships—works to ensure seamless integration into each customer’s evolving workflow. Fulfilling the real-world potential of additive, Stratasys delivers breakthrough industry-specific applications that accelerate business processes, optimize value chains and drive business performance improvements for thousands of future-ready leaders around the world.
Corporate Headquarters: Minneapolis, Minnesota and Rehovot, Israel.
Online at:  www.stratasys.comhttp://blog.stratasys.com and  LinkedIn.

Stratasys and Fortus are registered trademarks and the Stratasys signet is a trademark of Stratasys Ltd. and/or its subsidiaries or affiliates. All other trademarks are the property of their respective owners.

Cautionary Statement Regarding Forward-Looking Statements

The statements in this press release regarding Stratasys' strategy, and the statements regarding its projected future financial performance, including the financial guidance concerning its expected results for 2017, are forward-looking statements reflecting management's current expectations and beliefs. These forward-looking statements are based on current information that is, by its nature, subject to rapid and even abrupt change. Due to risks and uncertainties associated with Stratasys' business, actual results could differ materially from those projected or implied by these forward-looking statements. These risks and uncertainties include, but are not limited to: potential declines in the prices of our products and services, or volume of our sales, due to decreased demand in the 3D printing market; any failure to adequately adapt our infrastructure and properly integrate the internal and external sources of our growth to generate intended benefits (including from the companies that we recently acquired); changes in the overall global economic environment; the impact of competition and new technologies; changes in the general market, or in political and economic conditions in the countries in which we operate; any underestimates in projected capital expenditures and liquidity; potential further charges against earnings that we could be required to take due to impairment of additional goodwill or other intangible assets; changes in our strategy; changes in applicable government regulations and approvals; changes in customers’ budgeting priorities; reduction in our profitability due to shifting in our product mix into lower margin products or our shifting in our revenues mix significantly towards our AM services business; costs and potential liability relating to litigation and regulatory proceedings; and those factors referred to in Item 3.D “Key Information - Risk Factors”, Item 4, “Information on the Company”, and Item 5, “Operating and Financial Review and Prospects” in our 2016 Annual Report on Form 20-F, filed with the SEC on March 9, 2017, as well as in the 2016 Annual Report generally. Readers are urged to carefully review and consider the various disclosures made throughout (i) the Report on Form 6-K that attaches Stratasys’ unaudited, condensed consolidated financial statements as of, and for the quarter and nine months ended, September 30, 2017, and its review of its results of operations and financial condition for those periods, which has been furnished to the SEC on or about the date hereof, (ii) Stratasys’ 2016 Annual Report, and (iii) Stratasys’ other reports filed with or furnished to the SEC, which are designed to advise interested parties of the risks and factors that may affect our business, financial condition, results of operations and prospects. Any guidance provided, and other forward-looking statements made, in this press release are made as of the date hereof, and Stratasys undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

Use of non-GAAP financial measures

The non-GAAP data included herein, which excludes certain items as described below, are non-GAAP financial measures. Our management believes that these non-GAAP financial measures are useful information for investors and shareholders of our Company in gauging our results of operations (x) on an ongoing basis after excluding merger and acquisition related expense and reorganization-related charges, and (y) excluding non-cash items such as stock-based compensation expenses, acquired intangible assets amortization, impairment of goodwill and other long-lived assets, changes in fair value of obligations in connection with acquisitions and the corresponding tax effect of those items. We also exclude, when applicable, non-recurring changes of non-cash valuation allowance on deferred tax assets, as well as, non-recurring significant tax charges or benefits that relate to prior periods which we do not believe are reflective of ongoing business and operating results. These non-GAAP adjustments either do not reflect actual cash outlays that impact our liquidity and our financial condition or have a non-recurring impact on the statement of operations, as assessed by management. These non-GAAP financial measures are presented to permit investors to more fully understand how management assesses our performance for internal planning and forecasting purposes. The limitations of using these non-GAAP financial measures as performance measures are that they provide a view of our results of operations without including all items indicated above during a period, which may not provide a comparable view of our performance to other companies in our industry. Investors and other readers should consider non-GAAP measures only as supplements to, not as substitutes for or as superior measures to, the measures of financial performance prepared in accordance with GAAP. Reconciliation between results on a GAAP and non-GAAP basis is provided in a table below.

         
Stratasys Ltd.    
         
Consolidated Balance Sheets  
         
(in thousands, except share data)  
    Sep 30,   December 31,
    2017   2016
    (unaudited)    
         
ASSETS        
         
Current assets        
Cash and cash equivalents   $ 302,795     $ 280,328  
Accounts receivable, net     120,504       120,411  
Inventories     124,056       117,521  
Net investment in sales-type leases     8,499       11,717  
Prepaid expenses     7,167       7,571  
Other current assets     19,635       15,491  
         
Total current assets     582,656       553,039  
         
Non-current assets        
Net investment in sales-type leases - long term     5,844       12,126  
Property, plant and equipment, net     202,995       208,415  
Goodwill     386,887       385,629  
Other intangible assets, net     152,807       177,458  
Other non-current assets     32,137       29,382  
         
Total non-current assets     780,670       813,010  
         
Total assets   $ 1,363,326     $ 1,366,049  
         
LIABILITIES AND EQUITY        
         
Current liabilities        
Accounts payable   $ 44,490     $ 40,933  

Current portion of long-term debt

    3,714       3,714  
Accrued expenses and other current liabilities     28,486       32,207  
Accrued compensation and related benefits     34,338       34,186  
Obligations in connection with acquisitions     -       3,619  
Deferred revenues     51,834       49,952  
         
Total current liabilities     162,862       164,611  
         
Non-current liabilities        
Long-term debt     19,500       22,286  
Deferred tax liabilities     2,625       5,952  
Deferred revenues - long-term     14,181       12,922  
Other non-current liabilities     28,682       22,251  
         
Total non-current liabilities     64,988       63,411  
         
Total liabilities     227,850       228,022  
         
Redeemable non-controlling interests     1,721       2,029  
         
Equity        

Ordinary shares, NIS 0.01 nominal value, authorized 180,000 thousands shares; 53,202 thousands shares and 52,639 thousands shares issued and outstanding at September 30, 2017 and December 31, 2016, respectively

    143       142  
Additional paid-in capital     2,655,754       2,633,129  
Accumulated other comprehensive loss     (8,276 )     (13,479 )
Accumulated deficit     (1,513,926 )     (1,483,925 )
Equity attributable to Stratasys Ltd.     1,133,695       1,135,867  
Non-controlling interests     60       131  
         
Total equity     1,133,755       1,135,998  
         
Total liabilities and equity   $ 1,363,326     $ 1,366,049  
                 
     
Stratasys Ltd.    
                 
Consolidated Statements of Operations  
                 
(in thousands, except per share data)  
                 
    Three Months Ended Sep 30,   Nine Months Ended Sep 30,
    2017   2016   2017   2016
    (unaudited)   (unaudited)   (unaudited)   (unaudited)
Net sales                
Products   $ 108,401     $ 110,083     $ 344,509     $ 352,475  
Services     47,466       47,093       144,510       144,680  
      155,867       157,176       489,019       497,155  
                 
Cost of sales                
Products     49,840       54,332       159,043       172,683  
Services     30,788       29,163       94,465       90,090  
      80,628       83,495       253,508       262,773  
                 
Gross profit     75,239       73,681       235,511       234,382  
                 
Operating expenses                
Research and development, net     21,767       23,993       69,652       73,474  
Selling, general and administrative     60,280       69,069       189,028       218,340  
Change in the fair value of obligations in connection with acquisitions     65       (24 )     1,378       116  
      82,112       93,038       260,058       291,930  
                 
Operating loss     (6,873 )     (19,357 )     (24,547 )     (57,548 )
                 
Financial income, net     (305 )     104       380       1,216  
                 
Loss before income taxes     (7,178 )     (19,253 )     (24,167 )     (56,332 )
                 

Income tax expenses

    2,571       1,538       5,205       6,283  
                 
Share in losses of associated company     (489 )     (182 )     (1,006 )     (182 )
                 
Net loss     (10,238 )     (20,973 )     (30,378 )     (62,797 )
                 
Net loss attributable to non-controlling interests     (81 )     (146 )     (377 )     (339 )
                 
Net loss attributable to Stratasys Ltd.   $ (10,157 )   $ (20,827 )   $ (30,001 )   $ (62,458 )
                 
                 

Net loss per ordinary share attributable to Stratasys Ltd. -basic and diluted

  $ (0.19 )   $ (0.40 )   $ (0.57 )   $ (1.20 )
                 
Weighted average ordinary shares outstanding - basic and diluted     53,012       52,432       52,827       52,232  
                 
     
Stratasys Ltd.  
                                 
Reconciliation of GAAP to Non-GAAP Results of Operations  
                                 
                         
          Three Months Ended Sep 30,
                               
          2017   Non-GAAP   2017   2016   Non-GAAP  

2016

          GAAP   Adjustments   Non-GAAP   GAAP   Adjustments   Non-GAAP
          U.S. dollars and shares in thousands (except per share amounts)
                                 
    Gross profit (1)     $ 75,239     $ 6,598     $ 81,837     $ 73,681     $ 11,248     $ 84,929
    Operating income (loss) (1,2)       (6,873 )     14,933       8,060       (19,357 )     22,651       3,294
   

Net income (loss) attributable to Stratasys Ltd. (1,2,3)

      (10,157 )     14,299       4,142       (20,827 )     20,936       109
   

Net income (loss) per diluted share attributable to Stratasys Ltd. (4)

    $ (0.19 )   $ 0.27     $ 0.08     $ (0.40 )   $ 0.40     $ 0.00
                                 
                                 
(1)   Acquired intangible assets amortization expense           5,688                 10,394      
    Non-cash stock-based compensation expense           642                 680      
    Reorganization and other related costs           72                 249      
    Merger and acquisition and other expense           196                 (75 )    
                6,598                 11,248      
                                 
(2)   Acquired intangible assets amortization expense           2,593                 3,697      
    Non-cash stock-based compensation expense           4,256                 4,105      
    Change in fair value of obligations in connection with acquisitions         65                 (24 )    
    Reorganization and other related costs           383                 1,959      
    Merger and acquisition and other expense           1,038                 1,666      
                8,335                 11,403      
                14,933                 22,651      
                                 
                                 
(3)   Corresponding tax effect           (836 )               (1,998 )    
    Amortization expense of associated company           202                 283      
              $ 14,299               $ 20,936      
                                 
(4)  

Weighted average number of ordinary shares outstanding- Diluted

      53,012           53,664       52,432           53,168
                                 
   
Stratasys Ltd.  
                                     
Reconciliation of GAAP to Non-GAAP Results of Operations  
                                     
                             
          Nine Months Ended Sep 30,
                                   
          2017   Non-GAAP   2017   2016   Non-GAAP   2016
          GAAP   Adjustments   Non-GAAP   GAAP   Adjustments   Non-GAAP
          U.S. dollars and shares in thousands (except per share amounts)
                                     
    Gross profit (1)     $ 235,511     $ 19,996     $ 255,507     $ 234,382     $ 39,241       $ 273,623  
    Operating income (loss) (1,2)       (24,547 )     47,708       23,161       (57,548 )     74,996         17,448  
   

Net income (loss) attributable to Stratasys Ltd. (1,2,3)

      (30,001 )     45,729       15,728       (62,458 )     69,401         6,943  
   

Net income (loss) per diluted share attributable to Stratasys Ltd. (4)

    $ (0.57 )   $ 0.86     $ 0.29     $ (1.20 )   $ 1.33       $ 0.13  
                                     
                                     
(1)   Acquired intangible assets amortization expense           17,081                 31,318          
    Impairment charges of other intangible assets           -                 1,779          
    Non-cash stock-based compensation expense           2,084                 2,132          
    Reorganization and other related costs           303                 3,570          
    Merger and acquisition and other expense           528                 442          
                19,996                 39,241          
                                     
(2)   Acquired intangible assets amortization expense           7,725                 11,079          
    Non-cash stock-based compensation expense           12,049                 13,755          
    Change in fair value of obligations in connection with acquisitions           1,378                 116          
    Reorganization and other related costs           2,667                 3,420          
    Merger and acquisition and other expense           3,893                 7,385          
                27,712                 35,755          
                47,708                 74,996          
                                     
                                     
(3)   Corresponding tax effect           (2,571 )               (5,878 )        
    Amortization expense of associated company           592                 283          
              $ 45,729               $ 69,401          
                                     
(4)  

Weighted average number of ordinary shares outstanding- Diluted

      52,827           53,521       52,232             53,182  
                                                 
 
Stratasys Ltd.
     

Reconciliation of GAAP to Non-GAAP Forward-Looking Guidance

     
Fiscal Year 2017
     
(in millions, except per share data)
     
     
GAAP net loss   ($39) to ($31)
     

Adjustments

   
Stock-based compensation expense   $17 to $18
Intangible assets amortization expense   $34
Merger and acquisition related expense   $3 to $4
Reorganization and other related costs   $6-$8
Tax expense related to Non-GAAP adjustments   ($3) to ($4)
     
Non-GAAP net income   $22 to $26
     
GAAP loss per share   ($0.73) to ($0.59)
     
Non-GAAP diluted earnings per share   $0.40 to $0.48