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Stratasys Releases Fourth Quarter and Full Year 2016 Financial Results

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Stratasys
Ltd
. (NASDAQ:SSYS), the 3D printing and additive manufacturing
solutions company, announced financial results for the fourth quarter
and full year of 2016.

Q4-2016 Financial Results Summary:

Revenue for the fourth quarter of 2016 was $175.3 million, compared to
$173.4 million for the same period last year with consumable revenue
increasing by 11% for the same period.

  • GAAP gross margin was 47.3% for the fourth quarter, compared to a GAAP
    gross margin of 30.6% for the same period last year.
  • Non-GAAP gross margin was 53.6% for the fourth quarter, compared to
    48.1% for the same period last year.
  • GAAP operating loss for the fourth quarter was $29.2 million, compared
    to a loss of $187.8 million for the same period last year.
  • Non-GAAP operating income for the fourth quarter was $11.6 million,
    compared to non-GAAP operating loss of $8.9 million for the same
    period last year.
  • GAAP net loss for the fourth quarter was $14.8 million, or ($0.30) per
    diluted share, compared to a loss of $232.3 million, or ($4.46) per
    diluted share, for the same period last year.
  • Non-GAAP net income for the fourth quarter was $7.8 million, or $0.15
    per diluted share, compared to Non-GAAP net loss of $0.7 million, or
    ($0.01) per diluted share, reported for the same period last year.
  • The Company generated $26.0 million in cash from operations during the
    fourth quarter and ended the period with $280.3 million in cash and
    cash equivalents.
  • Net R&D expenses for the fourth quarter amounted to $24.3 million,
    representing 13.9% of net sales.

Fiscal 2016 Financial Results Summary:

  • Revenue for fiscal 2016 was $672.5 million compared to $696.0 million
    for fiscal 2015.
  • GAAP net loss for fiscal 2016 was $77.2 million, or ($1.48) per
    diluted share, compared to $1.4 billion, or ($26.64) per diluted
    share, for fiscal 2015.
  • Non-GAAP net income for fiscal 2016 was $14.8 million, or $0.28 per
    diluted share, compared to non-GAAP net income of $10.0 million, or
    $0.19 per diluted share, reported for fiscal 2015.
  • The Company generated $62.0 million in cash from operations in fiscal
    2016.

"We are pleased with our fourth quarter results, and the progress we are
making to improve and deepen customer engagement. Our increased revenue,
combined with the ongoing activities to better align our cost structure,
contributed to a significant improvement in operating profit and cash
generation during the quarter," said Ilan Levin, Chief Executive Officer
of Stratasys. "Additionally, we are encouraged by the growth in our
recurring revenue during the period, demonstrating strong utilization of
our installed base of systems."

Recent Business Highlights:

  • Maintaining leadership in the professional rapid prototype market, the
    company launched the new Stratasys F123, which combines optimized
    workflow capability and increased speed, with engineering grade
    performance, offering, for the first time in a professional grade
    rapid prototyping system, the ability to also print with low-cost PLA
    for concept modeling.
  • Announced innovative new materials:
    • Nylon 12CF is a new carbon-fiber-filled thermoplastic for FDM
      strong enough to replace metal in a range of applications, and
      meeting the functional performance testing demands in the
      automotive, aerospace, recreational goods, and industrial
      manufacturing sectors.
    • Agilus30 is a new line of high-durability flexible materials for
      PolyJet that can endure repeated flexing, providing designers and
      engineers with greater freedom to handle and test flexible parts
      and prototypes, delivering superior accuracy, fine details and
      enhanced product realism.
  • Strengthened leadership in product and ecosystem development through
    collaborations with key industry leaders:
    • Announced agreement with Siemens to develop a cohesive,
      best-of-breed manufacturing capability through the integration of
      Siemens' Digital Factory with Stratasys additive manufacturing
      solutions.
    • Announced collaboration with Dassault Systèmes' SIMULIA to enable
      final part designs that are optimized for weight and strength
      significantly reducing fuel consumption within the aerospace and
      automotive industries;
    • Released a GrabCAD Print Add-In for Dassault Systèmes' SOLIDWORKS
      that allows users to estimate and print parts directly from the
      SOLIDWORKS environment.
  • Recognized leadership position in key target markets:
    • Announced Airbus has standardized Stratasys' FDM based additive
      manufacturing ULTEM™ 9085 3D printing solutions for the production
      of flight parts on its A350 XWB aircraft.
    • Named as the Official Supplier of 3D Printing Solutions to the
      McLaren-Honda Formula 1 team for prototyping, tooling, and
      customized production parts.
    • Entered into technical relationship with Team Penske to provide 3D
      printing solutions for NASCAR and IndyCar engineering and
      manufacturing applications.

"We made significant progress in 2016 as we leverage our extensive
technology and application knowledge, together with our large customer
base, into value-added solutions within key target markets," continued
Levin. "Our focus is on developing enhanced products and a more robust
ecosystem, supported by collaborations with industry leaders, including
Siemens, Boeing, Airbus, Ford, McLaren Racing, and Team Penske. We are
proud of these achievements and see them as validation of our leadership
position."

Financial Guidance:
Stratasys today provided the following
information regarding the company's guidance for projected revenue and
net income for the fiscal year ending December 31, 2017:

  • Revenue guidance of $645 to $680 million.
  • Non-GAAP net income of $10 to $20 million, or $0.19 to $0.37 per
    diluted share.
  • GAAP net loss of $53 to $39 million, or a ($1.00) to ($0.73) per
    diluted share.

Stratasys provided the following additional guidelines regarding the
company's projected performance and strategic plans for 2017:

  • Non-GAAP operating margins of 3% to 5%.
  • Capital expenditures are projected at $40 to $50 million.

Given the expected ongoing negative impact of not recording a tax
benefit on U.S. tax losses on the Company 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 excludes $34 million of projected
amortization of intangible assets; $18 to $20 million of share-based
compensation expense; $2 to $3 million in merger and acquisition related
expense; and $8 to $10 million in reorganization and other related
costs; and includes $3 to $4 million in tax expenses related to non-GAAP
adjustments.

"As we move into 2017, we continue to invest in achieving our long-term
goals. As we extend our reach into use-case centric applications, we
intend to continue to shift resources to build out our capabilities
around high-value added applications. We believe our combined efforts
can lead to improved quality of revenue, and enable long-term, strong
and sustainable growth. We are excited about the potential market
opportunity that lies ahead," Levin concluded.

Stratasys Ltd. Q4 2016 Conference Call Details

The Company plans to hold the conference call to discuss its fourth
quarter and full year 2016 financial results on Thursday, March 9, 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: http://edge.media-server.com/m/p/9kxkoga5/.

To participate by telephone, the domestic dial-in number is (855)
319-2216 and the international dial-in is (503) 343-6033. The access
code is 73596435.

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.

For more than 25 years, Stratasys
Ltd
. (NASDAQ:SSYS) has been a defining force and dominant
player in 3D printing and additive manufacturing – shaping the way
things are made. Headquartered in Minneapolis, Minnesota and Rehovot,
Israel, the company empowers customers across a broad range of vertical
markets by enabling new paradigms for design and manufacturing. The
company's solutions provide customers with unmatched design freedom and
manufacturing flexibility – reducing time-to-market and lowering
development costs, while improving designs and communications. Stratasys
subsidiaries include MakerBot and Solidscape, and the Stratasys
ecosystem includes 3D printers for prototyping and production; a wide
range of 3D printing materials; parts on-demand via Stratasys Direct
Manufacturing; strategic consulting and professional services; and the
Thingiverse and GrabCAD communities with over 2 million 3D printable
files for free designs. With more than 2,500 employees and 1,200 granted
or pending additive manufacturing patents, Stratasys has received more
than 30 technology and leadership awards. Visit us online at: www.stratasys.com
or http://blog.stratasys.com/,
and follow us on LinkedIn.

Stratasys is a registered trademark of Stratasys Ltd. and/or its
subsidiaries or affiliates.

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: any failure to
efficiently and successfully integrate the operations of Stratasys, Inc.
and various entities that it has acquired, including MakerBot, Solid
Concepts, Harvest and GrabCAD, or to successfully establish and execute
effective post-acquisition integration plans; changes in the overall
global economic environment; the impact of competition and new
technologies; changes in the general market, political and economic
conditions in the countries in which we operate; any underestimates in
projected capital expenditures and liquidity; changes in our strategy;
changes in applicable government regulations and approvals; changes in
customers' budgeting priorities; lower than expected demand for our
products and services; 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 2015 Annual Report, together
with the 2016 Annual Report that we will file soon, as well as in the
2016 Annual Report generally. Readers are urged to carefully review and
consider the various disclosures made throughout the Form 20-Fand in
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, on this call 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 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 Statements of Operations
 
(in thousands, except per share data)                        
 
Three Months Ended December 31, Twelve Months Ended December 31,
2016 2015 2016 2015
(unaudited)     (unaudited)        
Net sales
Products $ 126,556 $ 124,316 $ 479,031 $ 503,946
Services   48,747     49,046     193,427     192,049  
175,303 173,362 672,458 695,995
 
Cost of sales
Products 61,970 86,753 234,653 466,221
Services   30,409     33,537     120,499     127,602  
92,379 120,290 355,152 593,823
       
Gross profit 82,924 53,072 317,306 102,172
 
Operating expenses
Research and development, net 24,304 31,918 97,778 122,360
Selling, general and administrative 88,773 113,126 307,114 434,619
Goodwill impairment - 96,550 - 942,408
Change in the fair value of obligations in connection with
acquisitions
  (988 )   (713 )   (873 )   (23,671 )
112,089 240,881 404,019 1,475,716
       
Operating loss (29,165 ) (187,809 ) (86,713 ) (1,373,544 )
 
Financial income (expenses), net (862 ) (947 ) 354 (10,287 )
       
Loss before income taxes (30,027 ) (188,756 ) (86,359 ) (1,383,831 )
 

Income tax expenses (benefit)

(15,729 ) 43,770 (9,446 ) (10,320 )
 
Share in losses of associated company   (526 )   -     (708 )   -  
 
Net loss (14,824 ) (232,526 ) (77,621 ) (1,373,511 )
 
Net loss attributable to non-controlling interest (63 ) (183 ) (402 ) (676 )
 
Net loss attributable to Stratasys Ltd. $ (14,761 ) $ (232,343 ) $ (77,219 ) $ (1,372,835 )
 
Net loss per ordinary share attributable to Stratasys Ltd.
Basic $ (0.28 ) $ (4.46 ) $ (1.48 ) $ (26.64 )
Diluted (0.30 ) (4.46 ) (1.48 ) (26.64 )
 
Weighted average ordinary shares outstanding
Basic 52,620 52,046 52,330 51,592
Diluted 52,784 52,046 52,582 51,592
 
                       
Stratasys Ltd.
 
Reconciliation of GAAP to Non-GAAP Results of Operations
 
     
Three Months Ended December 31,
2016 Non-GAAP 2016 2015 Non-GAAP 2015
GAAP Adjustments Non-GAAP GAAP Adjustments Non-GAAP
U.S. dollars and shares in thousands (except per share amounts)
 
Gross profit (1) $ 82,924 $ 11,093 $ 94,017 $ 53,072 $ 30,309 $ 83,381
Operating income (loss) (1,2) (29,165 ) 40,733 11,568 (187,809 ) 178,927 (8,882 )

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

(14,761 ) 22,588 7,827 (232,343 ) 231,647 (696 )

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

$ (0.30 ) $ 0.45 $ 0.15 $ (4.46 ) $ 4.45 $ (0.01 )
 
 
(1) Acquired intangible assets amortization expense 10,394 10,830
Impairment charges of other intangible assets - 10,779
Non-cash stock-based compensation expense 648 1,012
Reorganization and other related costs 276 7,523
Merger and acquisition and other expense   (225 )   165  
11,093 30,309
 
(2) Acquired intangible assets amortization expense 3,822 4,464
Goodwill impairment - 96,550
Non-cash stock-based compensation expense 4,238 4,838
Impairment charges of intangible assets and other long lived assets 21,774 31,299
Change in fair value of obligations in connection with acquisitions (988 ) (713 )
Reorganization and other related costs 251 9,365
Merger and acquisition and other expense   543     2,815  
  29,640     148,618  
  40,733     178,927  
 

(3)

Corresponding tax effect and other tax adjustments (18,355 ) 52,720

Intangible assets amortization expense of associated company

  210     -  
$ 22,588   $ 231,647  
 
(4)

Weighted average number of ordinary shares outstanding- Diluted

52,784 53,255 52,046 52,046
 
                         
Stratasys Ltd.
 
Reconciliation of GAAP to Non-GAAP Results of Operations
 
     
Twelve Months Ended December 31,
2016 Non-GAAP 2016 2015 Non-GAAP 2015
GAAP Adjustments Non-GAAP GAAP Adjustments Non-GAAP
U.S. dollars and shares in thousands (except per share amounts)
 
Gross profit (1) $ 317,306 $ 50,334 $ 367,640 $ 102,172 $ 259,545 $ 361,717
Operating income (loss) (1,2) (86,713 ) 115,729 29,016 (1,373,544 ) 1,357,577 (15,967 )

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

(77,219 ) 91,989 14,770 (1,372,835 ) 1,382,789 9,954

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

$ (1.48 ) $ 1.76 $ 0.28 $ (26.64 ) $ 26.83 $ 0.19
 
 
(1) Acquired intangible assets amortization expense 41,712 50,353
Impairment charges of other intangible assets 1,779 191,534
Non-cash stock-based compensation expense 2,780 5,381
Reorganization and other related costs 3,846 10,949
Merger and acquisition related expense   217     1,328  
50,334 259,545
 
(2) Acquired intangible assets amortization expense 14,901 22,436
Goodwill impairment - 942,408
Non-cash stock-based compensation expense 17,993 24,629
Impairment charges of intangible assets and other long-lived assets 21,774 86,937
Change in fair value of obligations in connection with acquisitions (872 ) (23,671 )
Reorganization and other related costs 3,671 16,955
Merger and acquisition related expense   7,928     28,338  
  65,395     1,098,032  
  115,729     1,357,577  
 
(3) Credit facility termination related costs - 2,705
Corresponding tax effect and other tax adjustments (24,233 ) 22,507

Intangible assets amortization expense of associated company

  493     -  
$ 91,989   $ 1,382,789  
 
(4)

Weighted average number of ordinary shares outstanding- Diluted

52,582 53,201 51,592 52,824
 
   
Stratasys Ltd.
 
Reconciliation of GAAP to Non-GAAP Forward Looking Guidance
 
Fiscal Year 2017
 
(in millions, except per share data)      
 
 
GAAP net loss ($53) to ($39)
 

Adjustments

Stock-based compensation expense $18 to $20
Intangible assets amortization expense $34
Merger and acquisition related expense $2 to $3
Reorganization and other related costs $8-$10
Tax expense related to Non-GAAP adjustments ($3) to ($4)
 
Non-GAAP net income $10 to $20
 
GAAP loss per share ($1.00) to ($0.73)
 
Non-GAAP diluted earnings per share $0.19 to $0.37
 

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