The company issued a revenue and profit warning that sent its share tumbling 25%.
3D printer Israeli company Stratasys Inc. (Nasdaq: SSYS) has lowered its forecasts for last year and provided a disappointing forecast for next year. In more forthright language, the company, based in Rehovot and managed by CEO david Reis, issued a revenue and profit warning that sent its share tumbling 25% in after-hours trading.
Actually, Wall Street sensed the revenue and profit warning ahead of time, as indicated by the share’s steep descent last year (before yesterday’s disaster) from its February 2014 peak of $127.61. As of web posting, before yesterday’s after-hours trading, the Stratasys share was at $60, reflecting a $3 billion market cap. At its peak, the company was worth $6.4 billion, meaning that its market cap lost $3.4 billion in less than a year.
A substantial write-down of good will
What forecasts were provided by Stratasys that caused Wall Street to send many more sell orders than buy orders? Going back to last year, the company said its revenue in 2014 would be in the $748-750 million range, compared with the previous forecast of $750-770 million. In other words, the bottom limit of the forecast became the top limit in the revised forecast, indicating, among other things, that the company had been overoptimistic.
In the bottom line, the company’s non-GAAP net profit per share, fully diluted, will be in the $1.97-$2.03 range, compared with the previous forecast of $2.25-$2.35, meaning that the upper bound of the revised forecast is far below the higher bound of previous forecast. For Wall Street, that is enough reason to sell the share. In GAAP reporting, Stratasys will lose $2.32-$2.58 per share ($116-$129 million). The main reason is its write-down of good will for the value of its business in desktop printer manufacturer Makerbot, acquired by Stratasys in the summer of 2013. This accounting write-down, which will be reported in the fourth quarter of 2014, will amount to $100-$110 million. According to Stratasys’s announcement, poorer than expected performance by Makerbot is one of the reasons for Stratesys’s downwardly revised forecast.
Makerbot’s revenue rose 7% in the fourth quarter of 2014, and accounted for 7% of Stratasys’s total revenue. “Makerbot invested a lot in 2014 in launching the fifth generation of its printers and in expanding its distribution network, ” the company announcement read. “During the fourth quarter, however, Makerbot had to cope with challenges posed by the launching of its new solutions, and by its new distribution model.”
According to Stratesys, Makerbot began partnerships with companies like Home Depot and Dell Computers in the second half of 2014, and these partnerships, which altered the company’s traditional distribution model, generated “less predictable sales patterns and rates of repeat orders, ” according to the company.
“The industry is entering a new phase”
The company’s forecast for 2015 is much more significant for the share’s performance. Stratasys expects $940-960 million in revenue, compared with the Wall Street revenue forecast of $940 million-$1.06 billion; in other words, an average forecast of $950 million, compared with the Wall Street average forecast of $1 billion.
This lowering of expectations was carried through to the bottom line, with non-GAAP net profit per share being in the $2.07-$2.24 range ($109-118 million), compared with a Wall Street forecast of $2.47-$3.35 per share. In GAAP accounting, Stratasys will lose $0.20-$0.45 per share ($10-23 million).
What is the reason for this less optimistic forecast? Stratasys claims that it is planning to invest more this year in its future growth, which means a substantial rise in operating costs and a drop in its net profit margins. “The company believes that additive manufacturing (a professional term for 3d printing, T.T.) is entering a new phase in the process of its adoption by the various segments in the production industry, ” the company announcement stated. “The company is therefore adopting an investment plan that will help it adapt itself to this new phase and reach $3 billion in annual revenue by 2020.”
Published by Globes [online], Israel business news – www.globes-online.com