3D Systems vs. Stratasys: Which 3D Printing Company Had the Better Q3 Earnings Results?
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The two leading diversified 3D printing companies,3D SystemsCorporation (NYSE: DDD) and StratasysLtd. (NASDAQ: SSYS), have now both reported their third-quarter 2016 results. So let's run them through a metric-to-metric comparison to determine which one generally performed better.
The findings should be helpful in making investing decisions in the 3D printing space. Keep in mind we're looking at just a single quarter's results, qualitative factors can be just as important as quantitative ones, and future results are more important than current ones.
Revenue
Data source: Q3 earnings reports.
Advantage:3D Systems.
Neither company performed well on the revenue front, through 3D Systems is the winner here since it at least eked out a small year-over-year increase. Both companies essentially generated the same amount of revenue.
Both companies have been struggling to grow revenue since early 2015 amid a widespread and persistent slowdown in demand for enterprise 3D printers. Stratasys has long attributed this slowdown to excess capacity in the field because of the large numbers of machines that were purchased during the previous few years. On more recent earnings calls, the company's management has said that it believes the increased number of product offerings that customers have to choose from is likely lengthening the sales process.
It seems likely to me that at least some businesses have been postponing buying decisions to see what new offerings would soon be brought to market, especially by HP Inc. and venture capital-backed Carbon. In the spring, each company launched a speedy 3D printer for enterprise customers. Carbon's M1 3D printer was available immediately, while HP's printer was scheduled to begin shipping in the fall.
GAAP* EPS
*GAAP = generally accepted accounting principles.Data source: Q3 earnings reports.
Advantage: N/A.
We can't draw conclusions by directly comparing earnings-per-share results because the companies don't have the same number of stock shares outstanding. Both companies are unprofitable from a GAAP standpoint, so neither is doing well. We likewise can't compare their year-over-year changes because this doesn't make for an apples-to-apples comparison. Stratasys' GAAP earnings, for instance, improved considerably from the year-ago period because it took a huge goodwill impairment in the third quarter of last year.
Non-GAAP or adjusted earnings per share
Data source: Q3 earnings reports.
Advantage: 3D Systems.
The same comment as above about directly comparing EPS results between companies also applies here. However, we can fairly compare their year-over-year changes in results since one-time factors aren't included in adjusted EPS results. 3D Systems is the clear winner here.
GAAP gross profit margin
Data source: Q3 earnings reports.
Advantage:Stratasys.
Stratasys takes the gold here because it has the higher margin. Triple-D's gross margin was negatively impacted in part by it taking non-recurring charges of $10.7 million related to its discontinuation of its entire desktop 3D printer line.
Non-GAAP gross profit margin
Data source: Q3 earnings reports.
Advantage: Stratasys.
This metric is calculated by adding back to gross profit one-time items that increased cost of sales.
Stratasys turns up on top here, with a solid 300-basis-point advantage over 3D Systems. This is more impressive than the numbers suggest because Stratasys' desktop unit, MakerBot, is surely dragging down its company wide gross margin. In other words, if we were able to directly compare their gross margins in their enterprise businesses, there would almost surely be a greater than 300-basis-point spread.
That said, both companies' numbers are fairly solid, which would generally bode well for their future business performances once more healthy demand resumes. However, the unknown here is to what degree increased competition will affect their margins.
Liquidity
Data source: Q3 earnings reports.
Advantage:3D Systems.
While Stratasys has a larger cash hoard than its rival, this ones goes to 3D Systems because it has a significant advantage in the cash-generated-from-operations front. This metric is more important here, in my opinion, than the total cash and cash equivalents because both companies sport robust balance sheets, with a solid amount of cash on hand and no long-term debt.
Non-GAAP research and development spending
Data source: Q3 earnings reports.
Advantage:Stratasys.
Stratasys wins here since it spent a larger percentage of its revenue on research and development.
Investors should focus on R&D spending for both companies. R&D is the lifeblood of companies involved in fast-evolving tech spaces.
2016 guidance
We can't really compare the two here because 3D Systems has never issued 2016 guidance.
In 2015, Stratasys earned $0.19 per share, on an adjusted basis, on revenue of $696.0 million.So, the midpoint of its 2016 guidance -- revenue of $662 million-$673 million, adjusted EPS of $0.13-$0.21, and GAAP EPS of ($1.44)-($1.35) --implies expected adjusted EPS and revenue contractions of 10.5% and 4.1%, respectively.
3D Systems was wise to not issue 2016 guidance, at least at the traditional time when reporting Q4 results for the previous year as Stratasys did. Management at both companies have been saying they have limited visibility into market conditions. So, it's perhaps not surprising that Stratasys had to cut its guidance when it released third-quarter results.
It's a tie
3D Systems and Stratasys each have three metrics in their respective "win" columns, while two categories didn't lend themselves to determining a victor.
Keep in mind the caveats listed in the opening: We're only looking at one quarter, qualitative factors can be at least as important as quantitative ones, and future results are more important than current ones.Moreover, we didn't look at stock valuations.
Going forward, investors in 3D Systems and Stratasys should particularly focus on the companies' adjusted gross margins. This metric should help investors gauge if and to what degree the new competition from HP and Carbon are exerting pricing pressure on the leading 3D printing companies.
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Beth McKenna has no position in any stocks mentioned. The Motley Fool recommends 3D Systems and Stratasys. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.