Stratasys Q3 Earnings Call: 4 Key Things Investors Should Know

By Beth

Stratasys reported its official third-quarter 2015 results last week. The headline numbers were anticlimactic because the leading 3D printing company had previously released preliminary resultsthat fell significantly short of its results in the year-ago period and analysts' expectations. It also issued a tepid outlook for the fourth quarter.

Our purpose here isn't to rehash the results (you can read my take on earnings here), but to supplement the earnings release data with color from Stratasys' conference call. Here are four key things you should know about.

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An Objet Connex 3D printer. Image source: Stratasys.

Results show the benefit of a razor-and-blades business modelFrom CFO Erez Simha's prepared remarks:

Investors in a so-called "growth company" naturally want to see revenue increase faster than the numbers that Stratasys posted. Nonetheless, a core consumables growth rate of 8% on a constant-currency basis still demonstrates how the company's razor-and-blades business model continues to generate recurring revenue from the installed base, even in a period of slow or negative overall growth.

In addition to print materials, Stratasys has another recurring revenue stream: maintenance contracts on its installed 3D printers. Customer support revenue, which includes the revenue generated mainly by maintenance contracts, increased a solid 16% in the quarter.

Gross margin drop is not due to falling average selling pricesFrom Simha's response to an analyst's question:

For background: Stratasys' gross margin declined to 51% in the third quarter, compared with 58% in the same period last year. Product gross margin decreased to 59%, compared with 63% in the year-ago period, while service gross margin decreased to 32%, compared with 40% in the year-ago period.

Stratasys quantifies the opportunities in the prototyping marketFrom CEO David Reis' prepared remarks:

These numbers certainly suggest that the "3D printing revolution" is far from dead, as headlines from naysayers have been declaring, but rather just experiencing some to-be-expected growing pains. Stratasys' prototyping products, most especially its Connex line, garner high praise. It remains to be seen, however, whether Stratasys will be able to successfully compete in the long term, as new entrants launch products. Notably, deep-pocketed Hewlett-Packard and well-funded start-up Carbon3D are both expected to enter the market in 2016 with printers for the enterprise market that are reportedly significantly faster than the ones currently available.

No indication that expected new competition is affecting customers' buying behaviorFrom Reis' response to an analyst's question:

I don't doubt that Stratasys' slowdown is predominantly the result of macroeconomic issues and overcapacity in the field. However, I do think that it's probable that at least some entities, especially those with relatively smaller capital expenditure budgets, are holding off on some new 3D printer purchases to see what new offerings come to market in the near future. Delaying new purchases isn't risky in this market because of the availability of 3D printing services offered by Stratasys, 3D Systems, and others.

The article Stratasys Q3 Earnings Call: 4 Key Things Investors Should Know originally appeared on

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.

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