Stratasys Has Tough First Half, Looks Ahead To Future

Given enough time, virtually all companies experience ups and downs, highs and lows, and peaks and valleys. It goes without saying that these cycles are inevitable in the course of any business, and an industry that seems to have more than its share of major swings is additive manufacturing/3D printing, and a company that has had its share of these cycles of late is Stratasys.

As an example, this week, Stratasys Ltd. announced that Ilan Levin  decided to resign from his positions as CEO and Director, effective June 1, 2018.

Elchanan (Elan) Jaglom, the Company’s current Chairman of the Board, will serve as CEO until a successor is appointed. Mr. Jaglom’s service in the position of Chairman and CEO simultaneously requires shareholder approval in accordance with Israeli law. Stratasys plans to call a shareholder meeting to seek that approval. Mr. Levin will provide ongoing consultancy services to the Company following his resignation, as needed.

The Company’s Board of Directors has appointed an Oversight Committee to help support the management of the Company during the interim period, until a successor is appointed. The committee is comprised of the Company’s Vice Chairman of the Board, Executive Director and former CEO, David Reis, along with additional Directors Scott Crump, previous Chairman and Founder, and Dov Ofer.

Interview With Eldad Itzhak, Director of Product Management, Stratasys At RAPID + TCT 2018

The Company’s Board of Directors also established an Executive Search Committee, composed of Mr. Jaglom and Victor Leventhal, the Chairman of the Compensation Committee of the Company’s Board of Directors, to oversee the engagement of an international executive search firm to help identify a new CEO.

“The Board of Directors is appreciative of Ilan’s contributions to Stratasys and Objet for over 15 years,” said Elan Jaglom, Stratasys’ Chairman of the Board. “Ilan has implemented a number of key decisions as CEO that have kept the Company strong and ready for future expansion. We thank Ilan for his dedicated leadership of our Company during this phase in Stratasys’ history.”

Abrupt though Mr. Levin’s departure may be, it’s not totally unexpected or unprecedented based on recent and not so recent company performance.

Downward and Upward Trends

Levin’s departure ends a month that started with disappointing first quarter financial results for Stratasys.

As exciting as the 3D printing/additive manufacturing (AM) space has been the past several, especially the last couple years, its unbridled enthusiasm and expectations couldn’t be expected to go on forever, and they’re not. As a result, Stratasys reported less than anticipated financials for Q1 2018.

The figures revealed the realities of the company’s finances for the quarter and guidance for the future. These general negatives included:

• Revenue was down 6% for the first quarter to $153.8 million, compared to $163.2 million for the same quarter last year.
• GAAP net loss for the first quarter was $13.0 million, or ($0.24) per share, compared to a loss of $13.9 million, or ($0.26) last year.
• Net R&D expenses for the quarter were $25.1 million, an increase of 1.9% compared to the same period last year.

No mention of Q1 machine sales was made.

The recent financial and executive announcements did not go unnoticed by investors as the Stratasys stock price today (13:00 Mountain time, May 30, 2018) stands at just under $19/share; down from a 52-week high of $29.00, and down from $131 just a few years ago.

“We are disappointed with our revenue for the first quarter, which is primarily attributed to underperformance in North America related to high end system orders, specifically from customers in government and other key verticals such as aerospace and automotive,” said Ilan Levin, Chief Executive Officer of Stratasys. “We do not believe that our first quarter revenue represents a fundamental change in the demand environment in the North American market. We continue to maintain a strong pipeline of opportunities, and are not modifying the full year guidance we issued earlier this year. Despite our revenue results in the period we continued our positive trend of operational discipline and cash generation. We remain committed to our investments in long-term initiatives that include advancements in our core FDM and PolyJet technologies, new metal additive manufacturing platform, advanced composite materials, and software and application development.”

Stratasys J750 3D Printer Introduces One-Stop Realism with Full Colors and Multiple Materials

All was not doom and gloom for Stratasys, however. On the upside, at this year’s RAPID + TCT event, Stratasys provided some details regarding its new metal additive manufacturing platform:

• It’s a new approach to metal 3D printing that incorporates proprietary jetting technology and results in 80% reduction in cost per part for aluminum components compared to other additive technologies.
• Ability to 3D print “green state” parts with standard metal powders, beginning with aluminum, that are post processed via standard powder metallurgy processes and workflows.
• Part properties achievable with the technology include final parts with density and isotropy that is significantly higher than existing additive solutions, and near identical chemical composition compared to parts created by conventional casting methods.
• The solution has been optimized for production rather than prototyping, making it highly efficient and commercially viable for a wide range of applications.
• For the first time, Stratasys showcased end-use production parts produced on the new metal platform.

A Brief Overview of Stratasys Events

As a company, Stratasys has been busy the past few years with the following events:

April 2012 – Stratasys Merges With Objet

With the 3D printing merger of Stratasys and Objet coming together, this was a biggie for the 3D production sector because the combined company could be valued at well over a billion dollars.

This was a good move for each of the companies because the technologies and markets for the respective companies were different. Publicly traded Stratasys was a leading manufacturer of 3D printers and production systems for prototyping and manufacturing applications, whereas privately held Objet Ltd. was a leading manufacturer of 3D printers for rapid prototyping.

At the time, the transaction positioned the combined company as the leader within the high-growth 3D printing and direct digital manufacturing industry.

August 2012 – Stratasys and HP End 3D Printer Relationship

Not all marriages are made in heaven, and the news that Stratasys and HP agreed to discontinue their manufacturing and distribution agreement for 3D printers, effective at the end of 2012 proves it. The relationship lasted only a couple of years.

Stratasys said it did not expect the termination of its agreement with HP to have a material impact on its financial results for the current year and intends to work closely with HP to ensure a smooth transition for customers. I doubt, though, if the same held true for HP.

Under the terms of the definitive agreement signed in January 2010, Stratasys developed and manufactured for HP an exclusive line of 3D printers based on Stratasys’ Fused Deposition Modeling (FDM) technology.

To be fair to HP, though, it only got Stratasys’ entry level UPrint and Dimension product lines. I think this was done to expand Stratasys market presence and installed base without cannibalizing its more lucrative high-end 3D printer market that it wanted to keep.

June 2013 – “Open Source” MakerBot Acquired By Stratasys

MakerBot, once the progeny and a proponent of the open source hardware/software movement is being acquired by Stratasys for over $400 million. Not bad for a company whose origins are the open-source community.

I used open source and MakerBot in the same sentence rather loosely because MakerBot became pretty closed and proprietary not all that long after its inception in 2009. It certainly began with an open-source design based on the RepRap Project, but effectively became a “closed” system with the advent of the Replicator 2 in September 2012. At that time, the company said it “will not share the way the physical machine is designed or our GUI.” This sudden departure from its previous open-source embrace and no longer willing to share with the community that made MakerBot possible in the first place was met with criticism in many circles. MakerBot created several products and services beyond its flagship 3D printer, which was definitely an improvement over its base design.

Interview With Scott Sevcik, VP of Manufacturing Solutions, Stratasys At RAPID + TCT 2018

For its part, (and until then) Stratasys had repeatedly denied any interest in the 3D printer (under $5,000) market and would not pursue it, because their historical customer had been industrial, not the hobbyist or prosumer. Things change, though, and with this transaction, Stratasys certainly changed its tune. A customer is a customer, and with the additive manufacturing/3D printing market consolidating, Stratasys didn’t want to miss out on an acquisition opportunity that was probably being explored by competitors.

Don’t get me wrong, MakerBot’s principals made a lot of money off this deal, and there is nothing wrong with that. My issue stems from the fact that few truly benefitted from this transaction that in reality was the work of many in the open-source community. Business is business, I guess. Who says there’s no money to be made in open-source technologies?

September 2014 – Stratasys Acquires GrabCAD

Along with SpaceClaim being acquired by ANSYS earlier that year, the CAD consolidation train moved to its next stop with Stratasys announcing that it was acquiring GrabCAD.

The acquisition of GrabCAD provided Stratasys with an entirely new line of business and opportunities, and this is good for a number of reasons.

After being funded through several rounds of venture capital, the time was right for GrabCAD to be acquired by a suitor who could help it thrive into the future. Also, by being acquired by Stratasys instead of a traditional CAD vendor, continued CAD neutrality was almost certainly ensured – a really good thing.

In the end, this is one of those acquisitions that made a lot of sense on many levels and benefitted both parties, and most importantly, customers from both companies.

April 2018 – Stratasys Unveils Spin-off Focusing on New AM Technology

Stratasys officially unveiled the spin-off of its Selective Thermoplastic Electrophotographic Process (STEP) technology and forming of a new company, Evolve Additive Solutions.

After nearly 10 years as an incubation project, the new organization will be led by a dedicated management team, exclusively focused on bringing the proprietary STEP technology to market – aimed at delivering high-volume production additive manufacturing at breakthrough speeds compared to other commercially available additive processes.

The solution is intended for high-volume production runs into the hundreds of thousands per year. As such, it is expected to compete with traditional processes, such as injection molding.

Also in April 2018, the company announced enhancements to the PolyJet portfolio that include an upgraded version of the multi-material, full-color J750 3D printing platform that adds increased reliability via hardware and software enhancements, as well as the new J735 3D printer with a smaller build size.

Hopefully, these latest financial results and executive departure are only temporary setbacks, but Stratasys is hardly alone in the current 3D printing negative column.

This is not to say that Stratasys won’t make a comeback; it certainly might, but to the same level of excitement and expectations, that remains to be seen. I’m hoping (I’m sure as are many stockholders) that reality starts replacing hype, and hopes of short-term windfall profits are replaced with a more rational and patient outlook at Stratasys (and competitors) as a calculated risk investment and not a guarantee of overnight and continuous riches.

Tags: Stratasys

This entry was posted on Thursday, May 31st, 2018 at 17:00. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.