STRATASYS LTD. Q3 FY2024 earnings call

• Took decisive actions to align business with market realities, including a 15% workforce reduction and focusing on high-growth industry targets like automotive, defense, aerospace, medical devices, and dental. - Launched new products such as the F3300 industrial platform, Origin 2 printer with Cure post-processing system, and Neo Build Processor for investment casting. - Highlighted the resilience of the recurring revenue model from consumables sales, driven by FDM technology utilization. - Streamlined operations, improved margins, and focused on software solutions for high-margin revenues. - Board approved a $50 million share repurchase plan and is working on monetizing high-value assets. - Restructuring plan is ahead of pace, aiming for $40 million in annual cost savings starting Q1 next year.

For the third quarter, consolidated revenue was $140 million, down from $162.1 million in the same period of 2023. Product revenue was $94.1 million, with system revenue at $31.7 million (sequentially improved but down year-over-year) and consumables revenue at $62.4 million, up 1% year-over-year (eighth consecutive quarter of year-over-year growth). Service revenue was $45.9 million. GAAP gross margin expanded to 44.8% from 40.5% year-over-year, and non-GAAP gross margin grew to 49.6% from 48.3% year-over-year. GAAP operating loss was $25.5 million vs $42.8 million last year, while non-GAAP operating loss was $0.1 million vs operating income of $4.1 million last year. GAAP net loss was $26.6 million vs $47.3 million last year, and non-GAAP net income was $0.4 million vs $2.4 million last year. Adjusted EBITDA was $5.1 million vs $9.8 million last year. Cash used in operations was $4.5 million vs $12.7 million last year. Year-to-date operating cash flow remained positive, and the quarter ended with $144 million in cash, cash equivalents, and short-term deposits.

• Reiterates full-year 2024 revenue range $570 million to $580 million. - Raises gross margin forecast to 49% to 49.2%. - Operating expenses expected to be between $276 million to $278 million. - Non-GAAP operating margins expected 0.6% to 1.3% for full year 2024. - Anticipates GAAP net loss $105 million to $90 million and non-GAAP net income $2.1 million to $5 million. - Adjusted EBITDA range $25 million to $28 million for 2024. - Capital expenditures expected $15 million to $20 million for 2024. - Expects 8% EBITDA margin in 2025 even with no revenue growth and at least 10% with moderate revenue growth.

• Risks related to market cycle changes, where actual results could differ materially from forward-looking statements. - Macro-economic conditions impacting customer spending on capital equipment. - Industry competition that could affect market share and margins.

Q: Jim Ricchiuti from Needham & Company asked about Q4 revenue guidance and EPS, Eitan Zamir clarified the EPS range and explained the impact of restructuring on Q4.

A: Eitan Zamir said when taking first nine months' EPS and deducting from annual EPS, Q4 is in the range of positive $0.08 to positive $0.12.

Q: Troy Jensen from Cantor Fitzgerald inquired about consumables growth and workforce reductions, Yoav Zeif and Eitan Zamir responded.

A: Yoav Zeif said consumables grow year-over-year due to solid recurring revenue model and large installed base, and Eitan Zamir clarified the restructuring was one move executed ahead of plan.

Q: Greg Palm from Craig-Hallum asked about macro environment impact and gross margin guidance, Eitan Zamir answered.

A: Eitan Zamir said Q4 gross margin is expected to be slightly higher than Q3 and they are confident in achieving the full-year gross margin guidance.

Q: Brian Drab from William Blair asked about F3300 rollout, on-shoring, and gross margin, Yoav Zeif and Eitan Zamir replied.

A: Yoav Zeif said F3300 rollout is going well with shipments to various markets, and Eitan Zamir explained the gross margin guidance considering mix and restructuring.

Q: Jacob Stephan from Lake Street Capital asked about product line demand trends and restructuring, Yoav Zeif and Eitan Zamir answered.

A: Yoav Zeif discussed product line demand trends by industry order and Eitan Zamir elaborated on the restructuring plan and its savings.

Q: Alek Valero from Loop Capital Markets asked about restructuring milestones and TrueDent milestones, Yoav Zeif responded.

A: Yoav Zeif talked about TrueDent milestones including regional penetration and clinic expansion.

Q: Jim Ricchiuti followed up on end markets and GrabCAD Print Pro, Eitan Zamir and Yoav Zeif answered.

A: Eitan Zamir and Yoav Zeif discussed end markets by order and the growth of GrabCAD software revenue and its potential.