Business context and reporting period
Stratasys Ltd. filed this Form 20-F for the fiscal year ended December 31, 2019. The Israeli-based company provides 3D printers, consumables, software, additive-manufacturing services and related solutions. This is an annual filing, not a standalone fourth-quarter report; the supplied filing text does not provide a clear Q4-only financial value.
Key financial metrics
| Metric | FY2019 | FY2018 |
|---|---|---|
| Revenue | $636.1 million | $663.2 million |
| Gross profit / margin | $313.7 million / 49.3% | $325.2 million / 49.0% |
| Operating loss | $11.7 million | $8.8 million |
| Net loss attributable to Stratasys | $10.8 million; $0.20 per diluted share | $11.0 million; $0.22 per diluted share |
| Cash from operating activities | $(11.2) million | $63.7 million |
| Cash, cash equivalents and restricted cash, year-end | $293.6 million | $393.7 million |
| Working capital | $499.2 million | $508.4 million |
| Total assets / equity | $1,381.5 million / $1,157.2 million | $1,388.3 million / $1,142.1 million |
| Debt | No long-term debt at year-end | $27.1 million total debt at year-end |
FY2019 product revenue was $430.7 million, down 5.6%; services revenue was $205.3 million, down 0.7%. Product gross margin improved to 57.6% from 55.4%, while services gross margin fell to 31.8% from 35.0%. The company reported non-GAAP operating income of $34.1 million and non-GAAP net income of $30.5 million, versus GAAP operating and net losses; these measures exclude specified items and should be considered supplemental.
Material changes versus prior period
- Revenue declined 4.1%, mainly because of lower systems sales; management also cited lower consumables sales, divestitures and unfavorable currency movements.
- Regional revenue rose 1.5% in the Americas to $415.9 million, but fell 15.1% in EMEA to $125.0 million and 10.4% in Asia Pacific to $95.3 million. EMEA and Asia weakness reflected macroeconomic conditions and currency effects.
- Operating expenses fell 2.6% to $325.4 million, but operating loss widened as gross profit declined. Net loss improved slightly, aided by higher financial income and lower share-in-losses of associated companies.
- Operating cash flow swung from $63.7 million provided to $11.2 million used. Working-capital changes used $64.8 million, principally as inventory increased to support fulfillment and planned 2020 product launches.
- Cash and restricted cash decreased by $100.1 million. Investing used $69.5 million, including $22.5 million for property and equipment, $15.7 million for the increased Xaar 3D investment and $28.3 million placed in short-term deposits.
- The company repaid the $27.3 million outstanding Bank Hapoalim loan in Q1 2019, releasing the lien on its Rehovot facility.
Outlook, risks and unusual items
- No quantified FY2020 revenue or earnings guidance is stated in the supplied filing text. Management said liquidity should be adequate for operations, working capital, capital expenditures and debt requirements over the next 12 months.
- Management highlighted ongoing investment in FDM and PolyJet, software, advanced materials, applications and a metal additive-manufacturing platform. In 2019, Stratasys introduced the J800 series, J750 Digital Anatomy printer, V650 Flex stereolithography printer and F120 entry-level printer, and increased its Xaar 3D stake from 15% to 45%, with an option to acquire the remainder subject to stated conditions.
- Risks include technology and product-market acceptance, competition and pricing pressure, demand and macroeconomic weakness, currency exposure, reliance on suppliers (including sole-source Ricoh PolyJet printheads), reseller and customer credit risk, and potential product-liability, intellectual-property, cybersecurity and regulatory issues. The company also identified the possible spread of coronavirus in China and Asia Pacific as a potential supply and demand risk.
- Goodwill was approximately $385.7 million, all assigned to the Stratasys-Objet reporting unit. No impairment was recorded, but estimated fair value exceeded carrying value by only 8.7%; management noted that a 1 percentage-point lower terminal growth rate or higher discount rate would reduce fair value by about $45 million or $81 million, respectively.
- A former employee’s Israeli service-invention royalty claim was dismissed in February 2020 under an agreement requiring no payment by either party. CEO Yoav Zeif began in February 2020 after an extended interim leadership period.
- Auditors issued unqualified opinions on the financial statements and internal control over financial reporting; management also concluded disclosure controls were effective at year-end.
Most important facts for investors to verify
- Whether the inventory build converts into sales and operating cash flow, and whether inventory requires write-downs.
- Whether EMEA and Asia Pacific demand stabilizes and product revenue returns to growth.
- Whether services-margin deterioration persists and how product and service mix affects consolidated margins.
- Whether the narrow goodwill valuation cushion changes with operating performance or assumptions.
- Progress, required funding and commercial prospects for Xaar 3D, the LPM metal platform and other announced product initiatives.
- Current liquidity composition, including restricted cash and short-term deposits, plus commitments, purchase obligations and unrecognized tax benefits.