Stratasys Ltd. — 2017 Form 20-F Summary
Business context and reporting period
This is Stratasys Ltd.’s audited annual report for the fiscal year ended December 31, 2017, not a standalone fourth-quarter report. The provided filing text does not give clear standalone Q4 financial results. Stratasys sells additive manufacturing systems, consumables and services, including printed parts, using its FDM and PolyJet technologies. Figures below are U.S. dollars unless stated otherwise.
Key financial metrics
| Metric | 2017 | 2016 |
|---|---|---|
| Revenue | $668.4 million | $672.5 million |
| Gross profit / margin | $322.8 million / 48.3% | $317.3 million / 47.2% |
| Operating loss / margin | $30.5 million / (4.6%) | $86.7 million / (12.9%) |
| Net loss attributable to Stratasys | $40.0 million | $77.2 million |
| Diluted loss per share | $0.75 | $1.48 |
| Cash provided by operating activities | $61.9 million | $62.0 million |
| Cash and cash equivalents at year-end | $328.8 million | $280.3 million |
| Working capital | $451.6 million | $388.4 million |
| Total assets / equity | $1,379.8 million / $1,132.5 million | $1,366.0 million / $1,136.0 million |
| Long-term debt, including current portion | $32.3 million | $26.0 million |
Product revenue was $474.3 million and service revenue was $194.1 million. Product gross margin was 53.8% (51.0% in 2016); service gross margin was 34.8% (37.7%). The company reported $28.3 million of investing cash outflow and $10.7 million of financing cash inflow. Capital expenditures were $23.8 million for the year; cash purchases of property and equipment were $22.3 million.
Material changes versus 2016
- Revenue declined 0.6%. Lower system sales, including a greater mix of lower-end systems following the F123 launch, were partly offset by 4.1% growth in consumables, which management attributed to the larger installed base and system utilization.
- Services revenue increased 0.3%; customer support revenue increased 6.3%. Service gross profit declined 7.4%, with management citing revenue mix, including the mix of direct-manufacturing technologies.
- Operating expenses fell 12.6%, principally reflecting lower SG&A, cost-reduction measures and lower amortization and impairment expense. The operating loss narrowed to $30.5 million.
- Net loss improved by $37.2 million, but the company remained loss-making under GAAP. Management’s non-GAAP presentation reported $36.7 million of operating income, $24.2 million of net income attributable to Stratasys and diluted EPS of $0.45; these measures exclude specified items and should be assessed alongside GAAP results.
- Asia Pacific revenue fell 13.2%, while EMEA revenue rose 7.5% and Americas revenue rose 0.4%. Approximately 40% of 2017 sales were outside North America.
Outlook, management commentary, risks and unusual items
The filing provides no specific numerical revenue or earnings guidance. Management said it expected cash and cash equivalents to be adequate for ongoing operations, capital expenditures and debt requirements over the next 12 months. It described continued investment in R&D, new applications and products, manufacturing adoption, software, and customer and channel reach as strategic priorities.
- Goodwill and intangible assets: Fourth-quarter testing found no goodwill impairment. The Stratasys-Objet reporting unit’s estimated fair value exceeded carrying value by about 7%, with $387 million of goodwill assigned to it. A 1 percentage-point lower terminal growth rate or higher discount rate would reduce estimated fair value by approximately $48 million or $88 million, respectively. The company recorded $2.2 million of intangible-asset impairment in 2017.
- Amortization and earnings: Changes to estimated useful lives reduced 2017 amortization expense by about $20.5 million and net loss by about $18.3 million, according to the filing. This is an important factor in interpreting the year-over-year improvement.
- Taxes: The U.S. Tax Cuts and Jobs Act reduced the U.S. federal corporate tax rate to 21% beginning in 2018. Stratasys recorded provisional deferred-tax remeasurements; it said a $65.6 million reduction in valuation allowance was offset by a $65.6 million reduction in deferred tax assets. It had $27.3 million of unrecognized tax benefits at year-end. Israeli tax benefits depend on continued eligibility and compliance.
- Debt and liquidity: The secured Bank Hapoalim loan bears interest at LIBOR plus 3.35% and matures in December 2023. The company had borrowed $32.3 million at year-end, including $10 million drawn under a $24 million additional credit line, and reported compliance with loan covenants. Contractual obligations included $59.3 million of purchase obligations, all due within one year, and $29.3 million of operating lease obligations.
- Legal and regulatory matters: A former employee filed a November 2017 Israeli patent-law claim seeking service-invention compensation and royalties under alternative claimed calculations. Stratasys disputes the claim and plans to defend it; the filing does not provide a clear estimate of potential exposure. The SEC closed its investigation into historical impairment valuations in September 2017 without recommending enforcement action. A previously dismissed U.S. securities class action was affirmed on appeal.
- Principal business risks: The filing highlights intense competition, especially in lower-end systems; technology and customer-adoption uncertainty; pressure from product and service mix or pricing; possible further impairment; reliance on Ricoh as the sole supplier of PolyJet printer heads; foreign-exchange exposure; and litigation, intellectual-property and Israeli operating risks.
The auditor issued an unqualified opinion on the financial statements and concluded that internal control over financial reporting was effective as of December 31, 2017. Stratasys stated it did not anticipate paying cash dividends in the foreseeable future.
Most important facts for investors to verify
- Review the audited annual statements and notes for the source and persistence of the improved margins and lower GAAP loss, particularly the useful-life change and other excluded non-GAAP items.
- Check subsequent results for system demand, F123 performance, consumables growth, and the continued decline or recovery of Asia Pacific sales.
- Monitor goodwill valuation assumptions and the narrow 7% fair-value cushion, alongside operating performance and share-price developments.
- Track cash generation, capital spending, debt repayments, remaining credit-line availability, and compliance with loan covenants.
- Follow developments in the former employee’s patent-law claim, tax positions and Israeli tax-benefit eligibility, and the company’s sole-source printer-head supply arrangement.