Value Line recently initiated coverage of Stratasys, Ltd. (SSYS), in its flagship product, The Value Line Investment Survey. The company is the product of a 2012 merger of two leading additive manufacturing companies, Stratasys, Inc., which was incorporated in Delaware in 1989, and Objet Ltd., which was incorporated in Israel in 1998. The company has dual headquarters, one in Minnesota, and the other in Rehovot, Israel. It employs more than 1,100 people.
Stratasys is a leading global provider of additive manufacturing (AM) solutions for the creation of parts used in the design and manufacturing of products and end parts. Additive manufacturing is more commonly referred to as 3D printing. This process significantly improves the design process, reduces the time required for product development, and keeps the entire procedure in-house. 3D printing also allows for direct manufacturing of parts that are incorporated into the end product. It is particularly useful for applications that require short-run or low-volume parts that require rapid turnaround, for which regular tooling would not be appropriate due to small volumes.
Stratasys’ solutions are sold under six different brands, and include desktop 3D printers, systems for rapid prototyping (RP), and large production systems for direct digital manufacturing (DDM). The brands are: uPrint, Mojo, Objet, Dimension, Fortus, and Solidscape. The company also produces and sells materials for use with its systems. It offers 130 3D printing consumable materials. It has 260 resellers and independent sales agencies around the globe.
The company’s fused deposition modeling (FDM) products import 3D geometric designs into a proprietary software program, which slices the design into horizontal layers that are downloaded into the system. Thin thermoplastic modeling material feeds into the FDM extrusion head, which heats the material into a semi-liquid state, and this is then extruded and deposited, and subsequently bonded, one ultra-thin layer at a time, in a temperature-controlled chamber.
As of December 31, 2012, Stratasys had sold more than 29,000 systems. In 2012, it sold 3,470 units. The company has one reportable segment that includes both sales of products and related support services. The sale of goods accounted for roughly 84% of total revenues, with the services part of the business accounting for the remainder. The active installed base of these systems provides recurring revenues, due to the ongoing sale of resin and plastic consumables.
A wide range of industries use Stratasys’ products, including automotive, electronics, medical, jewelry, toy, footwear, and architecture, among other offerings. Many Fortune 100 companies use these products. Some of the customers that Stratasys has sold its 3D products to include: Stanley Black & Decker (SWK), BMW, Hewlett Packard (HPQ - Free HP Stock Report), and Lego. No single customer accounts for more than 10% of sales. Roughly 53% of 2012 revenues, on a pro forma basis, were to North American clients. The company’s global customer base is served through offices in the United States, Israel, Germany, Italy, Japan, India, and China.
Stratasys’ primary competitors include other developers of additive manufacturing systems, as well as other companies that use FDM to compete in the 3D printing market. Some of the corporations that use technologies similar include 3D Systems (DDD), CMET, EOS Optronics, and EnvisionTEC. As the industry continues to mature, competition has become increasingly fierce.
The company maintains a solid balance sheet, with no debt and a cash balance of roughly $133 million at the end of 2012. It has not paid, and does not intend to pay, any cash dividends in the foreseeable future, as it wants to use its free cash flows to fund development and spur continued growth. Its 2012 R&D expenditures, on a pro-forma basis, represented over 10% of total sales.
Overall business prospects at Stratasys are bright. After posting 2012 sales of nearly $360 million on a pro-forma basis, the company is expected to post sales approaching $430 million this year. It should benefit from the continuing adoption of 3D printing over the next few years. We think demand for both its printers and services should allow it to post sales growth of more than 20% in 2013. Margins will also likely widen thanks to a more favorable sales mix that includes an increased percentage of higher-end product sales.
Aside from good organic growth, we also anticipate acquisitions to boost results. The company’s recent purchase of MakerBot, a privately held desktop 3D printing company that offers lower priced printers, should expand Stratasys’ product base.
At the time of this article’s writing, the author did not have any positions in any of the companies mentioned.