NNDM - Stratasys Q1/2023 Earnings Preview: What To Expect

2023-05-12 13:20:51 ET

Summary

• Investors are looking beyond the Nano Dimension's $20 bid.
• Q1/2023 earnings report in focus: Expect a quarterly loss.
• Watch for an upward outlook to spark shares of this 3D manufacturer.

The rebound in shares of Stratasys ( SSYS ) is largely due to a party interested in buying it out. Last month, Nano Dimension ( NNDM ) aggressively increased its offer to buy out the struggling 3D manufacturer for $20.05 a share . Trading recently at around $14.40, the steep discount from the offer price reflects the market's skepticism on the deal.

Nano Dimension's bid is not in the best interest of Stratasys or its management. While it may realize stock profits for shareholders, the company's business prospects matter more than ever. Investors will watch the first quarter report scheduled for Tuesday, May 16, 2023, closely.

Q4/2022 Report Recap

In the fourth quarter, Stratasys posted revenue falling by 4.6% Y/Y to $159.3 million . It earned seven cents a share non-GAAP. For the year, revenue topped $651.5 million, while adjusted operating income was $13.5 million.

For full-year 2023, adjustments in the non-GAAP EPS are stock-based compensation, amortization expense, reorganization, and tax expense :

Stratasys ended the year with $327.8 million in cash and equivalents. It had no debt at the year-end of 2022. Notably, it nearly doubled its inventories from $129.15 million in 2021 to $194.05 million. This mitigates supply chain disruption risks. Going forward, Chief Financial Officer, Eitan Zamir said that the company would shift from inventory purchases to product sales. It expects up to a two-quarter lag effect. Expect the company to return to positive cash flow from operations in that time.

Nano Dimension likely timed Stratasys posting the Q4 net loss and cash use of $18.1 million from planned inventory build to bid on the company. Since Nano must add two board observers, it's more accountable to its shareholders and stakeholders . NNDM stockholders are likely perplexed with the bid. Shares peaked in the high teens in 2021 and consistently traded lower. NNDM stock traded in a range for over a year.

Above: Nano Dimension chose to bid for the company during the stock's seasonally weak period from Feb. through May.

After Stratasys' board rejected the bid , investors should focus mainly on the upcoming report rather than the takeover. Stratasys said that the offer "substantially undervalues" the firm.

Q1/2023 Preview

Stratasys will likely post a loss of six cents a share. Its losses will end by Q2. The firm will start posting profits in Q3 ($0.07 EPS) and in Q4 ($0.14 EPS):

Five analysts revised their Q1 earnings, giving SSYS stock a C- on the revisions grade.

Opportunity

Stratasys expects a microeconomic slowdown ahead. Fortunately, it's geographically diversified. In addition, its business is diversified across verticals and technologies. The Chief Executive Officer, Yoav Zeif, said that it has growth opportunities in medical and in aerospace. As the largest player in the faster-growing aerospace sector, the firm should post growth of at least 10% annually. This would increase the stock's profitability grade.

The stock has less value compared to three months ago. Nano Dimension's bid sparked a year-to-date uptrend. Expect the stock's value to rise as losses shrink and as the market discounts the takeover premium.

Management expects the monetization of products in the pipeline and improved visibility to lift results in the second half of the year. For example, the dental offering is disruptive to the dental restorative market.

In this weak stock market (excluding mega caps), investors are in "show me" mode. They will patiently wait for Statasys to demonstrate revenue growth from the new markets it enters.

Covestro Acquisition, a Catalyst

On Apr. 5, 2023, Stratasys announced it completed the acquisition of Covestro's additive manufacturing materials business . The deal cost the company around EUR 43 million . The acquisition included the R&D facilities, various production assets, and access to global partners. By adding to the polymer 3D printing process solution, Stratasys expects $20 million in revenue annualized.

The firm has three new technologies that double or even triple its addressable market. To capture those markets, the firm needs its sales team and partner sales representatives to perform.

Risks

In dentistry, the denture market is a $5 billion opportunity. CEO Zeif thinks its technology may address almost $50 billion. If it fails to capture this potential revenue, it will disappoint investors.

Markets are highly skeptical of Nano Dimension's unusual bid to buy the company. Just as Activision ( ATVI ) trades below Microsoft's ( MSFT ) $95 buyout price and iRobot ( IRBT ) trades nowhere near the $60 buyout offer from Amazon ( AMZN ), Stratasys trades below the $20.05 a share bid.

Your Takeaway

Add SSYS stock to your radar ahead of the earnings report. The company may issue an update to its guidance. A higher forecast would lift the stock and continue its uptrend that began this year.

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