Sign in

STRATASYS (SSYS)

SSYS Q2 2024: Plans $40M in cost cuts to reach 8% EBITDA margin

Reported on Aug 29, 2024 (Before Market Open)
Pre-Earnings Price$7.68Last close (Aug 28, 2024)
Post-Earnings Price$6.28Open (Aug 29, 2024)
Price Change
$-1.40(-18.23%)

What went well

  • Restructuring for improved profitability: Management confirmed a plan to achieve $40 million in annual cost savings and target an 8% EBITDA margin in 2025, demonstrating a clear focus on cost discipline and a path to profitability even amid hardware headwinds .
  • Resilient consumable business and high utilization: Executives referenced strong, recurring consumable sales driven by high system utilization from their installed base, highlighting a robust revenue stream that supports the business even during lower hardware sales periods .
  • Optimistic product pipeline and market focus: The Q&A discussion underscored a favorable pipeline with new product launches (such as the F3300 and TrueDent) and a focus on high-growth sectors (e.g., government, dental), which positions the company for a potential rebound in hardware sales and long‐term revenue growth .

What went wrong

  • Restructuring Impact on Growth: There is concern that the 15% workforce reduction and aggressive cost-cutting measures could impair critical functions such as R&D and sales, potentially hindering the company’s ability to sustain long-term growth and innovation.
  • Weak and Uncertain Hardware Recovery: Despite some indications of pent-up demand, questions were raised about slow hardware sales recovery and uncertainties in the hardware pipeline, which may limit overall revenue growth if the anticipated turnaround does not materialize promptly.
  • Uncertain Timing of Cost Savings Realization: The planned $40 million in annual cost savings is expected to help achieve an 8% EBITDA margin later in the year, but there is uncertainty regarding the timing and full realization of these benefits, which may negatively impact near-term profitability.

Q&A Summary

  1. EBITDA Guidance
    Q: Confirm 8% margin target timing?
    A: Management expects to achieve an 8% EBITDA margin by 2025 as the restructuring savings fully materialize over time.

  2. Revenue Target
    Q: Is $1B revenue target achievable by 2026?
    A: Leaders expressed cautious confidence in reaching the $1B revenue target by 2026, driven by recurring consumable sales and a recovering hardware segment, while factoring in recent divestments.

  3. Cost Savings Split
    Q: How will the $40M savings split?
    A: The $40 million cost savings will primarily come from OpEx reductions, with some incremental benefits from COGS improvements, bolstering margins.

  4. OpEx Impact
    Q: Will cuts hurt long-term growth prospects?
    A: Management is balancing targeted cost cuts with maintained investment in customer engagement and innovation to safeguard long-term growth.

  5. Margin Outlook
    Q: What drives second-half gross margin?
    A: Margins are projected to stay near 49%, supported by a favorable mix of high-margin consumables and balanced hardware/service contributions.

  6. Hardware Pipeline
    Q: How strong is the hardware pipeline?
    A: Despite soft hardware sales, new launches like the F3300 and TrueDent signal a solid pipeline that should aid future recovery.

  7. Strategic Review
    Q: What did the strategic review reveal?
    A: The review reinforced a focus on core, market-leading technologies and efficient asset utilization, confirming a disciplined approach to value creation.

  8. Pent-Up Demand
    Q: Can pent-up demand be quantified?
    A: Although not quantified numerically, management noted robust utilization trends from existing systems that imply significant pent-up demand.

  9. Workforce Strategy
    Q: Is the 15% cut broad or targeted?
    A: The reduction is strategy-led, aiming to realign resources rather than executing indiscriminate cuts, with a clear focus on efficiency.

  10. Utilization Trends
    Q: How are machine utilizations normalizing?
    A: Rising material sales indicate that machines—especially in manufacturing applications—are being used more intensively, reflecting a normalization of utilization rates.

  11. Installed Base
    Q: How does today's install base compare to 2020?
    A: There is a notable shift toward larger, manufacturing-grade systems versus the smaller, prototyping-focused machines seen in 2020, implying stronger long-term performance.

  12. Desktop Metal IP
    Q: Does the review focus on Desktop Metal?
    A: Management declined specific comments, instead emphasizing a focus on protecting their intellectual property and pursuing the industrial FDM market over the low-end segment.

Analyst Coverage

Research analysts covering STRATASYS.