Stratasys Q3 2025 Earnings Call: Contradictions Emerge on Gross Margin Projections, Sales Cycles, and Consumables Outlook

Date of Call: November 13, 2025

Financials Results

• Revenue: $137.0M, down 2.1% YOY
• EPS: GAAP net loss of $0.65 per diluted share (compared to net loss of $0.37 prior year); Non-GAAP EPS $0.02 per diluted share (up from $0.01 prior year)
• Gross Margin: GAAP: 41.0%, compared to 44.8% prior year; Non-GAAP: 45.3%, compared to 49.6% prior year (impacted by tariffs rising from 10% to 15%, mix, and absorption)
• Operating Margin: GAAP operating loss $22.7M (vs loss of $25.5M prior year, ~-16.6% of revenue); Non-GAAP operating income $0.1M, compared to operating loss of $0.1M prior year

Guidance:

• Full-year 2025 revenue reaffirmed at $550M–$560M.
• Full-year non-GAAP gross margin expected 46.7%–47%.
• Full-year non-GAAP operating margin expected 1.5%–2%.
• Adjusted EPS $0.13–$0.16; adjusted EBITDA $30M–$32M.
• Expect year-over-year growth in operating cash flow.
• GAAP net income/EPS adjusted downward due to a $33.9M noncash impairment.

Business Commentary:

• Operational Cash Flow and Profitability:
• Stratasys reported solid operating cash flow generation and EPS in the third quarter, demonstrating the underlying strength of its business model amidst macro-driven caution in capital equipment sales.

• This was primarily due to a disciplined approach to cost management and operational excellence, which allowed the company to maintain and enhance profitability despite challenging market conditions.

• Gross Margin Challenges and Mitigation Strategies:

• Non-GAAP gross margin for the quarter was 45.3%, down from 49.6% in the same period last year, primarily due to increased tariffs and changes in product mix.

• The company is implementing price increases to offset tariff impacts and expects gross margin improvement in the coming quarters, with full quarterly impact from these price increases anticipated in Q4.

• Customer Engagement and Strategic Partnerships:

• Stratasys experienced a year-over-year increase in hardware sales, particularly in aerospace and defense, with notable purchases from industry leaders such as Boeing and Embraer, and defense companies like Honeywell.

• Strategic partnerships and collaborations, like those with AM Craft and FAA's National Institute for Aviation Research, are driving growth in these sectors.

• Expansion and Investment in Dental and Medical Verticals:

• The company made strategic investments in its TrueDent and related solutions to enhance growth in the dental sector, including the hiring of Chris Kabot as VP and Global Head of Dental.
• New product launches and technology advancements, such as the Soft Relax post-processing solution and removal of TPO from dental resins, are aimed at improving patient safety and sustainability, driving further adoption in the dental market.

• Defense and Aerospace Market Growth:
• Strong performance in the defense sector was highlighted by significant purchases from companies like Honeywell, TE Connectivity, and L3Harris, as well as participation in U.S. Navy's Trident Warrior 25 exercise.
• Growth is driven by the critical role of additive manufacturing in enhancing military combat readiness and addressing supply chain risks in these sectors.

Sentiment Analysis:

Overall Tone: Neutral

• Management emphasized 'solid operating cash flow generation and EPS' and reiterated guidance (revenue $550M–$560M) while noting material headwinds: 'GAAP net loss for the quarter was $55.6M' driven by a $33.9M noncash impairment and tariff-related gross-margin pressure.

Q&A:

• Question from Brian Drab (William Blair & Company L.L.C., Research Division): Can you talk about the gross margin trajectory and how quickly you can recover to prior-year levels?
  Response: Price increases implemented in Q3 will have full effect in Q4; expect gross-margin improvement in Q4 and continuing into 2026, but exact level unspecified.

• Question from Brian Drab (William Blair & Company L.L.C., Research Division): Are any of the new customer wins (e.g., the social media AI company) likely to move the needle in 2026 and which opportunities are most promising?
  Response: Growth expected from targeted premium manufacturing use cases—primarily aerospace, defense and tooling (also dental, medical, machine components); hardware momentum this year should translate into further traction in 2026.

• Question from Greg Palm (Craig-Hallum Capital Group LLC, Research Division): Update on production applications and sales-cycle timing; are these the same opportunities or additional ones?
  Response: These are the same prioritized production opportunities; sales cycles remain long (1–2 years) but are showing early signs of improvement; progress evidenced by certifications and expanded service-bureau capacity (e.g., AM Craft/Stratasys Direct).

• Question from Greg Palm (Craig-Hallum Capital Group LLC, Research Division): Consumables are trending down YTD — is growth still expected and what is the implied Q4 range for consumables?
  Response: Consumables are essentially flat this year; management expects gradual consumption growth as focus shifts to higher-utilization industrial machines, but provided no specific Q4 consumables guidance.

• Question from Troy Jensen (Cantor Fitzgerald & Co., Research Division): Will non-GAAP OpEx start to grow sequentially or will cost controls continue?
  Response: Tight OpEx management continues; Q4 OpEx expected to trend slightly down versus Q3 while still investing in R&D and sales/marketing.

• Question from Troy Jensen (Cantor Fitzgerald & Co., Research Division): Thoughts on material pricing structure and forward gross margins on materials?
  Response: Company is consolidating/acquiring material capabilities to create scale and lower material costs over time; for high-performance segments (e.g., aerospace) certification, not material cost, is the main barrier, and material pricing will improve gradually.

• Question from Alek Valero (Loop Capital Markets LLC, Research Division): How big is the dental opportunity, how much can you capture, and timing?
  Response: No TAM disclosed; recruited dental leader Chris Kabot and are focused on restorative dental use cases with PolyJet and P3; key customers (Affordable Care, Glidewell) already onboard—expect growth but no specific timing provided.

• Question from Alek Valero (Loop Capital Markets LLC, Research Division): On the purchase of four F3300s by an AI social-media company, do you foresee further purchases and what incremental products/software accompany a shift to production?
  Response: Cannot name customer; win followed a long selection process and validates F3300 for both prototyping and production—customer plans to start with prototyping and move to manufacturing on same machines, which could lead to further orders and deeper platform use.

Contradiction Point 1

Gross Margin Projections and Trends

It involves differing expectations for gross margin improvement, which is crucial for investor understanding of the company's financial health and future outlook.

What is the expected trajectory for gross margin, and how quickly can it return to the levels seen in last year's fourth quarter and this year's first and second quarters? - Brian Drab (William Blair & Company L.L.C., Research Division)

2025Q3: We anticipate improvement in gross margin as early as Q4, with continued improvement into 2026. The impact of tariffs, mix, and inventory absorption reduction affected Q3. We introduced price increases during Q3, with full impact expected in Q4, contributing to gross margin improvements. - Eitan Zamir(CFO)

Will Blackwell's Q4 revenue be additive, and what is the expected exit rate for gross margins? - Stacy Rasgon (Bernstein Research)

2025Q2: Gross margins for Q3 are expected around 75%, with full-year guidance in the mid-70s. - Eitan Zamir(CFO)

Contradiction Point 2

Sales Cycle Length and Deal Status

It involves differing statements about the length of sales cycles and the status of large deals, which impacts expectations for future revenue and business momentum.

Can you provide an update on the location of those assets? Are these the same or additional opportunities? - Greg Palm (Craig-Hallum Capital Group LLC, Research Division)

2025Q3: Sales cycles for production applications are long, but we see improvement. We are focused on high-value use cases like aerospace. Partnerships like AM Craft are addressing real-world problems in aviation, with expected growth in these applications. - Yoav Zeif(CEO)

Which specific verticals or regions are most impacted by customer decision delays and macroeconomic uncertainty? - Tyler Hutin (William Blair & Co.)

2025Q2: There is no slowdown, only delays. We are heading towards production applications with larger deal sizes and longer sales cycles. These deals, although delayed, are not canceled. We have strong engagement with key verticals like government, aerospace, and defense. The guidance reflects the new situation, with deals diversified across verticals like aerospace, tooling, dental, and medical. - Yoav Zeif(CEO)

Contradiction Point 3

Tariff Impact on Gross Margin

It involves differing statements about the impact of tariffs on gross margin, which is a critical financial metric for investors.

What is the expected trajectory for gross margin, considering the mitigating actions and pricing adjustments? How quickly can gross margins return to the levels seen in Q4 2022 through Q2 2023? - Brian Drab (William Blair)

2025Q3: We anticipate improvement in gross margin as early as Q4, with continued improvement into 2026. The impact of tariffs, mix, and inventory absorption reduction affected Q3. We introduced price increases during Q3, with full impact expected in Q4, contributing to gross margin improvements. - Eitan Zamir(CFO)

How do tariffs affect your costs when importing systems from Israel to the U.S.? Do you pay tariffs on the cost of goods shipped from Israel to your U.S. headquarters for redistribution? - Brian Drab (William Blair)

2025Q1: When we are importing from Israel to the U.S., we pay on the cost of goods sold. Currently, the new tariff is 10% for the next 90 days, at least. Not material, to be honest. - Yoav Zeif(CEO)

Contradiction Point 4

Consumables Revenue Outlook

It involves differing statements about the outlook for consumables revenue, which is a key revenue stream for the company.

Has consumables revenue declined year-over-year for the first 9 months? Is growth still expected this year, and what is the implied Q4 revenue range for consumables? - Greg Palm (Craig-Hallum Capital Group LLC)

2025Q3: Consumables this year are stable despite challenges. Our focus on high-end manufacturing use cases will drive increased material consumption. - Yoav Zeif(CEO)

Can you provide more details on consumables, including the rebound this quarter following last quarter's softness, activity utilization trends during the quarter, and customer activity so far in April? - Danny Eggerichs (Craig-Hallum)

2025Q1: We're back to the $62 million to $63 million range. We see higher utilization as we progress into manufacturing, and we expect 2025 full-year consumables to be higher than the 2024 full year. - Eitan Zamir(CFO)

Contradiction Point 5

Gross Margin Expectations

It involves changes in financial forecasts, specifically regarding gross margin expectations, which are critical indicators for investors.

What is the expected trajectory for gross margin, considering the mitigating actions and pricing strategies? How soon can you return to the levels seen in Q4 of last year through Q2 of this year? What should we model for the gross margin trend? - Brian Drab (William Blair & Company L.L.C., Research Division)

2025Q3: We anticipate improvement in gross margin as early as Q4, with continued improvement into 2026. - Eitan Zamir(CFO)

What assumptions are in the 2025 gross margin guidance for logistics and tariffs? - Unidentified Analyst (William Blair)

2024Q4: We expect the gross margin to be approximately 49.2% for 2024, and for 2025, it will be approximately 49% to 51%. - Eitan Zamir(CFO)