Stratasys, the 3D printing pioneer, has weathered the economic storm of the past year with remarkable resilience. Despite a CapEx constrained environment that has significantly impacted hardware sales across the industry, Stratasys has managed to stay afloat, even increasing its market share. This is largely due to a strategic shift towards high-margin consumables and a laser focus on manufacturing applications. But buried within their recent Q1 2024 earnings transcript lies a potentially explosive revelation, a hidden growth engine that could catapult Stratasys to new heights: the unparalleled utilization rates of their FDM machines, specifically in manufacturing.

The transcript reveals an intriguing story: while hardware sales have taken a hit, consumable revenues have soared to record highs, quarter after quarter. This signals a crucial fact - Stratasys customers are not just buying their machines, they're putting them to work, and at an intensity that surpasses anything seen in the prototyping-focused past.

Stratasys CEO Yoav Zeif highlights that their FDM machines in manufacturing settings are experiencing record-high utilization rates. This isn't just a vague statement, he mentions F900 machines operating at a staggering 90-95% utilization. This stands in stark contrast to prototyping machines, which typically operate at 10-15% utilization.

Understanding the Significance

Imagine a factory floor. Traditionally, it's dominated by bulky machines churning out thousands of identical parts. But with the advent of "mindful manufacturing" - a term Stratasys uses to describe sustainable and personalized production enabled by 3D printing - the landscape is changing. Stratasys FDM machines, known for their ability to produce durable, high-performance parts using advanced materials, are finding their niche in this new world.

High utilization rates in manufacturing point to a fundamental shift. It indicates that Stratasys' FDM technology has evolved from a prototyping tool to a core component of production workflows. It signifies that manufacturers are integrating these machines into their processes to create end-use parts at scale, driving consistent demand for consumables.

The Numbers Tell a Compelling Story

Revenue Breakdown: Stratasys estimates 34% of their current revenue comes from manufacturing applications, up from 32.5% in the previous year. This might seem like a modest increase, but remember, this is happening amidst a severe downturn in CapEx spending. When the spending tide turns, and it inevitably will, these high utilization rates suggest Stratasys is perfectly positioned to capture a disproportionate share of the market.

Hypothesizing the Growth Trajectory

Let's hypothesize. If FDM machines are operating at 90-95% utilization in manufacturing, it suggests near-constant production. This implies that as existing machines reach their operational lifespan, they will need replacement. Combine this with the pent-up demand Yoav Zeif describes, and you have the recipe for a potential explosion in system sales.

Furthermore, high utilization translates to consistent and predictable revenue streams from consumables. Stratasys has a closed material system, meaning customers primarily use their proprietary materials. This creates a recurring revenue model similar to the "razor and blades" strategy, but with much larger blades, considering the industrial scale of FDM parts.

The F3300: A Game-Changer

And here's the kicker: Stratasys is not just riding the wave, they're driving it. Their new F3300 machine, designed specifically for large-scale manufacturing with twice the speed and throughput of standard FDM systems, is generating significant buzz. Early customers include industry titans like Toyota, BAE Systems, Sikorsky (Lockheed Martin), and Nissan - a testament to the F3300's ability to deliver on its promise.

Conclusion: Poised for Explosive Growth

Stratasys has discreetly laid the groundwork for a potentially massive growth spurt. While other analysts focus on the macro headwinds, they might be missing the forest for the trees. The exceptionally high utilization rates of Stratasys' FDM machines, combined with their strategic investments in manufacturing-focused technologies and materials, suggest they are sitting on a goldmine. Once CapEx spending recovers, Stratasys could very well be the company to watch as "mindful manufacturing" takes center stage.

"Fun Fact: Stratasys was formed in 1989, the same year Tim Berners-Lee invented the World Wide Web. Just like the internet revolutionized communication, Stratasys is poised to revolutionize manufacturing."

Key Highlights from Q1 2024 Earnings Transcript