Stratasys CEO sees continuing resurgence

Yoav Zeif credit: Eyal Izhar

Yoav Zeif took the helm of 3D printer company Stratasys just before Covid-19 broke out. He tells "Globes" how he used the crisis.

In mid-February, Yoav Zeif took over as CEO of 3D printer company Stratasys (Nasdaq: SSYS). "Then the world fell apart". The Covid-19 pandemic spread across the globe and Zeif, a new CEO who hadn't even managed to meet all his employees, was forced to move, along with everyone else, to working remotely from home. At the same time, the company now under his management, was printing - in collaboration with giants like Google, Boeing and Toyota - disposable masks and respirator parts.

He now looks back on the whirlwind of his first few weeks in the job with a smile. Speaking with "Globes" he says that the crisis caught him in the US, where he was meeting customers and staff, after which he was supposed to fly to Europe. Instead, he returned directly to quarantine in Israel. "It sounds like a cliché, but there's opportunity in everything. When you sit in front of the screen, you have to listen more closely. I came to this job with an orderly plan - I'm from McKinsey (the international business consultancy - S. H-V.) - but I realized that what we'd planned was lovely, but wouldn't work, so we made a new plan," says Zeif.

Covid-19, he says, has allowed self-examination that hadn't been possible in the everyday craziness. "Our customers shut everything down in a day, no one on the production lines, no buyers -- total panic. We took a deep breath and said, 'This is the opportunity to rebuild our foundations.'"

The quick response included moving to a four-day week, and forming work teams, along with keeping in contact with all employees, partners, and customers, to ensure everything was under control. "We were able to project a sense of calm," says Zeif.

Were you calm?

"Yes, why stress out? Can I change the coronavirus? I see the glass half-full, and I take care of my people. We've become an essential enterprise so our workers' world altered but it did become devoid of meaning."

At this point, Stratasys received inquiries from hospitals suffering from shortages of respirator components and masks. The idea came up of working with large customers that owned a good number of Stratsys printers, sending them the specifications for products to print, and handling product distribution through Stratasys's supply chain. "All those parts had been coming to the hospitals from China, and suddenly they weren't. The epidemic really proved the need for digital manufacture, which is what we do," he says.

A new CEO usually comes in to a company with a new strategy. Zeif did not give up on his, despite the situation, and implemented it in a rather unique way: employees worked in teams on the strategy framework together with the management team. "The strategic planning was bottom-up. We didn't bring in consulting companies," he notes.

Isn't that ironic, given that you come from a consultancy?

Zeif laughs: "I know the work, why pay millions?"

Covid-19 did not lead to layoffs, but at a later stage a "workforce adjustment" was carried out. "It was unrelated to the coronavirus. We understood what the right size of the company should be, and let go of almost 10% of the workforce. We didn't use the coronavirus as an excuse to fire people, our focus was strategic. Keep in mind that Stratasys had been in a six-year decline."

"All it takes is a machine and some software"

"Stratasys is at the forefront of the transition from developing and manufacturing products using traditional prototyping and a full production line, to being able to say, 'All you need is a machine and some software, and you've got a factory.' It's dramatic, a radical change in the status quo," Zeif says.

Among the main markets that the company addresses are aviation, automotive (including electric vehicles) and medicine. Zeif gives as an example, a 3D model of a complicated brain tumor, printed by the company before neurosurgery performed at one of the country's hospitals, that served as an anatomical simulation aid for the surgeon. (Stratasys provided this service free of charge).

The company's new strategy is to focus on polymers and bring them into the world of products, instead of just prototypes. The entire 3D printing industry, Zeif explains, is divided into two: component printing, and printing systems. The printing systems world is divided between polymers (plastics and composites) - about 60% - and the rest - metals. Stratasys has also dealt with metals but decided to focus on polymers, where they identified potential for profitable growth and a competitive advantage. The 3D printing systems market is growing by 15%-20% per year, and today is estimated at about $12 billion. By 2025, the polymer segment alone will be $12 billion.

"The world of 3D printing is growing super-fast. How many other industries in the world are growing at 25%? Not many. This industry hasn't yet matured," he says. Its uniqueness is that, unlike other industries, each field has a technology most suited to it - for example, printing a drone component suits one kind of technology, while printing a mug suits another.

"It takes a wide range of technologies to cover the entire market. We've talked to customers who said they wanted a complete solution. We're a world leader in Polyjet and Fused Deposition Modeling (FDM), which comprises half the polymer market, and we have endless know-how, a large distributor network, and the largest customer base in the world, including connections with the biggest manufacturers like Samsung and Toyota," says Zeif.

Now, with the acquisition of Origin, Stratasys will have another technology, Digital Light Processing (DLP). Through another joint venture, it also accesses a fourth technology, so that, according to Zeif, Stratasys will cover the entire market.

Beyond acquiring additional technologies, the company decided to leverage its existing capabilities to assist in the transition to digital production. "You need the full turnkey package, which Stratasys has, but no one ever took advantage of it, to date," says Zeif. "Suppose Airbus wants to make a part of a plane. It doesn't want me to bring in a machine and have another supplier bring materials, it wants everything, including software that interfaces with its software, and an on-site software engineer, and we have all that."

The market is growing, but in recent years, Stratasys hadn't. In 2019, revenue shrank 4% to $636 million, and in the first three quarters of 2020, it declined 20.5% to $378 million, along with a non-GAAP net loss of $8 million. However, third quarter revenue increased in comparison with the previous quarter.

79% above the low - 84% below the peak

Stratasys currently employs over 2,000 workers, about 500 of them in Israel. The company is traded at a $1.2 billion market cap on Nasdaq, having jumped 79% from its low three months ago. Nonetheless, the company's share price has lost 84% since its peak in 2014, amid disappointments for investors such as cuts in guidance, missing guidance, write downs, and so forth.

What were Stratasys's problems in previous years?

"There were two main ones: Stratasys is the biggest pure play player in the world in 3D systems sales, and we did a great job with that. The Stratasys-Object merger in 2012 led to an insane cross sell which did wonders, but made us lose focus. The company was making money and profitable, but spread itself too thinly. Second, the company invested massively in technologies - we have 1,400 patents - and was ahead of the market and what customers wanted. This is an advantage we'll unsheathe at some stage, but meanwhile, less innovative companies that were more focused grew larger at our expense."

In your latest financials, you recognized a huge $386 million loss related to FDM and Polyjet technologies.

Zeif: "The technology works beautifully, but the merger included goodwill, and then came the coronavirus. We modeled our growth, and examined the goodwill value, and the moment the baseline dropped - as it did for the entire industry - that was good enough reason to let the market know that the goodwill value was impaired. We had to do it."

What are the chances there will be more impairments in coming financials?

Zeif: "We cleaned out everything."

"We won the silver medal - Origin took the gold"

Recently, as mentioned, Stratasys announced the acquisition of US-based Origin for up to $100 million. In reporting the acquisition, Stratasys stated that Origin had developed a technology through which the printer controls such as light, heat, and force, enabling customers to produce parts with very high precision. As mentioned, the acquisition brings Stratasys an additional technology.

"The US Air Force held an 'Olympics' for printing part of a plane's fuel system," says Zeif. "We won two silver medals, and in one of the competitions Origin won a gold medal, so we bought them," he says with a smile.

Zeif adds that dentistry is one area where 3D production is already a fact, and Origin is already active in this huge billion dollar-plus market. "They have 20 sensors inside the machine that provide in-process monitoring to fix issues. It's a wonderful technology," says Zeif.

How does one conduct an acquisition process during a pandemic?

"We realized that the coronavirus offered an opportunity to make acquisitions, because all of the start-ups were looking for funds. We made a global survey of the technologies we needed, and found Origin. We made the call, but they didn't want to sell. In the end, we somehow connected - which is very hard via Zoom - but we presented the benefits Stratasys had in bringing them to market.

"We also gave them Stratasys shares as part of the deal, stocks that are currently undervalued. What other option did they have? Raise another two or three rounds and go public, or take the shares and go to market now. They opted for the latter.

"In July, at the height of the pandemic in the US, six people landed in San Francisco. Ben Gurion Airport was dark. San Francisco looked like Yom Kippur in Israel. There was no food at the hotel and the bed linens hadn't been changed. It made a huge impression on them - that we weren't all talk. We started due diligence, and came back to the US another time, to Minnesota, to close the deal. It cost me two stints in quarantine, but it puts us in a whole other place in terms of our growth potential."

Speaking of the coronavirus, once the pandemic is finally behind us, will you go back to working at the office, or switch to a hybrid model?

"Completely hybrid. It would be a mistake to go back to the same thing. Some things have to be done face to face, but there are lots of other things that we used to travel for, but where travel isn't necessary.

"We're a very stable company, and all credit is due to those who were here before me," says Zeif. "Even during the coronavirus, with our world in catastrophe, we have a good, positive cash flow, and in the third quarter we moved to growth. It's very exciting, and now we just have to show results."

Where will you be in another five years?

"We'll be the company that brought 3D printing to mass production. It's a big task, but fascinating. 3D printing is the future. By the way, the probe being sent to Mars has our parts - we're a NASA supplier."

Published by Globes, Israel business news - en.globes.co.il - on January 3, 2021

© Copyright of Globes Publisher Itonut (1983) Ltd. 2021

Yoav Zeif credit: Eyal Izhar
Yoav Zeif credit: Eyal Izhar
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