Stratasys' Q1 Earnings Miss Ests, Revs Beat - Analyst Blog

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Stratasys Ltd. ( SSYS ) reported first-quarter adjusted earnings (including stock-based compensation but excluding amortization expenses, merger expenses performance bonus and other one-time items and calculated on a proportionate tax basis) of 30 cents, which lagged the Zacks Consensus Estimate of 33 cents. Nonetheless, adjusted earnings increased 3.0% on a year-over-year basis.

Quarter Details

Stratasys' non-GAAP revenues increased 53.9% from the year-ago quarter to $151.2 million and surpassed the Zacks Consensus Estimate of $144 million. MakerBot's revenues were $20.6 million for the quarter. The company witnessed improvement in the revenues of both Products and Services segments, which resulted from robust demand for Stratasys' higher-margin products and services.

In the reported quarter, Product revenues on a non-GAAP basis grew 56.3% from the year-ago quarter to $129.5 million on higher systems sales and demand for consumables. Apart from this, non-GAAP Services revenues increased 40.9% from the year-ago quarter to $21.7 million, attributable to an increase in revenues from maintenance contracts and services, which reflects Stratasys' expanding installed systems base.

During the quarter, the company shipped 8,802 units of 3D printers and other additive manufacturing systems compared to 1,168 units sold in the year-ago quarter, primarily due to the higher demand for MakerBot products and increased sales of PolyJet system.

Stratasys' adjusted gross margins (excluding amortization and other one-time expenses and including share-based compensation) increased 213 basis points (bps) primarily due to higher revenue base and favorable business mix.

The company's adjusted operating expenses increased 79.1% year over year to $76 million. Moreover, as a percentage of revenue, operating expenses expanded 707 bps year over year. The increase was primarily due to the MakerBot acquisition and investments in sales, marketing and research related to product innovations.

This increase in operating expenses impacted operating margins, which contracted 493 bps. The company reported adjusted net income (excluding one-time items but including non-cash stock-based compensation expenses and its related tax impact) of $15.1 million or 30 cents compared to $11.7 million or 29 cents reported in the year-ago quarter.

The company exited the quarter with cash and cash equivalents of $407.2 million compared to $414.1 million in the previous quarter. Inventories for the quarter stood at $99.8 million compared to $88.4 million reported in the previous quarter. The company does not have any long-term debt.

Guidance

The company reiterated its fiscal 2014 guidance. For fiscal 2014, the company expects its revenues to range between $660 million and $680 million while the Zacks Consensus Estimate is pegged at $674 million. Non-GAAP earnings are anticipated in the range of $2.15 to $2.25 per share, higher than the Zacks Consensus Estimate of $1.79.

Management expects operating expenses related to sales & marketing and research & development to increase in 2014 to supplement the growing demand for Stratasys' solutions. These are expected to impact operating margins in 2014. Also, the company expects to incur capital expenditures in the range of $50 to $70 million on increasing its manufacturing capacity to cater to the increasing demand for 3D solutions and printers.

Conclusion

Stratasys reported mixed first-quarter results wherein the top line surpassed the Zacks Consensus Estimate but the bottom line lagged the same. Nonetheless, year over year comparisons were favorable.

Despite the fact that a significant rise in the operating expenses had impacted margins, yet these investments are expected to benefit the company in the long run. The company has resorted to strategic acquisitions to enrich its offerings. It is also worth noting that the company reiterated its fiscal 2014 outlook as well.

However, the company expects expenses to rise further in fiscal 2014 for product enhancements and capacity increases to address growth opportunities. Although these investments are expected to impact margins in the short run, product launches and global expansion will help the company to generate incremental sales over the long term.

Nevertheless, Stratasys is concerned about its high-cost business model and competition from big and small players like 3D Systems Corp. ( DDD ) and Voxeljet ( VJET ).

Stratasys has a Zacks Rank #3 (Hold). Investors may also consider Rambus Inc. ( RMBS ), which sports a Zacks Rank #1 (Strong Buy).


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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Business , Earnings , Stocks

Referenced Stocks: DDD , RMBS , SSYS , VJET

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