Stratasys Inc. (SSYS) reported earnings per share of 22 cents in the second quarter of 2011, which outpaced the Zacks Consensus Estimate by a penny.
Revenue
Stratasys reported second quarter 2011 revenue of $37.6 million, up 24.9% from $30.1 million in the year-ago quarter. The second quarter results include contributions from the newly acquired Solidscape Inc. The acquisition was completed in April this year and contributed $2.1 million in revenue to the quarter’s results.
Excluding the contribution from Solidscape, revenue came in at $35.5 million, an 18% increase from the year-ago quarter. Moreover, strong growth in Fortus system sales and consumable revenue added to the quarter’s improvements.
System shipments, without taking into consideration the contribution from Solidscape, totaled a record 690 units for the second quarter of 2011, compared with 682 units in the same period last year.
Segment wise, revenues from Products came in at $30.4 million, up 27.8% from $23.8 million reported in the year-ago quarter. Services revenue jumped 13.8% year over year to $7.12 million from $6.26 million in the year-ago quarter.
Operating Results
Gross profit was $19.7 million (53.2% of the total revenue) in the second quarter of 2011, up 49.1% from $14.7 million (49.1% of the total revenue) in the year-ago quarter. Significant gross margin improvement was fueled by higher revenue from consumables.
The growth in higher margin products, as well as a continued favorable product mix within 3D printing, contributed to the significant margin expansion in the period. These factors combined to generate the highest level of quarterly operating profit in the company’s history.
Operating income in the second quarter was $6.1 million versus $4.0 million in the second quarter of 2010. However, operating expense increased 26.9% from the year-ago quarter primarily due to higher selling, general and administrative expense (up 20.9%).
The company reported net income of $4.0 million or 18 cents per share in the second quarter compared with $2.33 or 11 cents per share reported in the prior-year quarter. Non-GAAP net income, which excludes certain discrete items such as acquisition related expenses and inventory revaluation but includes stock-based compensation expense, was $4.8 million or 22 cents per share in the second quarter compared with $2.33 million or 11 cents per share in the prior-year quarter.
Balance Sheet
The company exited the second quarter with cash, cash equivalents and short-term investments of $15.5 million, down from the previous quarter. The company does not have any long-term debt.
Guidance
Stratasys did not provide any revenue or earnings guidance for the third quarter of 2011. Management is impressed with the positive trends in the company’s business during the second quarter and remains optimistic regarding the latter half of 2011. It also expects the acquisition of Solidscape to have a modest near-term impact on earnings.
Conclusion
In addition to improving macroeconomic conditions, the company’s new collaboration with technology major Hewlett-Packard Company (HPQ) as well as slow revival of the U.S. economy spending will likely aid future growth. However, we are a bit apprehensive about the company’s high cost business model and stiff competition from big and small players.
The company has a Zacks #4 Rank, which implies a short-term Sell rating on the stock.
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