Impressive 3Q for Stratasys - Analyst Blog

Stratasys Inc. (SSYS) reported third quarter 2010 earnings per share of 15 cents, 3 cents above the Zacks Consensus Estimate of 12 cents per share. 

Revenue 

Stratasys reported third quarter 2010 revenue of $30.3 million, up 24.0% from $24.3 million reported in the year-ago quarter. Growth in revenue is attributable to an improvement in business conditions within the company's core market.

Consumable and system unit sales were also encouraging, increasing 34% and 39%, respectively, from the year-ago quarter. The 3D printer revenue also increased by a staggering 88%, driven by robust sales of Hewlett Packard Company's (HPQ) Designjet lines of products that use Stratasys components.

Segment-wise, revenues from Products came in at $23.9 million, up 32.8% from $18.0 million reported in the year-ago quarter. Services revenue during the quarter was $6.29 million, up 0.1% from $6.28 million reported in the year-ago quarter.

Operating Results 

Third quarter 2010 gross profit of $14.70 million (48.6% of total revenue) increased 23.9% from $11.86 million (48.9% of revenue) in the year-ago quarter. The gross profit margin moderated in the quarter, as sales of Stratasys' lower margin 3D printers were strong. This was offset by the positive impact of the sales mix within the company's Fortus systems, as well as the strong sales of the high margin consumables.

Reported operating income for the third quarter was $4.06 million, up a whopping 69.2% from $2.40 million, reported in the third quarter of 2009. Operating expense also increased 12.5% from the year-ago quarter. The maximum impact came from the 12% increase in selling, general and administrative expenses. This was driven by the acceleration in commission and incentive compensation expenses from strong sales and earnings growth.

The company reported net income (including stock-based compensation) of $3.17 million in the third quarter, or 15 cents per share, compared to net income of $1.57 million, or 8 cents per share in the comparable period last year.

Excluding stock-based compensation expense, non-GAAP net income was $3.43 million, or 16 cents per share in the third quarter of 2010, compared to $1.7 million or 9 cents per share reported during the comparable period last year.

Balance Sheet 

The company exited the quarter with cash, cash equivalents and short-term investments of $84.0 million, up from $72.0 million reported in the previous quarter. The company does not have any long-term debt. Days sales outstanding in the quarter were 60 days, compared to 66 days at the end of the previous quarter.

Guidance 

Stratasys did not provide any revenue or earnings guidance for the fourth quarter of 2010. The company witnessed an improvement in market conditions during the third quarter and remains optimistic about the upcoming quarters.

Conclusion

In addition to the improving macroeconomic conditions, the company's new collaboration with technology major Hewlett-Packard (HPQ) and the improving information technology spending will help the company grow. 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 (short-term Hold rating).