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Stratasys' Loss Narrows; Stock Pops Nearly 10%

Beth McKenna, The Motley Fool

Stratasys (NASDAQ: SSYS) reported second-quarter 2018 earnings before the market open on Wednesday. Revenue was approximately flat with the year-ago period, while loss per share narrowed on both a GAAP and adjusted basis.

Shares closed up 9.7% on Wednesday. We can largely attribute the market's reaction to earnings coming in considerably better than many investors were likely expecting.  

Stratasys' results: The raw numbers

Metric

Q2 2018

Q2 2017

Year-Over-Year Change

Revenue

$170.2 million

$170.0 million

--

GAAP operating income

($1.9 million)

($5.0 million)

N/A

Adjusted operating income

$10.6 million

$11.1 million

(5%)

GAAP net income

($3.6 million)

($6.0 million)

N/A

Adjusted net income

$8.1 million

$9.2  million

(12%)

GAAP earnings per share (EPS)

($0.08)

($0.11)

N/A

Adjusted EPS

$0.15

$0.17 (12%)

Data source: Stratasys. GAAP = generally accepted accounting principles. 

Revenue got an approximate $2 million boost from foreign exchange, CFO Lilach Payorski said on the earnings call. 

GAAP gross margin was 49.1%, flat with the second quarter of 2017. Adjusted gross margin edged down to 52.5%, from 53%. Stratasys generated $13.0 million in cash from operations, up from $10.6 million in the year-ago quarter, and ended the period with $346.7 million in cash and cash equivalents, approximately flat with the year-ago period. It carries no debt.

For some context -- though investors shouldn't pay too much attention to Wall Street's near-term estimates -- analysts were looking for adjusted EPS of $0.09 on revenue of $167 million. So Stratasys beat both expectations, with the profit beat particularly strong.  

Close-up of a red plastic object being 3D-printed.

Image source: Getty Images.

What happened with Stratasys in the quarter?

Notably, at the end of the quarter, the company announced that its now former CEO Ilan Levin resigned, with his resignation effective June 1. Elan Jaglom, the company's Chairman of the Board, has been serving as interim CEO. The search for a new CEO is under way. 

Here's how segment results broke out for the quarter:

Segment

Q2 2018 Revenue

Year-Over-Year Change

Product

$118.4 million

(2.2%)

Service

$51.8 million

5.8%

Total

$170.2 million

--

Data source: Stratasys. 

Within products, 3D printer revenue declined 8.2% year over year; consumables (print materials) revenue grew 4.8%; and customer support revenue, which mainly includes revenue from service contracts, jumped 9.6%.

3D printer sales are central to Stratasys' razor-and-blade business model, as they drive sales of the high-margin print materials, along with service contracts. So it's disappointing that 3D printer revenue continued its three-plus-years year-over-year slide. On this point, David Reis, Stratasys vice chairman of the board, executive director, and former CEO (prior to Levin) -- who has been helping to run the company following Levin's departure -- had this to say on the earnings call:

The reason we are seeing some decline, which I'm quite confident will improve in the coming quarters, is the fact that the market is flooded today with a lot of other products. [Our customers] ... and I don't blame them for it ... are looking to experiment and test [new products] coming to the market, including [offerings from] new entrants.

What management had to say

Here's what interim CEO Elan Jaglom had to say in the press release:

Our second quarter revenue was in-line with our expectations for the period, as we saw recovery in high-end system orders in North America and in certain verticals, specifically our customers in government, aerospace, and automotive. We are pleased with the increased adoption we are seeing for our production-focused solutions, including our new F900 Aircraft Interiors Certification Solutions (AICS) 3D Printer and our J700 Dental 3D Printer, both of which address the unique needs of production applications in their respective verticals for aerospace and dental. We continued our positive trend of cash generation and operational discipline, while we also continue to ramp up our investments in our core FDM and PolyJet technologies, new metal additive manufacturing platform, advanced composite materials, and software and application development.

Looking ahead

It's a positive that Stratasys' GAAP and adjusted losses narrowed from the year-ago quarter. That said, a sustainable turnaround will depend upon the company being able to profitably grow revenue, particularly revenue from sales of 3D printers, for the reason previously discussed.

The company reiterated its previously issued full-year 2018 guidance:

Metric

2018 Guidance

2017 Result

Projected Year-Over-Year Change

Revenue

$670 million to $700 million 

$668.4 million

Approximately flat to up 4.7%

GAAP EPS

($0.75) to ($0.46) 

($0.75)

Flat to loss narrowing by $0.29

Adjusted EPS

$0.30 to $0.50

$0.45

(33%) to 11%

Data source: Stratasys.

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Beth McKenna has no position in any of the stocks mentioned. The Motley Fool recommends Stratasys. The Motley Fool has a disclosure policy.