3-D printing giant Stratasys (SSYS) reported stellar second-quarter 2014 numbers that pushed the stock to close at 14.94% higher and even continued in the after-hour trading, lifting the stock by another 0.8%. The company also provided a solid third quarter outlook, making them even happier. Let’s dig in to find out what happened during the perio, and what are the factors that would help the company to beat expectations in the coming quarters.
Improved demand drove revenue growth
Stratasys’ second-quarter revenue grew 67% year over year to $178.5 million, which was well ahead of the analysts’ projection of $156.6 million. Organic revenue grew 35%, product revenue grew 70% to $154.1 million, while Services revenue increased 50% to $24.4 million. Improving awareness for 3D printing and synergies from MakerBot helped Stratasys to record solid revenue growth.
MakerBot’s (acquired in June 2013) products and services generated revenues of $33.6 million, marking a 100% jump from the revenue generated by the company independently before the merger during the year ago quarter. The improvement was mainly due to sales channel expansion and new product introduction.
Founded in 2009, MakerBot evolved as a significant player in the 3D printing market and was well-known for affordable and user-friendly printers, targeting consumers and small businesses. Earlier, Stratasys used to sell printers only to industrial customers. But with the acquisition of MakerBot, it became more consumer-focused. The company also stands to gain from MakerBot’s bluechip customers which include big names such as Ford (F).
During the quarter, the company signed distribution agreements with home improvement retailer Home Depot (HD) and technology consultant Tech Data (TDC). The agreements will help MakerBot’s offerings reach the customers through a much higher number of outlets in the North American regions than before, helping volume and revenue growth. Stratasys also witnessed strong demand for high-end systems, driven by manufacturing applications, as well as Objet-branded 3D Printers.
Operating performances improved despite higher expenses
Cost of sales in the second quarter shot up 54.8% from year over year. However, gross margin was 59.8%, up from 59.2% for the last year same quarter. Increasing sales of high-margin products and higher service gross margin compensated for the low-margin entry-level as well as MakerBot-branded offerings.
Operating expenses roughly doubled on account of MakerBot integration and higher investments in R&D, sales and marketing activities and new product launches. Although expenses were significantly higher, they contributed positively toward the total revenue growth.
Operating loss in the quarter was $5.9 million, compared with $2.6 million in the year ago quarter. But due to income tax benefits worth $5.4 million received during the quarter, net loss came to $173,000, as against $2.8 million in the year ago quarter.
GAAP loss per share was $0.00, compared with $0.07 in the second quarter 2013. However, adjusting for some one-time items, non-GAAP earnings per share grew 22.2% to $0.55. The quarter’s result was better than the analysts’ average expectation of $0.45 per share.
Fiscal 2014 guidance revised upwards
Considering the demand for 3D printing and growing popularity of MakerBot, Stratasys raised its fiscal 2014 outlook. It now expects revenue in the range of $750 million-$770 million, up from a previous $660 million-$680 million range. Non-GAAP EPS is expected in the range of $2.25-$2.35, versus previous guidance of $2.15-$2.25. On the other hand, it expects operating expenses to keep moving up.
It also raised its organic revenue growth forecast to at least 30% for fiscal 2014, up from previously expected 25%. For the long run, the company aims for a 25% organic revenue growth, up from prior guidance of at least 20%.
There are lot many opportunities that can take Stratasys’ business growth higher. The company expects improved demand from its dental solutions with the introduction of two low-cost entry-level systems. Moreover, the integration of newly acquired Solid Concepts and Harvest Technologies will help it to meet customers’ additive manufacturing needs efficiently. All in all, Stratasys had a great quarter and looks well poised to deliver many more of such quarters.