Stratasys (SSYS) Down On Revenue Miss, Q2 Earnings Beat

Shares of Stratasys Ltd. (NASDAQ:SSYS) went down more than 4% yesterday after the company reported lower-than-expected second-quarter 2016 revenues. Also, both revenues and earnings decreased year over year, which in turn impacted the share price.

The company reported adjusted income per share (excluding amortization, impairment and other one-time items but including stock-based compensation) of 1 cent as against the Zacks Consensus Estimate of a loss of 7 cents per share. However, the company’s quarterly income decreased on a year-over-year basis.

Quarter Details

Stratasys’ revenues not only declined 5.6% year over year to $172.1 million, but also missed the Zacks Consensus Estimate of $177 million. Product revenues were down 7.8% from the year-ago quarter to $12.7 million. However, revenues from Services increased 1% year over year to $48.3 million. The company’s soft revenues reflect weak performance at its MakerBot business.

Stratasys stated that revenues from the MakerBot business decreased 2% on a year-over-year basis. The decline was primarily due to softness in overall market conditions.

Stratasys’ adjusted gross margin (excluding amortization and other one-time expenses but including share-based compensation) expanded 180 basis points (bps) to 55.5%, primarily due to favourable product mix and lower cost of sales.

The company’s adjusted operating expenses decreased 12.5% year over year to $90.8 million, primarily due to a lower cost structure. Also, as a percentage of revenues, operating expenses decreased year over year from 56.9% to 52.8%. The decrease was primarily due to lower research and development expenses and selling, general and administrative expenses.

The company posted adjusted operating income of $4.7 million in the reported quarter as against adjusted operating loss of $5.9 million a year ago mainly due to lower expenses as a percentage of revenues.

Adjusted net income (excluding amortization, impairment and other one-time items but including stock-based compensation) during the quarter came in at approximately $5.1 million.

The company exited the quarter with cash and cash equivalents and short-term bank deposits of $253.9 million compared with $280.2 million in the previous quarter. Inventories came in at approximately $125.7 million compared with $124.5 million in the first quarter. The company does not have any long-term debt.

Guidance

Stratasys reiterated its full year 2016 guidance. The company expects revenues in a range of $700 million to $730 million (mid-point $715 million). The midpoint of the guidance is above the Zacks Consensus Estimate of $712 million. Non-GAAP income per share is projected between 17 cents and 43 cents. Currently, the Zacks Consensus Estimate is pegged at a loss of 16 cents.

Further, the company expects gross margin to be in a range of 54% to 55%. Operating margin is expected to be in a range of 3% to 5%. Capital expenditure is expected to be in a range of $60 million to $70 million.

Conclusion

Stratasys reported mixed second-quarter results, wherein the top line missed the Zacks Consensus Estimate but the bottom line was better than the same. Also, year-over-year revenue comparisons were unfavourable. The company’s quarterly results were negatively impacted by difficult market conditions and lower-than-expected performance at its MakerBot business. However, the company provided an encouraging guidance for 2016.

But we note that customers are delaying their purchases owing to the current economic conditions. In the 3D printer business, the majority of customers have moved toward the lower-priced uPrint, which may affect the company’s margins in the upcoming quarters. Going forward, competition from 3D Systems Corporation (NYSE:DDD) is also a potent headwind.

Stratasys carries a Zacks Rank #3 (Hold).

A couple of better-ranked stocks in the technology sector are Facebook, Inc. (NASDAQ:FB) and FormFactor Inc. (NASDAQ:FORM) , both of which sport a Zacks Rank #1 (Strong Buy).