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Press release from Business Wire

Stratasys Reports Record Quarterly Financial Results

<p class='bwalignc'> <i><b>Fortus System Revenue More than Doubles in Q3</b></i> </p>

Wednesday, October 26, 2011

Stratasys Reports Record Quarterly Financial Results07:15 EDT Wednesday, October 26, 2011 MINNEAPOLIS (Business Wire) -- Stratasys, Inc. (NASDAQ:SSYS) today announced third quarter financial results. The company reported record revenue of $39.7 million for the third quarter ended September 30, 2011, a 31% increase from the $30.3 million reported for the same period last year. System shipments totaled 600 units for the third quarter of 2011, compared to 631 units for the same period last year. The company reported net income of $5.9 million for third quarter, or $0.27 per share, compared to $3.2 million, or $0.15 per share, for the same period last year. Non-GAAP net income, which excludes certain discrete items and stock-based compensation expense, was $5.8 million for the third quarter, or $0.27 per share, representing a 69% increase over the non-GAAP net income of $3.4 million, or $0.16 per share, for the same period last year. Solidscape Inc., acquired by Stratasys in April, contributed $2.9 million to revenue and 61 systems, and was slightly accretive to net income during the third quarter of 2011. The company reported revenue of $111.6 million for the nine-month period ended September 30, 2011, compared to $83.3 million reported for the same period in 2010. The nine-month period in 2010 included a $5.0 million one-time non-cash charge against revenue. The charge against revenue was taken in the first quarter of 2010 and represents the fair value of a warrant issued to HP in connection with the distribution agreement signed in January 2010. System shipments totaled 1,902 units for the nine-month period in 2011, compared to 1,923 units for the same period last year. The company reported net income of $14.8 million for the nine-month period, or $0.68 per share, compared to net income of $5.1 million, or $0.24 per share, for the same period last year. Non-GAAP net income, which excludes the warrant charge, discrete items and stock-based compensation expense, was $15.3 million or $0.71 per share for the nine-month period of 2011, compared to non-GAAP net income of $8.9 million, or $0.42 per share, for the same period last year. Solidscape Inc. contributed $5.0 million in revenue and 106 systems, and had a slight negative impact to net income during the nine-month period of 2011. Appropriate reconciliations between GAAP and non-GAAP financial measures are provided in a table at the end of this press release. The table provides itemized detail of the non-GAAP financial measures. “The third quarter, which is typically a seasonally weak period for Stratasys, represented our second consecutive record quarterly performance,” said Scott Crump, chairman and chief executive officer of Stratasys. “Revenue and profitability reached the highest levels in our company's history, driven by the sales of our higher-margin products. Notably, operating profit nearly doubled during the third quarter, and as percentage of sales, it reached the highest level in seven years. “Our higher-priced Fortus line continues to drive our growth and strong margin expansion, as Fortus system revenue more than doubled during the third quarter over last year. This growth was a result of strong sales across our entire Fortus line, which included the successful introduction of the Fortus 250mc. The highly affordable 250mc, which combines the higher functionality of a Fortus 3D production system with the ease-of-use of a Dimension 3D printer, filled a void in our Fortus product line. The new product represents the highest margin system in our portfolio, and was our best-selling system during the third quarter. “Consumables revenue continued to grow impressively during the third quarter, increasing by 26% over last year, and 19% when you exclude the effect of our recent acquisition of Solidscape. The Fortus line is driving a disproportionately higher amount of this growth given the product line's rapidly growing installation base and relatively higher material consumption. Customers using their Fortus equipment for direct digital manufacturing applications, or DDM, remain a primary driver behind this growth. We expect this trend will continue within the Fortus line, which we believe bodes well for future consumable sales. “The unique capabilities of our Fortus line are having a positive impact on our RedEye paid parts business, which grew by 19% in the third quarter over last year. RedEye has recently added several large format Fortus 900mc 3D production systems. These systems can produce very large parts in seven durable thermoplastic materials. The systems were added to address the growing demand for large functional prototypes and DDM parts. The 900mc is uniquely positioned to address those types of applications. “Although we are generating record results, we continue to observe a significant untapped sales potential within the Dimension and uPrint 3D printer lines. We continue to manufacture an HP-branded 3D printer which HP distributes in all major Western European markets. However, our primary focus has turned to developing independent channel strategies that will augment our HP collaboration. We believe our new channel and product initiatives will accelerate the sales of our 3D printers in 2012, and allow us to better capitalize on this significant untapped market opportunity. “We enter the fourth quarter with positive momentum in our Fortus product and RedEye paid parts business. In addition, our consumable business continues to benefit from our growing installation base of Fortus systems, as well as the higher material consumption trends provided by DDM applications. In addition, we are excited about our recent acquisition of Solidscape, which was accretive in the third quarter, and has provided an additional technology platform that we will develop for new applications. “Finally, we are working hard on several new initiatives within 3D printing that we believe will position our products for stronger growth in the coming months. We look forward to completing a successful year and a strong start to 2012,” Crump concluded. Stratasys provided the following information regarding financial guidance for the fiscal year ending December 31, 2012: Revenue guidance of $175 million to $190 million. Earnings guidance of $1.02 to $1.13 per share. Earnings guidance includes the effect of the estimated expense related to employee stock options, which amounts to approximately $0.08 per share for the year. Stratasys plans to hold a conference call to discuss its third quarter financial results on Wednesday, October 26, 2011 at 8:30 a.m. (ET). The investor conference call will be available via live webcast on the Stratasys Web site at www.stratasys.com under the "Investors" tab; or directly at the following web address: http://phx.corporate-ir.net/phoenix.zhtml?p=irol-eventDetails&c=61402&eventID=4206426. To participate by telephone, the domestic dial-in number is 800-215-2410 and the international dial-in is 617-597-5410. The access code is 22425002. Investors are advised to dial into the call at least ten minutes prior to the call to register. The webcast will be available for 90 days on the "Investors" page of the Stratasys Web site or by accessing the provided web address. Kelley Manufacturing Company case study: http://www.stratasys.com/Resources/Case-Studies/Aerospace-FDM-Technology-Case-Studies/Kelly-Manufacturing-Company.aspx. (Financial tables follow)Stratasys, Inc., Minneapolis, is a maker of additive manufacturing machines for prototyping and producing plastic parts. The company markets under the brands Dimension 3D Printers and Fortus Production 3D Printers. The company also operates RedEye On Demand, a digital manufacturing service for prototypes and production parts. In 2011 Stratasys acquired 3D printer maker, Solidscape, Inc. According to Wohlers Report 2011, Stratasys had a 41 percent unit market share in 2010, and has been the unit market leader for the ninth consecutive year. Stratasys patented and owns the Fused Deposition Modeling (FDM®) process. The process creates functional prototypes and manufactured goods directly from any 3D CAD program, using high-performance industrial thermoplastics. The company holds more than 285 granted or pending additive manufacturing patents globally. Stratasys products are used in the aerospace, defense, automotive, medical, business and industrial equipment, education, architecture, and consumer-product industries. Online at: www.Stratasys.com This release is also available on the Stratasys Web site at www.Stratasys.com. Forward Looking Statements All statements herein that are not historical facts or that include such words as “expects,” “anticipates,” “projects,” “estimates,” “vision,” “could,” “potential,” “planning”, “intends”, “desires”, “assume” or “believes” or similar words constitute forward-looking statements covered by the safe harbor protection of the Private Securities Litigation Reform Act of 1995. Except for the historical information herein, the matters discussed in this news release are forward-looking statements that involve risks and uncertainties. These include statements regarding projected revenue and income in future quarters; the size of the 3D printing market; our objectives for the marketing and sale of our Dimension® and uPrint® 3D Printers; our support removal systems; and our Fortus® 3D Production Systems, particularly for use in direct digital manufacturing (DDM); the demand for our proprietary consumables; the expansion of our paid parts service; and our beliefs with respect to the growth in the demand for our products. Other risks and uncertainties that may affect our business include our ability to penetrate the 3D printing market; the success of our distribution agreement with HP; our ability to achieve the growth rates experienced in preceding quarters; our ability to introduce, produce and market consumable materials, and the market acceptance of these materials; the impact of competitive products and pricing; our timely development of new products and materials and market acceptance of those products and materials; the success of our recent R&D initiative to expand the DDM capabilities of our core FDM technology; and the success of our RedEyeOnDemandTM and other paid parts services. They also include statements about future financial and operating results of our company after the acquisition of Solidscape and anticipated benefits of the acquisition. Actual results may differ from those expressed or implied in our forward-looking statements. Such forward-looking statements involve and are subject to certain risks and uncertainties, which may cause our actual results to differ materially from those discussed in a forward-looking statement. Such risk factors include our ability to successfully integrate and market Solidscape products, our ability to retain management and our ability to protect and defend intellectual property. These statements represent beliefs and expectations only as of the date they were made. We may elect to update forward-looking statements, but we expressly disclaim any obligation to do so, even if our beliefs and expectations change. In addition to the statements described above, such forward-looking statements are subject to the risks and uncertainties described more fully in our current report on Form 8-K filed in connection with the completion of our acquisition of Solidscape and in our reports filed or to be filed with the Securities and Exchange Commission, including our annual reports on Form 10-K and quarterly reports on Form 10-Q. Financial Tables & Non-GAAP DiscussionThe information discussed within this release includes financial results that are in accordance with accounting principles generally accepted in the United States (GAAP). In addition, certain non-GAAP financial measures have been provided that exclude certain charges, expenses and income.The non-GAAP measures should be read in conjunction with the corresponding GAAP measures and should be considered in addition to, and not as an alternative or substitute for, the measures prepared in accordance with GAAP.The non-GAAP financial measures are provided in an effort to provide information that investors may deem relevant to evaluate results from the company's core business operations and to compare the company's performance with prior periods.The non-GAAP financial measures primarily identify and exclude certain discrete items, such as the warrant charge, restructuring expenses, and expenses associated with stock-based compensation required under ASC 718.The company uses these non-GAAP financial measures for evaluating comparable financial performance against prior periods.This release is also available on the Stratasys Web site at www.Stratasys.com.STRATASYS, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF OPERATIONS                     Three Months Ended September 30,   Nine Months Ended September 30,2011   20102011   2010     (unaudited)   (unaudited)(unaudited)   (unaudited)   Net sales Products $ 32,255,554 $ 23,966,937 $ 90,521,228 $ 69,526,507 Services 7,440,470 6,291,609 21,048,816 18,785,660 Fair value of warrant related to OEM agreement   -     -     -     (4,987,806 ) 39,696,024 30,258,546 111,570,044 83,324,361   Cost of sales Products 14,868,919 12,695,679 42,647,905 35,805,842 Services   3,273,159     2,853,879     9,382,333     8,627,451   18,142,078 15,549,558 52,030,238 44,433,293         Gross profit 21,553,946 14,708,988 59,539,806 38,891,068     Operating expenses Research and development 3,613,668 2,242,263 10,687,578 7,191,594 Selling, general and administrative   10,083,451     8,403,902     28,738,326     24,385,683   13,697,119 10,646,165 39,425,904 31,577,277         Operating income 7,856,827 4,062,823 20,113,902 7,313,791   Other income (expense) Interest income, net 276,089 217,651 698,469 596,541 Foreign currency transaction losses, net (217,857 ) 227,623 (429,840 ) (570,184 ) Other, net   755,030     48,078     2,264,307     42,093   813,262 493,352 2,532,936 68,450         Income before income taxes 8,670,089 4,556,175 22,646,838 7,382,241   Income tax expense   2,812,920     1,380,625     7,806,524     2,317,635     Net income $ 5,857,169   $ 3,175,550   $ 14,840,314   $ 5,064,606     Earnings per common share Basic $ 0.28   $ 0.15   $ 0.70   $ 0.25   Diluted $ 0.27   $ 0.15   $ 0.68   $ 0.24     Weighted average number of common shares outstanding Basic   21,165,401     20,586,695     21,107,474     20,519,189   Diluted   21,542,674     21,000,804     21,669,848     21,035,559     STRATASYS, INC. AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETS               September 30,2011(unaudited)   December 31,2010     ASSETS   Current assets Cash and cash equivalents $ 15,231,778 $ 27,554,411 Short-term investments - held to maturity 3,047,213 8,797,878 Accounts receivable, less allowance for doubtful accounts of $1,154,709 at September 30, 2011 and $1,094,588 at December 31, 2010 23,766,474 20,051,451 Inventories 21,983,920 17,880,714 Net investment in sales-type leases, less allowance for doubtful accounts of $245,332 at September 30, 2011 and $189,338 at December 31, 2010 2,911,027 3,096,911 Prepaid expenses and other current assets 4,660,515 3,384,394 Deferred income taxes   3,826,000     3,447,000   Total current assets   75,426,927     84,212,759     Property and equipment, net   37,828,246     29,872,945     Other assets Goodwill 25,055,948 867,700 Other Intangible assets, net 25,930,787 5,538,014 Net investment in sales-type leases 4,274,110 3,067,446 Long-term investments - available for sale - 1,185,250 Long-term investments - held to maturity 42,652,402 52,504,650 Other non-current assets   172,490     1,210,867   Total other assets   98,085,737     64,373,927     Total assets $ 211,340,910   $ 178,459,631     LIABILITIES AND STOCKHOLDERS' EQUITY   Current liabilities Accounts payable and other current liabilities $ 15,499,809 $ 14,408,628 Unearned revenues   12,266,830     11,561,521   Total current liabilities   27,766,639     25,970,149     Non-current liabilities Deferred tax liabilities   7,519,500     207,000     Total liabilities   35,286,139     26,177,149     Commitments and contingencies   Stockholders' equity Common stock, $.01 par value, authorized 30,000,000 shares; 26,857,801 and 26,509,518 issued as of September 30, 2011 and December 31, 2010, respectively 268,578 265,095 Additional paid-in capital 116,544,175 107,781,990 Retained earnings 98,225,797 83,385,484 Accumulated other comprehensive loss 20,646 (145,662 ) Treasury stock at cost, 5,687,631 shares as of September 30, 2011 and December 31, 2010   (39,004,425 )   (39,004,425 ) Total stockholders' equity   176,054,771     152,282,482     Total liabilities and stockholders' equity $ 211,340,910   $ 178,459,631     STRATASYS, INC. AND SUBSIDIARIESRECONCILIATION OF NON-GAAP TO GAAP RESULTS OF OPERATIONS       Non-GAAP Adjustments for the Three Months Ended September 30, 2011         Non-GAAP Adjustments for the Three Months Ended September 30, 2010     Consolidated(unaudited)As Reported   Stock-BasedCompensation (1)   Sale of AuctionRate Security (2)   Consolidated(unaudited)Non-GAAPConsolidated(unaudited)As Reported   Stock-BasedCompensation (1)   Consolidated(unaudited)Non-GAAP           Gross profit   21,553,946     -       -       21,553,946     14,708,988     -       14,708,988   Selling, general and administrative expenses   10,083,451     (440,829 )     -       9,642,622     8,403,902     (310,544 )     8,093,358   Total operating expenses   13,697,119     (440,829 )     -       13,256,290     10,646,165     (310,544 )     10,335,621   Operating income   7,856,827     440,829       -       8,297,656     4,062,823     310,544       4,373,367   Other income   813,262     -       (626,188 )     187,074     493,352     -       493,352   Income before income taxes 8,670,089 440,829 (626,188 ) 8,484,730 4,556,175 310,544 4,866,719 Income tax expense   2,812,920     95,585       (232,253 )     2,676,252     1,380,625     48,288       1,428,913   Net income $ 5,857,169 $ 345,244 $ (393,935 ) $ 5,808,478 $ 3,175,550 $ 262,256 $ 3,437,806   Earnings per common share Basic $ 0.28   $ 0.02     $ (0.02 )   $ 0.27   $ 0.15   $ 0.01     $ 0.17 Diluted $ 0.27   $ 0.02     $ (0.02 )   $ 0.27   $ 0.15   $ 0.01     $ 0.16   Weighted average number of common shares outstanding Basic   21,165,401             21,165,401     20,586,695         20,586,695 Diluted   21,542,674             21,542,674     21,000,804         21,000,804                                             Non-GAAP Adjustments for the Nine Months Ended September 30, 2011Non-GAAP Adjustments for the Nine Months Ended September 30, 2010     Consolidated(unaudited)As Reported   Stock-BasedCompensation (1)   Sale of AuctionRate Security (2)   Sale of EquityInvestment (3)   SolidscapeAcquisition (4)   SolidscapeInventoryRevaluation (5)   Consolidated(unaudited)Non-GAAPConsolidated(unaudited)As Reported   Stock-BasedCompensation (1)   Fair Valueof Warrant (6)   Consolidated(unaudited)Non-GAAP     Net sales $ 111,570,044   $ -     $ -     $ -     $ -     $ -     $ 111,570,044 $ 83,324,361   $ -     $ 4,987,806   $ 88,312,167   Cost of sales   52,030,238     -       -       -       -       (561,094 )     51,469,144   44,433,293     -       -     44,433,293   Gross profit   59,539,806     -       -       -       -       561,094       60,100,900   38,891,068     -       4,987,806     43,878,874   Selling, general and administrative expenses   28,738,326     (1,088,025 )     -       -       (615,332 )     -       27,034,969   24,385,683     (931,632 )     -     23,454,051   Total operating expenses   39,425,904     (1,088,025 )     -       -       (615,332 )     -       37,722,547   31,577,277     (931,632 )     -     30,645,645   Operating income   20,113,902     1,088,025       -       -       615,332       561,094       22,378,353   7,313,791     931,632       4,987,806     13,233,229   Other income   2,532,936     -       (626,188 )     (1,204,408 )     -       -       702,340   68,450     -       -     68,450   Income before income taxes 22,646,838 1,088,025 (626,188 ) (1,204,408 ) 615,332 561,094 23,080,693 7,382,241 931,632 4,987,806 13,301,679 Income tax expense   7,806,524     383,481       (232,253 )     (506,655 )     128,812       208,110       7,788,019   2,317,635     257,408       1,796,510     4,371,553   Net income $ 14,840,314 $ 704,544 $ (393,935 ) $ (697,753 ) $ 486,520 $ 352,984 $ 15,292,674 $ 5,064,606 $ 674,224 $ 3,191,296 $ 8,930,126   Earnings per common share Basic $ 0.70   $ 0.03     $ (0.02 )   $ (0.03 )   $ 0.02     $ 0.02     $ 0.72 $ 0.25   $ 0.03     $ 0.16   $ 0.44 Diluted $ 0.68   $ 0.03     $ (0.02 )   $ (0.03 )   $ 0.02     $ 0.02     $ 0.71 $ 0.24   $ 0.03     $ 0.15   $ 0.42   Weighted average number of common shares outstanding Basic   21,107,474                         21,107,474   20,519,189             20,519,189 Diluted   21,669,848                         21,669,848   21,035,559             21,035,559 These adjustments reconcile the Company's GAAP results of operations to its non-GAAP results of operations. The Company believes that presentation of results adjusted for the non-GAAP items described below provides meaningful supplemental information to both management and investors.   (1) - Represents non-cash stock-based compensation expense. (2) - Represents gain on sale of an auction rate security during the third quarter of 2011. (3) - Represents gain on sale of an equity investment during the first quarter of 2011. (4) - Represents expenses for the acquisition of Solidscape, Inc. during the second quarter of 2011. (5) - Represents the revaluation of Solidscape, Inc. inventory at the time of acquisition. (6) - Represents the fair value of a warrant issued during the first quarter of 2010 in connection with the Hewlett-Packard Company OEM agreement.   The Company considers these non-GAAP measures to be indicative of its core operating results and facilitates a comparison of operating results across reporting periods. The Company uses these non-GAAP measures when evaluating its financial results as well as for internal planning and forecasting purposes, however these measures should not be viewed as a substitute for the Company's GAAP results. Stratasys, Inc.Shane Glenn, 952-294-3416Director of Investor Relationsshane.glenn@stratasys.com