Stratasys Reports Record Q1 Financial Results

MINNEAPOLIS—(BUSINESS WIRE)—May 1, 2008— Stratasys, Inc. (Nasdaq:SSYS) today announced record first quarter financial results. The results and financial guidance have been adjusted to reflect the two-for-one stock split completed in August, 2007.

Revenues rose to $30.7 million for the first quarter ended March 31, 2008 over the $27.3 million reported for the same period in 2007. Revenue from proprietary products and services increased by 16% over the same period last year. System shipments totaled a record 577 units for the first quarter of 2008, the highest quarterly unit shipments in the companys history.

GAAP net income increased 20% to $3.8 million for the first quarter, or $0.18 per share, compared to GAAP net income of $3.2 million, or $0.15 per share, for the same period in 2007.

Stock-based compensation expense required under Financial Accounting Standard (SFAS) 123R was approximately $261,000 net of tax, or $0.01 per share for the first quarter of 2008, and approximately $212,000 net of tax, or $0.01 per share, for the same period in 2007. The reconciliation between this non-GAAP adjustment and our GAAP financial measures is provided in a table at the end of this press release.

The first quarter of 2008 also included an impairment charge of approximately $257,000 net of tax, or $0.01 per share. This non-operating charge is an adjustment to the fair value of an auction rate security investment that became illiquid as a result of a failed auction.

We are very pleased with our strong first quarter financial performance, especially in light of the prevailing concerns over a weakening global economy, said Scott Crump, chairman and chief executive officer of Stratasys. Our margins improved significantly over last year, a result of strong sales of new products. Approximately 80% of our total system revenue was generated from products introduced since the start of 2007.

Our first quarter system sales represented the highest level, in terms of units and revenue, for any quarter in our companys history. In addition, growth in operating profit of 24% was our fastest growth in operating profit within the past year. The first quarter results were led by the standout performance of our proprietary high-end system business, which grew by 29% over last year, our fastest growing business during the quarter.

The high-end system business benefited from strong demand for our new products, driven in part by new opportunities from customers using our systems for direct digital manufacturing (DDM) applications, or the manufacture of end-use parts. DDM applications represent incremental growth to our traditional design applications. Our introduction of the FDM 900mc in December of 2007 directly targets this sizable new market opportunity, and we are increasingly excited about this emerging market.

3D printer revenue increased by 19% during the first quarter, driven by the successful introduction of our premium-priced Dimension 1200es line in February, as well as the relatively strong demand for our higher-priced Dimension Elite. We were pleasantly surprised that our premium 3D printers represented approximately 89% of 3D printer units sold during the first quarter, a more favorable product mix than we had anticipated.

Favorable product mix was a major factor in our margin expansion during the quarter, as higher average printer prices combined with relatively stable printer manufacturing costs. The success of the new 1200es and resulting product mix trends demonstrate an opportunity to expand the 3D printer market by improving system functionality and performance. These growth opportunities supplement our longer-term strategy of growing the market by making the systems more affordable.

Although total order volume in our paid parts business increased by 26% in the first quarter, total revenue declined by 12% versus last year. The comparison to the first quarter of 2007 was exceptionally difficult for our paid parts business, as we generated several large orders, which enhanced revenue during the 2007 period. We continue to evaluate and improve upon our sales and marketing efforts for our paid parts service, and have seen a recent increase in first-time orders.

Our proprietary consumables business grew by 14% during the first quarter. The new ABSplus material offered on the Dimension Elite and 1200es lines has improved the functionality of our 3D printers, and has been well received by our customers. Although quarter-over-quarter consumable growth can be impacted by the timing and shipment of distributor purchases, the growth trend remains the same. We expect the growth in consumable revenue will accelerate from first quarter levels as we move through the balance of 2008.

Although we have observed some small signs of weakness in our domestic markets, overall we continue to experience strong global demand for our products. The trends are similar to the conditions that leading companies within the CAD software space have reported, suggesting the market for 3D products remains under penetrated and ripe for growth. Its worth noting that international sales of proprietary products and services increased 23% during the first quarter, versus a 10% increase in domestic sales.

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