Stratasys Reports Record Second Quarter Financial Results

MINNEAPOLIS—(BUSINESS WIRE)—July 31, 2008— Stratasys, Inc. (Nasdaq: SSYS) today announced record second quarter revenue and earnings.

Total revenue rose to $31.3 million for the second quarter ended June 30, 2008 over the $28.2 million reported for the same period in 2007, an increase of 11%. Revenue from proprietary products and services for the second quarter increased by 13% over the same period last year. System shipments totaled 540 units for the second quarter of 2008, versus 564 for the same period last year.

GAAP net income increased 13% to $4.1 million for the second quarter, or $0.19 per share, compared to GAAP net income of $3.6 million, or $0.17 per share, for the same period in 2007. The 2007 results have been adjusted to reflect the two-for-one stock split completed in August, 2007.

Stock-based compensation expense required under Financial Accounting Standard (SFAS) 123R was approximately $268,000 net of tax, or $0.01 per share for the second quarter of 2008, and approximately $131,000 net of tax, or $0.01 per share, for the same period in 2007.

Total revenue rose to $62.0 million for the six month period ended June 30, 2008 over the $55.6 million reported for the same period in 2007, an increase of 12%. Revenue from proprietary products and services for the six month period increased by 14% over the same period last year. System shipments totaled 1,117 units for the six month period, versus 1,112 for the same period last year.

GAAP net income increased 16% to $7.9 million for the six month period, or $0.37 per share, compared to GAAP net income of $6.8 million, or $0.32 per share, for the same period in 2007.

Stock-based compensation expense required under SFAS 123R was approximately $529,000 net of tax, or $0.02 per share for the six month period of 2008, and approximately $343,000 net of tax, or $0.02 per share, for the same period in 2007.

Our second quarter results were driven by the continued strength in our high-end FDM system business, which grew by 33% over the same period last year, said Scott Crump, chairman and chief executive officer of Stratasys. FDM system sales benefited from the ongoing success of our recently introduced products, as customers are valuing their improved functionality for making prototypes. More importantly, they are increasingly using the new systems for making functional parts, also known as direct digital manufacturing (DDM).

Our success in targeting these new applications was highlighted by the recent order for five of our largest additive fabrication systems, the FDM 900mc, which will be used expressly by the customer for DDM. We estimate that approximately one third of all our high end systems sold during the second quarter will be utilized for DDM, in some frequency. We remain excited about these emerging applications, and as the second quarter reflects, we are generating significant incremental business from these new opportunities.

Within the 3D printing business, our direction over the past two years has been a departure from our longer-term vision of driving adoption through greater affordability. Our recent strategy has included the introduction of higher-priced 3D printers that provide customers with improved functionality. This has produced some unanticipated results, as our resellers have focused their efforts on these new systems, resulting in a disproportionately higher level of sales for our full-feature 3D printers compared to the lower-priced units.

While the strong sales of higher-priced 3D printers have positively impacted our average printer prices and margins, total 3D printer unit volume lagged our expectations during the second quarter. We believe this trend reflects the difficulty in selling a relatively new technology to domestic customers that are contending with a weakening environment for manufacturing, and are less inclined to make innovative investments. We believe new initiatives planned for 3D printing over the coming quarters will improve the performance of the business.

We continue to observe positive trends within our paid parts business, as we have instituted organizational changes, and are making improvements to our sales and marketing efforts. Total paid parts revenue increased 5% year-over-year in the second quarter following the 12% decline in year-over-year revenue in the first quarter of this year. In addition, paid parts revenue was up 25% sequentially for the second quarter. Total registrations on our RedEyeRPM.com web site during the second quarter increased by 43%, and the number of first-time customer orders increased by 53% compared to last year.

We were pleased to announce the installation of our 10,000th system in June to Peugeot Citroën, which purchased a high-precision FDM 400mc for the automakers engineering facility. We have now sold more systems in the past three years than in our companys prior fifteen-year history. This expanding base of systems is contributing to growth in our proprietary consumable and maintenance revenue, which both increased by 17% during the second quarter versus last year.

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