Stratasys' Earnings Increase; Stock Pops 20%

Stratasys (SSYS +0.63%) reported third-quarter 2018 results before the market open on Thursday. Revenue increased nearly 4% year over year, GAAP loss per share narrowed significantly, and earnings per share (EPS) adjusted for one-time items jumped 38%. 

Shares soared to a closing gain of 19.9% on Thursday. We can likely attribute the market's exuberance to three factors: adjusted EPS coming in better than many investors were probably expecting, GAAP net loss narrowing to the point of almost breakeven, and the company increasing its full-year adjusted earnings guidance. 

Stratasys' results: The raw numbers

Data source: Stratasys. GAAP = generally accepted accounting principles. 

Stratasys generated $5 million in cash from operations during the quarter and ended the period with $348.9 million in cash and cash equivalents.

GAAP gross margin was 48.7%, up from 48.3% in the third quarter of 2017. Adjusted gross margin edged down to 52.1%, from 52.5% in both the year-ago period and last quarter.

For some context -- though investors shouldn't pay too much attention to Wall Street's near-term estimates -- analysts were looking for adjusted EPS of $0.06 on revenue of $161.9 million. So Stratasys comfortably beat the earnings consensus and met the top-line expectation.

Image source: Getty Images.

What happened with Stratasys in the quarter?

Here's how segment results broke out for the quarter: 

Data source: Stratasys. 

Service revenue growth drove overall revenue growth. Within products, 3D printer revenue was flat; consumables (print materials) revenue increased 3%; and customer support revenue, which mainly includes revenue from service contracts, jumped 7%.

While one quarter doesn't make a trend, 3D printer revenue coming in flat with the year-ago period is encouraging. In the second quarter, this metric declined 8.2%, while it dropped 21% in the first quarter. 3D printer sales are central to the company's business model in that they drive sales of the high-profit-margin print materials, and service contracts. 

What management had to say

Here's what interim CEO Elan Jaglom had to say in the press release:

We are pleased with our results this quarter, reflecting continued strength in our high-end systems orders, utilization rates and our parts services business. The level of engagement we are experiencing with customers in our key verticals is encouraging, as we highlighted at the recent International Manufacturing Technology Show. And we are excited about the innovation we plan to bring to market to drive incremental, long-term opportunities, as we continue to invest in new products and materials across our portfolio of FDM and PolyJet technologies, our new metal additive manufacturing platform, and advanced composite materials.

Looking ahead

Certainly, Stratasys made good progress in the quarter with GAAP EPS nearly breakeven and adjusted EPS solidly increasing. That said, keep in mind a sustainable turnaround will depend upon the company being able to profitably grow revenue -- and while there was revenue growth in the quarter, it was a modest 4% year over year. 

The company narrowed its full-year 2018 revenue guidance range, with the midpoint slightly decreasing, and increased its full-year adjusted EPS outlook. While the higher earnings guidance is naturally a positive, part of the increase appears to be due to the company ratcheting back its full-year projection for capital expenditures by $5 million at the midpoint.

Data source: Stratasys.