Stratasys Stock Drops Despite Q4 Earnings and Revenue Beating Expectations

Shares of Stratasys (SSYS +1.85%) fell 8.4% on Wednesday, following the 3D printing company's release of its fourth-quarter and full-year 2021 results before the market open on Wednesday.

Shares had been up over 7% soon after the market open on Wednesday, but declined steadily throughout the day. This dynamic is probably at least in part attributable to some short-term traders deciding that the post-earnings release pop made for a good time to take some money off the table in light of the escalation in the Russia-Ukraine crisis. 

Overall, Stratasys' report was better than Wall Street had expected. Fourth-quarter revenue and earnings both beat the consensus estimate, and guidance for full-year 2022 also came in higher on both the top and bottom lines than analysts had been projecting. It's possible, however, that some investors might have been disappointed at management's broad profitability outlook for the first half of the year.

For some context, shares of Stratasys' longtime rival, 3D Systems, dropped 3.8% on Wednesday. (3D Systems is scheduled to report its Q4 results after the market close on Monday, Feb. 28. Here's what to watch in 3D Systems' report.)

Image source: Getty Images.

Stratasys' key quarterly numbers

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

Investors should focus on the adjusted numbers, as these strip out one-time items. The decline in adjusted operating income was driven by lower operating expenses in the year-ago period because of the four-day work week the company instituted during the earlier stages of the pandemic.

The year-ago period's GAAP net income included a one-time $14 million tax benefit. In other words, absent this benefit, the year-ago period's GAAP net income (and hence, GAAP EPS) would have been negative.

In Q4, Wall Street was looking for an adjusted loss per share of $0.01 on revenue of $165 million, as outlined in my earnings preview. So, the company beat both expectations. It also slightly exceeded its own revenue guidance, which was for growth of 16% year over year. It did not provide an earnings outlook.

The fourth quarter's GAAP gross margin was 43.7%, down from 46.4% in the year-ago period. Adjusted gross margin landed at 48.7%, down slightly from 49.5%.

The company generated $4.4 million of cash from operations during the quarter, down from $23.7 million in the year-ago period. It attributed the decline to higher inventory purchasing. It ended the quarter (and year) with $502.2 million in cash and cash equivalents. With this cash level and no debt, Stratasys' balance sheet remains in great shape.

For context, in the third quarter, Stratasys' revenue surged 24% year over year to $159 million, surpassing the $150.1 million Wall Street had expected. 

Quarterly segment results driven by 3D printer sales

Data source: Stratasys. YOY = year over year.

Within the product segment, 3D printer ("system") revenue jumped 26% year over year and consumables (print materials) revenue grew 12%. Solid 3D printer revenue growth is a particularly good sign because printer sales drive sales of high-profit-margin consumables.

"Our strong execution and results for the fourth quarter were driven by growth across all technologies and regions. Revenue was up over 17%, led by systems growth of 26% as we delivered our highest systems sales in three years, helping to generate our sixth consecutive quarter of positive operating cash flow," CEO Yoav Zeif commented in the earnings release.

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NASDAQ: SSYS

Stratasys

Today's Change

(1.85%) $0.16

Current Price

$8.79

Key Data Points

Market Cap

$757M

Day's Range

$8.76 - $8.97

52wk Range

$7.34 - $12.81

Volume

872K

Avg Vol

882K

Gross Margin

42.45%

Guidance 

For the first quarter of 2022, management guided for revenue to grow in the high-teens percentages year over year. This is somewhat stronger than the revenue growth of 14% Wall Street had anticipated. 

For Q1, the company didn't provide a bottom-line outlook. But it did say that it expects the full-year adjusted operating margin to be "slightly above 2%, with small losses in the first half and profitable contribution in the second half of the year." So, it's probably safe to assume that management projects the adjusted bottom line to be negative in the first half of 2022. Some investors might have been disappointed with management's projected profitability picture for the first half of the year.

For full-year 2022, management guided for revenue of $680 million to $695 million, representing annual growth of about 12% to 15%. This growth outlook is higher than the growth of 11% analysts had expected.

For 2022, the company also guided for adjusted net income of $10 million to $13 million, or $0.14 per share to $0.19 per share. Going into the report, the Street had been modeling for 2022 adjusted EPS of $0.12, so the company's outlook was brighter than expected. For context, in 2021, it posted an adjusted loss of $0.07 per share. 

Solid progress 

Stratasys made solid progress in its turnaround efforts in the fourth quarter of 2021. And it's a positive that its full-year 2022 outlook is somewhat brighter than Wall Street had expected. That said, investors should keep in mind that guidance is just a projection. Moreover, the company is still posting losses from a GAAP standpoint.

In other words, cautious optimism is probably the best way to view Stratasys stock as a long-term investment. Over the near term, things could be rocky for this stock and the market in general because of the Russia-Ukraine conflict, especially since Federal Reserve interest rate hikes are likely on the immediate horizon.