Impressive 4Q for Stratasys

Stratasys Inc. (SSYS - Analyst Report) reported earnings per share of 28 cents in the fourth quarter of 2011, outpacing the Zacks Consensus Estimate by 2 cents.

Revenue

Stratasys reported total revenue of $43.57 million in the fourth quarter of 2011, up 28.3% from $33.96 million in the year-ago quarter. The sales momentum was particularly strong during the final weeks of the year, resulting in a record year-end backlog, which includes over $12 million in system orders. Consequently, the company looks to be well positioned as we begin 2012.

System shipments totaled 700 units for the fourth quarter of 2011, up from 632 units for the same period last year.

Segment wise, revenues from Products came in at $36.20 million, up 32.2% from $27.39 million reported in the year-ago quarter. Services revenue jumped 12.0% to $7.37 million from $6.58 million in the year-ago quarter.

Operating Results

Gross profit stood at $22.8 million (52.5% of the total revenue) in the quarter, up 32.9% from $17.2 million (50.6% of the total revenue) in the year-ago quarter. Significant gross margin improvement was witnessed as revenue growth exceeded the increase in cost of sales.

Operating income in the quarter was $8.89 million versus $6.15 million in the fourth quarter of 2010. However, operating expense increased 26.5% year over year, primarily due to higher R&D and SG&A expenses. The growth in higher-margin products as well as a continued favorable product mix of high-margin products contributed to the quarter’s significant margin expansion.

The company reported net income of $5.78 million or 27 cents per share in the fourth quarter compared with $4.30 million or 20 cents per share reported in the prior-year quarter. Non-GAAP net income, which excludes certain discrete items but includes stock-based compensation expense, came in at $6.11 million or 28 cents per share in the fourth quarter compared with $4.20 million or 20 cents per share in the year-ago quarter.

Balance Sheet

The company exited the fourth quarter with cash and cash equivalents of $20.1 million, up from $15.2 million in the previous quarter. The company does not have any long-term debt.

Guidance

For fiscal 2012, the company expects revenue in the range of $175 million to $190 million. Earnings are expected in the range of $1.02 to $1.13 per share.

Conclusion

The company reported impressive fourth quarter results with EPS exceeding our expectation and revenue improving on a year-over-year basis. Additionally, the company’s new collaboration with technology-major Hewlett-Packard Company (HPQ - Analyst Report) is expected to drive growth going forward. This apart, the increasing revenue generation ability of the newly acquired Solidscape is another positive for the company.

However, we are a bit apprehensive about the company’s high-cost business model and stiff competition from big and small players like 3D Systems Corp. (DDD - Snapshot Report).

The company has a Zacks #3 Rank, which implies a short-term Hold rating on the stock.