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Stratasys Inc. (SSYS - Analyst Report) reported fourth-quarter 2012 earnings per share of 40 cents, beating the Zacks Consensus Estimate of 27 cents.

Revenue

Stratasys recorded total revenue of $96.4 million in the fourth quarter, up 23.0% from $78.3 million in the year-ago quarter. The company witnessed improvements in both product and services revenue.

In the reported quarter, Product revenue grew significantly by 64.2% with the year-ago quarter. The upside was driven by substantial growth in the company’s system and consumable earnings. This apart, Services revenue increased by 58.6% in the fourth quarter of 2012, attributable to the improvement in demand for the company’s higher price for Fortus 3D Production Systems and broad portfolio of PolyJet.

Operating Results

Gross profit stood at $32.8 million (46.1% of the total revenue) in the quarter, up 32.6% from $22.9 million (52.5% of the total revenue) in the year-ago quarter. The gross margin declined as revenue increased at a lower rate than the cost of sales.

Operating loss in the quarter was $4.2 million versus $5.8 million in the fourth quarter of 2011. However, operating expense increased 170.9% year over year, primarily due to higher R&D and SG&A expenses. Operating margin plummeted to a loss of 7.0% from operating profit margin of 20.4% in the year-ago quarter. The company’s product mix affected its operating margin.

The company reported net loss of $3.5 million or 9 cents per share in the fourth quarter compared with a loss of $6.30 million or 17 cents per share in the prior-year quarter. Non-GAAP net income was $16.3 million or 40 cents per share in the reported quarter compared to a profit of $11.6 billion or 30 cents.

Balance Sheet

The company exited the quarter with cash and cash equivalents of $153.9 million, up from $51.2 million in the previous quarter. The company does not have any long-term debt.

Guidance

The company provided its guidance for fiscal 2013, wherein, revenue is expected in the range of $430.0 million to $445.0 million, while the Non-GAAP earnings are anticipated to be $1.80 to $1.95 per share. Moreover, GAAP loss is expected in the range of 41 cents to 16 cents per share.

Conclusion

The fourth-quarter results were encouraging with EPS exceeding the Zacks Consensus Estimate and revenues improving on a year-over-year basis. Moreover, growth in product and services revenue helped the company expand its business substantially.

Previously, the company had stated that Hewlett-Packard (HPQ - Analyst Report) agreed to discontinue its manufacturing and distribution agreement for 3D printers. The discontinuation has been effective since the end of 2012.

Despite a globally increasing demand for 3D printers, Stratasys does not expect the termination to have a material impact on the business fundamentals. 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 Rank #3, (Hold) on the stock. Symantec Corp. (SYMC - Analyst Report), with a Zacks Rank #1 (Strong Buy), might be worth considering at this point.

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