Stratasys' total non-GAAP revenue grows by 54% in first quarter 2014

Stratasys Ltd.May 9 2014

Stratasys Ltd. (NASDAQ: SSYS) today announced first quarter financial results.

Total non-GAAP revenue grew by 54% in the first quarter, and 33% when excluding the revenue contribution from MakerBot products and services, over the same period last year. System and consumables revenue grew by 40% and 29%, respectively, when excluding the contribution from MakerBot products. MakerBot branded products and services contributed $20.6 million to first quarter revenue, a 79% increase over the revenue that MakerBot generated as an independent company during the first quarter of 2013.

Sales of the company's higher-margin products and services drove a significant increase in non-GAAP gross margin for the first quarter, which expanded to a record 60.9% compared to 59.0% for the same period last year.

Operating margin expansion during 2014 within the company's core business is expected to be offset by aggressive investments in new market and product development for MakerBot products.

Q1-2014 Financial Results Summary:

• GAAP revenue for the first quarter of 2014 was $150.9 million. Non-GAAP revenue of $151.2 million for the first quarter of 2014 represents a 54% increase over the $98.2 million non-GAAP revenue for the same period last year.
• GAAP net income for the first quarter was $4.1 million, or $0.08 per diluted share, compared to a loss of $15.5 million, or ($0.40) per basic share, for the same period last year.
• First quarter per share calculations relative to last year were impacted by the issuance of approximately 5.2 million new ordinary shares in the September 2013 public offering which raised a net amount of approximately $463 million; and the approximately 3.9 million new ordinary shares issued in consideration for the acquisition of MakerBot in August of 2013.
• Non-GAAP net income was $20.6 million for the first quarter, or $0.40 per diluted share, compared to non-GAAP net income of $17.6 million, or $0.43 per diluted share, reported for the same period last year.
• Non-GAAP gross margins improved to 60.9% for the first quarter compared to non-GAAP gross margins of 59.0% in the same period last year; GAAP gross margins improved to 51.5% for the first quarter compared to gross margins of 38.4% in the same period last year.
• Operating expenses expanded materially in the first quarter over last year driven by significant investments in sales and marketing programs to support new MakerBot product introductions, as well as from increased R&D investments to fund technology innovation and new product development.
• The company invested a net amount of $15.3 million in R&D projects (non-GAAP basis) during the first quarter, representing 10% of non-GAAP net sales; R&D expense was $16.8 million on a GAAP basis.
• The non-GAAP effective tax rate declined to 3.8% for the first quarter compared to the non-GAAP effective tax rate of 15.1% in the same period last year. The GAAP effective tax rate was 915.8% for the first quarter compared to 4.6% in the same period last year as a result of business combination tax accounting.
• The company generated $4.9 million in cash from operations during the first quarter, and currently holds $607.5 million in cash and cash equivalents, and short term bank deposits, amounting to $12.3 per share.
• Non GAAP EBITDA for the first quarter amounted to $26.0 million.
• The company sold 8,802 3D printing and additive manufacturing systems during the quarter, and on a combined pro forma basis, a cumulative 84,620 systems worldwide as of March 31, 2014.

"The rapid adoption of our higher-margin products and services remained impressive during the first quarter, which helped drive strong organic revenue growth of 33% during the period and contributed to a significant increase in our gross margin over last year," said David Reis, chief executive officer of Stratasys. "In addition, MakerBot products revenue remained strong, and we continued to invest aggressively in sales, marketing and product development initiatives that we believe will drive incremental growth over the coming periods. We are very pleased with our first quarter results and we remain on track to meet our financial projections for the year."

Business Highlights:

• Announced agreements to acquire Solid Concepts and Harvest Technologies, which are intended to create a leading strategic platform to meet customers' additive manufacturing needs through an expanded technology and business offering.
• Recognized strong order flow for the new Objet500 Connex3 Color Multi-material 3D Printer, the first and only 3D printer to combine colors with multi-material 3D printing.
• Began shipping the new MakerBot Replicator 3D Printer, and announced the availability of the MakerBot Replicator Mini Compact 3D Printer and MakerBot Replicator Z18 3D Printer for preorder, with shipping expected before the end of the second quarter.
• Completed the global alignment of the company's R&D and Operations that resulted from the Stratasys-Objet merger.
• Announced and closed the acquisition of certain assets of Interfacial Solutions, designed to strengthen materials R&D and enable the vertical integration of material development and manufacturing.
• Announced Endur, an advanced simulated polypropylene material suitable for high-end prototyping applications, for use with all Objet EdenV, Objet Connex, Objet500 Connex3 and Objet30 Pro 3D Printers.

"We believe the platform created by our pending acquisitions of Solid Concepts and Harvest Technologies will allow us to offer a comprehensive solution for our customers, and will help drive incremental growth opportunities," continued Reis. "In addition, we continue to position Stratasys for future growth through enhancements to our organizational structure, and through strategic investments in channel, product and technology development. We believe these investments, combined with our ongoing acquisitions strategy, will support our growth objectives and position of market leadership going forward."

Financial Guidance:

Stratasys reiterated the following information regarding the company's projected revenue and net income for the fiscal year ending December 31, 2014:

• Revenue guidance of $660 million to $680 million.
• Non-GAAP net income of $113 million to $119 million, or $2.15 to $2.25 per diluted share.
• GAAP net income of $10.5 million to $19.9 million, or a $0.20 to $0.38 per diluted share.
• The company expects organic sales, excluding MakerBot sales, to grow at least 25% over 2013, with additional growth coming from MakerBot, which is expected to grow at a higher rate.

Stratasys provided the following additional information regarding the company's performance and strategic plans for 2014:

• Financial guidance excludes for the impact of the company's pending acquisitions of Solid Concepts and Harvest Technologies. The transactions are expected to be completed early in the upcoming third quarter, subject to customary closing conditions, and are expected to be accretive to Stratasys' Non-GAAP earnings per share within the first 12 months after closing.
• Operating expenses are projected to expand materially in 2014 driven by investments in sales and marketing programs to drive future market adoption, as well as by increased R&D investments to fund technology innovation and new product development.
• Incremental sales and marketing investments will focus on expanding sales channels, enhancing regional infrastructure, and building unique go-to-market programs targeting certain market verticals and customer applications.
• Compared to the first quarter, Non-GAAP operating margins are expected to ramp higher for the remainder of 2014, and are projected to remain relatively consistent for the full year when compared to the level recognized in 2013.
• Operating margin expansion in the company's core business is expected to be offset by a full-year impact from MakerBot, which is investing aggressively in market development and new product introductions.
• Projected Non-GAAP net income is expected to be derived disproportionately from the second half of fiscal 2014, driven by the projected timing of operating expenses, as well as the projected timing and success of new product introductions and their corresponding ramp up in sales.
• Capital expenditures are projected at $50 million to $70 million, which includes significant investments in manufacturing capacity in anticipation and support of future growth.

Non-GAAP earnings guidance excludes $64.8 million of projected amortization of intangible assets; $25.1 million to $28.2 million of share-based compensation expense; and $8.8 million to $9.8 million in non-recurring expenses related to acquisitions.

Appropriate reconciliations between GAAP and non-GAAP financial measures are provided in a table at the end of this press release. The table provides itemized detail of the non-GAAP financial measures.

Stratasys Ltd. Q1-2014 Conference Call Details

Stratasys will hold a conference call to discuss its first quarter financial results on Friday, May 9, 2014 at 8:30 a.m. (ET).