Stratasys, Ltd. Q4 and 2014 Earnings: Market Relieved, No Major Surprises

By Markets Fool.com

Stratasys reported its official fourth-quarter and full-year 2014 earnings results before the market opened on Monday.

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For the quarter, the leading 3D printing company increased revenue 40% year over year to $217 million, including organic revenue growth of 26%, while it lost $1.81 per share on a generally accepted accounting principles basis, and earned $0.48 per share on an adjusted basis. For 2014, Stratasys grew revenue 54% to $750.4 million, which translated to a GAAP loss of $2.39 per share, and adjusted earnings of $2 per share.

Investors already knew what to expect with respect to the headline numbers. That's because on Feb. 2, Stratasys shocked the market when itpreannounced preliminary 2014 resultsthat fell short of analysts' expectations and its own guidance, and issued guidance for 2015 revenue and earnings that came in below analysts' estimates.

Stratasys' shares are up nearly 2% in Monday late-morning trading. That's likely because Stratasys' 2014 revenue came in at the high end of its preliminary results range of $748 million-$750 million, its GAAP loss of $2.39 per share came in at the low end of its preliminary range of a loss of $2.58-$2.32, and the goodwill impairment charge of $102 million it's taking for MakerBot also came in at the low end of the range of $100 million-$110 million it previously provided.

Moving beyond the headline numbers and market reaction, here's what investors should know that wasn't known from the preliminary results:

Gross profit margins
Stratasys' adjusted gross margin edged slightly down on both a sequential and year-over-year basis. (Gross margin for the year-ago quarter, Q4 2013, was 60.2% -- 62.9% product and 41.9% service.)

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Source: Stratasys' earnings release.

As I mentioned in my earnings preview, investors should expect Stratasys' gross margin to remain under pressure, at least for the near and intermediate terms. That's due to two factors: MakerBot's gross margins are somewhat less than the company's average margin, so MakerBot has been exerting a downward pressure on product gross margins since Stratasys acquired the desktop 3D printer maker in Q3 2013. Second, Stratasys' on-demand 3D-printing service business sports a lower gross margin than does its product gross margin, and this business grew revenue considerably in the third quarter due to the acquisitions of Solid Concepts and Harvest Technologies. Positively, Stratasys' service margin bounced back nicely after it dipped considerably in Q3 due to the incorporation of these service bureaus into the fold.

The 59.4% product gross margin's dip of 400 basis points sequentially and 350 basis points on a year-over-year basis raises the question: Are average selling prices decreasing? Per CEO David Reis' answer to an analyst's question on the conference call, that's not the case and the company doesn't foresee that happening in 2015. I'll look at this issue in more depth in a conference call highlights article.

2015 guidance and long-term operating model
Stratasys reiterated its 2015 guidance, as previously provided on Feb. 2:

  • Revenue of $940 million-$960 million
  • Non-GAAP EPS of $2.07-$2.24
  • GAAP net loss of ($0.45)-($0.20) per share
  • Capital expenditures of $160 million-$200 million
  • Total operating expenses in the range of 46%-47% of anticipated revenues

Positively, the company also reiterated its long-term operating model:

  • Annual organic revenue growth of at least 25%
  • Non-GAAP operating income as a percent of sales of 18%-23%
  • Non-GAAP effective tax rate of 10%-15%
  • Non-GAAP net income as a percent of sales of 16%-21%.

Final thoughts
Stratasys' Q4 and 2014 earnings release was largely anticlimactic since the company released preliminary resultson Feb. 2. The company's gross margin dipped lower due to its product margin decreasing and its lower-margin service business now accounting for a larger percentage of total revenue because of the two service bureau acquisitions. This wasn't unexpected and isn't a major concern at this point, as the planned leverage payoff will take some time. However, it is something investors should monitor closely going forward. Positively, the company maintained both its 2015 guidance and its long-term operating model.

Look for a conference call highlights article to follow.

The article Stratasys, Ltd. Q4 and 2014 Earnings: Market Relieved, No Major Surprises originally appeared on Fool.com.

Beth McKenna has no position in any stocks mentioned. The Motley Fool recommends and owns shares of Stratasys. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.