Stratasys, Ltd.

Good day and welcome to today's conference call to discuss Stratasys' third quarter 2022 financial results. My name is Donna and I'm your operator for today's call. At this time, all participants are on a listen-only mode. A question and answer session will follow the formal presentation. If anyone requires assistance during the event, please press star zero on your telephone keypad. I'd now like to turn the call over to Yonah Lloyd, Chief Communications Officer and Vice President of Investor Relations for Stratasys. Thank you, Mr. Lloyd. Please go ahead.

Good morning, everyone, and thank you for joining us to discuss our 2022 third quarter financial results. On the call with us today are our CEO, Dr. Yoav Zaif, and our CFO, Eitan Zamir. I would like to remind you that access to today's call, including the slide presentation, is available online at the web address provided in our press release. In addition, a replay of today's call, including access to the slide presentation, will also be available and can be accessed through the Investor Relations section of our website. Please note that some of the information you will hear during our discussion today will consist of forward-looking statements including, without limitation, those regarding our expectations as to our future revenue, gross margin, operating expenses, taxes, and other future financial performance, and our expectations for our business outlook. All statements that speak to future performance, events, expectations, or results are forward-looking statements. Actual results or trends could differ materially from our forecast. For risks that could cause actual results to be materially different from those set forth in forward-looking statements, please refer to the risk factors discussed or referenced in Stratasys' annual report on Form 20F for the 2021 year. Please also refer to our operating and financial review and prospects for 2021 and for the third quarter of 2022 which are included as Item 5 of our annual report on Form 20F for 2021 and in Exhibit 99.2 to the report on Form 6K that we are furnishing to the SEC today, respectively. Please also see the press release that announces our earnings for the third quarter of 2022, which is attached as Exhibit 99.1 to a separate report on Form 6K that we are furnishing to the SEC today. Our reports on Form 6K that we furnish to the SEC on a quarterly basis and throughout the year provide updated current information regarding our operating results and material developments concerning our company. Stratasys assumes no obligation to update any forward-looking statements or information which speak as of their respective dates. As in previous quarters, today's call will include GAAP and non-GAAP financial measures. The non-GAAP financial measures should be read in combination with our GAAP metrics to evaluate our performance. Non-gap-to-gap reconciliations are provided in tables in our slide presentation and today's press release. I will now turn the call over to our Chief Executive Officer, Dr. Yoav Zaif. Yoav?

Thank you, Yonah. Good morning, everyone, and thank you for joining us. Our results this quarter demonstrate the ongoing solid business performance and fiscal health of strategies. We delivered our highest third quarter revenue in seven years, as well as five consecutive quarters of positive earnings, demonstrating our unique capabilities to generate profitable growth. And we believe we can continue generating sustained operating profitability for the foreseeable future, assuming no further material deterioration of the broader economic environment. It is a compelling time to be a leader in 3D printing. In fact, many of the challenges facing our target industry today are the same factors that ultimately justify accelerating the transition from traditional to additive manufacturing. These include the ability to adapt rapidly and cost-effectively to logistics bottlenecks, higher transportation costs, new sustainability requirements, and faster product innovation times. Stratasys continues to expand our customer reach across our technologies and our vision of the future of additive manufacturing is more robust than ever. We continue to have strong engagement with both our installed base and new customers for our leading FDM and PolyJet offerings, as well as our three newer technologies. However, the opportunities that we have also come with some obstacles in the current macro space. Customers are facing challenges today that are impacting their purchasing behavior. The market has slowed. resulting in longer sales cycles and occasional deferrals of orders. To that point, we remain laser-focused on controlling what we can to be best positioned to effectively execute sustained profitable growth. Importantly, we have a broad, global, diverse set of offerings across a multitude of systems and materials. The steady contributions from our organic technologies and the incremental revenues from our new technologies enable us to deliver consistent growth with improving margins. We also enhance our results through a relentless focus on cost. We are tightly managing our cost structure as evidenced by the ongoing improved efficiency in our OPEX spending. reflected in the year-over-year 130 basis point improvement this quarter in OPEX as a percentage of revenue. We expect to continue finding efficiencies in the business to further demonstrate the resiliency of our model. As a reminder, our main OEM business is to deliver polymer-based 3D printing solutions through hardware, materials, software, and services, with a focus on shifting more of our revenues from prototyping to manufacturing. Revenue in our OEM business this quarter was up approximately 10% year-over-year at constant currency. Overall, revenues were up 7.8%, excluding divestitures and on a constant currency basis. driven by our highest third-quarter system revenue in six years, which grew 18.9% adjusted for FX and divestiture, compared to the third quarter of 2021. We believe that the contribution from our new technologies, SAS, P3, and NEO, has more than doubled our addressable market and opened up new use cases and opportunities to replace traditional manufacturing across verticals. We are expanding and improving our line of FDM systems and materials, as well as starting to see the positive progress on P3 and SAF, our more recently launched mass production solutions. FDM delivered solid growth this quarter and is still the largest technology in 3D printing today. A recent proof point of the continued demand for FDM is a repeat sale this third quarter to a global automotive OEM for more of our industrial manufacturing-grade F900 system. Furthermore, to fund additional growth, we ended the quarter with a strong balance sheet that includes no debt. This continues to support our growth through organic investments as well as accretive acquisition opportunities that we uncover, including early-stage but highly compelling technology-driven businesses that we believe will contribute to our growth by leveraging our infrastructure. Now, let me turn to some of the exciting achievements and milestones reached since the end of the first half of 2022. We believe that a comprehensive materials offering that competes with and even improves on traditional manufacturing is key for taking 3D printing into true production applications. We are very excited to update you about our progress on this materials journey across all of our technologies. In August, we agreed to acquire Covestro's additive manufacturing materials business, which includes R&D facilities and activities, global development and sales teams across Europe, the US, China, a portfolio of 60 additive manufacturing materials, and an extensive IP portfolio with hundreds of patents and patent spending. Covestro is an example of a business we believe can thrive as it leverages our infrastructure and relationships. It has been an important part of our third-party materials ecosystem, as we are already a distributor of their Somos resins that are available for use in our Neo and OriginOne 3D printers. Adding this business to the Stratasys portfolio provides us ability to offer more complete solutions to customers, accelerate next-generation materials development, and expand our already differentiated materials offerings in stereolithography, DLP resins, and powders. Closing remains on track for the end of the first quarter of 2023 and is expected to be immediately accretive. For FDM, We announced availability of 13 new validated materials in our OpenAM software. This includes several materials from Covestro and partners like Victrex and Chemia. It also includes several existing materials now available in new colors. For materials like Ultem 9085 thermoplastic, this is Significant because it makes it easier for our customers to use 3D printed production parts in more customer-facing applications where aesthetics matters, such as in commercial aircraft and trained car interiors. These 13 materials represent a tremendous acceleration in the pace of new materials innovation for FDM, opening up new applications far faster than ever before. We also introduced two new validated industrial materials for the Origin-1 printer in the quarter. P3 Stretch 475 is a new resin from our partners Henkel Loctite that adds a softer elastomer to our portfolio, which our customers have requested For example, we have a large automotive customer that has been using the material for end-use door seals. In addition, we introduced P3 Deflect 120, which is our first validated material from Evonik. P3 Deflect 120 is designed to stay strong at high temperatures, ideal for applications like molds in manufacturing. We are also excited to have reached a key milestone in the dental industry, which is the largest manufacturing target market in 3D printing today in terms of the amount of materials consumed. And it continues to grow. I'm happy to share that Stratasys has recently received FDA 510K approval of a new revolutionary resin for our J5 dentages that we believe will be a disruptive growth driver for us in the dentures industry. 3D printing of dentures is particularly exciting, as it is only in its ground floor stage. It is a $5 billion addressable market today and growing, and we plan to take a meaningful share over time. We are currently working with several leading industry partners to prepare for its commercialization and look forward to officially launching the solution at LMT Lab Day in Chicago at the end of this coming February. This is a great example of how we are extending the PolyJet end market universe and believe that it has a promising future for non-prototype end-use parts in medical, dental, and fashion applications. In addition to this strategic initiative, we invested in one company and acquired another that will enhance our capabilities in the area of artificial intelligence for 3D printing. Both reflect our strategic plan to incubate innovative technologies by bringing them under our umbrella, cultivating their advancement and positioning them to contribute to our overall long-term growth. And both will be available to our customer in 2023. First, we invested $10 million out of $15 million raised by MedTech startup Axial3D. Axial3D's AI-powered, cloud-based 3D printing platform enables healthcare providers to easily segment CT and MRI scans for anatomic models at a fraction of the cost and time of other solutions. 3D printed models created with our digital anatomy and J5 MediJet systems are used for pre-surgical planning in many leading hospitals. To improve surgery success rates, and patient recovery time. We are now working with Axial 3D on a joint offering that we believe will remove barriers to entry for the majority of hospitals in many of our key markets, allowing our solution to truly become a standard part of patient care. We look forward to sharing more at the upcoming RSNA trade show later this year. Second, we acquired Riven, a closed-loop software company for additive manufacturing. We know Riven well, having watched them grow as one of our connectivity partners. Their cloud-based solution will be fully integrated into our GrabCat additive manufacturing platform. Riven's technology helps customers quickly inspect, diagnose, and automatically correct deviations between CAD files and actual printed parts within a closed-loop additive manufacturing process. This means every step in the process is interconnected from inspection to diagnosis to correction. The latest version in testing uses artificial intelligence to actually predict and pre-adjust model changes in advance. The result is more accurate production runs in much less time, weeks or even months of potential improvement, and at a lower cost, key areas of focus for the manufacturing industry. These are just two examples of companies joining our platform that we believe will help drive our innovation vision forward. To sum up, we are laying meaningful foundations for further growth, and we are proud of the expansion of our capabilities this quarter through new technologies and materials that will drive our industry leadership for the long term. I will now turn the call over to our CFO, Eitan Zamil, to share the financial results and update our outlook for the rest of 2022. Eitan?