Stratasys, Ltd.

Hello, and welcome to the Stratasys Q4 2022 conference call and webcast. If anyone should require operator assistance, please press star zero on your telephone keypad. A question and answer session will follow the formal presentation. We ask you to please ask one question and one follow-up. As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to Yona Lloyd, Chief Communications Officer and Vice President, Investor Relations. Please go ahead, sir.

Good morning, everyone, and thank you for joining us to discuss our 2022 fourth quarter and full year 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 and for the 2022 year, which will be filed later today U.S. time with the SEC. Please also refer to our operating and financial review and prospects for 2021 and 2022. Please also see the press release that announces our earnings for the fourth quarter of 2022, which is attached as Exhibit 99.1 to a report on Form 6-K that we are furnishing to the SEC today. 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, Yona. Good morning, everyone, and thank you for joining us. Our encouraging and profitable results this quarter demonstrate the resilience of our business, the diversity of our offerings, and the overall fiscal health of Stratasys as we performed well against the challenging environment for our entire industry and the broader economy that continues today. Importantly, we deliver our sixth consecutive quarter of profitability on an adjusted basis. Our strategy is focused on being the leading innovator and provider of polymer-based additive manufacturing solutions. We have a broad, global, diverse set of both organic and acquired technology offerings and unique go-to-market capabilities. We believe that the partnerships we have today and expect to build in the future will drive their increased adoption and ultimately our overall financial results. We remain laser-focused on managing our operations to effectively execute sustained profitable growth for years to come. Our full-year results provide great clarity into the potential power of our business model. We generated top-line growth of 7.3% versus 2021 and taking into account the divestment of MakerBot this past September, we grew 11.4% on a constant currency basis, overcoming inflationary and other pressures that accelerated over the course of the year. Our gross margin for the year, a major focus for the team, was slightly higher Despite these many headwinds, as price increases help offset cost pressures, as our new technologies ramp and our operational efficiencies continue, we expect gross margin will strengthen in the coming years. For full year 2022, our revenues from manufacturing came in at 32.5% of our total revenues, demonstrating the ongoing transition from prototyping to manufacturing at scale. Our customers are undergoing today. I am particularly pleased we were also able to deliver 15 cents in adjusted EPS in 2022. Furthermore, we once again ended the quarter with a strong balance sheet that includes no debt, This continues to provide stability through challenging times and optionality to support our growth through organic investment as well as accretive acquisition opportunities that we uncover. We spoke last quarter about the challenges our customers continue to face that are impacting their purchasing behavior. There are still inflationary pressures and concerns around the potential recession impacting capital spending decisions by our customers. This resulted in headwinds in the second half of 2022 that we still see today, with longer sales cycles and occasional deferrals of order continuing to impact our results. And while these challenges are causing near-term headwinds, The benefits of 3D printing, such as improved production efficiency, better performing parts, reduced logistic costs, and faster time to market, become even more apparent in times like this. Our engagement with customers around all our technologies remains strong, and the results in our service business were the best in eight quarters. It is not worthy that in 2022, recurring revenue increased meaningfully with consumables up 7.7% over 2021, excluding MakerBot, and customer support up 11%, both at constant currency. This reflects the fact that the hardware growth of our install base in 2021 and 2022 is driving utilization, which should positively impact long-term sales of higher-margin consumables as initial supplies are exhausted. 2022 was a year of both focused execution and investment. Over the course of the year, we invested to position ourselves for growth in coming years. We acquired Riven, an AI software company, which helps customers quickly create consistently accurate and used production parts at scale. We invested in Axial 3D, a cloud-based AI-driven 3D printing platform that enables healthcare providers to easily segment CT and MRI scans for anatomic models. We plan to unlock new sales opportunities in materials highlighted by our announced Covestro AM acquisition, expected to close in the second quarter. And MakerBorne joined forces with Ultimaker to form a leading desktop 3D printing company. This move was immediately accretive to our margin, and our large minority stake includes commercial rights to engage their customer as they move through their additive manufacturing journey. We announced our first validated third-party high-performance materials, for Stratasys FDM printers. These materials, along with open material license for FDM and Origin, are expected to generate new business opportunities for Stratasys, such as service bureaus, in the coming years. We also continue to advance our own materials. For example, we collaborated with Lockheed Martin on our Ontario material that is space-ready and published qualification data enabling others in the industry to use it for aerospace parts. And in healthcare, we created realistic anatomic modeling materials for use with CT scans and other images. As we expand our offering to support manufacturing across our entire 3D printing technology portfolio, software is critical to crossing the additive manufacturing chasm from early adopters to early majority. This is evidenced by the fact that we have customers who now use multiple Stratasys technologies and are able to rely on the advantages of having a single software application platform, GrabCAD, across all of them, which is truly a differentiator for us. In 2022, we expanded GrabCAD's integration with many of our offerings, added new software partners to our GrabCAD platform, and introduced GrabCAD print software for the H350 Origin 1 and Origin 1 Dental 3D Printer. I'd like to spend a few minutes giving added details on two of our key end markets in healthcare, dental and medical. The dental opportunity for Stratasys is one of the largest and most exciting growth avenues for us as a company. Our focus remains on non-elective dental parts, such as dentures, crowns, bridges, and surgical guides. The dental industry has an overall time of well over $50 billion and produces the highest volume of end-use parts in additive manufacturing today. We believe the dental sector will become one of our strongest growth rivals in the future. As we noted would happen on our last call, we are very excited to have recently launched TrueDent, a new resin for using dentures. TrueDent was invented at Stratasys and is exclusively compatible with our J5 DentalJet. It enables labs to create permanent, natural-looking dentures with accurate tooth structure, shade, and translucency on one continuous sprint. It is our first FDA-cleared medical device and is specifically for use in the fabrication of removable dentures and temporary crowns and bridges. According to a recent iData study, denture represents an over 5 billion opportunity. Today, of the 4.2 million dentures created annually in the U.S., Only 5% are created digitally. We believe TrueDent provides the leap in workflow efficiency required to move the majority of the industry from traditional dentures to 3D printed ones. In connections with TrueDent, we also announced a partnership with 3Shape, a leader in digital dental workflow. 3Shape has integrated TrueDent into their denture design modules. allowing dental files to seamlessly export to our GrabCut software. Our customer will benefit with the most accurate part possible, created more quickly and affordably than other traditional milling or additive options on the market. We also recently announced the launch of our newest printer, the J3 DentalJet. The J3 is an entry-level, multi-material solution focused on implant models and surgical guides that we believe provides the very best accuracy in the market and is tailored towards small and medium-sized labs that represent two-thirds of all labs in the dental industry. We have timed these two significant announcements with two major dental trade shows in the U.S. and Germany, LMT Lab Day last week and the IDS show later this month. And we are meeting with top dental labs at the show. The result is that we expect to start making measurable progress in 2023 on growing our presence in the large dental industry. Another key growth area for the company is medical. We formally launched our patient-specific solutions. made possible by our Q4 investment in Axial 3D. With this solution, healthcare providers and medical device companies can use a cloud service to quickly go from medical scan to 3D printed anatomical model without large upfront capital expenses. The solution uses Axial 3D's AI-powered software to prepare medical files for 3D printing, and Stratasys 3D printers to provide visual or biomechanically realistic models that are used for preoperative surgical planning and diagnostic purposes, and fulfilled by Ricoh using our digital anatomy J5 MediJet or Origin 1 3D printers. Most surgeons and radiologists are not yet using 3D printed models, and we believe this service offering can be a way to accelerate majority adoption. Importantly, later this year, we plan to launch a prospective clinical study to prove the value of using patient-specific anatomical models as a preoperative surgical planning tool. Stratasys will be the first 3D printing manufacturer to run such a study. positioning us to lead this exciting new area with evidence, new service offerings, new marketing tools, and a supportive pool of key opinion leaders that will be part of this trial. We believe that using 3D printed models as part of preoperative planning can result in a favorable clinical and economical result, and we look forward to sharing more after we conclude the study. I will now turn the call over to our CFO, Eitan Zamir, to share the financial results and our initial outlook for 2023. Eitan?