Stratasys, Ltd.

tender offer to acquire Stratasys following the offer's expiration on July 31st, 2023. Nano also announced that it withdraw its director nominees for the Stratasys board at our annual general meeting of shareholders that took place yesterday. We thank our shareholders for their feedback and are pleased that our shareholders voted to re-elect each of Stratasys director nominees to continue supporting our efforts to execute on our strategy to deliver significant long-term growth and maximize value for our company and our shareholders. That said, The purpose of this call is to discuss our financial and operating results, and we ask that you keep your questions to that. Turning to the results, our strong second quarter results represent another consecutive quarter of solid performance marked by record recurring revenues from consumable sales and customer service revenues. These results demonstrate the success of our winning strategy, which includes our leadership position in 5 polymer additive manufacturing technologies, resilient business model, and strong financial profile. The work we've done to execute our strategy has put us on track to achieve our medium-term forecast as a standalone company of generating more than $1 billion in organic revenue in 2026, without significant M&A activity, in addition to making substantial improvements in profitability over the coming years. We believe that this expectation will be further bolstered by the addition of desktop metal. Together, we believe we are positioned to achieve outsized growth and create long-term shareholder value for years to come. We accomplish these results against the ongoing challenging macro backdrop that continues to be marked by slower growth and higher interest rates as the global economy works to overcome recent periods of high inflation. Despite the macro situation, I'm pleased that customer demand and our engagement with both our installed base and new customers is stronger than ever. Our results show that our customers recognize that we offer a unique combination of industry-leading polymer technologies, the broadest set of polymer materials, a unified software platform across the portfolio, unmatched go-to-market capabilities, and excellent customer service. But we are not stopping there. Our suite of technology offerings continues to expand as we broaden our customer reach and gain share, particularly in manufacturing applications. Our resilient and recurring business model delivered adjusted gross margin this quarter that were 90 basis points higher compared to the year-ago period and 120 basis points higher sequentially. Additionally, we improved OPEC spending as a percentage of revenue relative to the corresponding period last year. As a result of our efforts, and despite the headwinds faced I'm proud that we delivered positive adjusted earnings per share for the eighth consecutive quarter. Our vision for the future of additive manufacturing and our leadership position in this industry is more robust than ever. We ended the quarter with a strong balance sheet of over $200 million in cash and equivalents and no debt. even after the closing of Covestro assets acquisition. This continues to support our growth through organic investments and accretive acquisition opportunities, including early stage but highly compelling technology-driven businesses, which we believe will further improve results as we leverage our infrastructure and experience to strengthen operations. Now, let me touch on some of the milestones we achieved in the second quarter of 2023. In dental, the second quarter was the first quarter of availability for our entry-level J3 dentajet printer, as well as our disruptive digital denture solution, TrueDent. And we are off to a fast start. The new J3 DentaJet for mixed trade of various dental parts has seen strong U.S. and EMEA customer response. And as noted last quarter, TrueDent is the only FDA-cleared, full-color, monolithic, 3D-printed denture solution on the market. We have already sold a number of these systems. including to Posca Brothers, Artisan, and Express, three U.S. dental labs. Notably, the top five producers of dentures in the U.S. are either committed or deep within their evaluation process and likely to buy. We are also still on track for European availability next year and have already engaged with the top ten European denture producers. The feedback has been excellent. and we look forward to updating you next year when we receive CE approval and can begin commercialization. As a reminder, Denture is an over $5 billion addressable market with only 5% coming from additive manufacturing today. Our leading technology and offerings are designed to further penetrate that impressive time and will drive sales in a large and growing segment. On the industrial side, we had a strong quarter for the Stratasys F900, our largest format FDM system, designed for high-end parts and tooling applications. Most of the units were sold into aerospace, automotive, and defense verticals. For production part manufacturing, F900 purchases included existing customers such as BMW and Lucid for factory production tooling, the U.S. Air Force, and new customers including Comac, the commercial aircraft corporation of China, which purchased two units to begin their path toward FDM flight parts. After a successful beta program featuring customers in the U.S. and EMEA, we launched our PA-12 material for SAF. PA-12 is a highly versatile polymer and the most requested material in powder bed fusion. Combining PA-12 with the consistency of SAF technology opens up a world of high-volume applications that require advanced level of dimensional accuracy with a lower cost per part. Along with our channel partners, TCL Hoffman in Australia, we announced a partnership with walk-in show Andretti United Racing Team to encode the new AM hub with a new Stratasys 42450MC 3D printer. Their second such printer. The team uses 3D printing to prototype and produce parts faster and more accurately. that perform exceptionally well in challenging racing environments. We are proud of the continued progress and contributions our technologies are making in the highly demanding arena of automotive racing all over the world. Also in automotive, we announced that Peugeot has integrated our innovative 3D fashion technology into the interior of its new inception concept. achieving a level of resolution not possible using traditional embellishment methods. The car incorporates a revolutionary interior design and features advanced materials produced exclusively using Stratasys J850 textile 3D printers. Turning to medical. In the second quarter, we forge a joint development and commercialization agreement with Cold Plant Biotechnologies to transform healthcare with industrial-scale bioprinting of tissues and organs. The initial focus of the relationship will be around development of bioprinting solution for cold plants regenerative breast implants and represents a $2.6 billion opportunity Further, the combination of our P3 technology-based bioprinter with their Rh collagen-based bio-inks is ideal for future innovation and production of additional human tissues and organs. Both companies have agreed to cross-promote their respective bioprinting products, and we look forward to collaborating toward a successful commercialization. of ColdPlant's novel regenerative breast implants and beyond. Just last week, we celebrated the FDA clearance of Axial3D's automated cloud-based medical segmentation software. As a reminder, we invested in Axial3D, a cloud-based, AI-driven 3D printing platform that enables easy segmentations of CT and MRI scans for anatomic models. Healthcare providers and medical device company use a cloud service to quickly go from scan to 3D printed anatomic models without large upfront capital expenses. Therefore, the ability and scalability can help accelerate adoption of 3D printed medical models across thousands of hospitals. This is an important milestone, as the ability to help global medical device manufacturers deliver patient-specific surgical solutions holds the promise of multi-million dollar agreements with them. And the key is speed and efficiency. FDA clearance is expected to provide a major boost towards scaling up production processes. Turning to slide 9. Early in the quarter, we announced the revenue-generating premium version of our flagship GrabCut print software. GrabCut Print Pro is designed to improve efficiency of the print preparation process for our FDM and SAF customers, and will be extended to our other 3D printing technologies in the months ahead. We are now automatically attaching it to new FDM and SAF system purchases. We generate a recurring revenue stream. Rabkat Print Pro also includes capabilities from our Riven acquisition integrated as accuracy center, which reduces the number of prints in order to achieve even more accurate parts. You may recall that last year, We acquired Riven, an AI software company, which helps customers quickly create consistently accurate and used production parts at scale. The response is encouraging, with several initial purchases during the quarter, including Boeing, Over 75 companies are trialing GrabCut Print Pro and we have plans to roll out an additional revenue generating software solution later this year. As we continue to focus on adding value for customers while increasing recurring revenue through significant software enhancements. During the second quarter, we closed the acquisition of Covestro's additive manufacturing materials business. which expands our differentiated 3D printed materials offering in stereolithography, DLP, and powders to address more manufacturing industry applications. We welcome the R&D facilities, global development, and sales teams around the world. A portfolio of 60 materials for additive manufacturing and their extensive IP portfolio to our leading suite of consumables offerings. The addition of Covestro yielded immediate results and contributed to another record quarter of consumable revenues. We expect to introduce new materials resulting from the acquisition later this year. Our technological innovations Best-in-class sales channels and key partnerships are contributing to our effort to build on our meaningful foundations for growth that will drive our industry leadership for long term. I will now turn the call over to our CFO, Eitan Zamir, to share the financial results and updates on our outlook for the rest of 2023. Eitan?

Thank you, Yoav, and good morning, everyone. As Yoav mentioned, we achieved another quarter of solid results against a persistently challenging backdrop in our customers' capital spending cycles. We are particularly proud of how we improved both growth and operating margin. We chose the progress we continue to make in driving efficiencies across the platform. Overall, our results reflect the resilience our diversified offerings provide, the signs of acceleration in sales of manufacturing-oriented systems, and the continued strong utilization of our systems by our customers. Now, let me dive deeper into the numbers. For the second quarter, consolidated revenue of $159.8 million was up 2% adjusted for constant currency and Makeabot relative to Q2 2022. In aggregate, revenue was down 4.1% and down 3.7% at constant currency compared to Q2 2022. OEM revenue, which excludes both Makeabot and FDM, was up 3.3% at constant currency from prior year period. Product revenue in the second quarter declined by 5.7% to $109.1 million compared to the same period last year and was up 1.5% excluding make-a-bought and on a constant currency basis. Within product revenue, system revenue declined by 17.9% to $48.3 million compared to $58.9 million in the same period last year. Excluding MakerBot and at constant currency, system revenue was down 8.1%. On a sequential basis, system revenues grew 19.4%, indicative of the improving conditions we see in the market and the continued strong levels of engagement we see with our customers. Specifically, we saw strength in automotive, aerospace, and government for true production of end-use parts, as you have noted earlier. Consumables revenue rose by 6.9% to $60.8 million compared to the same period last year, and rose by 7.3% on a constant currency basis, and by 10.8% at constant currency excluding Makeable. This represents another record level for Stratasys. Service revenue, including SDM, was $50.7 million, essentially flat as compared to the same period last year. After backing out SDM, it was up 3.8% and up 4.1% at constant currency. And our customer service revenue was the highest ever, a further testament to the growing utilization rates of our system. Within service revenue, customer support revenue, excluding divestitures, grew 8% compared to the same period last year, and increased by 8.5% on a constant currency basis. Now turning to gross margins, GAAP gross margin was 41.5% for the quarter, compared to 40.5% for the same period last year. Non-GAAP gross margin was 48.5% for the quarter, compared to 47.6% in the same period last year. The improvement in gross margin was driven by lower freight costs and the divestiture of makeable, which helped offset lower year-over-year hardware sales. Gap operating expenses were $99.9 million compared to $90.9 million during the same period last year. The increase in gap operating expenses reflected, in large part, our one-time extraordinary costs associated with nano-dimension expired partial tender offer and withdrawn proxy contest, 3D systems proposals, and the combination we announced with Desktop Metal. Non-GAAP operating expenses were $72.5 million compared to $77.4 million during the same period last year. This decrease reflects the divestiture of MakerBot and tight OPEX management, which more than offset the inclusion of Covestro in the quota. Non-GAAP operating expenses were 45.4% of revenue for the quarter, compared to 46.4% for the same period last year, as we continue to focus on operational efficiency improvement. We continue to manage our costs, delivering relatively low OPEX to improve non-GAAP operating profitability, despite the lower revenue reflecting the scalability of our model. Regarding our consolidated earnings, gap operating loss for the quarter was $33.7 million compared to a loss of $23.5 million for the same period last year, reflecting the one-time extraordinary cost described earlier. Non-gap operating income for the quarter was $5 million compared to $1.9 million for the same period last year. The change is attributable to a 110 basis point improvement in non-GAAP OPEX as a percentage of revenue, which more than offset the decline in revenues. GAAP net loss for the quarter was $38.6 million, or $0.56 per diluted share, compared to a net loss of $24.4 million, or $0.37 per diluted share, for the same period last year. The increase in GAAP net loss was due in large part to the costs associated with Nano Dimensions' expired partial tender offer and withdrawn proxy contest, 3D Systems' proposals, and the combination we announced with Desktop Metal, which are excluded from non-GAAP. Non-GAAP net income for the quarter was $2.5 million or $0.04 per diluted share, compared to net income of $1.2 million or $0.02 per diluted share in the same period last year. We're proud to report that this was our eighth consecutive quarter of delivering positive net income on an adjusted basis. Adjusted EBITDA was $10.6 million for the quarter, compared to 7.4 million in the same period last year, which reflects a 220 basis point improvement year over year on a percentage of revenue basis. As you see on slide 16, we used 23.2 million of cash in our operations during the second quarter, compared to the use of 22.8 million of cash in operations for the same quarter last year. The use of cash was primarily driven by the timing of annual incentive payments, increases in accounts receivable, and costs associated to acquisitions, proxy contests, and related professional fees. We ended the quarter with $205.4 million in cash, cash equivalents, and short-term deposits, which in part reflects the impact of closing Covestro in the quarter. Our balance sheet and cash generation remains strong. Specifically, we are well capitalized and well positioned to capture value enhancing market opportunities as they are identified, including the pending transaction with Desktop Metal. Now let me turn to our outlook for 2023 and the medium term. We are reiterating our revenue guidance of 630 million to 670 million. Due to timing, we anticipate continued sequential quarterly growth this year, with third quarter higher than second quarter, and the fourth quarter should be our largest. From a gross margin perspective, we continue to expect full year 2023 to be in the range of 48% to 49%, with improved year-over-year growth in the second half of 2023. We expect our margins to get back over 50% next year. In 2023, we expect our non-GAAP operating expenses to be in the range of approximately 290 to 300 million. We continue to expect non-GAAP operating margins to be in the range of 2.5% to 3.5% for the full year. In the medium term, we expect non-GAAP operating margins to achieve double digits as our growth plan unfolds. We anticipate a GAAP net loss of $115 to $96 million, or $1.66 to $1.39 per diluted share. a non-GAAP net income of $9 to $17 million, or $0.12 to $0.24 per diluted share for the full year of 2023. Our GAAP results and thus our outlook includes the one-time extraordinary costs associated with the proxy contest and merger-related activities. Adjusted EBITDA is expected to be in the range of 35 million to 50 million for the year. Capital expenditures are expected to range between 20 to 25 million for the year. Despite the near-term challenges that persist due to macroeconomic conditions and the corresponding capital investment down cycle by our customers, we are reiterating our medium-term targets discussed on our last call. Those targets are for non-GAAP growth margins, about 50%, and positive free cash flow starting next year. By 2026, we continue to expect our revenue from organic growth to surpass $1 billion, with adjusted EBITDA margin surpassing 15%, driven by our innovative growth engines as we penetrate further into manufacturing and healthcare applications. Please note these figures are for Stratasys standalone and do not include anticipated benefits from our pending combination with Desktop Meta. In summary, we generated strong financial results against the continued challenging backdrop and we remain encouraged by the level of engagement with our customers and confident in our long-term growth and profitability potential. With that, let me turn the call back over to Yoav for closing remarks. Yoav? Thank you, Eitan.

Our customers' appreciation and adoption of 3D printing continues to grow as we are an increasingly essential part of their efforts to bring more agility, flexibility, and profitability to their global manufacturing operations. I also want to acknowledge and thank the employees of Stratasys. They have furthered the execution of our strategy with excellence, helping to make Stratasys the healthiest, and the strongest growing business in our industry. We look forward to the future and we remain unwaveringly committed to delivering on our plans as we seek to generate long-term value for our shareholders. With that, let's open it up for questions. Operator?