Stratasys, Ltd.

Greetings and welcome to the Stratasys Q1 2025 earnings call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. Should anyone require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Yona Lloyd, Chief Communications Officer and VP of IR. Thank you. You may begin.

Good morning, everyone, and thank you for joining us to discuss our 2025 first 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 provided 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 Stratus' annual report on Form 20F for the 2024 year. Please also refer to that annual report along with our reports filed with or furnished to the SEC throughout 2025 for additional operational and financial details. Reports on Form 6-K that are furnished to the SEC on a quarterly basis and throughout the year provide updated current information regarding the company's 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-GAAP to GAAP 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 solid first quarter performance continues to demonstrate the resilience of our recurring revenue model and the high utilization rate across our customer base. Our results reinforce our confidence in expanded implementation for years to come. The robust demand for consumables, which grew 7% sequentially underscores the enduring value placed in Stratasys additive manufacturing systems. Our strategic positioning remains excellent as we continue benefiting from our ongoing investments in R&D that support the introduction of innovative products, materials, and software solutions to serve our customers and enhance our presence as a digital manufacturing leader. Our long-term value creation strategy focuses on high growth end users driven by powerful megatrends. These include supply chain improvement through on-shoring, next-generation mobility, sustainability initiatives, and the continuous pursuit of manufacturing efficiency and cost reduction through a disciplined, market-focused approach. centered around the most compelling use cases, while paying close attention to our margin profile, we have established the foundation for Stratasys' profitable growth. To help drive our strategy, early in the second quarter, we closed on Fortissimo Capital's $120 million strategic investment in the company. bringing our cash and equivalent to approximately 270 million with no debt. This significant transaction brought YuvalCoin Fortissimo founding and managing partner with over three decades of financial experience to our board of directors. His innovative approach has created tremendous value for his firm and the companies in which they have invested. And we look forward to Yuval's contribution to our board. Before diving into the quarter, let me touch on how we are thinking about the ongoing tariff situation. Last quarter, we shared that from our perspective, we are relatively exempt from this issue. Most of our printers and materials are produced in the U.S. or in Israel. We are monitoring the news cycle closely. And at this time, we continue to expect no material revenue impact. In terms of our costs, we are reviewing various mitigation scenarios that can be quickly deployed if needed. As a reminder, additive manufacturing is ideally suited as a solution for high-tariff environments, as it promotes manufacturing locally, quickly, and cost-effectively. Tariffs can actually serve as a long-term positive business catalyst, and we look forward to increase activity with our customers as we demonstrate these benefits. Turning to new technology offerings and customer success, beginning with hardware. We launched the NEO 800 Plus, an advanced air lithography 3D printer that builds on the success of the NEO 800. With significant performance enhancements, for industries that benefit from large, accurate, high fidelity parts. The new model incorporates technology that boosts printing speed by up to 50% while maintaining precision. Enhanced reliability features and real-time environmental monitoring maximize uptime and consistency at faster scan speeds Without compromising quality, together with our GrabCAD print build preparation software, complementary post-processing solutions, and the new improved portfolio of materials, the NEO 800 Plus provides a complete SLA ecosystem that streamlines production workflows for applications in automotive, aerospace, wind tunnel testing, prototyping, and tooling. We launched this exciting new technology alongside Rivian Automotive, an ENCO customer, at the Rapid Trade Show in April. In aerospace, a recent and exciting example of manufacturing flight-grade parts is Boom Supersonic, where our FDM portfolio is helping to build the next generation of supersonic commercial jets. Their XB-1 jet broke the sound barrier during the first quarter, and we were proud that over 350 end-use parts on the aircraft were made using our system. Our FDM also printed over 750 drill guides for use during aircraft assembly, as well as the Starlink mount on the chase plane to support live streaming of the event. As an example of how additive manufacturing has a clear economic advantage, the flight-controlled test ring tooling for the XB1 resulted in a 90% savings on cost and lead time as compared to conventionally produced alternatives. And we are proud to mark the 10th anniversary of our Fortus 450MC. with the launch of the Gen3 model, an upgraded factory floor ready solution designed for high strength tooling and production applications. With 92% of units installed over the past decade still in use, the Fortus 450MC and its reputation is a reliable FDM workhorse. The new Gen3 builds on that legacy. with bundled hardened components for advanced materials like nylon 12CF, a license for full access to the Photos 450MC material portfolio, and enhanced processing capabilities with included GrabCut Print Pro for great precision and productivity. Additional upgrades in the coming months include support for glass-filled fire-resistant materials, and features to enable faster build time, expanding the system's application range for jigs, fixtures, and other factory-ready parts. The Fortus 450 MC Gen 3 reinforces Stratasys' commitment to delivering reliable, connected solutions that help manufacturers boost output, reduce costs, and streamline operations. On the material side, we reached another significant milestone in our effort to scale and accelerate adoption of qualified additive manufacturing with the launch of two new validated Antero materials for the Stratasys F900. These were developed through rigorous qualification collaboration with industry leaders, including Northrop Grumman, Boeing, and BAE Systems. and several defense organizations, including U.S. Navy and Air Force. These advanced industrial solution materials meet stringent requirements for mission-critical applications in aerospace, defense, and other highly regulated industries. The materials offer exceptional resistance to extreme temperatures and harsh chemicals, enabling manufacturers to confidently adopt 3D printing with proven reliability, reduced qualification cost, and consistent performance across production sites, empowering faster innovation and deployment of additive manufacturing for qualified end-use application throughout enterprise operations. We also introduced PolyJet Tough1, an advanced material that addresses a key point of feedback from our customers, providing PolyJet with functional prototyping capabilities to expand the amount of use cases. The material combines exceptional design precision with functional strength for our high-end platforms, enabling engineers and designers to create prototypes and end-use parts without compromising between aesthetic and durability. StaffOne allows engineers to move from concept to functional testing faster while maintaining precision and performance, and it integrates seamlessly with other PolyJet materials to enable hybrid models that combine different mechanical properties or colors within a single part. Now, over to Eitan to review our financials. Eitan?

Thank you Yoav, and good morning everyone. This quarter demonstrated the continued resilience of our operating model, a key differentiator relative to competitors in our sector. as well as the fast actions of our team as we delivered significant OPEC savings and bottom line profit despite pressure on revenues. These solid results were thanks in part to a quarter of sequential growth in consumable sales and full run rate contributions from the cost control initiative we began in the middle of last year. Now let me get into the details of our numbers. For the first quarter, consolidated revenue was $136 million compared to $144.1 million in the same quarter in 2024, as customers continue to defer major capital spending until market uncertainty subsides. Product revenue in the first quarter was $93.8 million compared to $99.2 million in the same period last year. Service revenue was $42.2 million compared to $44.9 million in the same period last year. Within product revenue, system revenue was $31.2 million compared to the $32.9 million we produced in the same period last year. Consumables revenue was $62.6 million compared to $66.3 million in the same period last year. that on a sequential quarterly basis, consumable revenue was up approximately 7%. Utilization rates of the system we have sold remain strong, and we expect consumable revenue to grow on a full year-over-year basis in 2025 relative to 2024. Within service revenue, customer support revenue was $30 million compared to $31.4 million in the same period last year. Now turning to gross margins. GAAP gross margin was 44.3% for the quarter, compared to 44.4% for the same period last year. Non-GAAP gross margin was 48.3% for the quarter, compared to 48.6% in the same period last year. The modest decline versus the prior year period was driven in part by the lower revenue. GAP operating expenses were $72.6 million, 53.4% of revenue, compared to $88.4 million, or 61.3% of revenue, during the same period last year. The reduction in expenses was due to our cost savings initiative, and by not having the expenses associated with the strategic review process that we conducted in 2024, among other items. Non-GAAP operating expenses were 62.6 million, 46% of revenue, compared to 71.2 million, or 49.4% of revenue, during the same period last year, due primarily to lower employee-related costs, including benefits from the cost-saving initiative announced later on last year. Regarding our consolidated earnings, GAAP operating loss for the quarter was $12.4 million compared to a loss of $24.5 million for the same period last year. Non-GAAP operating income for the quarter was $3 million compared to an operating loss of $1.2 million for the same period last year, reflecting the impact of reduced operating expenses due to our cost-cutting efforts. GAAP net loss for the quarter was $13.1 million or 18 cents per diluted share compared to a net loss of 26 million or 37 cents per diluted share for the same period last year. Non-GAAP net income for the quarter was 2.9 million or 4 cents per diluted share compared to a net loss of 1.7 million or 2 cents per diluted share in the same period last year. Adjusted EBITDA was 8.2 million for the quarter compared to 4.1 million in the same period last year. From a cash flow perspective, we generated 4.5 million in cash from operating activities compared to 7.3 million in the same period last year. We ended the quarter with 150.1 million in cash, cash equivalent, and short-term deposits, relatively flat as compared to year-end 2024. Our balance sheet remains strong, currently at $270 million and no debt after being bolstered by the $120 million in cash contributed by Fortissimo Investment in Stratasys in early April, strengthening our ability to act on value-enhancing opportunities. Now let me turn to our outlook for 2025. We are reiterating our expectation that full year 2025 revenues will range between 570 to 585 million, with revenues growing sequentially through the year. We are also reaffirming non-GAAP gross margin, operating expenses, operating margins, and adjusted EBITDA, and capital expenditures. and we expect to see year-over-year growth in both operating and free cash flow. Please refer to the press release for additional details. We are raising our earnings per share outlook. As a result of the Fortissimo investment, our share count as of April 8 went up by approximately 11.65 million shares. Our outlook assumes the Fortissimo investment will generate interest income throughout the entire year of 2025, and that this interest income will more than offset the dilution to our earnings from the higher share count. As a result, we are raising our earnings forecast as follows. We now expect gap net loss to be in a range of minus 64 to minus 49 million. an improvement as compared to the previous range of minus 68 to minus 53 million dollars. We also now expect GAP EPS to improve to a range of minus 80 cents to minus 61 cents per diluted share, as compared to the previous range of minus 93 to minus 72 cents, We're also increasing our non-GapNet income guidance to a new range of $24 to $30 million, as compared to the previous range of $20 to $26 million, and EPAs to a range of $0.30 to $0.37 per diluted share, as compared to the previous range of $0.28 to $0.35 per diluted share. With that, let me turn the call back over to Yoav for closing remarks. Yoav?

Thank you, Eitan. Our start to 2025 establishes a solid foundation for the year ahead. Stratasys is exceptionally well positioned. Thanks to our strategic cost management initiative, continuous product innovation, and growing integration into our customer's manufacturing workflow. Our strong financial position, bolstered by the Fortissimo investments, expands our capability to pursue both organic growth opportunities and strategic acquisitions that align with our vision for a creative expansion. We have refined our strategic focus to target the most promising applications while enhancing our customer engagement approach through improved go-to-market strategies and comprehensive user education programs. Our unwavering commitment to increasing profitability while maintaining financial discipline ensures we are optimizing for both near-term performance and long-term value creation. With our strong portfolio across systems, consumable and software, Stratasys is ideally positioned to capitalize on market momentum when capital investment cycle accelerate. With that, let's open it up for questions. Operator?

Thank you. We will now be conducting a question and answer session. Please limit yourselves to one question and one immediate follow-up. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. The first question is from Brian Drab from William Blair. Please go ahead.

hey good morning uh thanks for taking my questions great to see you guys are off to a solid start to the the year um i just yeah uh i first just wanted to just a point of clarification on the tariffs um when you're uh importing a system from israel to the united states um how does the tariff affect you and do you pay the tariff on the cost of goods maybe because you're shipping it from Israel to your headquarters and then distributing it from there or how is that affecting your cost of goods currently?

Thank you, Brian. Yes, exciting times we are experiencing now. So just addressing directly your question, when we are importing from Israel to the U.S., we pay on the cost of goods sold and currently the new tariff is 10%. for the next 90 days, at least. Who knows? But it's not material, to be honest.

Okay, understood. That was my understanding, and I just wanted to check. And then second question is, you know, what type of economic situation are you embedding into the forecast for the second half? You know, there are a lot of – a lot of expectations for challenges in North America and the United States and Europe for a challenging macro environment. And it feels from the call like you're fairly optimistic about the second half of the year. So I want to understand how you're viewing the situation.

Thank you, Brian.

So, you know, based on the uncertainty or considering the uncertainty in the market, we reiterated our guidance, our numbers that baked and based on the visibility that we currently see. And they baked a second half that is slightly higher in revenue terms than the first half, similar to almost every year, and there's also seasonality in there. But I just want to remind you and everyone, and I think we said that in the last call, due to the uncertainty, our focus was to secure in the short term this year at the bottom line to bring the 8% EBITDA and to make sure, of course, if the market opens earlier and recover earlier, that will just increase and improve the situation. But we focused on securing EBITDA, and of course, we still, as we mentioned in the previous calls, we do see a sequential increase every quarter, including Q2, and then second half stronger than the first half.

Yeah, and it's clear that there is uncertainty here. But we still stick to this forecast that will be slight increase both over the quarter, also slight increase in Q2. And, you know, it's like a personal wish that some time in the future things will stabilize and there will be a new equilibrium. And the nice thing here that we are working internally on the cost structure and on the assets that we have like the relationship with our customers the position in aerospace and defense and key use cases making sure we are delivering the best service so when manufacturing come back to normal we are in the best position to capture profitable growth going forward all right thanks for taking my questions

The next question is from Greg Palm from Craig Hallam. Please go ahead.

Yeah, thanks. This is Danny Egerich on for Greg today. Appreciate you taking the questions and congrats on the good results. I think let's hit on consumables here. Obviously, as you mentioned, kind of a nice bounce back quarter after a little bit of softness last quarter. Maybe just a bit more color on what you kind of saw throughout the quarter in terms of activity, utilization, how that trended through the quarter, and what you've seen so far through April with your customers.

Sure. Thank you, Danny. As you mentioned, we're back, and I believe that in the last call we discussed this as well.

We're back to the 62, 63 million level. We do see higher utilization as we progress into manufacturing more and more, and that's something that we've discussed in the previous calls as well. We still expect 2025 full-year consumable to be higher than the 2024 full-year consumable revenue. So we do see the demand. And, you know, quarter by quarter, of course, we will continue to deliver. And, again, it's more and more shifting to manufacturing that has higher utilization and more consumer, of course.

Okay. Thanks. Maybe now that we've got kind of that cash infusion from Fortissimo, maybe how we should think about capital allocation moving forward, maybe increased near-term appetite for M&A, and I know we got the buyback out there, just maybe how we should think about that.

Yeah, thank you for the question. So as we know, industry continues to consolidate. Our industry is struggling, and the result is a shakeout and consolidation. You know all the examples. The primarily expected use of the capital from Fortissimo is in organic growth. And as we said also last quarter, we had the privilege over the last few years to learn the industry in depth through several processes. So we really understand the environment, we understand the peers, and we have a good understanding of the industry and the potential value creation. And now add to it the market prices of the assets currently that exist in the market. Those are great opportunities and we are in the driver's seat practically to capture this value creation. Because we work so hard and our teams work so hard to create a stable, financially healthy company, which put us in a good position going forward We do, of course, only moves that make sense and are completely aligned with our strategy, which is focusing on proven use cases to penetrate manufacturing full solutions, build recurring revenues models. We believe in recurring revenues in material and software. And then all the consolidation has to align with our strategy. And we are keeping profitability in mind whatever we will do. This is a priority for us.

Okay. That all sounds good. I'll pass it along.

The next question is from Troy Jensen from Cantor Fitzgerald. Please go ahead.

Hey, gentlemen. Congrats on the sustained profitability here. Maybe to that point, just start with you, Etan. Just R&D spending down a lot sequentially and kind of will below where it's been all of last year. Can you just talk about what was cut primarily, and then is this the kind of run rate you think on R&D going forward?

Sure, Troy. So first of all, it's not a cut. It was focused, and if you go back to the second quarter 2024 earning call when we announced the restructuring plan, I believe that we discussed this in thorough. We continued to invest in R&D. in the right areas, in the right technologies, in the right use cases. I think I mentioned that before, if you look on our R&D as a percentage of revenue, we continue to deliver, to keep it at the level that is very similar to the multi-year R&D percentage. So this is, in fact, proving the continuous investment. It's just more focused, it's not cut, and that's consistent with our plan.

Okay. All right. And maybe for Yoav here, I want to talk just kind of generically about the low end. I know you guys got your subsidiary with Ultimaker, MakerBot, but competition from Bamboo Labs and what is it doing to just kind of F1, 2, 3 sales?

Thank you, Truman, for the question. Maybe just to add to what Ethan said about R&D, I want to mention that we have excellent teams across our different technologies, which put reliability above everything. And I will connect it to the Bamboo Lab. We put reliability above everything. And since you have good relationships in the industry, you can also talk with our customers You know, the one big differentiation that we have, that our additive works, and it's industrial grade. Now let's take it to bamboo labs and the low-end. This is not our area. From the beginning, when I joined Stratasys five years ago, I said, okay, prototyping is great, but it will be commoditized. The low-end prototype will be commoditized. This is not the way to leverage the unique assets and capabilities that Stratasys has. We have an amazing relationship with the key players and the key verticals like aero, defense, automotive, dental, medical. Those guys will never buy Bambula. It's just between of us now. We'll never buy Bambula. Why? Because they care about reliability, They care about the total cost of ownership, which is the full solution. They care about how accurate is the part and the properties of the part. And they care about someone that will be there for them for enablement and service. And this is our focus. Okay, it takes time. We are penetrating into manufacturing. By the way, it's good that the industry is growing at the low end people are more exposed and have awareness of additive manufacturing. But when they want to move from a toy to a real machine, they will go to strategy. So I think it's good for all of us that everyone is doing well. And we are focusing, as I said, just to sum up, on industrial manufacturing. The high end of the market where we will continue to add value. And even our F123 can deliver properties, and geometries that the current new machines cannot deliver. And this is our market, and this is our focus.

Yep, I would agree 100%. You guys' reliability, I hear it all the time from the users. So keep up the good work there, and I'm excited to see what you all is going to do with the board changes here. But, I mean, with this position on the board, but thank you.

Thank you.

Thank you.

The next question is from Ananda Barua from Loop Capital Markets. Please go ahead.

Yeah, guys. Good afternoon. Thanks for taking the questions. Really appreciate it. I guess just, too, if I could, sort of at a higher level with regards to, you know, sort of maintaining, reiterating the 2025 guide, do you guys – are you guys sort of loud and clear that you aren't seeing any business deterioration yet – Are you having – is there any conversational context that you're having with larger customers that you could share to help us get a sense of how they're thinking about things and, you know, sort of in what's having them not alter their forecast yet, you know, in the big picture? And then I have a quick follow-up. Thanks.

Thank you, Amanda. It's kind of a unique situation that we are facing right now. On one hand, there is so much uncertainty. Macro conditions are not supportive. We see agitation. We see longer sales cycles. This is the bare truth. On the other end, engagement. Our customers are highly engaged and look and explore additive as a tool or a mitigation to the uncertainties. So the demand behind the scene is strong, but there is definitely a constraint on capital expenditure, no doubt. And that's why we need to take a deep breath, keep doing a great job that we are doing, leveraging our assets, and deliver the message of the absolute advantage that additive manufacturing has in different use cases. We benefit our customer with onshoring, with lower cost, with better geometries, with personalization. Only additive can do it. And we shouldn't focus now on the gloomy world and the uncertainty that we are seeing. We should focus on profitability a model of cost that is agile and sustainable and improving our solution that when manufacturing will come back to normal, we are there and we will deliver to the pent-up demand of our customers. This is the idea. And I think that there's no one better than Stratasys. Once we are back to the upward cycle, and it will happen. It will happen.

That's really good context. And let me ask maybe a little bit of a sexier question here. This is another big picture one. I don't think I asked this of you 90 days ago, but, you know, just this whole conversation that's amplified a little bit more over the last 12 months around sex you know, manufacturing factory automation that's been Gen AI kind of catalyzed and, you know, NVIDIA has given, I think in the last 13, 14 months, like four on stage long form presentations around the increased use of robotics energized by Gen AI. You guys fit very nicely into that whole automation conversation. I guess really the question is, is, Is there work going on between you guys and that whole Gen AI community, robotics community, broader automation community to sort of connect into and see whatever that NVIDIA vision is? I know that it's not just NVIDIA doing it. There's a whole ecosystem of companies. They seem to be the flag bearers over the last 13, 14 months. and propagating the vision, you know, sort of the next step forward. So you guys would seem to fit in that conversation really snugly. Just wondering if it's the time where there's efforts actually taking place to sort of further bring together the various communities, or if it's too early to do that. Just trying to get the sense of that. Thanks a lot.

Thank you so much for the question. And full disclosure, we didn't ask you to ask it.

Yes.

The answer is yes. This is the nice thing in editing. We are a digital solution. And the world is becoming more and more digital. And on top of it, we are going to gen AI and robotics and automation. Robotics and automation are benefiting tremendously from editing manufacturing. Why, because all the advantages of additive are there. You need special geometries, you need to consolidate parts, you need the way to have very small batches of production, and on top of it, when we are talking about AI, the whole way and methodology of designing and delivering parts will move to artificial intelligence. We will stick to the computer and we will create digital files that will be printed and used in end use and also in finished goods and models. So we have a unit that is focusing on it. We already have an AI solution out there based on acquisition that we had couple of years ago, where we are correcting the part based on AI. Because one of the main challenges of Editive is the ability to have repeatability and accuracy at first print. We have so much data, and we will leverage all the data that we have to make sure that at first print, you get the best part. We are also working on service model with AI, predictive service model. and so on and so forth. The way we look at it strategically, looking at a big picture, we have relationship with the top corporate in the world. We are asking them, what are you expecting from us on AI? This is one stream, and we call it customer advisory board. And in addition, we have this unit that works independently, brainstorming and trying to innovate on artificial intelligence and how it can transform editing. Very exciting, I have to say. Very exciting, and we work with our customers. We have customer advisory boards like Boeing, like Lockheed, like Northrop, Toyota, and so on, and GM.

Excellent. That's really useful feedback. I really appreciate it. Thanks a lot. Thank you.

There are no further questions at this time. I would like to turn the floor back over to Yoav Zaif for closing comments.

Thank you for joining us. Looking forward to updating you again next quarter.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.