Stratasys, Ltd.

Good day and welcome to today's conference call to discuss Stratus's fourth quarter and full year 2025 financial results. My name is Donna and I'm your operator for today. At this time, all participants are on a listen-only mode. A question and answer session will follow the formal presentation. If anyone requires operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to hand the call over to Yonah Lloyd, Chief Communications Officer and Vice President of Investor Relations for Stratasys. Mr. Lloyd, please go ahead.

Good morning, everyone, and thank you for joining us to discuss our 2025 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 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 reports on Form 20F for the 2024 year and for the 2025 year, the latter of which will be filed with the SEC on or about today. Please also refer to our operating and financial review and prospects for 2024 and 2025, which are included as Item 5 of our annual reports on Form 20F for 2024 and 2025. Please also see the press release that announces our earnings for the fourth quarter of 2025, which is attached as Exhibit 99.1, to a report on Form 6K 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-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 fourth quarter performance caps a year in which we successfully maintained our operational discipline, delivered solid cash flow generation, and protected our margin profile, demonstrating once again the resilience that distinguishes Stratasys. Importantly, even in a market environment marked by macro spending constraints, we continued to improve our position in our focus target areas. As we drove positive cash flow and profitability, setting us apart from our industry peers. To that end, as we share each year, in 2025, we generated 37.5% of our revenues from manufacturing. up from 36% in 2024, and from just over 25% when we started tracking in 2020. We expect to see this percentage continue to grow every year, which we see as a key driver of consumable utilization to help deliver increased margins. Throughout 2025, our focus on additive manufacturing, delivering compelling solutions relative to conventional production, resulted in robust customer engagement that was strategically focused. We have made meaningful progress building on the foundational infrastructure of our highest value target use cases, which notably grew in revenue year over year, led by aerospace and defense, as well as automotive tooling, dental and medical. These are not transient opportunities. They represent durable, competitive advantages that position us for sustained leadership as market conditions normalize. Our long-term value strategy continues to center on the powerful megatrends reshaping global manufacturing, increasing aerospace and defense budgets, the corporate drive for efficiency, cost optimization, supply chain localization and on-shoring, next-generation mobility platforms, advancing sustainability mandates, and mass personalization. These secular forces have intensified, and they align directly with additive manufacturing's core trends. Our commitment to innovation remains unwavering, supported by a strong balance sheet, and continued R&D investment. Our cutting-edge products, materials, and software capabilities cement our industry leadership. As we enter 2026, we do so with proven operational excellence, strategic clarity, and a technology portfolio to capitalize on the inevitable return of customer spending. Importantly, in the fourth quarter, we delivered $9.2 million in adjusted EBITDA, a 6.6% margin, and $0.07 in adjusted EPS. We remain confident that when capital spending constraints ease, our operational efficiencies will result in sustainably higher profitability in coming years. We continue to maintain a healthy balance sheet of $244.5 million in cash and equivalents and no debt. This provides stability and optionality that will support our growth through both organic investments and accretive acquisition opportunities. Stratasys is a world leader in industrial polymer 3D printing. for high requirement use cases. We provide comprehensive solutions that include innovative, reliable hardware, the largest portfolio of materials in the industry, award-winning software, post-processing, and full suite of services and support for complete end-to-end workflow solutions. Our leading example of high requirements is aerospace and defense. It is our largest contributing target sector, highlighted in the fourth quarter by the announcement of our transformational partnership with Airbus, which produced over 25,000 flight-ready parts last year using our Ultem 9085 filament. This brings the total certified stratified parts in active service at Airbus to more than 200,000 across the A320, the A350, and A400M aircraft. This collaboration demonstrates through production scale additive manufacturing, delivering 43% weight reduction, 85% lead time reduction, and eliminating minimum order quantities while enabling distributed manufacturing that reduces aircraft downtime and supply chain risk. Beyond Airbus, we are seeing comprehensive solution adoption across the commercial sector. Boeing's 737 Innovation Center purchased two of our newest F3300 printers for production tooling in the fourth quarter. And another leading aircraft manufacturer acquired two more F900s for flight-grade parts, increasing their fleet to nine stratosystems. We also secured strong sales to several major U.S. drone companies for applications such as power production and wind tunnel testing, with extended demand from non-traditional defense primes in unmanned and space sectors. In fact, in 2025, Our top three customers at our SDM parts manufacturing division are all large military drone suppliers. And our fourth quarter sales spanning from startup to traditional primes across multiple F-3300 and F-900 systems for flight-grade parts. Supported by high adoption of premium service contracts, position us at an inflection point where certified additive manufacturing is becoming a mainstream across aviation globally. Automotive continues to demonstrate strong momentum, highlighted by major wins with leading manufacturers, deploying our advanced technologies for production applications. Subaru of America became among the first customers to implement our new T25 high-speed head for the F770 printer, achieving over 50% reduction in tooling development time, 70% cost reduction in prototyping and tooling, and nearly twice the printing speed on large parts compared to standard heads. This breakthrough enabled Subaru to consolidate production in-house, improving repeatability while reducing reliance on outsourced manufacturing with eight to 12-week lead times. Additionally, Rivian's extensive deployment of 28 Stratasys systems demonstrates how technology's scalability with their F900 system operating at over 90% utilization and newer F3300, delivering nearly twice the printing speed, processing 6,000 requests annually, equalling tens of thousands of parts used in product development, tooling, and production. And we are proud to congratulate our performance partner, McLaren Formula One. on winning in 2025 constructors and drivers championships, where they leverage our SLA, FDM, and PolyJet technologies to support race-winning innovation. These partnerships exemplify how automotive manufacturers are integrating additive manufacturing into production workflows. From Formula One racing innovation to electric vehicle manufacturing, position us strongly within the rapid evolving automotive market. Now, let me touch on some recent partnership updates. Evidencing our progress in workflow solutions, we have partnered with Novenir, a leading generative modeling design and simulation software company, to integrate their NoviPath simulation technology into our GrabCAD Print Pro. This creates the industry's first complete validated workflow for FBM that no other 3D printer manufacturer offers. This eliminates costly trial and error testing reducing validation time from weeks to hours, with early customers achieving up to 35% weight reductions on load-bearing parts. The solution position strategies is the production-ready additive manufacturing leader, with early access launching in Q2 2026 for our F3300, F900, and Fortus 450MC systems. We also recently announced two new partnerships. We launched our post-processing partnership program with Post-Process Technologies, a company revolutionizing additive manufacturing with the only automated and intelligent post-processing solutions for 3D printed parts. As the first partner in this area of focus, they enable customers to purchase validated post-processing equipment through a single Stratasys order alongside our system. This simplifies procurement, reduces risk, and addresses the complexity of manual post-processing by providing an integrated solution guaranteeing compatibility across our FDM, PolyJet, SLA, and P3 technologies. This alignment positions us to capture more value across the entire additive manufacturing workflow. And on the go-to-market front, we recently partnered with Oak Ridge Systems, a leading award-winning provider of additive manufacturing engineering and manufacturing tools, technology, services, and training in the U.S. and Canada. The collaboration will expand market reach by adding our PolyJet, SLA, and P3 technologies to their portfolio as we target aerospace, automotive, medical, and industrial customers. This collaboration leverages Oak Ridge's application expertise and customer proximity to accelerate adoption of our industrial printer suite, strengthening our American sales capabilities and driving industrial additive manufacturing momentum. Building on the success of our industrial customer advisory board, which has brought together 14 manufacturing leaders, such as Boeing, Toyota, Lockheed Martin, and TN Connectivity, to advance additive manufacturing at scale, Stratasys has also established a new medical advisory board. Both are focused on strengthening collaboration, with industry leaders to drive innovation to accelerate the adoption of 3D printing in their respective industries. This new medical-focused board convinced clinical and medtech experts in healthcare. The board is focusing on the unique requirements of medical grade applications, regulatory alignment, and patient outcomes. Initial members include eight senior executives from leading medical technology companies, such as Medtronic, the world's largest medical device manufacturer, and Edwards Life Sciences, global leader in structural, heart diseases, and critical care technologies, alongside other organizations spanning pharmaceutical, cardiology, orthopedics, and clinical education. To sum up, Time and again, some of our most exciting use cases are in the most demanding environments and under the most unforgiving conditions. This includes aerospace and defense applications and advanced manufacturing workflow across a multitude of industrial sectors. We continue to deliver differentiated products and solutions to customers as we further penetrate production application at scale, supported by strategic partnerships that provide complete end-to-end additive manufacturing solutions, including simulation, post-processing, and expanded channel reach. The stage is set for sustained growth based on accelerated adoption of additive manufacturing in mission-critical applications. where customers are achieving measurable operational improvements and moving beyond prototyping to true production-scale manufacturing. I will now turn the call over to Eitan to share the financial results and our initial outlook for 2026. Eitan? Thank you, Yav, and good morning, everyone. Our fourth quarter results underscore the operational discipline and financial resilience we have built throughout 2025. Despite persistent revenue headwinds and margin pressures that characterize the year, we delivered positive adjusted operating income and adjusted EBITDA, strong operating cash flow generation, and solid adjusted earnings per share for the full year. This performance reflects the sustained benefits of the cost control initiatives implemented in mid-2024, which are now fully embedded in our operating model as well as our team's continued focus on execution and efficiency. The diversification of our revenue streams continue to provide stability through the cycle and distinguishes our financial profile relative to peers in the sector. As we look to 2026, we remain committed to maintaining this operational rigor while preserving the strategic investments necessary to sustain our technology leadership position. For the fourth quarter, consolidated revenue of 140 million was down 6.9% as compared to the same period last year. Product revenue in the fourth quarter fell to 97.6 million. compared to 105.1 million in the same period last year. Within product revenue, system revenue was 37.8 million, 18% higher sequentially from the third quarter. This compares to 46.7 million in the same period last year, as constrained capital budgets continue to impact customer buying behavior for new systems. Consumable revenue in the fourth quarter was $59.8 million, up 2.4% as compared to the same period last year. Service revenue was $42.4 million for the fourth quarter of 2025, compared to $45.3 million in the same period last year. Within service revenue, customer support revenue was $29.6 million compared to $30.6 million in the same period last year. THE FULL YEAR 2025 CONSOLIDATED REVENUE WAS 551.1 MILLION COMPARED TO 572.5 MILLION IN 2024. REVENUE IN 2025 WAS 380.3 MILLION COMPARED TO 392 MILLION IN 2024. WITHIN PRODUCT REVENUE, SYSTEM REVENUE IN 2025 WAS 131.6 MILLION compared to 140.3 million in 2024. Consumables revenue was 248.7 million in 2025 compared to 261.7 million in 2024. For the full year 2025, service revenue was 170.8 million compared to 180.5 million in 2024. Within service revenue, customer support revenue in 2025 was $119 million compared to $124.7 million in 2024. Now turning to gross margins. Get gross margin was 36.8% for the quarter compared to 46.3% for the same period last year. The result of higher restructuring charges, the tariff impact, lower revenues and change in mix. Non-GAAP growth margin was 46.3% for the quarter, compared to 49.6% for the same period last year. The year-over-year change in growth margin was the result of the tariff impact, lower revenues and change in mix. GAAP growth margin was 41.2% for the full year 2025. compared to 44.9% for the same period last year. Non-GAAP gross margin was 46.9% for the full year, compared 49.2% in 2024. The full year decline in non-GAAP gross margin was a result of the tariff impact, lower revenues, and change in mix. GAAP operating expenses were reduced to an improved 72.2 million for the quarter, compared to 79.4 million during the same period last year. And non-GAAP operating expenses were reduced to an improved 60.8 million compared to 65.2 million during the same period last year, reflecting the impact of cost-saving initiatives previously discussed. Non-GAAP operating expenses were flat at 43.4% of revenue for the quarter, compared to 43.4% for the same period last year. For the full year, non-GAAP operating expenses were 45.4% of revenues, as compared to 48.4% in 2024, primarily due to the cost-saving measures associated with the restructuring plan we announced in August 2024. that had a full year impact in 2025, as well as the additional cost initiative we introduced in the second half of 2025. In absolute dollar terms, non-GAAP operating expenses were $26.7 million lower in 2025 as compared to 2024, due in part to the cost-saving measures from our restructuring plan. Regarding our consolidated earnings for the quarter, gap operating loss for the quarter was 20.8 million, compared to an operating loss of 9.7 million for the same period last year. The change was due primarily to the lower gross profit, partially offset by the lower operating expenses. Non-GAAP operating income for the quarter was $4.1 million compared to $9.4 million for the same period last year, reflecting the lower gross profit partially offset by the lower OPEX due to the cost-saving measures associated with the restructuring plan. GAAP net loss for the quarter was $18.9 million, or $0.22 per diluted share. compared to a net loss of $41.9 million, or $0.59 per diluted share, for the same period last year, which included a non-cash impairment charge of $30.1 million, or $0.42 per diluted share, related to the investment we made in Ultimaker as part of the merger with Makeable. Non-gap net income for the Quartel of $6.2 million, or $0.07 per diluted share, compared to the net income of 8.5 million or 12 cents per diluted share in the same period last year. Adjusted EBITDA was 9.2 million for the quarter compared to 14.5 million in the same period last year. This equates to 6.6% EBITDA margins compared to 9.6% in the fourth quarter of 2024. Regarding our consolidated earnings for the full year 2025, gap operating loss was $72.5 million compared to a loss of $85.7 million for 2024. Non-gap operating income for the year was $8.3 million compared to $4.9 million in 2024. This equates to 1.5% non-gap operating margins compared to 0.9% in 2024. Gap net loss for the year was 104.3 million, or $1.28 per diluted share, compared to a net loss of 120.3 million, or $1.70 per diluted share, for last year. Non-gap net income for the year was 12.7 million, or 15 cents per diluted share, compared to 4.2 million or 6 cents per diluted share last year. Adjusted EBITDA of 28.5 million, 5.2% of revenue compared to 26 million or 4.5% of revenue in 2024. The 9.6% increase reflects the improvement or decrease in operating expenses that more than offset the lower revenues and growth margins. We generated 4.8 million of cash in our operations during the fourth quarter, compared to 7.4 million in the same quarter last year. For the full year, we generated 15.1 million of cash from operations, compared to 7.8 million in 2024. We ended the year with $244.5 million in cash, cash equivalent, and short-term deposits, compared to $255 million at the end of the third quarter of 2025. Our balance sheet and cash generation profile remain strong, supporting our ability to capitalize on value-enhancing opportunities. Now, let me turn to our outlook for 2026. We expect 2026 revenue to be in a range of 565 to 575 million, with revenues growing sequentially each quarter through the year, resulting in higher revenues in the second half of the year as compared to the first. For the year, we expect considerable revenue in 2026 to increase over 2025. We also expect the first quarter to have the lowest revenue and profit margin profile on a relative basis to the rest of the year. Non-GAAP gross margin for 2026 is expected to be in the range of 46.7 to 47.1%, with the second half stronger than the first half, based primarily on the expected drive in revenue over the course of the year. In 2026, we expect our operating expenses to range between 260 to 262 million. This outlook includes anticipated adverse impact from foreign exchange rates as compared to last year. Specifically, if current exchange rates hold for the full year, we expect approximately 10 million of adverse impact on our operating expenses. Absent this factor, and the full year impact of increased tariffs, both of which are beyond our control, we would expect to deliver continued improvement in profitability for 2026. We expect operating income to be in the range of 0.7% to 1.5% of revenue, with the second half stronger than the first half, based on the anticipated rise in revenue throughout the year. We expect a gap net loss of 83 to 67 million, or 95 cents to 76 cents per diluted share, and non-gap net income of 8 million to 12.5 million, or 9 cents to 14 cents per diluted share for 2026. Adjusted EBITDA for 2026 is expected to be in the range of 4.5% to 5% of revenue. or 25 million to 30 million. This range includes approximately 17 million of combined adverse impact from FX and tariffs, and therefore not reflective of the higher profitability we would otherwise expect to deliver, particularly as we grow the top line. We expect our capital expenditures for 2026 to range between 20 and 25 million. Finally, we expect to deliver positive operating cash flow for the full year, subject to uncertainty around FX and tariffs. With that, let me turn the call back over to Yoav for closing remarks. Yoav? Thank you, Eitan. As we begin 2026 and look toward the future, we do so with confidence in our strategic positioning and the fundamental underpinning of our industry. Throughout 2025, we maintained the disciplined execution necessary to navigate challenging conditions while preserving our capacity to lead and increase profit when market dynamics improve. The progress we are making in our target industries of aerospace and defense, automotive tooling, dental, medical application, and precision industrial components reinforces our conviction that we have built the infrastructure for durable, profitable growth. Customer engagement remains substantive and strategically focused, and we continue to see encouraging signals that adoption timeline, while extended, are advancing toward inflection. Our margin discipline and operational resilience have enabled us to protect profitability through the cycle. Combined with our strong balance sheet, this positions us to capitalize on inorganic opportunities that we continue to explore to sustain our technology leadership through continued strategic investment in the innovations that will define the next era of digital manufacturing. As the industry leader, with a comprehensive portfolio spanning systems, materials, and software, we have the capabilities, the customer relationships, and the financial foundations to capitalize on the significant opportunities ahead. Our penetration into high-value production applications continues to deepen, and we remain committed to maximizing long-term shareholder value as additive manufacturing's role in global production expands. I want to close by acknowledging our global team, their dedication, professionalism, and relentless focus on customer success continue to drive the engagement and trust that position strategies for sustained leadership. We are excited about what 2026 and beyond hold for strategies. With that, let's open it up for questions. Operator?