Financial Data and Key Metrics Changes - The company reported revenues of $163.4 million, a 22% increase compared to the prior year quarter, with systems revenue growing by 37% [8][20] - GAAP gross margin was 42.6%, up from 41.4% year-over-year, while non-GAAP gross margin improved to 47.3% from 46.7% [23] - GAAP net loss for the quarter was $20.9 million, or $0.32 per diluted share, compared to a net loss of $18.9 million, also $0.32 per diluted share, in the same period last year [25] Business Line Data and Key Metrics Changes - Product revenue was $113.1 million, a 45.2% increase year-over-year, with system revenue at $54.5 million, up 36.7% [21] - Consumables revenue increased by 16.1% to $58.6 million compared to the same period last year [21] - Service revenue was $50.3 million, a 14.8% increase year-over-year [22] Market Data and Key Metrics Changes - The company expanded its penetration into aerospace, automotive, and fashion applications, with notable partnerships including Lockheed Martin and Radford Motors [9][10] - The company launched a fashion solution with Techstyle, marking its entry into the fashion industry [9] Company Strategy and Development Direction - The company aims to grow its leadership position in polymer 3D printing, focusing on high-volume production systems [8][10] - A new entity was created from MakerBot and Ultimaker to concentrate on industrial and healthcare applications, allowing the company to focus on its core business [10][11] - The company published its inaugural ESG report, outlining its commitment to sustainability and responsible production [12] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in strong demand despite macroeconomic challenges, indicating a robust inventory build to meet this demand [54] - The company expects revenue growth to continue sequentially throughout the year, with the second half anticipated to be stronger than the first half [27] - Management acknowledged potential impacts from global issues such as supply chain constraints and currency fluctuations [27] Other Important Information - The company ended the quarter with over $475 million in cash and no debt, positioning itself well for future opportunities [8][26] - The company plans to launch 16 new materials throughout the year, enhancing its product offerings [62] Q&A Session Summary Question: Are you seeing synergies in your product portfolio? - Management confirmed that the strategy is working well, leveraging infrastructure and technology to capture synergies across customers and technologies [33][34] Question: Can you provide dollar amounts for systems and consumables? - Total system revenue was $64.5 million, and consumables revenue was $58.6 million [38] Question: How are gross margins affected by inflation and supply chain issues? - Gross margins were pressured by approximately 200 basis points due to inflation and material costs, but price increases helped mitigate some of these pressures [41][42] Question: What is the outlook for consumables following strong system sales? - Management expects continued growth in consumables as hardware sales increase, with the highest consumable revenue since Q2 2018 [48] Question: What is the company's strategy for the textile printing market? - The company is targeting the high-end fashion market with its PolyJet technology, focusing on use cases to drive adoption [56][57] Question: What are the geographic trends in demand? - Demand remains strong across all geographies, with particularly strong performance in the EMEA region [67]

Stratasys Ltd. (NASDAQ:SSYS) Q4 2021 Earnings Conference Call February 23, 2022 8:30 AM ET Company Participants Yonah Lloyd - Chief Communications Officer & Vice President of Investor Relations Yoav Zeif - Chief Executive Officer Eitan Zamir - Chief Financial Officer Conference Call Participants Greg Palm - Craig-Hallum Capital Group Troy Jensen - Lake Street Capital Jared Maymon - Berenberg Jim Ricchiuti - Needham & Company Ashley Ellis - Cross Research Paul Chung - JPMorgan Wamsi Mohan - Bank of America A ...

Summary of Stratasys Ltd. Conference Call Company Overview - **Company**: Stratasys Ltd. (NASDAQ: SSYS) - **Industry**: 3D Printing, Additive Manufacturing - **Date of Conference**: January 13, 2022 Key Points Company Position and Strategy - Stratasys faced six years of declining revenues prior to the current leadership, with an aging portfolio and challenges from new technologies [3][4] - The company has shifted its focus to polymer manufacturing, aiming to address the largest profit pool in the industry and enhance its technological offerings [4][5] - New technologies added include DLP, SLA, and powder bed fusion, which have doubled the total addressable market [5][7] Market Dynamics - The 3D printing industry is experiencing a shift from prototyping to manufacturing, with significant potential in a $13 trillion addressable manufacturing market [12][13] - Supply chain issues are acting as a catalyst for the adoption of 3D printing, allowing for more flexible and distributed manufacturing solutions [11][16] Technological Advancements - Stratasys has launched new products aimed at mass production, including the SAF H350 and P3 technologies, which are designed for high-volume manufacturing [19][20] - The company is focusing on selling fleets of machines rather than individual units, indicating a shift in sales strategy [20][22] Market Segments - **Healthcare**: The fastest-growing segment for Stratasys, with significant opportunities in dental applications and anatomical models for surgical planning [24][27] - **Automotive and Aerospace**: Stratasys is well-positioned in these sectors, with partnerships with major OEMs like Volkswagen and Boom Supersonic [29][30] Materials and Software Strategy - Stratasys is adopting a controlled hybrid material model, allowing for a variety of materials to be used with its machines, which is critical for manufacturing success [33][35] - The company is transitioning towards a SaaS model for software, which is expected to generate recurring revenue and higher margins [39][42] Financial Outlook - The company is optimistic about organic growth driven by new technologies, an open material model, and a strong balance sheet [46][48] - The launch of new products in Q4 2021 and Q1 2022 is expected to contribute to growth [49] Conclusion - Stratasys is positioned for growth with a clear strategy focused on polymer manufacturing, technological advancements, and addressing supply chain challenges. The company aims to leverage its strong financial position to accelerate its growth strategy in the evolving 3D printing market.

Financial Data and Key Metrics - Total revenue for Q3 2021 was $159 million, up 24.3% YoY [25] - Product revenue grew 30.3% YoY to $108.9 million, with system revenue up 34.7% to $52.3 million [26] - Consumables revenue increased 26.6% YoY to $56.6 million [27] - Services revenue rose 13% YoY to $50.1 million, with Stratasys Direct service bureau up 25.4% YoY [27] - GAAP gross margin was 42.9%, compared to 38.9% in the same period last year [28] - Non-GAAP gross margin was 48.2%, up from 46.8% YoY [28] - GAAP operating loss was $21.9 million, compared to a loss of $404.3 million YoY [30] - Non-GAAP operating income was $1.8 million, compared to a loss of $1 million YoY [30] - Cash flow from operations was $3 million, marking 5 consecutive quarters of positive cash flow [30] Business Line Performance - Systems sales grew nearly 7% over Q3 2019, driven by manufacturing-focused systems [11] - Healthcare was the fastest-growing end-market, with strong dental sales, particularly the DentaJet system [16] - Stratasys Direct service bureau grew over 25% YoY, though not yet at 2019 levels [11] - Manufacturing business showed strong performance, particularly in automotive and industrials in Europe [25] Market Performance - Revenue growth was seen across all regions, with systems sales up 6.7% over Q3 2019 [25] - The U.S. Navy signed a $20 million deal for up to 25 F900 systems over 5 years, marking a significant government additive manufacturing deal [13] - A repeat purchase from a leading global OEM for multiple F900 systems was also secured [14] Strategy and Industry Competition - The company is focused on becoming the leader in polymer additive manufacturing, with a shift from prototyping to manufacturing [10] - Stratasys acquired the remaining 55% of Xaar 3D, gaining full control of SAF product development [15] - The company is launching new mass production offerings, including the Origin One and H350 systems [11] - Stratasys is leveraging its software platform, GrabCAD, to scale additive manufacturing, with the global additive manufacturing software market expected to reach $3.3 billion by 2026 [21] Management Commentary on Operating Environment and Future Outlook - Management highlighted the inflection point in additive manufacturing, with industries increasingly adopting 3D printing for production [9] - The company expects Q4 revenue to be approximately 16% higher than Q4 2020, driven by growth in systems and consumables [31] - Stratasys is in investment mode, with OpEx expected to be $36 million higher in 2021 due to acquisitions and higher operating costs [31] - The company anticipates strong purchasing cycles as new systems are brought to market, driving recurring revenues and long-term profitability [24] Other Important Information - Stratasys introduced ProtectAM, a data security solution for additive manufacturing, and GrabCAD Additive Manufacturing Platform [19][21] - The company collaborated with Adobe to make full-color 3D printing accessible for Adobe Substance 3D Painter users [23] - Stratasys technology was used in a successful operation to separate conjoined twins, showcasing its impact in healthcare [18] Q&A Session Summary Question: Revenue Guidance Assumptions - The revenue guide for Q4 includes some shipments from the U.S. Navy contract, with growth expected across all platforms and organic growth being the primary driver [41][42] Question: Contribution from New Products - Significant impact from new products like H350 and P3 is expected in 2022, with beta sites already producing end-use parts [43][87] Question: Mid-Range High-Speed Sintering Opportunity - Stratasys is optimistic about the SAF technology, with H350 being the first in a line of products, and believes it can compete with HP's offerings [46][47] Question: Repeat Customer for F900 Systems - The company confirmed a repeat purchase from a leading global OEM but did not disclose the customer's identity [50] Question: Future Technology and Process Expansion - Stratasys plans to focus on scaling existing technologies and materials while continuing to invest in R&D and software development [54][56] Question: Supply Chain and Labor Headwinds - The company experienced challenges with logistics and raw material shortages but managed to meet customer demand without significant delivery issues [58][59] Question: Customer Engagement and Timing - Customer engagement has increased, with shorter timelines and higher-level executives involved in discussions, indicating a more serious approach to 3D printing [62][63] Question: Inventory and Backlog - Stratasys is proactively managing inventory to meet customer demand, with a good backlog going into Q4 [65][66] Question: Margin Pressures and Normalized Gross Margins - Gross margins were pressured by logistics and raw material costs, with a 2 percentage point difference compared to 2019 levels [70][71] Question: OpEx and Xaar Revenue Contribution - OpEx is expected to increase in Q4 due to acquisitions and higher operating costs, with Xaar's contribution being minimal in 2021 [74] Question: Cash Flow and Working Capital - The company expects to generate positive cash flow in 2021, with increased inventory levels and related payments impacting operating cash outflow [76] Question: Revenue Acceleration in 2022 - Stratasys expects revenue acceleration in 2022, driven by new technologies, materials, and software, with significant growth anticipated from H350 and P3 [79][81] Question: New Product Contribution in 2022 - The company did not provide specific growth contributions from new products for 2022 but indicated optimism about their impact [84] Question: Stratasys Direct Business Recovery - The recovery in Stratasys Direct is attributed to industry recovery, with strong performance in aerospace, automotive, and high-end markets [89] Question: OpEx Growth in 2022 - OpEx as a percentage of revenue is expected to decrease, with the company committed to improving profitability [94] Question: Acquisition Contribution to Revenue - The company did not provide specific dollar contributions from acquisitions but highlighted the positive traction from RPS [99][100] Question: Core Business Growth in 2022 - Stratasys expects core business growth to return to pre-COVID levels in 2022, with additional contributions from new products [104][106]

[Consolidated Balance Sheets](index=3&type=section&id=Consolidated%20Balance%20Sheets) The company's financial position strengthened with notable growth in total assets and equity Balance Sheet Highlights (September 30, 2021 vs. December 31, 2020) | Metric | Sep 30, 2021 (in thousands) | Dec 31, 2020 (in thousands) | Change (Absolute) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Cash and cash equivalents | $332,871 | $272,092 | $60,779 | 22.34% | | Short-term deposits | $187,000 | $27,000 | $160,000 | 592.59% | | Total current assets | $797,595 | $560,492 | $237,103 | 42.30% | | Total assets | $1,228,012 | $990,002 | $238,010 | 24.04% | | Accounts payable | $48,292 | $16,987 | $31,305 | 184.29% | | Total current liabilities | $172,768 | $132,154 | $40,614 | 30.73% | | Total liabilities | $277,559 | $230,407 | $47,152 | 20.46% | | Total equity | $950,453 | $759,368 | $191,085 | 25.16% | [Consolidated Statements of Operations and Comprehensive Loss](index=4&type=section&id=Consolidated%20Statements%20of%20Operations%20and%20Comprehensive%20Loss) Revenue grew while operating and net losses significantly narrowed for the three and nine months ended September 30, 2021 Key Financial Performance (Three Months Ended Sep 30) | Metric | 2021 (in thousands) | 2020 (in thousands) | Change (Absolute) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Revenues | $159,009 | $127,892 | $31,117 | 24.33% | | Gross profit | $68,188 | $49,769 | $18,419 | 37.01% | | Operating loss | $(21,919) | $(404,290) | $382,371 | -94.58% | | Net loss | $(18,076) | $(405,066) | $386,990 | -95.54% | | Net loss per ordinary share (basic and diluted) | $(0.28) | $(7.35) | $7.07 | -96.19% | Key Financial Performance (Nine Months Ended Sep 30) | Metric | 2021 (in thousands) | 2020 (in thousands) | Change (Absolute) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Revenues | $440,203 | $378,422 | $61,781 | 16.33% | | Gross profit | $187,035 | $153,375 | $33,660 | 21.95% | | Operating loss | $(63,001) | $(453,468) | $390,467 | -86.11% | | Net loss | $(57,146) | $(454,805) | $397,659 | -87.43% | | Net loss per ordinary share (basic and diluted) | $(0.91) | $(8.29) | $7.38 | -89.02% | [Consolidated Statements of Changes in Equity](index=5&type=section&id=Consolidated%20Statements%20of%20Changes%20in%20Equity) Total equity increased substantially, primarily driven by a public share offering and stock-based compensation Equity Changes (December 31, 2020 to September 30, 2021) | Metric | Dec 31, 2020 (in thousands) | Sep 30, 2021 (in thousands) | Change (Absolute) | | :--- | :--- | :--- | :--- | | Ordinary Shares | $155 | $182 | $27 | | Additional Paid-In Capital | $2,753,955 | $3,001,685 | $247,730 | | Accumulated Deficit | $(1,985,896) | $(2,043,042) | $(57,146) | | Accumulated Other Comprehensive Loss | $(8,846) | $(8,372) | $474 | | Total Equity | $759,368 | $950,453 | $191,085 | - Key drivers of equity increase for the nine months ended September 30, 2021, include a **public offering of ordinary shares, net ($218,875 thousand)**, and significant stock-based compensation ($7,205 thousand in Q1, $7,977 thousand in Q2, $7,958 thousand in Q3)[7](index=7&type=chunk)[8](index=8&type=chunk) [Consolidated Statements of Cash Flows](index=7&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) Cash flow from operations and financing activities increased, while investing activities saw significant cash outflow Cash Flow Summary (Nine Months Ended Sep 30) | Cash Flow Activity | 2021 (in thousands) | 2020 (in thousands) | Change (Absolute) | | :--- | :--- | :--- | :--- | | Net cash provided by operating activities | $31,396 | $4,104 | $27,292 | | Net cash used in investing activities | $(191,166) | $(44,246) | $(146,920) | | Net cash provided by financing activities | $222,955 | $53 | $222,902 | | Net change in cash, cash equivalents and restricted cash | $60,772 | $(40,573) | $101,345 | | Cash, cash equivalents and restricted cash, end of period | $332,988 | $253,024 | $79,964 | - Key investing activities for the nine months ended September 30, 2021, included **investments in short-term bank deposits ($249,000 thousand)**, cash paid for acquisitions, net of cash acquired ($6,669 thousand), and purchase of property and equipment ($16,193 thousand)[12](index=12&type=chunk) - The primary financing activity for the nine months ended September 30, 2021, was **$218,850 thousand in proceeds from a public offering**, net of issuance costs[12](index=12&type=chunk) [Notes to Condensed Consolidated Interim Financial Statements](index=8&type=section&id=Notes%20to%20Condensed%20Consolidated%20Interim%20Financial%20Statements) These notes detail accounting policies, acquisitions, revenue, and other key financial statement components [1. Business Description and Basis of Presentation](index=8&type=section&id=Note%201.%20Business%20Description%20and%20Basis%20of%20Presentation) Stratasys Ltd is a global leader in polymer-based 3D printing solutions for manufacturing across various industries - Stratasys is a global leader in connected, polymer-based 3D printing solutions, leveraging approximately **1,600 granted and pending additive technology patents**, with a focus on manufacturing for industries including aerospace, automotive, healthcare, and dental[14](index=14&type=chunk) - The financial statements are unaudited and prepared in conformity with **U.S. GAAP**, requiring estimates based on current and, for some estimates, future economic and market conditions[14](index=14&type=chunk) - Accounting estimates and assumptions may change over time in response to the uncertain and rapidly changing **COVID-19 pandemic**, potentially impacting asset valuation, inventory valuation, tax rate, and credit loss allowances[14](index=14&type=chunk) [2. New Accounting Pronouncements](index=8&type=section&id=Note%202.%20New%20Accounting%20Pronouncements) The Company adopted new FASB guidance on income tax accounting with no material impact on its financial statements - Stratasys adopted new FASB guidance to simplify income tax accounting effective **January 1, 2021**[15](index=15&type=chunk) - The adoption of this new guidance had **no material impact** on the Company's consolidated financial statements[15](index=15&type=chunk) [3. Certain Transactions](index=9&type=section&id=Note%203.%20Certain%20Transactions) Stratasys completed several strategic acquisitions to expand its leadership in 3D printing technologies [Origin Acquisition](index=9&type=section&id=Origin%20acquisition) - On December 31, 2020, Stratasys acquired 3D printing start-up Origin Laboratories Inc for an aggregate purchase price of **$97.1 million** to expand its leadership in the mass production parts market with next-generation photopolymer (P3) technology[16](index=16&type=chunk)[17](index=17&type=chunk) Origin Acquisition Consideration | Component | Amount (U.S. $ in thousands) | | :--- | :--- | | Cash payments | $33,025 | | Issuance of ordinary shares | $26,636 | | Contingent consideration (estimated fair value) | $37,400 | | **Total Consideration** | **$97,061** | - Contingent consideration could reach a **maximum of $40 million**, with approximately 50% settled in cash and 50% in ordinary shares, based on performance-based earn-outs over 3 years[19](index=19&type=chunk) - An additional **$6 million payment**, subject to founders' retention, is recorded as compensation expense over 3 years, with $1.1 million and $3.3 million recognized for the three and nine months ended September 30, 2021, respectively[20](index=20&type=chunk) - The preliminary allocation of the purchase price resulted in the recognition of **$38.1 million in goodwill** and **$71.1 million in developed technology intangible assets** with a 10-year useful life[22](index=22&type=chunk) [XAAR Acquisition](index=10&type=section&id=XAAR%20acquisition) - On November 1, 2021, Stratasys acquired the remaining **55% share of XAAR 3D** for an aggregate purchase price of **$33.8 million**, including cash and additional earn-out payments and royalties for up to 15 years[23](index=23&type=chunk) [RPS Acquisition](index=10&type=section&id=RPS%20acquisition) - On February 16, 2021, Stratasys acquired RP Support Limited (RPS), a provider of industrial stereolithography 3D printers, with consideration including cash upon closing and performance-based earn-out payments over two years[24](index=24&type=chunk) [Marketable Equity Investment](index=10&type=section&id=Marketable%20equity%20investment) - The Company recognized **revaluation losses of $2.0 million and $1.2 million** for the three and nine months ended September 30, 2021, respectively, after an equity investment became public and was reclassified[24](index=24&type=chunk) [4. Revenues](index=11&type=section&id=Note%204.%20Revenues) Stratasys' revenues increased across all geographical regions for both products and services [Disaggregation of Revenues](index=11&type=section&id=Disaggregation%20of%20Revenues) Revenues by Geographical Region (Three Months Ended Sep 30) | Region | 2021 (in thousands) | 2020 (in thousands) | Change (Absolute) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Americas | $103,572 | $86,597 | $16,975 | 19.60% | | EMEA | $34,061 | $23,248 | $10,813 | 46.51% | | Asia Pacific | $21,376 | $18,047 | $3,329 | 18.45% | | **Total** | **$159,009** | **$127,892** | **$31,117** | **24.33%** | Revenues by Geographical Region (Nine Months Ended Sep 30) | Region | 2021 (in thousands) | 2020 (in thousands) | Change (Absolute) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Americas | $278,634 | $251,871 | $26,763 | 10.63% | | EMEA | $95,502 | $71,083 | $24,419 | 34.35% | | Asia Pacific | $66,067 | $55,468 | $10,599 | 19.11% | | **Total** | **$440,203** | **$378,422** | **$61,781** | **16.33%** | Revenues by Timing of Recognition (Nine Months Ended Sep 30) | Recognition Type | 2021 (in thousands) | 2020 (in thousands) | Change (Absolute) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Point in time (Products) | $299,517 | $240,597 | $58,920 | 24.49% | | Point in time (Services) | $33,781 | $29,809 | $3,972 | 13.32% | | Over time (Services) | $106,905 | $108,016 | $(1,111) | -1.03% | | **Total** | **$440,203** | **$378,422** | **$61,781** | **16.33%** | [Contract Assets and Contract Liabilities](index=12&type=section&id=Contract%20Assets%20and%20Contract%20Liabilities) Deferred Revenues | Metric | Sep 30, 2021 (in thousands) | Dec 31, 2020 (in thousands) | Change (Absolute) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Deferred revenue | $67,084 | $63,392 | $3,692 | 5.83% | - Revenue recognized in 2021 that was included in the deferred revenue balance as of December 31, 2020, amounted to **$9.7 million** for the three months and **$41.8 million** for the nine months ended September 30, 2021[32](index=32&type=chunk) [Remaining Performance Obligations](index=12&type=section&id=Remaining%20Performance%20Obligations) - As of September 30, 2021, total Remaining Performance Obligations (RPO) amounted to **$121.4 million**[33](index=33&type=chunk) - The Company expects to recognize **$102.1 million** of this RPO during the next 12 months, **$10.8 million** over the subsequent 12 months, and the remaining **$8.6 million** thereafter[33](index=33&type=chunk) [Incremental Costs of Obtaining a Contract](index=12&type=section&id=Incremental%20Costs%20of%20Obtaining%20a%20Contract) - Sales commissions for initial service type warranty contracts are deferred and amortized over the expected customer relationship period, with deferred commissions amounting to **$6.6 million** as of September 30, 2021[34](index=34&type=chunk) [5. Inventories](index=13&type=section&id=Note%205.%20Inventories) Total inventories decreased, primarily due to a reduction in finished goods and raw materials Inventory Composition | Component | Sep 30, 2021 (in thousands) | Dec 31, 2020 (in thousands) | Change (Absolute) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Finished goods | $53,576 | $61,297 | $(7,721) | -12.60% | | Work-in-process | $3,734 | $3,163 | $571 | 18.05% | | Raw materials | $62,615 | $67,212 | $(4,597) | -6.84% | | **Total** | **$119,925** | **$131,672** | **$(11,747)** | **-8.92%** | [6. Goodwill and Other Intangible Assets](index=13&type=section&id=Note%206.%20Goodwill%20and%20Other%20Intangible%20Assets) Goodwill increased due to acquisitions, while other intangible assets decreased due to amortization [Goodwill](index=13&type=section&id=Goodwill) Goodwill Changes (Nine Months Ended Sep 30, 2021) | Metric | Amount (U.S. $ in thousands) | | :--- | :--- | | Goodwill as of January 1, 2021 | $35,694 | | Goodwill acquired (RPS acquisition) | $1,716 | | Measurement period adjustments | $2,400 | | Foreign currency translation adjustments | $(60) | | **Goodwill as of September 30, 2021** | **$39,750** | - In the third quarter of 2020, a **goodwill impairment charge of $386.2 million** was recorded for the Stratasys-Objet reporting unit, driven by business reduction and market capitalization decline due to COVID-19 impacts[40](index=40&type=chunk)[41](index=41&type=chunk)[42](index=42&type=chunk) [Other Intangible Assets](index=14&type=section&id=Other%20Intangible%20Assets) Other Intangible Assets (September 30, 2021 vs. December 31, 2020) | Asset Type | Sep 30, 2021 Net Book Value (in thousands) | Dec 31, 2020 Net Book Value (in thousands) | Change (Absolute) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Developed technology | $88,942 | $97,740 | $(8,798) | -9.00% | | Patents | $9,174 | $9,212 | $(38) | -0.41% | | Trademarks and trade names | $4,094 | $4,922 | $(828) | -16.82% | | Customer relationships | $14,800 | $19,694 | $(4,894) | -24.85% | | Capitalized software development costs | $0 | $0 | $0 | 0.00% | | **Total** | **$117,010** | **$131,568** | **$(14,558)** | **-11.06%**| Estimated Amortization Expense | Period | Estimated Amortization Expense (U.S. $ in thousands) | | :--- | :--- | | Remaining 3 months of 2021 | $8,213 | | 2022 | $30,765 | | 2023 | $16,166 | | 2024 | $12,251 | | 2025 and thereafter | $49,615 | | **Total** | **$117,010** | [7. Net Loss Per Share](index=14&type=section&id=Note%207.%20Net%20Loss%20Per%20Share) Net loss per share significantly improved compared to the prior year due to a reduced net loss Net Loss Per Share (Basic and Diluted) | Period | 2021 EPS | 2020 EPS | Change (Absolute) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Three Months Ended Sep 30 | $(0.28)$ | $(7.35)$ | $7.07 | -96.19% | | Nine Months Ended Sep 30 | $(0.91)$ | $(8.29)$ | $7.38 | -89.02% | - The weighted average ordinary shares outstanding for basic and diluted net loss per share for the nine months ended September 30, 2021, was **62,888 thousand**, compared to 54,851 thousand in 2020[46](index=46&type=chunk) [8. Income Taxes](index=16&type=section&id=Note%208.%20Income%20Taxes) The Company recognized income tax benefits influenced by Israel's tax regime and geographic mix of earnings - Stratasys reported an **income tax benefit of $0.7 million** for the three months ended September 30, 2021 (vs $0.3 million in 2020) and **$6.0 million** for the nine months ended September 30, 2021 (vs $2.3 million in 2020)[49](index=49&type=chunk) - The effective tax rate was primarily impacted by the transition to the new Israeli **"Preferred Technology Enterprise" tax regime (12% tax rate)**, different geographic mixes of earnings and losses, and a valuation allowance on losses of the Company's US subsidiaries[49](index=49&type=chunk) [9. Fair Value Measurements](index=16&type=section&id=Note%209.%20Fair%20Value%20Measurements) Stratasys measures certain financial instruments at fair value, including derivatives and contingent consideration Fair Value Measurements (September 30, 2021) | Instrument | Classification | Fair Value (U.S. $ in thousands) | | :--- | :--- | :--- | | Foreign exchange forward contracts (not designated as hedging) | Level 2 | $67 | | Foreign exchange forward contracts (designated as hedging) | Level 2 | $634 | | Contingent consideration | Level 3 | $40,589 | - Foreign exchange forward contracts are classified as **Level 2**, valued using observable market inputs, while contingent consideration is classified as **Level 3**, based on significant unobservable inputs[50](index=50&type=chunk) [10. Derivative Instruments and Hedging Activities](index=17&type=section&id=Note%2010.%20Derivative%20instruments%20and%20hedging%20activities) Stratasys uses foreign currency derivatives to manage global market risks and reduce earnings volatility [Foreign Exchange Contracts Not Designated as Hedging Instruments](index=17&type=section&id=Foreign%20exchange%20contracts%20not%20designated%20as%20hedging%20instruments) - As of September 30, 2021, the notional amounts of outstanding foreign exchange forward contracts not designated as hedging instruments were **$44.2 million**[54](index=54&type=chunk) - A **gain of $0.9 million** was recognized under financial income (expenses), net, for the three months ended September 30, 2021, partially offsetting foreign currency revaluation changes[54](index=54&type=chunk) [Cash Flow Hedging - Payroll and Operating Expenses](index=17&type=section&id=Cash%20Flow%20Hedging%20-%20Hedges%20of%20forecasted%20foreign%20currency%20payroll%20and%20other%20operating%20expenses) - As of September 30, 2021, foreign exchange forward contracts for the conversion of **$6.4 million into NIS** were in effect as cash flow hedges to reduce exposure to variability in NIS-denominated expenses[55](index=55&type=chunk) [Cash Flow Hedging - Revenue](index=17&type=section&id=Cash%20Flow%20Hedging%20-%20Hedges%20of%20forecasted%20foreign%20currency%20revenue) - As of September 30, 2021, foreign exchange forward contracts for the conversion of **12.0 million Euro into U.S. dollars** were in effect as cash flow hedges for forecasted foreign currency revenue[56](index=56&type=chunk) [11. Equity](index=18&type=section&id=Note%2011.%20Equity) Equity changes were driven by stock-based compensation, a public offering, and foreign currency adjustments [Stock-Based Compensation Plans](index=18&type=section&id=Stock-based%20compensation%20plans) Stock-Based Compensation Expenses (Nine Months Ended Sep 30) | Category | 2021 (in thousands) | 2020 (in thousands) | Change (Absolute) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Cost of revenues | $2,227 | $1,370 | $857 | 62.55% | | Research and development, net | $5,058 | $3,764 | $1,294 | 34.38% | | Selling, general and administrative | $15,855 | $10,623 | $5,232 | 49.25% | | **Total** | **$23,140** | **$15,757** | **$7,383** | **46.86%** | Stock Options Activity (Nine Months Ended Sep 30, 2021) | Metric | Number of Options | Weighted Average Exercise Price | | :--- | :--- | :--- | | Options outstanding as of Jan 1, 2021 | 2,102,529 | $28.06 | | Granted | 46,366 | $3.15 | | Exercised | (209,819) | $20.05 | | Forfeited | (40,548) | $41.82 | | Options outstanding as of Sep 30, 2021 | 1,898,528 | $28.04 | RSUs and PSUs Activity (Nine Months Ended Sep 30, 2021) | Metric | Number of RSUs and PSUs | Weighted Average Grant Date Fair Value | | :--- | :--- | :--- | | Unvested as of Jan 1, 2021 | 2,801,116 | $21.08 | | Granted | 1,272,386 | $33.91 | | Vested | (709,434) | $21.88 | | Forfeited | (284,276) | $21.98 | | Unvested as of Sep 30, 2021 | 3,079,792 | $26.11 | - As of September 30, 2021, unrecognized compensation cost for unvested equity-classified stock options was **$2.5 million** (expected over 3.2 years), and for RSUs and PSUs was **$60 million** (expected over 2.34 years)[60](index=60&type=chunk)[63](index=63&type=chunk) [Accumulated Other Comprehensive Loss](index=19&type=section&id=Accumulated%20other%20comprehensive%20loss) Changes in AOCI (Nine Months Ended Sep 30, 2021) | Component | Jan 1, 2021 Balance (in thousands) | Other Comprehensive Income (Loss) (in thousands) | Sep 30, 2021 Balance (in thousands) | | :--- | :--- | :--- | :--- | | Unrealized Gain (Loss) on Cash Flow Hedges | $(1,673) | $2,579 | $906 | | Foreign Currency Translation Adjustments | $(7,173) | $(2,105) | $(9,278) | | **Total** | **$(8,846)** | **$474** | **$(8,372)** | [Public Offering of Ordinary Shares](index=20&type=section&id=Public%20offering%20of%20ordinary%20shares) - In March 2021, Stratasys completed a public offering of 7,931,034 ordinary shares, raising **$218.9 million net** of underwriting discounts and offering expenses[69](index=69&type=chunk) [12. Contingencies](index=20&type=section&id=Note%2012.%20Contingencies) Stratasys has provisioned for a preliminary settlement and faces other legal proceedings not expected to be significant - Subsequent to September 30, 2021, the Company reached a **preliminary settlement on an employee-related matter** in the US, for which a provision has been included in the third-quarter financial statements[70](index=70&type=chunk) - Management believes that the outcome of various other legal proceedings the Company is party to will **not have a significant effect** on its financial position, profitability, or cash flows[70](index=70&type=chunk)

Financial Highlights - Second quarter revenue increased by 25% year-over-year to $147 million[8, 21] - Hardware revenue grew by 32% year-over-year[8, 24] - Consumables revenue increased by 39% year-over-year[8, 24] - Generated $5.6 million in operating cash flow[20] Business Updates - Over 4,500 customers and partners joined the live event on Additive Manufacturing 20 offerings[9] - Customer Hub facilitated over $25 million in orders placed globally in Q2[17] - Customer Hub has over 2,000 customer and partner account activations[17] Financial Outlook - Third quarter 2021 revenue is expected to grow 17%-18% compared to third quarter 2020[42] - Capital expenditures in 2021 are expected to range from $24 million to $30 million[42] Balance Sheet - Balance sheet strengthened to $522.7 million in cash and equivalents[38]