Stratasys Ltd. (NASDAQ:SSYS) 24th Annual Needham Growth Conference January 13, 2022 12:30 PM ET Company Participants Yoav Zeif - CEO Eitan Zamir - Incoming CFO Yonah Lloyd - CCO and VP, IR Conference Call Participants Jim Ricchiuti - Needham & Company Jim Ricchiuti Hello, everyone. Good afternoon. Welcome to day four of the 24th Annual Needham Growth Conference. My name is Jim Ricchiuti, Senior Equity Research Analyst at Needham & Company, covering industrial technologies companies. I think anyone's familia ...

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]

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