
Condensed Consolidated Interim Financial Statements Consolidated Balance Sheets As of June 30, 2023, Stratasys' total assets were $1.23 billion, a slight decrease from $1.26 billion at the end of 2022, driven by reduced cash and short-term deposits, partially offset by increases in inventories, goodwill, and other intangible assets from acquisitions, while total liabilities increased modestly to $307.2 million and total equity declined to $923.2 million Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2023 | December 31, 2022 | Change | | :--- | :--- | :--- | :--- | | Assets | | | | | Cash and cash equivalents | $144,366 | $150,470 | ($6,104) | | Inventories | $211,186 | $194,054 | $17,132 | | Goodwill | $92,946 | $64,953 | $27,993 | | Other intangible assets, net | $148,613 | $121,402 | $27,211 | | Total Assets | $1,230,425 | $1,259,790 | ($29,365) | | Liabilities & Equity | | | | | Total current liabilities | $208,797 | $210,654 | ($1,857) | | Total non-current liabilities | $98,401 | $89,704 | $8,697 | | Total Liabilities | $307,198 | $300,358 | $6,840 | | Total Equity | $923,227 | $959,432 | ($36,205) | Consolidated Statements of Operations and Comprehensive Loss For the three and six months ended June 30, 2023, Stratasys reported decreased revenues and a widened operating loss, leading to increased net loss per share due to higher operating expenses, particularly in selling, general, and administrative costs Statement of Operations Summary (in thousands, except per share data) | Metric | Q2 2023 | Q2 2022 | H1 2023 | H1 2022 | | :--- | :--- | :--- | :--- | :--- | | Total Revenues | $159,751 | $166,603 | $309,128 | $330,032 | | Gross Profit | $66,222 | $67,393 | $131,617 | $137,070 | | Operating Loss | ($33,659) | ($23,545) | ($50,456) | ($43,129) | | Net Loss | ($38,615) | ($24,385) | ($60,839) | ($45,333) | | Net Loss Per Share | ($0.56) | ($0.37) | ($0.89) | ($0.69) | - Selling, general and administrative expenses increased to $75.6 million in Q2 2023 from $66.6 million in Q2 2022, contributing to the wider operating loss8 Consolidated Statements of Changes in Equity Total equity decreased from $959.4 million at the beginning of 2023 to $923.2 million by June 30, 2023, primarily due to a comprehensive loss of $60.7 million, partially offset by equity increases from stock-based compensation and share issuances Reconciliation of Total Equity (in thousands) | Description | Amount | | :--- | :--- | | Balance as of December 31, 2022 | $959,432 | | Comprehensive loss (H1 2023) | ($60,692) | | Stock-based compensation | $16,263 | | Issuance of shares (stock plans & acquisition) | $8,219 | | Balance as of June 30, 2023 | $923,227 | Consolidated Statements of Cash Flows For the six months ended June 30, 2023, net cash used in operating activities was $41.2 million, while investing activities provided $36.6 million, primarily from short-term bank deposits, with a significant outflow of $66.5 million for acquisitions, resulting in a decrease in cash and cash equivalents to $144.4 million Cash Flow Summary (in thousands) | Cash Flow Activity | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :--- | :--- | :--- | | Net cash used in operating activities | ($41,167) | ($38,909) | | Net cash provided by investing activities | $36,628 | $63,172 | | Net cash used in financing activities | ($682) | ($864) | | Net change in cash and cash equivalents | ($6,045) | $15,986 | - The company paid $66.5 million for acquisitions during the first six months of 2023, a significant use of cash in investing activities13 Notes to Condensed Consolidated Interim Financial Statements The notes detail the basis of presentation, significant accounting policies, and key events during the period, including the acquisition of Covestro's additive manufacturing business, the pending merger with Desktop Metal, corporate actions involving tender offers and proposals from Nano Dimension and 3D Systems, and provide disaggregation of revenue, details on goodwill, intangible assets, equity components, and ongoing legal contingencies Note 1. Business Description and Basis of Presentation Stratasys is a global leader in connected, polymer-based 3D printing solutions, focusing on the entire manufacturing value chain, with financial statements prepared under U.S. GAAP and reflecting management's estimates subject to macroeconomic uncertainties - The company focuses on the manufacturing sector, which it views as having the largest and fastest-growing total addressable market for its 3D printing solutions15 Note 3. Certain Transactions This note details significant transactions, including the 2022 merger of its MakerBot subsidiary with Ultimaker, resulting in a 46.5% equity method investment, and the April 2023 acquisition of Covestro AG's additive manufacturing materials business for $59.2 million - On April 3, 2023, the company acquired Covestro AG's additive manufacturing materials business for a total consideration of $59.2 million, which included $53.3 million in cash, $5.2 million in shares, and $0.7 million in contingent consideration2325 - The preliminary purchase price allocation for the Covestro acquisition resulted in $23.1 million of goodwill and $22.4 million of intangible assets27 - The company holds a 46.5% stake in Ultimaker, accounted for using the equity method, with the investment valued at $92.9 million as of June 30, 20232022 Note 4. Recent developments The company has been involved in significant M&A activities, including a definitive merger agreement with Desktop Metal, a hostile partial tender offer from Nano Dimension that expired unsuccessfully, and ongoing discussions regarding unsolicited merger proposals from 3D Systems - Announced a merger agreement with Desktop Metal on May 25, 2023, where Stratasys shareholders would own 59% of the combined company31 - Faced a hostile tender offer from Nano Dimension, which was raised to $25.00 per share before expiring unsuccessfully on July 31, 202332 - Received and entered into discussions regarding an unsolicited merger proposal from 3D Systems after its board deemed it a potential 'Superior Proposal' to the Desktop Metal deal34 Note 5. Revenues Total revenue for Q2 2023 was $159.8 million, down from $166.6 million in Q2 2022, with the Americas remaining the largest region but experiencing a decline, while EMEA was the only region to show growth, and Remaining Performance Obligations totaled $107.4 million as of June 30, 2023 Revenue by Geography (in thousands) | Region | Q2 2023 | Q2 2022 | H1 2023 | H1 2022 | | :--- | :--- | :--- | :--- | :--- | | Americas | $102,195 | $107,225 | $192,275 | $205,792 | | EMEA | $36,884 | $35,212 | $74,764 | $75,267 | | Asia Pacific | $20,672 | $24,166 | $42,089 | $48,973 | | Total | $159,751 | $166,603 | $309,128 | $330,032 | - As of June 30, 2023, Remaining Performance Obligations (RPO) totaled $107.4 million, representing contracted revenue yet to be recognized41 - Deferred revenue increased to $79.3 million as of June 30, 2023, from $75.4 million at the end of 20223940 Note 6. Inventories Total inventories increased to $211.2 million as of June 30, 2023, up from $194.1 million at December 31, 2022, primarily driven by a rise in raw materials and finished goods Inventory Breakdown (in thousands) | Category | June 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Raw materials | $110,790 | $104,928 | | Work-in-process | $11,429 | $7,562 | | Finished goods | $88,967 | $81,564 | | Total | $211,186 | $194,054 | Note 7. Goodwill and Other Intangible Assets Goodwill increased by $28.0 million during the first six months of 2023, reaching $92.9 million, primarily due to acquisitions, while other intangible assets, net, also grew to $148.6 million from $121.4 million, with amortization expense for intangible assets totaling $13.3 million for the six-month period - Goodwill increased from $65.0 million on January 1, 2023, to $92.9 million on June 30, 2023, with $27.8 million added from acquisitions47 Other Intangible Assets, Net (in thousands) | Category | June 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Developed technology | $114,603 | $103,932 | | Customer relationships | $19,100 | $6,684 | | Patents | $8,318 | $8,538 | | Trademarks and trade names | $6,592 | $2,248 | | Total | $148,613 | $121,402 | Note 12. Equity This note covers equity-related activities, including stock-based compensation expense of $16.3 million for the first six months of 2023, details on stock option and RSU/PSU activity with $57.6 million in unrecognized compensation cost, and the company's shareholder Rights Plan designed to protect against hostile takeovers - Total stock-based compensation expense was $16.3 million for the six months ended June 30, 2023, compared to $17.4 million for the same period in 202266 - As of June 30, 2023, there was $57.6 million of unrecognized compensation cost related to unvested RSUs and PSUs, expected to be recognized over a weighted-average period of 2.72 years69 - The company has a shareholder Rights Plan that becomes exercisable if a person or group acquires 15% or more of outstanding shares without board approval, with its expiration extended in connection with the Desktop Metal merger agreement73 Note 13. Contingencies The company is involved in litigation with Nano Dimension in an Israeli court regarding Stratasys' shareholder Rights Plan and Nano's tender offer, with the court expressing a preliminary view that rights plans are permissible under Israeli law but requiring the board to justify their adoption - Stratasys is in litigation with Nano Dimension over its shareholder rights plan and Nano's tender offer74 - An Israeli court expressed a preliminary view that shareholder rights plans are permissible under Israeli law, but the board must justify their adoption76