Stratasys(SSYS) - 2023 Q4 - Annual Report

FORM 20-F Filing Information Stratasys Ltd. filed its Annual Report on Form 20-F for FY2023, incorporated in Israel, trading on Nasdaq under SSYS, with 69.66 million shares outstanding as a large accelerated filer General Information and Filing Status Stratasys Ltd. filed its Annual Report on Form 20-F for FY2023, incorporated in Israel, trading on Nasdaq under SSYS, with 69.66 million shares outstanding as a large accelerated filer - Stratasys Ltd. is filing its Annual Report on Form 20-F for the fiscal year ended December 31, 2023[2] General Information and Filing Status | Metric | Value | | :----- | :---- | | Trading Symbol | SSYS | | Exchange | Nasdaq Global Select Market | | Outstanding Ordinary Shares (as of Dec 31, 2023) | 69,656,074 | | Filer Status | Large accelerated filer | | Well-known seasoned issuer | Yes | Cautionary Note Regarding Forward-Looking Statements Forward-looking statements are subject to risks from product success, market growth, macroeconomics, competition, IP, and geopolitical events Forward-Looking Statements and Risk Factors This section warns that forward-looking statements are subject to various risks, including product success, market growth, macroeconomic conditions, competition, intellectual property, and geopolitical events - Forward-looking statements are identified by terms like 'may,' 'will,' 'expect,' 'anticipate,' 'estimate,' 'continue,' 'believe,' 'should,' 'intend,' 'project'[8] - Important factors that could cause actual results to differ materially include[8]: * Success in introducing new products and gaining market share * Growth of the 3D printing market generally * Global macro-economic environment (inflation, interest rates, currency exchange rates) * Impact of competition and new technologies * Outcome of strategic alternatives exploration * Potential adverse effects of Israel's war against Hamas - The company undertakes no obligation to publicly update or revise any forward-looking statements, except as required by law[9] Use of Trade Names Clarifies that names like Stratasys, PolyJet, FDM are company trademarks, and third-party trade names do not imply endorsement Trademark and Service Mark Information This section clarifies that various names and product names used in the annual report, such as 'Stratasys,' 'PolyJet,' 'FDM,' 'Origin,' and 'SAF,' are trademarks and service marks owned by Stratasys Ltd., some of which are registered. The use of other companies' trade names does not imply a relationship or endorsement - Key trademarks and service marks include: Stratasys, PolyJet, J8 Series, FDM, Fortus, Origin, SAF, GrabCAD, TrueDent, Neo, Somos, Addigy[10] - All rights to these trademarks and service marks are reserved, even if the '®' and '™' designations are sometimes omitted[10] - The use of other companies' trade names, trademarks, or service marks does not imply a relationship with or endorsement by those companies[10] Certain Terms and Conventions Defines key terms and conventions, including company references, historical entity meanings, and currency terms, for report clarity Definitions of Key Terms Defines key terms and conventions, including company references, historical entity meanings, and currency terms, for report clarity - References to 'Stratasys', 'our company', 'the Company', 'the consolidated company', 'the registrant', 'we', 'us', and 'our' refer to Stratasys Ltd. and its consolidated subsidiaries[11] - References to 'Objet' generally refer to Objet Ltd. and its consolidated subsidiaries prior to the December 1, 2012 merger, or to the product line and ongoing operations[11] - Currency references: 'dollars', 'U.S. dollars', 'U.S. $' and '$' are to United States Dollars; 'shekels' and 'NIS' are to New Israeli Shekels[11][12] Part I ITEM 1. Identity of Directors, Senior Management and Advisers Information on directors, senior management, and advisers is not applicable in this section, as covered elsewhere - Information regarding the identity of directors, senior management, and advisers is not applicable in this section[13] ITEM 2. Offer Statistics and Expected Timetable Information on offer statistics and expected timetable is not applicable for this annual report - Information related to offer statistics and expected timetable is not applicable[13] ITEM 3. Key Information Provides key information, including significant risk factors for business, IP, Israeli operations, and share investment, with other items not applicable - Sections A (Reserved), B (Capitalization and Indebtedness), and C (Reasons for the Offer and Use of Proceeds) are marked as 'Not applicable'[13] D. Risk Factors Details risks to business, financial condition, and operations, categorized by business/financial, intellectual property, Israeli operations, and share investment - Risks related to business and financial condition include: failure to introduce new products, fluctuating operating results, slow market growth for 3D printing, adverse macroeconomic trends (inflation, interest rates), competition, goodwill impairment, acquisition integration failures, inability to retain key employees, supply chain disruptions, and reliance on recurring revenue from consumables[15][16][20][21][23][25][26][27][29][30][31][33][34][36][37][39][40][42][44][45][47][49][51][52][54][55][57][59][61][63][64][66][68][69][70][71][73][75][76] - Risks related to intellectual property include: infringement by others, inability to obtain patent protection, and market entry of competitors as patents expire[17][77][79][81] - Risks related to operations in Israel include: impact of the Israel-Hamas war, exchange rate fluctuations (USD/NIS), and potential termination or reduction of Israeli government tax benefits[18][82][84][86][87][89][90][92][93][95][96] - Risks related to an investment in ordinary shares include: market price fluctuation, no anticipated cash dividends, and potential dilution from future capital raises[19][99][101][102][103][105][107][109] ITEM 4. Information on the Company Comprehensive company information covering history, business overview, structure, property, evolution, core business, strengths, strategy, and operations - Stratasys is a global leader in polymer-based 3D printing solutions, focusing on manufacturing applications[114] - The company holds approximately 2,600 granted and pending additive technology patents[114] - Key technologies include: P3™ Programmable PhotoPolymerization (from Origin), Neo® stereolithography (from RPS), SAF™ powder-based technology (from Xaar), and materials from Covestro's AM business[114] - Stratasys' ecosystem includes 3D printers, materials, software, expert services, and on-demand parts production[114] A. History and Development of the Company Formed by 2012 merger, Stratasys expanded via acquisitions (Origin, RPS, Xaar, Covestro AM) and divested MakerBot, with $15.0 million capex in 2023 - Stratasys Ltd. was formed by the 2012 merger of Stratasys, Inc. and Objet Ltd[110] - Key acquisitions include: Solid Concepts (2014), Harvest Technologies (2014), Origin Inc. (2020), RP Support Ltd. (RPS) (2021), Xaar 3D Ltd. (2021), Riven (2022), Covestro Additive Manufacturing business (2023)[110][112] - Divested MakerBot in September 2022, merging it with Ultimaker, resulting in a 46.5% equity interest in the combined company[112] Capital Expenditures (in million USD) | Year | Capital Expenditures (in million USD) | | :--- | :---------------------------------- | | 2023 | $15.0 | | 2022 | $19.8 | | 2021 | $26.8 | - In 2023, Nano Dimension Ltd. launched a hostile, unsolicited tender offer to acquire a majority interest, which ultimately expired due to insufficient acceptances. Nano re-initiated a preliminary proposal on December 23, 2023, which the board is considering as part of a strategic alternatives process[112] B. Business Overview Global leader in polymer 3D printing, offering an ecosystem of solutions for manufacturing, leveraging diverse technologies, materials, and market access Industry Overview The 3D printing industry is shifting to direct digital manufacturing, offering efficiency, cost, speed, and sustainability advantages, expanding market - The 3D printing market is transitioning from prototype development to direct digital manufacturing (DDM)[120] - Advantages of 3D printing over traditional methods include: improved functionality, quality, ease of use, speed, and cost-effectiveness[120] - New technologies like P3 and SAF are increasing the competitive advantage of additive manufacturing for higher production volumes[122] - 3D printing offers sustainability benefits by reducing carbon emissions, enabling lightweight parts, and minimizing waste[122] Stratasys Solutions Offers integrated 3D printing solutions across the product lifecycle, utilizing FDM, PolyJet, P3, SAF, and stereolithography for diverse applications - Solutions include 3D printing systems, consumables, software, paid parts, and professional services[123] - Key technologies: FDM (thermoplastics, durable parts), PolyJet (high-resolution, multi-material, full-color, medical applications), Stereolithography (Neo line, Somos materials, large prototypes, tooling), P3 (mass production, detail, mechanical properties, strong materials), SAF (industrial-grade, production-level throughput, consistent parts)[126][128][130] - PolyJet technology enables over 600,000 color and texture combinations, including FDA-cleared TrueDent resin for dental parts[128] Our Competitive Strengths Strengths include five 3D printing technologies, extensive materials, application expertise, global market access, marquee customers, and GrabCAD software - Five 3D printing technology platforms: FDM, PolyJet, P3, SAF, and Stereolithography, optimized for specific industry applications[132][133] - Materials ecosystem: Stratasys Preferred (engineered for best performance), Stratasys Validated (basic reliability testing), Open (unvalidated, unique attributes)[132] - Possesses the most industry application engineers globally, providing expertise for tier-1 manufacturing OEMs in aerospace (500,000+ Stratasys parts flying) and healthcare[132] - Unparalleled market access through a network of over 130 exclusive resellers and value-added channel partners[132] - Marquee customer base includes General Motors, TE Connectivity, Airbus, and the U.S. Army[132] - GrabCAD Additive Manufacturing Platform provides a smart, connected software ecosystem for digital manufacturing, integrating with various software solutions and offering remote features[132] - Stratasys Direct Manufacturing is a leading AM parts service provider, enhancing manufacturing offerings and creating synergies with 3D printer sales[134] Our Growth Strategy The 'North Star' strategy focuses on a complete polymer AM portfolio, future metal expansion, materials R&D, software integration, and global market access - The 'North Star' strategy aims to provide a complete offering of polymers, with future expansion to metals, to solve all customer 3D printing needs[136] - Key elements include[136][138](index=138&type=chunk]: * Offering a full suite of five polymer technologies for the entire product lifecycle * Continuously bolstering the materials portfolio through in-house R&D, strategic partnerships, and acquisitions * Adding value through Industry 4.0-ready systems with API integration to manufacturing software solutions (GrabCAD platform) * Leveraging deep application engineering expertise to educate customers and drive innovation * Utilizing an unmatched global go-to-market infrastructure of 130+ channel partners * Maintaining a resilient business model not dependent on any single client or end market Products and Services Offers comprehensive products and services, including 3D printing systems (FDM, PolyJet, SLA, P3, SAF), materials, GrabCAD software, and support services Printing Systems Offers diverse 3D printing systems (FDM, PolyJet, SLA, P3, SAF) for prototyping to mass production, with varied capabilities and recent additions - FDM printers (F-Series, Fortus Series) are designed for prototyping, manufacturing tools, and production parts, using production-grade thermoplastic materials. Over 35,000 FDM printers installed[143] - PolyJet printers (J8 Series, J55, J35 Pro) offer high-resolution, multi-material, full-color 3D printing, including FDA-cleared TrueDent resin for dental applications and Digital Anatomy printers for medical models[146][148] - Stereolithography printers (Neo line) provide high-quality, durable parts with an open resin system and large build volumes, complemented by Somos® materials from the Covestro acquisition[149] - Origin P3 printers (Origin One) deliver best-in-class detail, mechanical properties, and throughput for mass production, with a strong materials portfolio from partners like BASF and Henkel[150] - SAF printers (H350) are industrial-grade for production-level throughput of end-use parts, offering consistent quality and predictable economics for high volumes[152] Consumable Materials Provides a wide range of proprietary and third-party 3D printing materials (filaments, resins, powders) for diverse applications, supported by a hybrid ecosystem - Materials portfolio includes: 61+ FDM spool-based filament materials, 49 PolyJet cartridge-based resin materials, 41 hybrid photopolymer resins (SL/DLP), and 4 powder materials (PBF)[154] - These materials yield over 600,000 color variations, transparency, opacity, and flexibility levels[154] - Stratasys Material Ecosystem categories[154][155](index=155&type=chunk]: * Stratasys Preferred: Engineered for best material and printer performance * Stratasys Validated: Basic reliability testing, expanding material options * Open: Unvalidated materials via OpenAM™ Software License, offering unique attributes - Acquisition of Covestro's AM materials business added the SOMOS™ portfolio for stereolithography and Addigy® powder materials for PBF systems[159][160] Software GrabCAD Platform is an open, enterprise-ready software ecosystem for production AM, offering job programming, workflow management, and third-party integrations - The GrabCAD Additive Manufacturing Platform is an open and enterprise-ready software platform for production-scale additive manufacturing[163] - Components include[163][164](index=164&type=chunk]: * GrabCAD Print: Job programming software for FDM and PolyJet, supporting CAD and 3D file formats, with advanced features for quality and cost reduction * GrabCAD Shop: Simplifies 3D printing shop workflows, offering work order management, scheduling, job tracking, and analytics * GrabCAD Software Development Kit (SDK): Enables two-way integrations with third-party software and business systems Software Data for GrabCAD Platform (as of Feb 2024) | Metric | Value (as of Feb 2024) | | :----- | :--------------------- | | Application Users | 42,200+ | | 3D Printers | 19,000+ | | Workflow Users | 6,300+ | | Data Streams | 35 GB/day | Online Community GrabCAD Community is an online platform for over 13 million engineers, fostering best practice sharing, and providing access to CAD models and software - The GrabCAD Community has over 13 million members and 1.7 million free CAD files available for download as of end of 2023[166] Our Services Provides comprehensive customer support, including installation, training, maintenance, warranties, leasing, and on-demand 3D printed parts services - Customer support includes: Stratasys-certified engineers, direct and indirect support, phone/on-site support in multiple languages, service logistics, training facilities, CRM/LMS systems, and an e-commerce platform for materials[167] - Printing systems come with warranties ranging from 90 days to one year, with extended support programs available[170][171] - Stratasys Direct Manufacturing offers contract manufacturing services for on-demand polymer 3D printed parts, with an e-commerce platform for quick-turn orders[174] - The company offers a 'Try and Buy' program for businesses to trial 3D printers[172] Customers Serves a diverse global customer base across industries, with no single client exceeding 10% of sales, indicating a diversified portfolio - Diverse customer base includes: General Motors, BAE Systems, Boeing, Blue Origin, U.S. Navy, and Mayo Clinic[175] - No single customer or affiliated group accounted for more than 10% of sales in 2021, 2022, or 2023[175] Marketing, Sales and Distribution Employs a multifaceted marketing strategy and worldwide sales infrastructure, primarily through resellers, complemented by direct sales and digital channels - Marketing objectives: elevate awareness, establish thought leadership, solidify brand position, expedite sales growth, enhance customer loyalty[176] - Marketing channels: blogs, social media, SEO/SEM, webinars, white papers, digital/print campaigns, PR, direct mail/email, tradeshows, roadshows, thought leadership events[176] - Sales distribution methods: (i) sales to resellers who resell products and provide support, (ii) direct sales to end-users via independent sales agents, and (iii) direct sales of systems/services by the company[179] - An online customer/partner digital hub serves as a direct digital distribution method for consumables, software, and spare parts[180] Manufacturing and Suppliers Manufactures 3D printing systems and consumables, adhering to ISO QMS standards, with a sole supplier (Ricoh) for PolyJet printer heads requiring risk mitigation - Core competencies: FDM, PolyJet, SLA, and DLP systems assembly and integration, software installation, and resin/filament manufacturing[182] - Employs a Quality Management System (QMS) that meets ISO 9001:2008 and ISO 13485:2003 (for medical devices) international quality standards[184] - Relies on Ricoh Printing Systems America, Inc. as the sole supplier for printer heads for PolyJet 3D printers, maintaining excess inventory to mitigate supply risks[185][186] - The Ricoh Agreement automatically renews annually unless terminated with six months' notice, and Ricoh can discontinue models with 18 months' notice[188] Research and Development Maintains active R&D for new systems, materials, and software across FDM, PolyJet, P3, SAF, and SLA technologies, with $94.4 million net expenses in 2023 - R&D focuses on new systems, materials, and enhancements for FDM, PolyJet, P3, SAF, and SLA technologies, including integrated software[189] Net R&D Expenses (in million USD) | Year | Net R&D Expenses (in million USD) | | :--- | :-------------------------------- | | 2023 | $94.4 | | 2022 | $92.9 | | 2021 | $88.3 | - Consumable materials development and production operations are located in multiple facilities across the US, Israel, Netherlands, and Switzerland[189] Intellectual Property Protects proprietary technology via patents (expiring 2024-2039), trade secrets, and trademarks, emphasizing success beyond just patent rights - Proprietary technology is protected through patents, trade secrets, confidentiality agreements, and contractual arrangements[191] - Patents cover FDM systems, PolyJet technologies, 3D printing processes, and consumables, with expiration dates from 2024 to 2039[191] - Holds various registered and unregistered trademarks, including 'Stratasys', 'PolyJet', 'FDM', 'Origin', 'SAF', 'GrabCAD', and 'TrueDent'[191] - Success depends on marketing, business development, applications know-how, and R&D, in addition to patent rights[191] Competition Competes in a dynamic market against AM and traditional technologies, differentiating through quality, diverse materials, multi-color systems, reliability, and expertise - Principal competitors include: 3D Systems Corporation, EOS GmbH, HP, Carbon, Inc., Formlabs, Markforged, Inc., and Desktop Metal[192] - Competitive advantages: material properties (heat resistance, toughness, color, flexibility), quality (resolution, accuracy, surface), multiple production-grade materials, multi-color/multi-material systems, reliability, ease of use, automatic support removal, high customer service, and deep application know-how[194] - End-users make purchasing decisions based on characteristics they value most, often application-specific[192] Seasonality Historical Q4 demand strength has been disrupted since 2019, with no steady pattern, though intra-quarter seasonality persists in the last month - Historical seasonality: stronger demand in Q4 (capital expenditure cycles, sales incentives), weaker in Q1 and Q3[195] - Since 2019, the historical seasonality pattern has been disrupted, with no steady demand pattern observed[195] - Intra-quarter seasonality: a substantial percentage of system sales often occur within the last month of each fiscal quarter[195] Global Operations Operates globally across Americas, EMEA, and APAC, with 62.1% of 2023 revenues from Americas, exposing it to currency, market, and inflation risks - Global offices in: Brazil, China, Germany, Hong Kong, Israel, Japan, Korea, India, Mexico, UK, US[197] - Geographic regions for operations: Americas, Europe and Middle East (EMEA), Asia Pacific (APAC)[197] Revenues by Region | Region | % of 2023 Revenues | | :----- | :----------------- | | Americas | 62.1% | | EMEA | 24.8% | | Asia Pacific | 13.0% | - Stratasys Direct Manufacturing services are primarily based in the United States[197] Employees Had 1,980 employees globally in 2023, a slight decrease due to divestiture, with shifts in regional distribution and good employee relations Employee Count by Region | Region | 2023 | 2022 | 2021 | | :----- | :--- | :--- | :--- | | Americas | 926 | 1,098 | 1,148 | | Israel | 537 | 531 | 477 | | Europe | 371 | 302 | 269 | | Asia Pacific | 146 | 131 | 145 | | Total | 1,980 | 2,062 | 2,039 | Employee Count by Division | Division | 2023 | 2022 | 2021 | | :------- | :--- | :--- | :--- | | Operations and support | 607 | 620 | 689 | | Research and development | 393 | 360 | 358 | | Customer service | 281 | 241 | 264 | | Sales and marketing | 353 | 495 | 353 | | General and administrative | 346 | 346 | 375 | | Total | 1,980 | 2,062 | 2,039 | - The decrease in workforce in 2023 was mainly due to the divestiture of part of the SDM division[391] Government Regulation Subject to various regulations including environmental, health, safety, and export control laws, and now U.S. FDA medical device regulations since Feb 2023 - Subject to regulations from: federal and state environmental/health agencies, OSHA, U.S. Foreign Corrupt Practices Act, labor laws, export control regulations, Israeli tax regulations, and CE regulations for Europe[199] - Effective February 2023, the company is subject to U.S. FDA medical device regulations due to the launch of its first certified medical device with TrueDent resin[199] Environmental, Social and Governance Matters (ESG) Committed to 'Mindful Manufacturing' and ESG, focusing on responsible consumption, innovation, climate action, and education, aligning with UN SDGs and ISO 14001 - Stratasys' mission is 'Mindful Manufacturing™' and '3D Printing a Better Tomorrow™', focusing on positive social and environmental impact[201] - Prioritized UN Sustainable Development Goals (SDGs): Responsible consumption and production, Industry infrastructure and innovation, Climate action, Quality education[201] - Environmental efforts: promoting sustainability in AM, targeting a circular economy (digital inventories, naturally sourced materials, recycling), and driving innovation for reduced carbon footprint (e.g., lightweight parts)[202][204] - Israel headquarters and manufacturing locations are ISO 14001 environmental management systems (EMS) compliant as of 2023, with plans for global ISO certification by H1 2024[206] - Social initiatives include: 'People First' approach, EHS as top priority, Corporate Social Responsibility (CSR) activities, partnerships for STEM education (FIRST Robotics), and a robust Diversity, Equity, and Inclusion (DE&I) program[209] - Governance practices include: standardized ESG & Sustainability reports (GRI Standards), Code of Ethics, supplier code of conduct, and transparent internal updates[212] Israeli and Multinational Tax Considerations and Government Programs Subject to Israeli tax laws, benefiting from investment encouragement programs, evaluating technology enterprise benefits, and assessing OECD Pillar Two impact - Israeli corporate tax rate is 23% since 2018[217] - Benefits under the Investment Law include: tax exemptions for undistributed income and reduced corporate tax rates (e.g., 10-25% for Approved/Beneficiary Enterprises, 7.5-16% for Preferred Enterprises, 6-12% for Preferred Technology Enterprises)[221][224][226][228][230][231] - Stratasys waived the Approved/Beneficiary Enterprise regime starting from tax year 2021 and is considering qualification for the 2017 Amendment's Technology Enterprise benefits[228][232] - In November 2022, the company released $44.8 million of Exempt Profits, paying $2.9 million in reduced tax[233] - As of December 31, 2023, accumulated tax-exempt income was $157.6 million, which if distributed, would incur approximately $15.8 million in tax liability[234] - The company is evaluating the potential impact of OECD's Pillar Two global minimum tax rules, effective as early as January 1, 2024, but does not expect a material impact on its effective tax rate or financial statements in the foreseeable future[235] C. Organizational Structure Israeli parent company with wholly-owned subsidiaries globally and a 46.5% equity interest in Ultimaker (post-MakerBot merger) - Main wholly-owned subsidiaries: Stratasys, Inc. (Delaware), Stratasys Direct, Inc. (California), Stratasys AP Limited (Hong Kong), Stratasys GMBH (Germany), Stratasys Latin America Representacao De Equipamentos Ltd. (Brazil)[237] - Holds a 46.5% equity interest in Ultimaker, which includes the operations of former subsidiary MakerBot[237] D. Property, Plants and Equipment Maintains dual headquarters in Minnesota and Israel for offices, production, and R&D, owning and leasing global properties, with new sites from 2023 acquisitions - Dual headquarters: Eden Prairie, Minnesota (308,646 sq ft owned/leased), and Rehovot, Israel (284,713 sq ft owned)[238][239] - As of December 31, 2023, total investment in the new Israeli facility and equipment was $119.5 million[112] - Acquired three new sites in 2023 as part of the Covestro acquisition: Elgin, Illinois (27,384 sq ft), Geleen, Netherlands (6,941 sq ft), and Shanghai, China (2,799 sq ft)[239] ITEM 4A. Unresolved Staff Comments There are no unresolved staff comments from the SEC to report - There are no unresolved staff comments[241] ITEM 5. Operating and Financial Review and Prospects Detailed analysis of financial condition and operations for 2023 and 2022, covering business performance, strategic developments, liquidity, and accounting estimates - Stratasys is a global leader in connected, polymer-based 3D printing solutions, with over 34.0% of 2023 revenues derived from manufacturing solutions[243] Key Financial Highlights (2023 vs. 2022) | Metric | 2023 (in million USD) | 2022 (in million USD) | Change (%) | | :----- | :-------------------- | :-------------------- | :--------- | | Revenues | $627.6 | $651.5 | (3.7)% | | Operating Expenses | $354.6 | $333.6 | 6.3% | | Net Loss | $(123.1) | $(29.0) | 324.8% | | Basic and Diluted Net Loss Per Share | $(1.79) | $(0.44) | (55.4)% | | Cash, Cash Equivalents & Short-term Deposits (End of Year) | $162.6 | $328.1 | (50.5)% | - Revenue decrease driven by MakerBot divestment ($18.9 million decrease) and longer sales cycles, partially offset by recent acquisitions and higher consumables usage ($22.9 million increase)[272] - Operating expenses increased due to M&A-related costs ($32.9 million), restructuring, and recent acquisitions, partially offset by MakerBot divestiture[263][285] - Net loss significantly increased due to M&A-related costs, termination fees for Desktop Metal merger, and increased losses from associated companies (Ultimaker impairment)[264][296] A. Operating Results 2023 operating results show a 3.7% revenue decrease to $627.6 million and a net loss of $123.1 million, driven by divestments, sales cycles, and M&A costs Overview of Business and Trend Information Global leader in polymer 3D printing for manufacturing, leveraging 2,600 patents and an ecosystem of products and services, strengthened by recent acquisitions - Stratasys is a global leader in connected, polymer-based 3D printing solutions, with a focus on manufacturing[243] - Approximately 2,600 granted and pending additive technology patents are used for models, prototypes, manufacturing tools, and production parts[243] - Over 34.0% of 2023 revenues were derived from manufacturing solutions[243] - Recent acquisitions (Origin, RPS, Xaar, Covestro AM business) and the Ultimaker merger have strengthened leadership and added growth engines[243] Recent Developments - Potential Business Combinations and Strategic Alternatives In 2023, Stratasys terminated a Desktop Metal merger, rejected 3D Systems' offers, and fended off Nano Dimension's tender, initiating a strategic alternatives review - Merger agreement with Desktop Metal was terminated on September 28, 2023, after shareholder disapproval, incurring a $10.0 million termination fee[246] - Nano Dimension's hostile partial tender offer (initially $18.00, raised to $25.00 per share) expired on July 31, 2023, without sufficient acceptances[247] - Nano Dimension's attempt to replace Stratasys' directors was unsuccessful at the August 8, 2023 annual general meeting[247] - 3D Systems' unsolicited merger proposals (including $7.50 cash + 1.5444 shares, later $7.00 cash + 1.6387 shares) were rejected by Stratasys' board as significantly undervaluing the company[248] - On September 28, 2023, Stratasys initiated a comprehensive process to explore strategic alternatives[250] Business Performance in Macro-Economic Environment 2023 revenues decreased 3.7% due to macroeconomic pressures, though consumables grew; company implements cost controls and price increases, expecting margin improvement - 2023 revenues decreased by 3.7% YoY, driven by MakerBot divestment and SDM business divestments, and macroeconomic pressure on customer capital expenditure budgets[250] - Consumables revenue increased due to stronger utilization of installed systems and sales to recently acquired entities' customers[250] - Macroeconomic headwinds: inflation, increased interest rates, potential recessionary conditions, and geopolitical developments (Israel-Hamas war, U.S.-China trade war)[250][55] - The company uses price increases to offset cost pressures from inflation and expects gross and operating margins to improve as these pressures ease[250] Cash, Cash Equivalents, and Short-term Deposits | Metric | Amount (as of Dec 31, 2023) | | :----- | :-------------------------- | | Cash, Cash Equivalents, and Short-term Deposits | $162.6 million | Key Measures of Our Performance Performance measured by product and service revenues, influenced by adoption, usage, and capital budgets, with costs covering materials, labor, and amortization - Revenue sources: (i) AM systems and related consumable materials, (ii) related services, and (iii) direct manufacturing service[252] - Product revenues are influenced by adoption rates, end-user design/manufacturing activity, and capital expenditure budgets[253] - Consumables sales are linked to the number of installed AM systems and system usage[253] - Service revenues derive from: (i) maintenance contracts and initial systems warranty, (ii) direct manufacturing paid-parts services, and (iii) other professional service contracts[254] - Costs of revenues include: components, raw materials (thermoplastic, photopolymer), royalties, manufacturing labor, indirect production costs, depreciation, and amortization of developed technology assets[255] - Amortization expense from acquired developed technology was $19.6 million in 2023, $28.2 million in 2022, and $22.4 million in 2021[257] - Operating expenses consist of research and development (R&D) and selling, general and administrative (SG&A) expenses[259] Results of Operations (2023 vs. 2022) 2023 revenues decreased 3.7% to $627.6 million, gross margin stable at 42.5%, operating expenses rose 6.3% to $354.6 million, leading to wider operating and net losses Consolidated Revenues (in thousand USD) | Category | 2023 | 2022 | % Change 2023-2022 | | :------- | :--- | :--- | :----------------- | | Products | $433,741 | $452,124 | (4.1)% | | Services | $193,857 | $199,359 | (2.8)% | | Total | $627,598 | $651,483 | (3.7)% | - Product revenues decreased by $18.4 million (4.1%) due to longer sales cycles and MakerBot divestiture ($18.9 million decrease), partially offset by acquired entities and higher consumables usage ($22.9 million increase)[272] - Consumables revenues increased by $18.5 million (8.2%) due to acquired entities and higher system utilization[272] - Service revenues decreased by $5.5 million (2.8%) due to MakerBot divestiture and SDM business divestitures, partially offset by higher maintenance contract revenues (4.5% increase)[273] Revenues by Region (in thousand USD) | Region | 2023 | % of Total | 2022 | % of Total | | :----- | :--- | :--------- | :--- | :--------- | | Americas | $389,770 | 62.1% | $415,428 | 63.8% | | EMEA | $155,942 | 24.8% | $141,660 | 21.7% | | Asia Pacific | $81,886 | 13.0% | $94,395 | 14.5% | | Total | $627,598 | 100.0% | $651,483 | 100.0% | Gross Profit (in thousand USD) | Category | 2023 | 2022 | % Change | | :------- | :--- | :--- | :------- | | Products | $207,231 | $217,523 | (4.7)% | | Services | $59,793 | $58,944 | 1.4% | | Total | $267,024 | $276,467 | (3.4)% | Gross Profit as % of Revenues | Category | 2023 | 2022 | % Change | | :------- | :--- | :--- | :------- | | Products | 47.8% | 48.1% | (0.7)% | | Services | 30.8% | 29.6% | 4.3% | | Total | 42.5% | 42.4% | 0.3% | Operating Expenses (in thousand USD) | Category | 2023 | 2022 | % Change | | :------- | :--- | :--- | :------- | | R&D, net | $94,425 | $92,876 | 1.7% | | SG&A | $260,179 | $240,750 | 8.1% | | Total | $354,604 | $333,626 | 6.3% | - Operating loss increased by 53.2% to $87.6 million in 2023 from $57.2 million in 2022[287] - Net loss increased to $123.1 million in 2023 from $29.0 million in 2022, primarily due to M&A-related costs, termination fees, and increased losses from associated companies[296] - Share in net losses of associated companies (mainly Ultimaker impairment) increased to $32.7 million in 2023 from $5.7 million in 2022[293] Non-GAAP Financial Measures Non-GAAP measures provide a clearer view of operations by excluding non-cash and non-recurring items, supplementing GAAP for internal planning - Non-GAAP measures exclude: M&A-related expenses/gains, restructuring charges/gains, legal provisions, stock-based compensation, acquired intangible assets amortization, impairment of long-lived assets and goodwill, revaluation of investments, and corresponding tax effects[297] Reconciliation of GAAP and Non-GAAP Results (2023) | Metric | GAAP (in thousand USD) | Non-GAAP Adjustments (in thousand USD) | Non-GAAP (in thousand USD) | | :----- | :--------------------- | :------------------------------------- | :------------------------- | | Gross profit | $267,024 | $35,764 | $302,788 | | Operating income (loss) | $(87,580) | $100,207 | $12,627 | | Net income (loss) attributable to Stratasys Ltd. | $(123,074) | $130,783 | $7,709 | | Net income (loss) per diluted share | $(1.79) | $1.90 | $0.11 | Reconciliation of GAAP and Non-GAAP Results (2022) | Metric | GAAP (in thousand USD) | Non-GAAP Adjustments (in thousand USD) | Non-GAAP (in thousand USD) | | :----- | :--------------------- | :------------------------------------- | :------------------------- | | Gross profit | $276,467 | $36,016 | $312,483 | | Operating income (loss) | $(57,159) | $70,691 | $13,532 | | Net income (loss) attributable to Stratasys Ltd. | $(28,974) | $39,235 | $10,261 | | Net income (loss) per diluted share | $(0.44) | $0.59 | $0.15 | Forward-looking Statements and Factors Affecting Future Results Refers to the cautionary note on forward-looking statements, highlighting future results are subject to market, product, demand, competition, and macroeconomic risks - Future results are affected by factors such as: ability to increase product sales, timely introduction of new products, accurate anticipation of customer demand, management of inventory, competitive factors, cost controls, litigation, IP enforcement, currency fluctuations, commodity prices, and economic conditions[303] Variability of Operating Results Operating results fluctuate due to product mix, pricing, and disrupted seasonality; 2024 expects sequential revenue growth but faces macroeconomic and competitive risks - Revenues and profitability vary based on product mix, average selling price, and seasonality[303] - Historical seasonality patterns have been disrupted since 2019; no steady demand pattern observed[303] - Expects sequential revenue growth in 2024, largely due to new product introductions[303] Effective Corporate Tax Rate Refers to Item 4.B for Israeli tax structure; 2023 losses yielded no tax benefit due to asset realization uncertainty, and tax estimates are complex - In 2023, losses were generated mainly from the Israeli parent company and its major subsidiaries, with no tax benefit recorded due to uncertain near-term asset realization[304] - Income tax rate computation is complex, based on laws of numerous taxing jurisdictions and requires significant judgment[90] Effects of Government Regulations and Location on Our Business Refers to Item 4.B and 3.D for discussion of Israeli governmental regulation and location effects on business, including tax and operational risks - Effects of Israeli governmental regulation and location on the business are discussed in Item 4.B ('Israeli Tax Considerations and Government Programs') and Item 3.D ('Risks related to operations in Israel')[305] Inflation Inflation has not materially affected Stratasys' operations or financial condition over the past three fiscal years - Inflation has not had a material effect on operations or financial condition during the three most recent fiscal years[307] Foreign Currency Transactions Refers to Item 11 for discussion of foreign currency transactions and associated risks - Discussion of foreign currency transactions is provided in Item 11 ('Foreign Currency Exchange Risk')[308] B. Liquidity and Capital Resources Cash and equivalents decreased to $82.9 million in 2023 from $150.7 million in 2022, but the company deems liquidity adequate for the next twelve months Consolidated Statement of Cash Flows Summary (in thousand USD) | Category | 2023 | 2022 | | :------- | :--- | :--- | | Net cash used in operating activities | $(61,645) | $(75,405) | | Net cash used in investing activities | $(3,834) | $(7,213) | | Net cash used in financing activities | $(1,516) | $(2,769) | | Net change in cash, cash equivalents and restricted cash | $(67,822) | $(92,607) | | Cash, cash equivalents and restricted cash, end of year | $82,864 | $150,686 | - Cash, cash equivalents, and restricted cash decreased to $82.9 million as of December 31, 2023, from $150.7 million in 2022, mainly due to operating activities[311] - The company believes it has adequate cash and cash equivalents to fund ongoing operations, working capital, capital expenditures, and debt requirements for the next twelve months[318] - Obligations to suppliers under purchase orders amounted to approximately $140.8 million as of December 31, 2023, due in 2024[319] - Potential future contingent payments for acquisitions could reach up to $104.4 million[319] Cash Flows from Operating Activities Used $61.6 million in operating activities in 2023, driven by net loss and negative working capital, an improvement from $75.4 million used in 2022 - Net cash used in operating activities was $61.6 million in 2023, an improvement from $75.4 million in 2022[312][313] - 2023 cash usage driven by: net loss of $123.1 million and negative working capital changes of $40.5 million (increase in accounts receivables, decrease in accounts payable and other non-current liabilities)[312] - Partially offset by non-cash items: depreciation, amortization, and impairment charges ($53.4 million), stock-based compensation ($31.6 million)[312] Cash Flows from Investing Activities Used $3.8 million in investing activities in 2023, primarily for investments and property, offset by $97.4 million from short-term deposits - Net cash used in investing activities was $3.8 million in 2023, down from $7.2 million in 2022[314][315] - 2023 cash usage included: $72.1 million for investments in consolidated entities and $13.6 million for property and equipment[314] - Offset by: $97.4 million in net proceeds from short-term bank deposits[314] Cash Flows from Financing Activities Used $1.5 million in financing activities in 2023, mainly for contingent acquisition payments, a decrease from $2.8 million in 2022 - Net cash used in financing activities was $1.5 million in 2023, down from $2.8 million in 2022[316] - Mainly related to contingent consideration payments for acquisitions[316] Capital Resources and Capital Expenditures As of Dec 31, 2023, had $560.1 million in current assets and $176.4 million in current liabilities, deeming resources sufficient for next twelve months Capital Resources (as of Dec 31, 2023) | Metric (as of Dec 31, 2023) | Amount (in million USD) | | :-------------------------- | :---------------------- | | Total current assets | $560.1 | | Cash, cash equivalents, short-term deposits, and restricted cash | $162.9 | | Total current liabilities | $176.4 | - Most cash and cash equivalents are held in banks in Israel and the U.S[318] - Credit risk for accounts receivable is limited due to a large number of customers and wide geographic distribution, with mitigation through credit limits, ongoing evaluation, and credit insurance[318] Additional Factors Potentially Impacting Capital Resources Faces $140.8 million in 2024 purchase order obligations and up to $104.4 million in uncertain contingent acquisition payments - Obligations under ordinary course purchase orders totaled approximately $140.8 million as of December 31, 2023, all due in 2024[319] - Potential future contingent payments for acquisitions could reach an aggregate amount of up to $104.4 million, with uncertain timing and occurrence[319] C. Research and Development, Patents and Licenses, Etc. Refers to Item 4.B for R&D policies, including Israeli tax considerations and government programs related to R&D - Discussion of R&D policies, Israeli tax considerations, and government programs is found in Item 4.B ('Research and Development' and 'Regulation— Israeli Tax Considerations and Government Programs – Law for the Encouragement of Capital Investments')[320] D. Trend Information Directs readers to Item 3.D and Item 5 for comprehensive information on business trends - Trend information is discussed in Item 3.D ('Risk Factors') and Item 5 ('Operating and Financial Review and Prospects')[321] E. Critical Accounting Estimates Financial statements rely on critical accounting estimates for business combinations, intangibles, and goodwill, involving significant judgment and market sensitivity - Most critical accounting estimates: Business combination, Intangibles, Goodwill[324] - Estimates are based on management's experience and assumptions, which are subject to uncertainty and can be materially impacted by global events and macroeconomic conditions[324][325] Business Combination Allocates purchase consideration in business combinations at fair value, involving judgment for intangibles and contingent consideration; Covestro acquisition added $21.9 million intangibles and $21.8 million goodwill - Fair value of purchase consideration is allocated to acquired assets and liabilities, with excess recorded as goodwill[325] - Significant estimates for intangible assets include: discount rates, future expected cash flow, useful life, revenue growth rates, margins, technological obsolescence, and income tax rates[325] - Contingent consideration is recorded at fair value on acquisition date and revalued each period, with changes impacting consolidated statements of operations[325] - Completed acquisition of Covestro's AM materials business in April 2023 for $60.5 million, recognizing $21.9 million in intangible assets and $21.8 million in goodwill[326][613][617] Intangibles Identifiable definite-life intangible assets are amortized and reviewed for impairment; no impairment in 2023 or 2022, but $30.6 million added in 2023 - Identifiable intangible assets: developed technology, trademarks and trade names, customer relationships, and patents[329] - Definite-life intangible assets are amortized using the straight-line method over their estimated useful lives (e.g., 7-10 years)[329][577] - No impairment charges were recorded for definite-life intangible assets in 2023 or 2022[329][656] - Additional intangible assets of $30.6 million were recognized in 2023 from acquisitions[329] Goodwill Goodwill of $100.0 million as of Dec 31, 2023, is tested annually for impairment using discounted cash flow, with no impairment recorded in 2023 or 2022 - Goodwill is not amortized but tested for impairment annually or when circumstances indicate potential impairment[330] Goodwill Balance (in million USD) | Metric | 2023 (in million USD) | 2022 (in million USD) | | :----- | :-------------------- | :-------------------- | | Goodwill Balance (as of Dec 31) | $100.051 | $64.953 | - No goodwill impairment was recorded in 2023 or 2022[330][652] - The 2023 annual impairment test for the Stratasys-Core reporting unit concluded that fair value exceeded carrying amount by approximately 34%[650] - Key assumptions for fair value estimation: internal cash flow forecasts (4-5 years), expected revenue growth, operating profit margins, estimated capital needs, terminal year long-term future growth, and a discount rate[650] ITEM 6. Directors, Senior Management and Employees Details directors, senior management, and employees, covering identities, compensation, board practices, governance, and share ownership plans A. Directors and Senior Management Lists current directors and senior management, including ages, positions, and brief biographies highlighting professional experience and company roles Directors and Senior Management | Name | Age | Position | | :--- | :-- | :------- | | Dov Ofer | 69 | Chairman of the Board of Directors | | S. Scott Crump | 70 | Director | | Aris Kekedjian | 57 | Director | | John J. McEleney | 61 | Director | | David Reis | 63 | Director | | Michael Schoellhorn | 58 | Director | | Yair Seroussi | 68 | Director | | Adina Shorr | 63 | Director | | Yoav Zeif | 57 | Chief Executive Officer | | Eitan Zamir | N/A | Chief Financial Officer | - No arrangements or understandings govern the election of directors or selection of senior management, and there are no family relationships among them[341] B. Compensation Details director and senior management compensation, including cash, equity, and benefits, with a summary table for top executives and committee oversight Total Compensation for All Directors and Senior Management (2023) | Category | Amount (USD) | | :------- | :----------- | | Salaries, Fees, Bonuses, Commissions, and Related Benefits Paid or Accrued | $2,178,325 | | Pension, and Retirement Other Similar Benefits Accrued | $243,393 | - Director and CEO compensation requires approval by the compensation committee, board, and shareholders[344] - Annual equity package for independent/non-executive directors: $140,000 value, split 50% RSUs ($70,000 value) and 50% options ($70,000 value), vesting monthly over one year or until the next annual meeting[348] Summary Compensation Table for Covered Executives (2023) | Name and Principal Position | Base Salary ($) | Variable Compensation ($) | Benefit and Perquisites ($) | Total Excluding Equity-Based Compensation ($) | Equity-Based Compensation ($) | Total ($) | | :-------------------------- | :-------------- | :------------------------ | :-------------------------- | :-------------------------------------------- | :---------------------------- | :-------- | | Yoav Zeif, CEO | 569,600 | 398,720 | 252,905 | 1,221,224 | 1,909,004 | 3,130,228 | | Richard Garrity, Chief Industrial Business Unit Officer | 344,126 | 153,336 | 34,088 | 531,549 | 657,690 | 1,189,239 | | Yossi Azarzar, COO | 292,937 | 102,528 | 84,750 | 480,215 | 662,168 | 1,142,384 | | Christian Alvarez, CRO | 450,000 | 300,207 | 58,481 | 808,689 | 244,183 | 1,052,872 | | Eitan Zamir, CFO | 282,092 | 108,234 | 117,140 | 507,466 | 501,647 | 1,009,113 | C. Board Practices Board of directors manages business with 7-11 annually elected directors, exempt from Israeli external director rules, with independent Audit and Compensation Committees - Board of directors consists of 7 to 11 directors, elected annually by shareholders[357] - Exempt from Israeli external director requirements by complying with Nasdaq Listing Rules for independent directors[357] - Current board members: Dov Ofer (Chairman), S. Scott Crump, Aris Kekedjian, John J. McEleney (Compensation Committee Chairman), David Reis, Michael Schoellhorn, Yair Seroussi (Audit Committee Chairman), and Adina Shorr[357] - Audit Committee members: Aris Kekedjian, John McEleney, and Yair Seroussi (Chairman), all meeting Nasdaq independence requirements. Mr. Seroussi is an audit committee financial expert[363] - Compensation Committee members: John McEleney (Chairman), David Reis, and Adina Shorr, all meeting Nasdaq independence requirements[367] - Fiduciary duties of office holders include duty of care and duty of loyalty[371] - Extraordinary transactions with an office holder or controlling shareholder require approval from the audit committee, board, and shareholders[374][377] - Permits exculpation, indemnification, and insurance for office holders to the fullest extent allowed by Israeli law, with D&O insurance coverage up to $160 million[384] D. Employees Had 1,980 employees globally in 2023, a slight decrease due to divestiture, with shifts in regional distribution and good employee relations Employee Count by Region | Region | 2023 | 2022 | 2021 | | :----- | :--- | :--- | :--- | | Americas | 926 | 1,098 | 1,148 | | Israel | 537 | 531 | 477 | | Europe | 371 | 302 | 269 | | Asia Pacific | 146 | 131 | 145 | | Total | 1,980 | 2,062 | 2,039 | Employee Count by Division | Division | 2023 | 2022 | 2021 | | :------- | :--- | :--- | :--- | | Operations and support | 607 | 620 | 689 | | Research and development | 393 | 360 | 358 | | Customer service | 281 | 241 | 264 | | Sales and marketing | 353 | 495 | 353 | | General and administrative | 346 | 346 | 375 | | Total | 1,980 | 2,062 | 2,039 | - The decrease in workforce in 2023 was mainly due to the divestiture of part of the SDM division[391] - Most employees are not party to collective bargaining agreements, but certain Israeli labor laws apply[391] E. Share Ownership Details director and senior management share ownership, along with the 2022 Share Incentive Plan and Employee Share Purchase Plan for equity compensation Share Ownership by Directors and Senior Management (as of Feb 14, 2024) | Name | Number of Shares Beneficially Owned | | :--- | :---------------------------------- | | Dov Ofer | 127,968 | | S. Scott Crump | 500,633 | | John J. McEleney | 73,660 | | Aris Kekedjian | 6,085 | | David Reis | 98,938 | | Michael Schoellhorn | 33,660 | | Yair Seroussi | 68,554 | | Adina Shorr | 94,468 | | Yoav Zeif | 119,279 | - The 2022 Share Incentive Plan replaced the 2012 Plan, reserving 1,574,000 ordinary shares for issuance, with an additional 5,432,789 shares potentially available from expired/canceled 2012 Plan awards[398] - The 2022 Plan does not have an 'evergreen' provision for automatic share increases[398] - The Employee Share Purchase Plan (ESPP) allows eligible employees to purchase ordinary shares using payroll deductions at a discounted price (85% of the lower of the fair market value at the beginning or end of the offering period)[400][403] Share Data for Incentive Plans (as of Dec 31, 2023) | Plan | Total Shares Reserved | Awards Granted/Purchased (Net of Cancellations) | Shares Available for Future Grants/Purchases | Awards/Shares Outstanding | | :--- | :-------------------- | :-------------------------------------------- | :------------------------------------------- | :------------------------ | | 2012 Plan | 10,000,000 | 8,534,204 | 1,465,796 | 2,684,167 | | 2022 Plan | 1,296,494 | 2,244,187 | (947,693) | 2,025,451 | | Employee Share Purchase Plan | 5,200,000 | 812,101 | 4,387,899 | 812,101 | [F. Disclosure of a Registrant's Action to Recover Erroneously Awarded Compensation](index=124&