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Press release from Business Wire

Stratasys Reports Record Quarterly Financial Results

<p class='bwalignc'> <i><b>Q2 Generates Record Consumable Revenue and 67% Increase in Fortus System Sales</b></i> </p> <p> </p>

Wednesday, July 27, 2011

Stratasys Reports Record Quarterly Financial Results07:00 EDT Wednesday, July 27, 2011 MINNEAPOLIS (Business Wire) -- Stratasys, Inc. (NASDAQ:SSYS) today announced second quarter financial results. The company reported record revenue of $37.6 million for the second quarter ended June 30, 2011, compared to $30.1 million reported for the same period in 2010. The second quarter results include two months of contribution from the company's acquisition of Solidscape, Inc. The acquisition was completed in April of this year and contributed $2.1 million in revenue to the second quarter results. Excluding the contribution made by Solidscape, revenue was $35.5 million, an 18% increase over the same period last year. System shipments, excluding Solidscape, totaled a record 690 units for the second quarter of 2011, compared to 682 units for the same period last year. The company reported net income of $4.0 million for second quarter, or $0.18 per share, compared to net income of $2.3 million, or $0.11 per share, for the same period last year. Non-GAAP net income, which excludes certain discrete items and stock-based compensation expense, was $5.0 million for the second quarter, or $0.23 per share, representing a 95% increase over the non-GAAP net income of $2.6 million, or $0.12 per share, for the same period last year. Non-GAAP net income for the second quarter of 2011 excludes discrete items associated with the acquisition of Solidscape. These items amounted to $840,000 net of tax, or $0.04 per share. Non-GAAP net income for the second quarter of 2011 also excludes the impact of stock-based compensation expense, which amounted to $212,000 net of tax, or $0.01 per share. The company reported revenue of $71.9 million for the six-month period ended June 30, 2011, compared to $53.1 million reported for the same period in 2010. The six-month period in 2010 included a $5.0 million one-time non-cash charge against revenue. The charge against revenue was taken in the first quarter of 2010 and represents the fair value of a warrant issued to HP in connection with the distribution agreement signed in January 2010. Excluding the warrant charge in 2010 and the revenue generated by the company's acquisition of Solidscape in 2011, revenue for the six-month period was $69.8 million, a 20% increase over the $58.1 million for the same period in 2010. System shipments, excluding Solidscape, totaled 1,257 units for the six-month period in 2011, compared to 1,291 units for the same period last year. The company reported net income of $9.0 million for the six-month period, or $0.41 per share, compared to net income of $1.9 million, or $0.09 per share, for the same period last year. Non-GAAP net income, which excludes the warrant charge, discrete items and stock-based compensation expense, was $9.5 million or $0.44 per share for the six-month period of 2011, compared to non-GAAP net income of $5.5 million or $0.26 per share for the same period last year. Appropriate reconciliations between GAAP and non-GAAP financial measures are provided in a table at the end of this press release. The table provides itemized detail of the non-GAAP financial measures. “Our record second quarter results reflect strong growth in Fortus system sales and consumable revenue,” said Scott Crump, chairman and chief executive officer of Stratasys. “The growth in these higher margin products, as well as a continued favorable product mix within 3D printing, contributed to significant margin expansion during the period. These factors combined to generate the highest level of quarterly operating profit in our company's history. “We continue to make incremental progress in expanding our agreement with HP for the sale and distribution of our proprietary 3D printers. We are pleased to report that we have mutually renewed the agreement for another year. In addition, HP plans to expand into new European markets beyond the five countries they currently serve later this year. Stratasys and HP continue to see a significant market opportunity within 3D printing and both parties remain committed to our collaboration. “The full potential and ultimate success of our collaboration with HP will require sales and marketing programs that go beyond current commitments. Although we currently have no commitments from HP that the collaboration will expand beyond new European markets later this year, we believe HP can become the ideal partner to grow the sales of our 3D printers. Consequently, while we remain committed to the HP collaboration, we also intend to accelerate independent channel development strategies. “Fortus system sales sustained strong momentum in the second quarter, expanding by 67% over last year. The growing expertise of our team in marketing the direct digital manufacturing, or DDM, capabilities of our Fortus line have been instrumental in this expansion. We believe the recent launch of the Fortus 250mc will add to this strategy with a product that combines the higher functionality of a Fortus 3D production system with the ease-of-use and affordability of a Dimension 3D printer. Initial bookings of the Fortus 250mc have been strong. “Consumable revenue grew to a record level in the second quarter, increasing by 20% over last year. Our Fortus line is driving this growth, propelled by an expanding base of systems and the product line's relatively higher utilization rates, particularly within DDM. We believe our recent introduction of a revolutionary new FDM material will create new DDM opportunities within the electronics industry. The new material, called ABS-ESD7, eliminates static electricity, which can be potentially damaging during the manufacture of sensitive electronic components. With our new material, manufacturers can now make static-free assembly aids and fabrication tools that improve the performance of their manufacturing processes. “The acquisition of Solidscape was accretive to earnings for the second quarter after excluding any one-time charges and non-recurring expenses associated with closing the transaction. The acquisition adds to our strategy of expanding into DDM applications, as the subsidiary is well positioned for manufacturing applications serving the custom jewelry market. However, as we further develop the technology, we are more excited about the new opportunities that Solidscape provides within a broader set of industrial applications. “We were pleased to see our leadership position within the additive manufacturing industry reconfirmed in the recently released Wohlers Report 2011. The report indicated that Stratasys had a 41 percent unit market share in 2010, and has maintained a market leading position for nine consecutive years. We believe our position within the industry will be strengthened over the coming quarters as we execute on our new product roadmap and further develop our channel with HP and our independent reseller network. “We remain encouraged by the positive trends within our business and we begin the third quarter with an active pipeline of opportunities. In addition to our distribution agreement with HP, we are moving forward on new product and distribution initiatives, which we believe will greatly expand our sales. We are observing attractive growth opportunities on multiple fronts and look forward to a successful year,” Crump concluded. Stratasys plans to hold a conference call to discuss its second quarter financial results on Wednesday, July 27, 2011 at 8:30 a.m. (ET). The investor conference call will be available via live webcast on the Stratasys Web site at www.stratasys.com under the "Investors" tab; or directly at the following web address: http://phx.corporate-ir.net/phoenix.zhtml?p=irol-eventDetails&c=61402&eventID=4139319. To participate by telephone, the domestic dial-in number is 800-659-1966 and the international dial-in is 617-614-2711. The access code is 57483739. Investors are advised to dial into the call at least ten minutes prior to the call to register. The webcast will be available for 90 days on the "Investors" page of the Stratasys Web site or by accessing the provided web address. (Financial tables follow)Stratasys, Inc., Minneapolis, is a maker of additive manufacturing machines for prototyping and producing plastic parts. The company markets under the brands Dimension 3D Printers and Fortus Production 3D Printers. The company also operates RedEye On Demand, a digital manufacturing service for prototypes and production parts. In 2011 Stratasys acquired 3D printer maker, Solidscape, Inc. According to Wohlers Report 2011, Stratasys had a 41 percent unit market share in 2010, and has been the unit market leader for the ninth consecutive year. Stratasys patented and owns the Fused Deposition Modeling (FDM®) process. The process creates functional prototypes and manufactured goods directly from any 3D CAD program, using high-performance industrial thermoplastics. The company holds more than 285 granted or pending additive manufacturing patents globally. Stratasys products are used in the aerospace, defense, automotive, medical, business and industrial equipment, education, architecture, and consumer-product industries. Online at: www.Stratasys.com This release is also available on the Stratasys Web site at www.Stratasys.com. Forward Looking Statements All statements herein that are not historical facts or that include such words as “expects,” “anticipates,” “projects,” “estimates,” “vision,” “could,” “potential,” “planning”, “intends”, “desires” or “believes” or similar words constitute forward-looking statements covered by the safe harbor protection of the Private Securities Litigation Reform Act of 1995. Except for the historical information herein, the matters discussed in this news release are forward-looking statements that involve risks and uncertainties. These include statements regarding projected revenue and income in future quarters; the size of the 3D printing market; our objectives for the marketing and sale of our Dimension® and uPrint® 3D Printers; our support removal systems; and our Fortus® 3D Production Systems, particularly for use in direct digital manufacturing (DDM); the demand for our proprietary consumables; the expansion of our paid parts service; and our beliefs with respect to the growth in the demand for our products. Other risks and uncertainties that may affect our business include our ability to penetrate the 3D printing market; the success of our distribution agreement with HP; our ability to achieve the growth rates experienced in preceding quarters; our ability to introduce, produce and market consumable materials, and the market acceptance of these materials; the impact of competitive products and pricing; our timely development of new products and materials and market acceptance of those products and materials; the success of our recent R&D initiative to expand the DDM capabilities of our core FDM technology; and the success of our RedEyeOnDemandTM and other paid parts services. They also include statements about future financial and operating results of our company after the acquisition of Solidscape and anticipated benefits of the acquisition. Actual results may differ from those expressed or implied in our forward-looking statements. Such forward-looking statements involve and are subject to certain risks and uncertainties, which may cause our actual results to differ materially from those discussed in a forward-looking statement. Such risk factors include our ability to successfully integrate and market Solidscape products, our ability to retain management and our ability to protect and defend intellectual property. These statements represent beliefs and expectations only as of the date they were made. We may elect to update forward-looking statements, but we expressly disclaim any obligation to do so, even if our beliefs and expectations change. In addition to the statements described above, such forward-looking statements are subject to the risks and uncertainties described more fully in our current report on Form 8-K filed in connection with the completion of our acquisition of Solidscape and in our reports filed or to be filed with the Securities and Exchange Commission, including our annual reports on Form 10-K and quarterly reports on Form 10-Q. Financial Tables & Non-GAAP DiscussionThe information discussed within this release includes financial results that are in accordance with accounting principles generally accepted in the United States (GAAP). In addition, certain non-GAAP financial measures have been provided that excludes certain charges, expenses and income.The non-GAAP measures should be read in conjunction with the corresponding GAAP measures and should be considered in addition to, and not as an alternative or substitute for, the measures prepared in accordance with GAAP.The non-GAAP financial measures are provided in an effort to provide information that investors may deem relevant to evaluate results from the company's core business operations and to compare the company's performance with prior periods.The non-GAAP financial measures primarily identify and exclude certain discrete items, such as the warrant charge, restructuring expenses, and expenses associated with stock-based compensation required under ASC 718.The company uses these non-GAAP financial measures for evaluating comparable financial performance against prior periods.This release is also available on the Stratasys Web site at www.Stratasys.com.STRATASYS, INC. AND SUBSIDIARIES         CONSOLIDATED STATEMENTS OF OPERATIONS                   Three Months Ended June 30,Six Months Ended June 30,2011201020112010     (unaudited)   (unaudited)(unaudited)   (unaudited)   Net sales Product $ 30,428,508 $ 23,797,952 $ 58,265,673 $ 45,559,570 Services 7,126,422 6,261,544 13,608,346 12,494,051 Fair value of warrant related to OEM agreement   -     -     -     (4,987,806 ) 37,554,930 30,059,496 71,874,019 53,065,815   Cost of sales Product 14,552,762 12,432,146 27,778,987 23,110,163 Services   3,266,762     2,865,346     6,109,174     5,773,572   17,819,524 15,297,492 33,888,161 28,883,735         Gross profit 19,735,406 14,762,004 37,985,858 24,182,080   Operating expenses Research and development 3,725,817 2,550,833 7,073,910 4,949,331 Selling, general and administrative   9,911,342     8,198,063     18,647,573     15,981,782   13,637,159 10,748,896 25,721,483 20,931,113         Operating income 6,098,247 4,013,108 12,264,375 3,250,967   Other income (expense) Interest income, net 215,515 163,690 421,296 378,890 Foreign currency transaction losses, net (80,868 ) (438,551 ) (211,983 ) (797,806 ) Other, net   106,454     (24,225 )   1,503,060     (5,985 ) 241,101 (299,086 ) 1,712,373 (424,901 )         Income before income taxes 6,339,348 3,714,022 13,976,748 2,826,066   Income tax expense   2,345,699     1,381,867     4,993,604     937,010     Net income $ 3,993,649   $ 2,332,155   $ 8,983,144   $ 1,889,056     Earnings per common share Basic $ 0.19   $ 0.11   $ 0.43   $ 0.09   Diluted $ 0.18   $ 0.11   $ 0.41   $ 0.09     Weighted average number of common shares outstanding Basic   21,145,458     20,527,571     21,078,045     20,485,059   Diluted   21,789,520     21,070,029     21,718,985     21,047,241     STRATASYS, INC. AND SUBSIDIARIES     CONSOLIDATED BALANCE SHEETS           June 30,December 31,20112010     (unaudited)       ASSETS   Current assets Cash and cash equivalents $ 12,443,248 $ 27,554,411 Short-term investments - held to maturity 3,107,440 8,797,878 Accounts receivable, less allowance for doubtful accounts of $1,106,978 at June 30, 2011 and $1,094,588 at December 31, 2010 23,503,256 20,051,451 Inventories 21,218,648 17,880,714 Net investment in sales-type leases, less allowance for doubtful accounts of $180,279 at June 30, 2011 and $189,338 at December 31, 2010 3,045,514 3,096,911 Prepaid expenses and other current assets 3,741,131 3,384,394 Deferred income taxes   3,830,000     3,447,000   Total current assets   70,889,237     84,212,759     Property and equipment, net   36,126,154     29,872,945     Other assets Intangible assets, net 50,829,157 6,405,714 Net investment in sales-type leases 3,968,791 3,067,446 Long-term investments - available for sale 1,160,250 1,185,250 Long-term investments - held to maturity 40,689,904 52,504,650 Other non-current assets   1,151,520     1,210,867   Total other assets   97,799,622     64,373,927     Total assets $ 204,815,013   $ 178,459,631     LIABILITIES AND STOCKHOLDERS' EQUITY   Current liabilities Accounts payable and other current liabilities $ 15,367,791 $ 14,408,628 Unearned revenues   12,369,335     11,561,521   Total current liabilities   27,737,126     25,970,149     Non-current liabilities Deferred tax liabilities   7,519,500     207,000     Total liabilities   35,256,626     26,177,149     Commitments and contingencies   Stockholders' equity Common stock, $.01 par value, authorized 30,000,000 shares; 26,848,801 and 26,509,518 issued as of June 30, 2011 and December 31, 2010, respectively 268,488 265,095 Additional paid-in capital 115,962,432 107,781,990 Retained earnings 92,368,628 83,385,484 Accumulated other comprehensive loss (36,736 ) (145,662 ) Treasury stock at cost, 5,687,631 shares as of June 30, 2011 and December 31, 2010 (39,004,425 ) (39,004,425 ) Total stockholders' equity   169,558,387     152,282,482     Total liabilities and stockholders' equity $ 204,815,013   $ 178,459,631     STRATASYS, INC. AND SUBSIDIARIES                     RECONCILIATION OF NON-GAAP TO GAAP RESULTS OF OPERATIONS                                       Non-GAAP Adjustments for the Three Months Ended June 30, 2011Non-GAAP Adjustments for the Three Months Ended June 30, 2010     Consolidated(unaudited)As Reported   Stock-BasedCompensation (1)   SolidscapeAcquisition (2)   SolidscapeInventoryRevaluation (3)   Consolidated(unaudited)Non-GAAPConsolidated(unaudited)As Reported   Stock-BasedCompensation (1)   Consolidated(unaudited)Non-GAAP     Net sales $ 37,554,930   $ -     $ -     $ -     $ 37,554,930   $ 30,059,496     $ -     $ 30,059,496     Cost of sales   17,819,524     -       -       (561,094 )     17,258,430     15,297,492       -       15,297,492     Gross profit   19,735,406     -       -       561,094       20,296,500     14,762,004       -       14,762,004     Selling, general and administrative expenses   9,911,342     (323,598 )     (615,332 )     -       8,972,412     8,198,063       (310,544 )     7,887,519     Total operating expenses   13,637,159     (323,598 )     (615,332 )     -       12,698,229     10,748,896       (310,544 )     10,438,352     Operating income   6,098,247     323,598       615,332       561,094       7,598,271     4,013,108       310,544       4,323,652     Other income (expense)   241,101     -       -       -       241,101     (299,086 )     -       (299,086 )   Income before income taxes 6,339,348 323,598 615,332 561,094 7,839,372 3,714,022 310,544 4,024,566 Income tax expense   2,345,699     111,438       128,812       208,110       2,794,059     1,381,867       48,712       1,430,579     Net income $ 3,993,649 $ 212,160 $ 486,520 $ 352,984 $ 5,045,313 $ 2,332,155 $ 261,832 $ 2,593,987   Earnings per common share Basic $ 0.19   $ 0.01     $ 0.02     $ 0.02     $ 0.24   $ 0.11     $ 0.01     $ 0.13   Diluted $ 0.18   $ 0.01     $ 0.02     $ 0.02     $ 0.23   $ 0.11     $ 0.01     $ 0.12     Weighted average number of common shares outstanding Basic   21,145,458                 21,145,458     20,527,571           20,527,571   Diluted   21,789,520                 21,789,520     21,070,029           21,070,029                                             Non-GAAP Adjustments for the Six Months Ended June 30, 2011Non-GAAP Adjustments for the Six Months Ended June 30, 2010     Consolidated(unaudited)As Reported   Stock-BasedCompensation (1)   Sale of EquityInvestment (4)   SolidscapeAcquisition (2)   SolidscapeInventoryRevaluation (3)Consolidated(unaudited)Non-GAAPConsolidated(unaudited)As Reported   Stock-BasedCompensation (1)   Fair Valueof Warrant (5)   Consolidated(unaudited)Non-GAAP     Net sales $ 71,874,019   $ -     $ -     $ -     $ -   $ 71,874,019 $ 53,065,815     $ -     $ 4,987,806     $ 58,053,621     Cost of sales   33,888,161     -       -       -       (561,094 )   33,327,067   28,883,735       -       -       28,883,735     Gross profit   37,985,858     -       -       -       561,094     38,546,952   24,182,080       -       4,987,806       29,169,886     Selling, general and administrative expenses   18,647,573     (647,196 )     -       (615,332 )     -     17,385,045   15,981,782       (621,088 )     -       15,360,694     Total operating expenses   25,721,483     (647,196 )     -       (615,332 )     -     24,458,955   20,931,113       (621,088 )     -       20,310,025     Operating income   12,264,375     647,196       -       615,332       561,094     14,087,997   3,250,967       621,088       4,987,806       8,859,861     Other income (expense)   1,712,373     -       (1,204,408 )     -       -     507,965   (424,901 )     -       -       (424,901 )   Income before income taxes 13,976,748 647,196 (1,204,408 ) 615,332 561,094 14,595,962 2,826,066 621,088 4,987,806 8,434,960 Income tax expense   4,993,604     287,896       (506,655 )     128,812       208,110     5,111,767   937,010       209,120       1,796,510       2,942,640     Net income $ 8,983,144 $ 359,300 $ (697,753 ) $ 486,520 $ 352,984 $ 9,484,195 $ 1,889,056 $ 411,968 $ 3,191,296 $ 5,492,320   Earnings per common share Basic $ 0.43   $ 0.02     $ (0.03 )   $ 0.02     $ 0.02   $ 0.45 $ 0.09     $ 0.02     $ 0.16     $ 0.27   Diluted $ 0.41   $ 0.02     $ (0.03 )   $ 0.02     $ 0.02   $ 0.44 $ 0.09     $ 0.02     $ 0.15     $ 0.26     Weighted average number of common shares outstanding Basic   21,078,045                   21,078,045   20,485,059               20,485,059   Diluted   21,718,985                   21,718,985   21,047,241               21,047,241     These adjustments reconcile the Company's GAAP results of operations to its non-GAAP results of operations. The Company believes that presentation of results adjusted for the non-GAAP items described below provides meaningful supplemental information to both management and investors. (1) - Represents non-cash stock-based compensation expense. (2) - Represents expenses for the acquisition of Solidscape, Inc. during the second quarter of 2011. (3) - Represents the revaluation of Solidscape, Inc. inventory at the time of acquistion. (4) - Represents gain on sale of an equity investment during the first quarter of 2011. (5) - Represents the fair value of a warrant issued during the first quarter of 2010 in connection with the Hewlett-Packard Company OEM agreement. The Company considers these non-GAAP measures to be indicative of its core operating results and facilitates a comparison of operating results across reporting periods. The Company uses these non-GAAP measures when evaluating its financial results as well as for internal planning and forecasting purposes, however these measures should not be viewed as a substitute for the Company's GAAP results. Stratasys, Inc.Shane Glenn, 952-294-3416Director of Investor Relationsshane.glenn@stratasys.com