Exhibit 99.2
OPERATING AND FINANCIAL REVIEW AND PROSPECTS.
The following discussion
and analysis of our financial condition and results of operations should be
read in conjunction with our unaudited consolidated financial statements and
the related notes included as Exhibit 99.1 to the Report of Foreign Private Issuer
on Form 6-K to which this Operating and Financial Review and Prospects is
attached, or the Form 6-K. The discussion below contains forward-looking
statements (within the meaning of the United States federal securities laws)
that are based upon our current expectations and are subject to uncertainty and
changes in circumstances. Actual results may differ materially from these
expectations due to inaccurate assumptions and known or unknown risks and
uncertainties, including those identified in “Forward-Looking Statements and
Factors that May Affect Future Results of Operations”, below, as well in the
“Risk Factors” in Item 3.D of our Annual Report on Form 20-F for the year ended
December 31, 2022, filed with the Securities and Exchange Commission, or
SEC, on March 3, 2023, or our 2022 Annual Report, as updated by the “Risk
Factors” section below.
Overview of Business and Trend Information
We are a global leader in connected, polymer-based 3D printing
solutions, across the entire manufacturing value chain. Leveraging distinct
competitive advantages that include a broad set of best-in-class 3D printing
platforms, software, a materials and technology partner ecosystem, innovative
leadership, and global GTM infrastructure, we are positioned to capture share in
a significant and growing global marketplace, with a focus on manufacturing,
which we view as having the largest and fastest growing total addressable
market.
Our approximately 2,400 granted and
pending additive technology patents to date have been used to create models,
prototypes, manufacturing tools, and production parts for a multitude of
industries including aerospace, automotive, transportation, healthcare,
consumer products, dental, medical, fashion and education. Our products and
comprehensive solutions improve product quality, development time, cost,
time-to-market and patient care. Our 3D ecosystem of solutions and expertise
includes 3D printers, materials, software, expert services, and on-demand parts
production. By end of 2022, we estimate that
we derived over 32.5% of our revenues from manufacturing solutions.
A series of recent
acquisitions and other transactions has strengthened our leadership
in various facets of our business, and have added incremental growth engines to our
platform.
Our acquisition, in December 2020, of Origin Laboratories, Inc.,
or Origin, significantly strengthened our leadership in mass
production for polymer 3D printing. Origin’s pioneering approach to
additive manufacturing of end-use parts has enabled us to serve a
large market with manufacturing-grade 3D printers, utilizing P3 Programmable
PhotoPolymerization. Our acquisition, in the first quarter of 2021, of
UK-based RP Support Ltd., or RPS, a provider of industrial
stereolithography 3D printers and solutions, provided us with a
complementary technology that further expanded our polymer suite of
solutions across the product life cycle. Similarly, our acquisition, in
November 2021, of all
remaining shares of Xaar 3D Ltd. or Xaar, has begun to accelerate our growth in
production-scale 3D printing. The recently completed transaction between
our former subsidiary, MakerBot, a leader in desktop 3D printing, and
Ultimaker, gave us a significant (approximately 46.5%) stake in a new entity
that has a broad technology offering, a larger scale, and that is
well-capitalized and is therefore better equipped to compete in the attractive
desktop 3D printing segment. Our October 2022 asset acquisition from the
quality assurance software company Riven, a Berkeley, California-based start-up,
enables us to fully integrate its cloud-based software solution into our
GrabCAD® Additive Manufacturing Platform,
thereby enabling more manufacturing customers to adopt Stratasys solutions for
end-use parts production. Our acquisition, in April 2023, of Covestro’s
additive manufacturing business gives us the ability to accelerate
innovative developments in 3D printing materials and to thereby further grow
adoption of our newest technologies, including our Origin P3™, Neo® stereolithography, and H350™ printers, with which Covestro’s
resins can be used. Also, we acquired an IP portfolio comprised of
hundreds of patents and pending patents.
Recent Developments- Potential Business Combinations
During the second quarter of 2023, and up to the current time, we
have been involved in, and have been the subject of, potential business
combination transactions that may be transformative to the additive
manufacturing industry.
Prospective Merger with Desktop Metal
On May 25, 2023, we and
Desktop Metal, Inc., (“Desktop Metal”), jointly announced their entry into a
merger agreement, whereby a wholly-owned Delaware subsidiary will merge with
and into Desktop Metal, with Desktop Metal surviving the merger as a wholly-owned subsidiary of ours. Our shareholders and Desktop Metal’s
stockholders would hold 59% and 41%, respectively, of our ordinary shares
following the merger. The
parties expect the transaction to close in the fourth quarter of 2023, subject
to the receipt of required regulatory approvals, as well as approvals of the
shareholders of Stratasys and stockholders of Desktop Metal, and other
customary closing conditions.
Nano Dimension
Tender Offer and Board Contest
On May 25, 2023, following the announcement of the merger with
Desktop Metal, Nano Dimension Ltd, (“Nano”), a 14.1% shareholder of our company
in the 3D printing industry, launched a hostile partial tender offer whereby it
sought to acquire—including shares already held by it— between 53% and 55% of our outstanding
ordinary shares, at a price of $18.00 per share. The tender offer was subject to various conditions and was
originally set to expire on June 26, 2023. Over the course of subsequent
periods of time, the price offered by Nano in its tender offer was ultimately
raised to $25.00 per share, with an
accompanying reduction as to the percentage of our shares to be held by it upon
consummation of the offer, to between 46% and 51%, and the offer was extended
ultimately through July 31, 2023. The offer expired on July 31, 2023 and Nano
did not receive enough tendered shares and was therefore unable to complete the
purchase of any of our ordinary shares pursuant to the offer.
We have also been subject to litigation with Nano in an Israeli
district court regarding our shareholder rights plan, Nano’s tender offer, and
the contested board election. The litigation has not changed the outcome of any
of the developments described above.
3D Systems Offers
On May 30, 2023, and then again on June 27, 2023, we received an unsolicited non-binding indicative proposal from 3D Systems Corporation (“3D Systems”) to merge with us. The price offered was $7.50 in cash and 1.2507 shares of common stock of 3D Systems per ordinary share of Stratasys, followed by $7.50 in cash and 1.3223 shares of common stock, in those respective offers. On July 13, 2023, we received an updated proposal from 3D Systems, pursuant to which it would merge with the Company for $7.50 in cash and 1.5444 newly issued shares of common stock of 3D Systems per Stratasys ordinary share. Our board determined that the latest 3D Systems proposal would reasonably be expected to result in a “Superior Proposal” under the merger agreement with Desktop Metal and authorized our management to enter into discussions with 3D Systems with respect to the proposal.
Business Performance in Macro-Economic Environment
Our
current outlook, as well as our results of operations for the three and six month periods
ended June 30, 2023, should be evaluated in light of current global
macroeconomic conditions, including certain challenging trends that have
also impacted the additive manufacturing industry. Our revenues in the initial six months of 2023
decreased by 6.3% relative to the corresponding, six months
ended June 30, 2022, evidencing macro-economic pressure on capital expenditure
budgets of our customers, which has been causing longer sales cycles for our
systems and occasional deferral of orders of our systems. The decrease in
systems revenues was also attributable in part to the disposition of our former
subsidiary, MakerBot, in August 2022, and unfavorable currency exchange rates.
On the other hand, the first half results also evidence stronger utilization of
our installed systems by our customers, which drove higher revenues in both
consumables and customer service, as well as increase in consumables revenue based on sales of
consumables to customers of our recently acquired entities. We are cautiously optimistic that we will achieve
sequential revenue growth during the second half of the year, evidencing
stronger top-line results from systems that contain recently acquired
technology.
We continue to closely
monitor macro-economic conditions, including the headwinds caused by
supply chain problems, inflation, increased interest rates and other trends
that have been adversely impacting economic activity on a global scale, and
which have also adversely affected the
additive manufacturing industry generally and our company, in particular. We have been assessing, on an
ongoing basis, the implications of those global conditions for our operations,
supply chain, liquidity, cash flow and customer orders, and have been acting in
an effort to mitigate adverse consequences as needed. We estimate that
those conditions have impacted us most notably by limiting our ability to increase
our gross margins and our operating margins more significantly in the
short-term, given the increased cost of goods and operating expenses associated
with global supply chain problems and inflation. We have used price increases
to offset those cost pressures. Assuming that those logistical issues and
inflationary pressures ease, and the global economy remains relatively stable,
we expect that those margins will improve, as we execute on our growth plans
and as a result of a favorable products mix.
Specific developments
that may potentially impact our operating performance in an adverse manner
include:
- further actions taken by central banks in Europe and the U.S. to increase interest rates as a means to reduce inflation even more, which may worsen credit/financing conditions for our customers who purchase our products; and
- potential contraction of economic activities and recessionary conditions that could arise as a result of interest rate increases and a decrease in consumer demand;
We cannot provide any assurances as to
the extent of our resilience to the adverse impact of these specific
developments in future periods.
We ended the second quarter of 2023 with $205.4 million in cash, cash equivalents and short-term deposits. We believe that we are
well suited to continue to manage the current global macro-economic climate
with a strong balance sheet and no debt, while focusing on cost controls and
cash generation. We have continued to selectively apply certain cost controls,
which we began doing at the start of the COVID-19 pandemic, while ensuring that
our NPI programs are well-funded, and we plan to continue investing as needed
in order to support our new product development programs.
Summary of Financial Results
Our unaudited condensed consolidated
financial statements have been prepared in accordance with accounting
principles generally accepted in the United States of America, or GAAP. In the
opinion of our management, all adjustments considered necessary for a fair
statement of the unaudited condensed consolidated financial statements have
been included herein and are of a normal recurring nature. The following
discussion compares the actual results, on a GAAP basis, for the
three and six months ended June 30, 2023 with the corresponding period in
2022.
Results of Operations
Comparison of Three Months Ended June 30, 2023 to Three Months Ended June 30, 2022
The following table sets forth certain statement of operations data for the periods indicated:
| | Three Months Ended June 30, |
| | 2023 | | 2022 |
| | | U.S. $ in thousands | | | | % of
Revenues | | | | U.S. $ in thousands | | | | % of
Revenues | |
| Revenues | $ | 159,751 | | | | 100.0 | % | | $ | 166,603 | | | | 100.0 | % |
| Cost of revenues | | 93,529 | | | | 58.5 | % | | | 99,210 | | | | 59.5 | % |
| Gross profit | | 66,222 | | | | 41.5 | % | | | 67,393 | | | | 40.5 | % |
| Research and development, net | | 24,305 | | | | 15.2 | % | | | 24,346 | | | | 14.6 | % |
| Selling, general and administrative | | 75,576 | | | | 47.3 | % | | | 66,592 | | | | 40.0 | % |
| Operating loss | | (33,659 | ) | | | (21.1 | )% | | | (23,545 | ) | | | (14.1 | )% |
| Financial income (expenses), net | | 687 | | | | 0.4 | % | | | (1,170 | ) | | | (0.7 | )% |
| Loss before income taxes | | (32,972 | ) | | | (20.6 | )% | | | (24,715 | ) | | | (14.8 | )% |
| Income tax benefit (expenses) | | (725 | ) | | | (0.5 | )% | | | 429 | | | | 0.3 | % |
| Share in losses of associated companies | | (4,918 | ) | | | (3.1 | )% | | | (99 | ) | | | (0.1 | )% |
| Net loss | | (38,615 | ) | | | (24.2 | )% | | | (24,385 | ) | | | (14.6 | )% |
Discussion of Results of Operations
Revenues
Our products and services revenues in the three months ended June 30, 2023 and 2022, as well as the percentage change reflected thereby, were as follows:
| | | Three Months Ended June 30, | | | |
| | | | 2023 | | | | 2022 | | | | % Change | |
| | | U.S. $ in thousands | | | | |
| Products | | $ | 109,112 | | | $ | 115,721 | | | | (5.7 | )% |
| Services | | | 50,639 | | | | 50,882 | | | | (0.5 | )% |
| Total Revenues | | $ | 159,751 | | | $ | 166,603 | | | | (4.1 | )% |
Products Revenues
Revenues derived from products (including
systems and consumable materials) decreased by $6.6 million, or 5.7%, for
the three months ended June 30, 2023, as compared to the three months
ended June 30, 2022, mainly attributable to a decrease in systems
revenues as a result of longer sales cycle, impact of MakerBot divestiture and unfavorable
exchange rates in an amount of $10.5 million, partially offset by higher
consumables revenues of $3.9 million, as a result of higher usage of our
systems, and revenues from recent acquisitions.
Revenues derived from systems decreased by
$10.5 million,
or 17.9%, for the three months ended June 30, 2023,
as compared to the three months ended June 30, 2022. The decrease
is mainly attributable to longer sales cycles as well as the impact of
divestiture of MakerBot in
an amount of $6.0 million, which occurred at the
end of August 2022, as MakerBot’s revenues were consolidated with our revenues
in the second
quarter of 2022 but not the corresponding quarter of 2023, and to unfavorable
exchange rates in an aggregate amount of $0.3 million.
Revenues derived from consumables increased by $3.9 million, or 6.9%, for the
three months ended June 30, 2023, as compared to the three months ended
June 30, 2022. The increase in consumables revenues is mainly attributable
to revenues driven by our recent acquisitions in an aggregate amount of $5.6
million, as well as higher utilization rates of systems which
requires that initial materials be replenished, partially offset
by unfavorable exchange rates in an aggregate amount of $0.2 million,
as well as the impact of the divestiture of MakerBot, in an amount of $1.7
million.
Services Revenues
Services revenues (including SDM,
maintenance contracts, time and materials and other services) decreased by $0.2 million for the three months ended
June 30, 2023, or 0.5%, as compared to the three months ended
June 30, 2022. The
decrease was driven primarily by a decrease in SDM revenues as well
the MakerBot divestiture in an amount of $3.0 million. Within
services revenues, customer support revenue, which includes revenues generated
mainly by maintenance contracts on our systems, increased by
8%.
Revenues by Region
Revenues and the percentage of revenues by region for the three months ended June 30, 2023 and 2022, as well as the percentage change in revenues in each such region reflected thereby, were as follows:
| | | Three Months Ended June 30, |
| | | 2023 | | 2022 | | | % Change | |
| | | | U.S.$ in thousands | | | | % of
Revenues | | | | U.S.$ in thousands | | | | % of
Revenues | | | | | |
| Americas* | $ | 102,195 | | | | 64.0 | % | | $ | 107,225 | | | | 64.4 | % | | | (4.7 | )% |
| EMEA | | | 36,884 | | | | 23.1 | % | | | 35,212 | | | | 21.1 | % | | | 4.7 | % |
| Asia Pacific | | 20,672 | | | | 12.9 | % | | | 24,166 | | | | 14.5 | % | | | (14.5 | )% |
| | $ | 159,751 | | | | 100.0 | % | | $ | 166,603 | | | | 100.0 | % | | | (4.1 | )% |
* Represent the United States, Canada and Latin America
Revenues in the Americas region decreased
by $5.0 million, or 4.7%, to $102.2 million for the three months ended
June 30, 2023, compared to $107.2 million for the three months ended
June 30, 2022. The decrease is mainly attributable to the impact of
the MakerBot divestiture in an amount of $7.7 million, partially offset by higher revenues driven by our recent
acquisitions in an amount of $1.4
million.
Revenues in the EMEA region increased by
$1.7 million, or 4.7%, to $36.9
million for the three months ended June 30, 2023, compared to $35.2
million for the three months ended June 30, 2022. The increase was primarily attributable to higher
consumables revenues driven by our recent acquisitions in an aggregate
amount of $3.1 million, partially offset by
the impact of the MakerBot divestiture in an amount of $0.9 million. On a
constant currency basis, when using the prior year period’s exchange rates,
revenues increased by $1.2 million, or 3.3%.
Revenues in the Asia
Pacific region decreased by $3.5 million, or 14.5%, to $20.7 million
for the three months ended June 30, 2023, compared to $24.2 million
for the three months ended June 30, 2022. The decrease was primarily attributable
to a slowdown in systems revenues. On a constant currency basis when using
prior year period’s exchange rates, revenues decreased by $2.8 million, or
11.6%.
Gross Profit
Gross profit from our products and services, as well as the percentage change reflected thereby, was as follows:
| | | Three Months Ended June 30, | | | | |
| | | | 2023 | | | | 2022 | | | | | |
| | | U.S. $ in thousands | | | Change in % | |
| Gross profit attributable to: | | | | | | | | | | | | |
| Products | | $ | 51,536 | | | $ | 54,589 | | | | (5.6 | )% |
| Services | | | 14,686 | | | | 12,804 | | | | 14.7 | % |
| | | $ | 66,222 | | | $ | 67,393 | | | | (1.7 | )% |
Gross profit as a percentage of revenues from our products and services was as follows:
| | | Three Months Ended June 30, |
| | | | 2023 | | | | 2022 | |
| Gross profit as a percentage of revenues from: | |
| Products | | 47.2 | % | | | 47.2 | % |
| Services | | | 29.0 | % | | | 25.2 | % |
| Total gross margin | | 41.5 | % | | | 40.5 | % |
Gross profit attributable to products
revenues decreased by
$3.1 million, or 5.6%, to $51.5 million for the three months ended June
30, 2023, compared to gross profit of $54.6 million for the three months ended
June 30, 2022. Gross margin attributable to products revenues for the three months ended June 30, 2022 remained
at 47.2%, compared to the three months ended June 30, 2022. The decrease is
mainly attributable to the impact of lower revenues and the divestiture of
MakerBot partially offset by a decrease in amortization expenses in amount of
$2.5 million, and an increase in revenues driven by our recent acquisitions in
an amount of $2.9 million.
Gross profit attributable to services
revenues increased by $1.9 million,
or 14.7%, to $14.7 million for the three months ended June 30, 2023, compared
to $12.8 million for the three months ended June 30, 2022. Gross margin attributable
to services revenues increased to 29% in the three months ended June 30,
2023, as compared to 25.2% for the three months ended June 30, 2022. Our gross profit from services revenues
increased mainly as a result of favorable product mix, partially offset by SDM
restructuring and divestments costs in an amount of $1.4 million.
Operating Expenses
The amount of each type of operating expense for the three months ended June 30, 2023 and 2022, as well as the percentage change reflected thereby, and total operating expenses as a percentage of our total revenues in each such quarter, were as follows:
| | | Three Months Ended June 30, |
| | | | 2023 | | | | 2022 | | | | % Change | |
| | | U.S. $ in thousands | | | | |
| | | | | | | | | | | | |
| Research and development, net | | $ | 24,305 | | | $ | 24,346 | | | | (0.2 | )% |
| Selling, general and administrative | | | 75,576 | | | | 66,592 | | | | 13.5 | % |
| | | 99,881 | | | | 90,938 | | | | 9.8 | % |
| Percentage of revenues | | | 62.5 | % | | | 54.6 | % | | | | |
Operating
expenses were $99.9 million in the second quarter of 2023, compared to
operating expenses of $90.9 million in the second quarter of 2022. The increase
in operating expenses was primarily driven by our recent
acquisitions in an amount of $3.9 million, costs related to prospective and
potential mergers and acquisitions, defense against hostile tender offer, proxy
contest and related professional fees in an amount of $13.3 million, and
an unfavorable currency exchange rate in an amount of $2 million, partially offset
by a lower operating expenses due to the divestiture of MakerBot in an
amount of $4.9 million
Research
and development expenses have not changed significantly for the three months
ended June 30, 2023 and remained at $24.3 million, as they were for the three
months ended June 30, 2022. The amount of research and development expenses
constituted 15.2% of our revenues for the three months ended June 30, 2023, as
compared to 14.6% for the three months ended June 30, 2022. The Research and
development expenses have not changed significantly mainly due to the
offsetting effects of our divestiture of MakerBot, and higher charges related to
restructuring costs.
We
continue to invest in strategic long-term initiatives that include advancements
in our core FDM and PolyJet technologies and in our new powder-based
and photopolymer-based, SAF and P3 technologies, advanced composite materials, software and
development of new applications that will enhance our current solutions
offerings.
Selling,
general and administrative expenses increased by $9 million, or 13.5%, to $75.6
million for the three months ended June 30, 2023, compared to $66.6 million for
the three months ended June 30, 2022. The absolute increase in selling, general
and administrative expenses, was mainly attributable to higher costs related to prospective and potential
mergers and acquisitions, defense against hostile tender offer, proxy contest
and related professional fees in an amount of
$13.3 million, partially offset by lower expenses in an amount of $3
million due to the divestiture of MakerBot. The amount of selling, general and
administrative expenses constituted 47.3% of our revenues for the three months
ended June 30, 2023, as compared to 40% for the three months ended June 30,
2022.
Operating Loss
Operating loss and operating loss as a percentage of our total revenues were as follows:
| | | Three Months Ended June 30, |
| | | | 2023 | | | | | 2022 | |
| | | U.S. $ in thousands |
| | | | | | | | | |
| Operating loss | | $ | (33,659 | ) | | | $ | (23,545 | ) |
| | | | | | | | | | |
| Percentage of revenues | | | (21.1 | )% | | | | (14.1 | )% |
Operating loss amounted
to $33.7 million for the three months ended June 30, 2023, compared to an
operating loss of $23.5 million for the three months ended June 30,
2022. The absolute increase in the operating loss of $10.1 million, as well as
the increase of operating loss as a percentage of revenues by 6.9%, were
attributable to the 7.9% increase of operating expenses as a percentage of
revenues due to higher costs
related to prospective and potential mergers and acquisitions, defense against
hostile tender offer, proxy contest and related professional fees, partially offset by a 1% increase in gross profit as
a percentage of revenues, mainly due to the MakerBot divestiture.
Financial Income (Expenses), net
Financial income, net, which was primarily comprised of
foreign currencies effects, interest income and interest expenses, was $0.7 million for the three months ended
June 30, 2023, compared to financial expenses, net of $1.2 million for the
three months ended June 30, 2022.
Income Taxes
Income tax benefit (expenses) and income tax benefit (expenses) as a percentage of net loss before taxes, as well as the percentage change in each, year over year, reflected thereby, were as follows:
| | | Three Months Ended June 30, |
| | | | 2023 | | | | 2022 | |
| | | U.S. $ in thousands |
| | | | | | | | |
| Income tax benefit (expenses) | | $ | (725 | ) | | $ | 429 | |
| | | | | | | | | |
| As a percentage of loss before income taxes | | | (2.2 | )% | | | 1.7 | % |
We had an effective tax rate of 2.2% for the three-month period ended June 30, 2023, compared to an effective tax rate of 1.7% for the three-month period ended June 30, 2022. Our effective tax rate in the second quarter of 2023 was primarily impacted by the geographic mix of foreign taxable earnings and losses, as well as our valuation allowance.
Share in Losses of Associated Companies
Share in losses of associated
companies reflects our proportionate share of the losses of unconsolidated
entities accounted for by using the equity method of accounting. During the
three months ended June 30, 2023, the loss from our proportionate
share of the losses of our equity method investments was $4.9 million, compared to a
loss of $0.1 million in the three months ended June 30, 2022
as a result of our divestiture of MakerBot and investment in Ultimaker.
Net Loss and Net Loss Per Share
Net loss, and net loss per share were as follows:
| | | Three Months Ended June 30, |
| | | | 2023 | | | | 2022 | |
| | | U.S. $ in thousands |
| | | | | | | | |
| Net loss | | $ | (38,615 | ) | | $ | (24,385 | ) |
| | | | | | | | | |
| Percentage of revenues | | | (24.2 | )% | | | (14.6 | )% |
| | | | | | | | | |
| Basic and diluted net loss per share | | $ | (0.56 | ) | | $ | (0.37 | ) |
Net loss was $38.6 million for the three
months ended June 30, 2023 compared to net loss of $24.4 million
for the three months ended June 30, 2022. The increase in net loss
was attributable to higher costs related to prospective and potential mergers
and acquisitions, defense against hostile tender offer, proxy contest and
related professional fees in an aggregate amount of $13.3 million, our share in
losses of associated companies and income tax expenses, in amounts of $4.9
million and $0.8 million, respectively, offset, in part, by more
profitable operational results.
Net loss per share was $0.56 for the three months ended June 30, 2023 as compared to net loss per share of $0.37 for the three months ended June 30, 2022. The weighted average fully diluted share count was 68.6 million during the three months ended June 30, 2023, compared to 66.6 million during the three months ended June 30, 2022.
Results of Operations
Comparison of Six Months Ended June 30, 2023 to Six Months Ended June 30, 2022
The following table sets forth certain statement of operations data for the periods indicated:
| | Six Months Ended June 30, |
| | 2023 | | 2022 |
| | | U.S. $ in thousands | | | | % of
Revenues | | | | U.S. $ in thousands | | | | % of
Revenues | |
| Revenues | $ | 309,128 | | | | 100.0 | % | | $ | 330,032 | | | | 100.0 | % |
| Cost of revenues | | 177,511 | | | | 57.4 | % | | | 192,962 | | | | 58.5 | % |
| Gross profit | | 131,617 | | | | 42.6 | % | | | 137,070 | | | | 41.5 | % |
| Research and development, net | | 45,780 | | | | 14.8 | % | | | 48,344 | | | | 14.6 | % |
| Selling, general and administrative | | 136,293 | | | | 44.1 | % | | | 131,855 | | | | 40.0 | % |
| Operating loss | | (50,456 | ) | | | (16.3 | )% | | | (43,129 | ) | | | (13.1 | )% |
| Financial income(expenses), net | | 1,460 | | | | 0.5 | % | | | (2,532 | ) | | | (0.8 | )% |
| Loss before income taxes | | (48,996 | ) | | | (15.8 | )% | | | (45,661 | ) | | | (13.8 | )% |
| Income tax benefit(expenses) | | (4,500 | ) | | | (1.5 | )% | | | 502 | | | | 0.2 | % |
| Share in losses of associated companies | | (7,343 | ) | | | (2.4 | )% | | | (174 | ) | | | (0.1 | )% |
| Net loss | | (60,839 | ) | | | (19.7 | )% | | | (45,333 | ) | | | (13.7 | )% |
Discussion of Results of Operations
Revenues
Our products and services revenues in the six months ended June 30, 2023 and 2022, as well as the percentage change reflected thereby, were as follows:
| | | Six Months Ended June 30, |
| | | | 2023 | | | | 2022 | | | | % Change | |
| | | U.S. $ in thousands | | | | |
| Products | | $ | 210,083 | | | $ | 228,794 | | | | (8.2 | )% |
| Services | | | 99,045 | | | | 101,238 | | | | (2.2 | )% |
| Total Revenues | | $ | 309,128 | | | $ | 330,032 | | | | (6.3 | )% |
Products Revenues
Revenues derived from products (including systems and consumable materials) decreased by $18.7 million, or 8.2%, for the six months ended June 30, 2023, as compared to the six months ended June 30, 2022, mainly due to longer sales cycles, impact of MakerBot divestiture of $14.5 million, and unfavorable exchange rates of $2.3 million, partially offset by revenues driven by our recent acquisitions in an aggregate amount of $6.2 million.
Revenues derived from systems for the six months ended June 30, 2023 decreased by $24.6 million, or 21.7% as compared to the six months ended June 30, 2022. The decrease was mainly attributable to longer sales cycles as well as the impact of MakerBot divestiture of $11.3 million, and to unfavorable exchange rates in an aggregate amount of $1.0 million.
Revenues derived from consumables increased by $5.9 million, or 5.1%, for the
six months ended June 30, 2023, as compared to the six months ended June
30, 2022. The increase in consumables
revenues reflects higher utilization rates of systems as initial materials are
replenished and revenues driven by our recent acquisitions partially offset by unfavorable exchange rates in
an aggregate amount of $1.3 million as well as the impact of divestiture of
MakerBot of $3.2 million.
Services Revenues
Services revenues (including SDM,
maintenance contracts, time and materials and other services) decreased by $2.2 million for the
six months ended June 30, 2023, or
2.2%, as compared to the six months ended June 30, 2022 mainly
due to the impact of the divestiture of MakerBot of $2.7 million. Within services revenues, customer support revenue,
which includes revenue generated mainly from maintenance contracts on our
systems, increased by 7%.
Revenues by Region
Revenues and the percentage of revenues by region for the six months ended June 30, 2023 and 2022, as well as the percentage change in revenues in each such region reflected thereby, were as follows:
| | | Six Months Ended June 30, |
| | | 2023 | | 2022 | | | % Change | |
| | | | U.S.$ in thousands | | | | % of
Revenues | | | | U.S.$ in thousands | | | | % of
Revenues | | | | | |
| Americas* | | $ | 192,275 | | | | 62.2 | % | | $ | 205,792 | | | | 62.4 | % | | | (6.6 | )% |
| EMEA | | | 74,764 | | | | 24.2 | % | | | 75,267 | | | | 22.8 | % | | | (0.7 | )% |
| Asia Pacific | | | 42,089 | | | | 13.6 | % | | | 48,973 | | | | 14.8 | % | | | (14.1 | )% |
| | | $ | 309,128 | | | | 100.0 | % | | $ | 330,032 | | | | 100.0 | % | | | (6.3 | )% |
* Consists of the United
States, Canada and Latin America
Revenues in the Americas region decreased by $13.5 million, or 6.6%, to
$192.3 million for the six months ended June 30, 2023,
compared to $205.8 million for the six months ended June 30,
2022. The decrease is mainly related to the
impact of the MakerBot divestiture in an amount of $14.3 million, partially
offset by revenues driven by our recent acquisitions.
Revenues in the EMEA
region decreased by $0.5 million, or 0.7%, to $74.8 million for the six months ended
June 30, 2023, compared to $75.3 million for the six months
ended June 30, 2022. The decrease was
primarily driven by a decrease in systems revenues, partially offset by higher
consumables revenues mainly driven by our recent acquisitions.
Revenues in the Asia Pacific region decreased by $6.9 million, or 14.1%, to
$42.1 million for the six months ended June 30, 2023,
compared to $49.0 million for the six months ended June 30,
2022. The decrease was primarily driven by a
slowdown in systems revenues. On a constant currency basis when using the
prior period’s exchange rates, revenues decreased by $6.7 million, or
13.6%.
Gross Profit
Gross profit from our products and services, as well as the percentage change reflected thereby, were as follows:
| | | Six Months Ended June 30, | | | | |
| | | | 2023 | | | | 2022 | | | | | |
| | | U.S. $ in thousands | | | Change in % | |
| Gross profit attributable to: | | | | | | | | | | | | |
| Products | | $ | 101,394 | | | $ | 108,289 | | | | (6.4 | ) % |
| Services | | | 30,223 | | | | 28,781 | | | | 5.0 | % |
| | | $ | 131,617 | | | $ | 137,070 | | | | (4.0 | ) % |
Gross profit as a percentage of revenues from our products and services was as follows:
| | | Six Months Ended June 30, |
| | | | 2023 | | | | 2022 | |
| Gross profit as a percentage of revenues from: | | |
| Products | | | 48.3 | % | | | 47.3 | % |
| Services | | | 30.5 | % | | | 28.4 | % |
| Total gross margin | | | 42.6 | % | | | 41.5 | % |
Gross profit attributable to products
revenues decreased by $6.9 million, or
6.4%, to $101.4 million for the six months ended June 30,
2023, compared to gross profit of $108.3 million for the six months
ended June 30, 2022. Gross margin attributable to products revenues increased to 48.3% for the six months
ended June 30, 2023, compared to 47.3%
for the six months ended June 30, 2022. Our gross profit from
products revenues increased mainly as a result of lower amortization expense of
$5.5 million, favorable product mix, impact of our recent acquisitions and
MakerBot divestiture, partially offset by unfavorable exchange rates.
Gross profit attributable to services
revenues increased by $1.4 million, or 5%,
to $30.2 million for the six months ended June 30, 2023,
compared to $28.8 million for the six months ended June 30,
2022. Gross margin attributable to services revenues in the six months
ended June 30, 2023 increased to 30.5%, as compared
to 28.4% for the six months ended June 30, 2022. Our
gross profit from services revenues increased mainly as a result of favorable
product mix partially offset by SDM
restructuring and divestments costs.
Operating Expenses
The amount of each type of operating expense for the six months ended June 30, 2023 and 2022, as well as the percentage change from period to period reflected thereby, and total operating expenses as a percentage of our total revenues in each such six month period, were as follows:
| | | Six Months Ended June 30, | | | | |
| | | | 2023 | | | | 2022 | | | | % Change | |
| | | U.S. $ in thousands | | | | |
| | | | | | | | | | | | | |
| Research and development, net | | $ | 45,780 | | | $ | 48,344 | | | | (5.3 | )% |
| Selling, general and administrative | | | 136,293 | | | | 131,855 | | | | 3.4 | % |
| | $ | 182,073 | | | $ | 180,199 | | | | 1.0 | % |
| | | | | | | | | | | | | |
| Percentage of revenues | | | 58.9 | % | | | 54.6 | % | | | | |
Operating
expenses were $182.1 million in the six months ended June 30, 2023, compared to operating expenses of $180.2 million in the six months ended June 30, 2022. The increase in operating expenses was primarily driven by costs related to prospective and potential mergers and acquisitions, defense against hostile tender offer, proxy contest and related professional fees in an aggregate amount of $13.3 million and recent acquisitions related costs of $4.4 million, partially offset by the impact of divestiture of MakerBot of $10.0 million and unfavorable exchange rate costs in a total amount of $4.4 million.
Research and development expenses, net decreased by $2.6 million, or 5.3%, to $45.8 million
for the six months ended June 30, 2023, compared to
$48.3 million for the six months ended June 30, 2022. The
decrease was mainly attributable to the divestiture of MakerBot, partially
offset by restructuring costs in an amount of $2.0 million. The amount of
research and development expenses as a
percentage of revenues remained fairly consistent from period to
period, constituting 14.8% of our revenues for the six months
ended June 30, 2023, as compared to 14.6% for the six months ended
June 30, 2022.
We continue to invest in
strategic long-term initiatives that include advancements in our core FDM and
PolyJet technologies and in our new powder-based and photopolymer-based,
SAF and P3 technologies,
advanced composite materials, software and development of new applications
which will enhance our current solutions offerings.
Selling, general and administrative
expenses increased by $4.4 million, or
3.4%, to $136.3 million for the six months ended June 30, 2023,
compared to $131.9 million for the six months ended June 30,
2022. The amount of selling, general and administrative expenses constituted
44.1% of our revenues for the six months ended June 30, 2023, as compared
to 40.0% for the six months ended June 30, 2022. The increase is
mainly attributable to costs related to prospective and potential
mergers and acquisitions, defense against hostile tender offer, proxy contest
and related professional fees, partially offset
by the impact of MakerBot divestiture.
Operating Loss
Operating loss and operating loss as a percentage of our total revenues were as follows:
| | | Six Months Ended June 30, |
| | | | 2023 | | | | | 2022 | |
| | | U.S. $ in thousands |
| | | | | | | | | | |
| Operating loss | | $ | (50,456 | ) | | | $ | (43,129 | ) |
| | | | | | | | | | |
| Percentage of revenues | | | (16.3 | )% | | | | (13.1 | )% |
Operating loss amounted to $50.5 million for the six months ended June 30, 2023, compared to an operating loss of $43.1 million for the six months ended June 30, 2022. Our operating loss increased
both on an absolute basis, and as a percentage of our revenues in the first half of 2023 compared to the first half of 2022, for the reasons described
in the discussion of the above line items.
Financial Expenses (Income), net
Financial income, net, which was primarily comprised of foreign currencies effects, interest income and interest expenses, was $1.5 million for the six months ended June 30, 2023, compared to $2.5 million of financial expenses, net for the six months ended June 30, 2022.
Income Taxes
Income tax benefit (expenses) and income tax benefit (expenses) as a percentage of net loss before taxes, as well as the percentage change in each period over period, reflected thereby, were as follows:
| | | Six Months Ended
June 30, | | |
| | | | 2023 | | | | 2022 | | | |
| | | U.S. $ in thousands | | |
| | | | | | | | | | | |
| Income tax benefit(expenses) | | $ | (4,500 | ) | | $ | 502 | | | |
| | | | | | | | | | | |
| As a percent of loss before income taxes | | | (9.2 | )% | | | 1.1 | % | | |
We had an effective tax rate of 9.2% for the six-month period ended
June 30, 2023, compared to an effective tax rate of 1.1% for the
six-month period ended June 30, 2022.Our effective tax rate in the six
months ended June 30, 2023 was primarily impacted by the geographic mix of
foreign taxable earnings and losses, as well as our valuation allowance.
Share in Losses of Associated Companies
Share in losses of associated companies reflects our proportionate share of the losses of unconsolidated entities accounted for by using the equity method of accounting. During the six months ended June 30, 2023, the loss from our proportionate share of the earnings of our equity method investments was $7.3 million, compared to a loss of $0.2 million in the six months ended June 30, 2022
as a result of our divestiture of MakerBot and investment in Ultimaker.
Net Loss and Net Loss Per Share
Net loss (on an absolute basis and
as a percentage of revenues), and net loss per share were as follows:
| | | Six Months Ended June 30, |
| | | | 2023 | | | | 2022 | |
| | | U.S. $ in thousands |
| | | | | | | | | |
| Net loss | | $ | (60,839 | ) | | $ | (45,333 | ) |
| | | | | | | | | |
| Percentage of revenues | | | (19.7 | )% | | | (13.7 | )% |
| | | | | | | | | |
| Basic and diluted net loss per share | | $ | (0.89 | ) | | $ | (0.69 | ) |
Net loss was
$60.8 million for the six months ended June 30, 2023
compared to a net loss of $45.3 million for the six months
ended June 30, 2022. Our net loss increased as a percentage of our
revenues in the six months ended June 30, 2023 compared to the six months ended
June 30, 2022, mainly due to higher costs related to prospective and potential
mergers and acquisitions, defense against hostile tender offer, proxy contest
and related professional fees, increased amounts for our share in losses of
associated companies and higher income tax expenses, in each case, as
quantified above, offset, in part, by more profitable operational
results, also as described above.
Net loss per share was $0.89 and $0.69 for the six months ended
June 30, 2023 and 2022, respectively. The weighted average fully diluted
share count was 68.1 million for the six months ended June 30,
2023, compared to 66.2 million for the six months ended June 30,
2022.
The absolute increase in net loss and
basic and diluted net loss per share, as well as the increase in net loss as a
percentage of our revenues, resulted from the aggregate impact of the foregoing
line items in our results of operations in the first six months of 2023 as
compared to the corresponding period in 2022.
Supplemental Operating Results on a Non-GAAP Basis
The following non-GAAP
data, which excludes certain items as described below, are non-GAAP financial measures.
Our management believes that these non-GAAP financial measures are useful
information for investors and shareholders of our company in gauging our
results of operations (i) on an ongoing basis after excluding mergers,
acquisitions and restructuring-related charges or gains, legal provisions
and (ii) excluding non-cash items such as stock-based compensation
expenses, acquired intangible assets amortization, including intangible assets
amortization related to equity method investments, impairment of
long-lived assets and goodwill, revaluation of our investments and the corresponding tax effect of those items.
The items adjusted in our non-GAAP results
either do not reflect actual cash outlays that impact our liquidity and our
financial condition or have a non-recurring impact on the statement of
operations, as assessed by management. These non-GAAP financial measures are
presented to permit investors to more fully understand how management assesses
our performance for internal planning and forecasting purposes. The limitations
of using these non-GAAP financial measures as performance measures are that
they provide a view of our results of operations without including all items
indicated above during a period, which may not provide a comparable view of our
performance to other companies in our industry. Investors and other readers
should consider non-GAAP measures only as supplements to, not as substitutes
for or as superior measures to, the measures of financial performance prepared
in accordance with GAAP. Reconciliation between results on a GAAP and non-GAAP
basis is provided in the tables below.
Reconciliation of GAAP to Non-GAAP Results of Operations
The following tables present the GAAP measures, the corresponding non-GAAP amounts and the related non-GAAP adjustments for the applicable periods:
| | | | Three Months Ended June 30, |
| | | | | 2023 | | | | Non-GAAP | | | | 2023 | | | | 2022 | | | | Non-GAAP | | | | 2022 | |
| | | | | GAAP | | | | Adjustments | | | | Non-GAAP | | | | GAAP | | | | Adjustments | | | | Non-GAAP | |
| | | | U.S. dollars and shares in thousands (except per share amounts) |
| | | Gross profit (1) | | $66,222 | | | | $11,283 | | | | $77,505 | | | | $67,393 | | | | $11,914 | | | | $79,307 | |
| | | Operating income (loss) (1,2) | | (33,659 | ) | | | 38,666 | | | | 5,007 | | | | (23,545 | ) | | | 25,479 | | | | 1,934 | |
| | | Net income (loss) (1,2,3) | | (38,615 | ) | | | 41,148 | | | | 2,533 | | | | (24,385 | ) | | | 25,560 | | | | 1,175 | |
| | | Net income (loss) per diluted share (4) | $ | (0.56 | ) | | $ | 0.60 | | | $ | 0.04 | | | $ | (0.37 | ) | | $ | 0.39 | | | $ | 0.02 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| (1) | | Acquired intangible assets amortization expense | | | | | | 5,014 | | | | | | | | | | | | 6,954 | | | | | |
| | | Non-cash stock-based compensation expense | | | | | | 999 | | | | | | | | | | | | 1,080 | | | | | |
| | | Restructuring and other related costs | | | | | | 3,378 | | | | | | | | | | | | 15 | | | | | |
| | | Impairment charges and write off | | | | | | 1,892 | | | | | | | | | | | | 3,865 | | | | | |
| | | | | | | | | 11,283 | | | | | | | | | | | | 11,914 | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| (2) | | Acquired intangible assets amortization expense | | | | | | 2,686 | | | | | | | | | | | | 2,218 | | | | | |
| | | Non-cash stock-based compensation expense | | | | | | 7,024 | | | | | | | | | | | | 7,751 | | | | | |
| | | Restructuring and other related costs | | | | | | 2,468 | | | | | | | | | | | | - | | | | | |
| | | Revaluation of investments | | | | | | - | | | | | | | | | | | | 1,255 | | | | | |
| | | Contingent consideration | | | | | | 347 | | | | | | | | | | | | 596 | | | | | |
| | | Legal, consulting and other expenses | | | | | | 14,858 | | | | | | | | | | | | 1,745 | | | | | |
| | | | | | | | | 27,383 | | | | | | | | | | | | 13,565 | | | | | |
| | | | | | | | | 38,666 | | | | | | | | | | | | 25,479 | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| (3) | | Corresponding tax effect | | | | | | 213 | | | | | | | | | | | | 81 | | | | | |
| | | Finance expenses | | | | | | 175 | | | | | | | | | | | | - | | | | | |
| | | Equity method related amortization and other | | | | | | 2,094 | | | | | | | | | | | | - | | | | | |
| | | | | | | | | $41,148 | | | | | | | | | | | | $25,560 | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | (4 | ) | Weighted average number of ordinary
shares outstanding- Diluted | | 68,648 | | | | | | | | 69,272 | | | | 66,568 | | | | | | | | 67,070 | |
| | | Six Months Ended June 30, |
| | | | 2023 | | | | Non-GAAP | | | | 2023 | | | | 2022 | | | | Non-GAAP | | | | 2022 | |
| | | | GAAP | | | | Adjustments | | | | Non-GAAP | | | | GAAP | | | | Adjustments | | | | Non-GAAP | |
| | | U.S. dollars and shares in thousands (except per share amounts) |
| | Gross profit (1) | $ | 131,617 | | | $ | 16,582 | | | $ | 148,199 | | | $ | 137,070 | | | $ | 19,603 | | | $ | 156,673 | |
| | Operating income (loss) (1,2) | | (50,456 | ) | | | 56,981 | | | | 6,525 | | | | (43,129 | ) | | | 47,086 | | | | 3,957 | |
| | Net income (loss) (1,2,3) | | (60,839 | ) | | | 64,454 | | | | 3,615 | | | | (45,333 | ) | | | 47,718 | | | | 2,385 | |
| | Net income (loss) per diluted share (4) | $ | (0.89 | ) | | $ | 0.95 | | | $ | 0.05 | | | $ | (0.69 | ) | | $ | 0.73 | | | $ | 0.04 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| (1) | Acquired intangible assets amortization expense | | | | | | 9,015 | | | | | | | | | | | | 13,920 | | | | | |
| | Non-cash stock-based compensation expense | | | | | | 1,931 | | | | | | | | | | | | 1,980 | | | | | |
| | Restructuring and other related costs | | | | | | 3,744 | | | | | | | | | | | | (162 | ) | | | | |
| | Impairment charges and write off | | | | | | 1,892 | | | | | | | | | | | | 3,865 | | | | | |
| | | | | | | | 16,582 | | | | | | | | | | | | 19,603 | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| (2) | Acquired intangible assets amortization expense | | | | | | 4,880 | | | | | | | | | | | | 4,443 | | | | | |
| | Non-cash stock-based compensation expense | | | | | | 14,332 | | | | | | | | | | | | 15,384 | | | | | |
| | Restructuring and other related costs | | | | | | 4,266 | | | | | | | | | | | | 555 | | | | | |
| | Revaluation of investments | | | | | | 580 | | | | | | | | | | | | 2,316 | | | | | |
| | Contingent consideration | | | | | | 612 | | | | | | | | | | | | 803 | | | | | |
| | Legal, consulting and other expenses | | | | | | 15,729 | | | | | | | | | | | | 3,982 | | | | | |
| | | | | | | | 40,399 | | | | | | | | | | | | 27,483 | | | | | |
| | | | | | | | 56,981 | | | | | | | | | | | | 47,086 | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| (3) | Corresponding tax effect | | | | | | 3,251 | | | | | | | | | | | | - | | | | | |
| | Finance expenses | | | | | $ | 638 | | | | | | | | | | | $ | 226 | | | | | |
| | Equity method related amortization and other | | | | | $ | 3,584 | | | | | | | | | | | $ | 406 | | | | | |
| | | | | | | $ | 64,454 | | | | | | | | | | | $ | 47,718 | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| (4) | Weighted average number of ordinary
shares outstanding- Diluted | | 68,107 | | | | | | | | 68,683 | | | | 66,151 | | | | | | | | 67,071 | |
Liquidity and Capital Resources
A summary of our statements of cash flows is as follows:
| | Six Months Ended June 30, |
| | | 2023 | | | | 2022 | |
| | U.S $ in thousands |
| Net loss | $ | (60,839 | ) | | $ | (45,333 | ) |
| Depreciation and amortization | | 24,343 | | | | 29,924 | |
| Impairment of other long-lived assets | | 919 | | | | 3,865 | |
| Stock-based compensation | | 16,263 | | | | 17,364 | |
| Foreign currency transactions loss | | 1,967 | | | | 10,318 | |
| Other non-cash items, net | | 10,633 | | | | 2,658 | |
| Change in working capital and other items | | (34,453 | ) | | | (57,705 | ) |
| 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 | ) |
| Effect of exchange rate changes on cash, cash equivalents and restricted cash | | (824 | ) | | | (7,413 | ) |
| Net change in cash, cash equivalents and restricted cash | | (6,045 | ) | | | 15,986 | |
| Cash, cash equivalents and restricted cash, beginning of period | | 150,686 | | | | 243,293 | |
| Cash, cash equivalents and restricted cash, end of period | | 144,641 | | | | 259,279 | |
Our cash, cash equivalents and restricted
cash balance decreased to $144.6 million as of June 30, 2023 from $150.7 million
as of December 31, 2022. The decrease in cash, cash equivalents and restricted
cash in the six months ended June 30, 2023 was primarily due to $41.2 million of cash used in operating
activities, partially offset
by $36.6 million of cash generated by investing
activities.
Cash used in operating
activities
We used $41.2 million of cash in
operating activities during the six months
ended June 30, 2023. Cash used in operating activities reflects our $60.8 million net loss, negative changes in our working capital of $34.5 million, as
reduced in part to eliminate non-cash line items included in net loss,
including depreciation and amortization in an aggregate amount of $24.3
million, stock-based compensation of $16.3 million and foreign currency
transactions gains of $2.0 million. Reduction in working capital of $34.5
million was mainly driven by higher inventory purchases of $17.1
million, an increase of $11.5 million in accounts receivable, a decrease of
$4.9 million in accrued compensation and related benefits, and a decrease of
$3.1 million in accounts payable.
Cash flows from investing activities
We generated $36.6 million of cash from
our investing activities during the six months ended June 30,
2023. The increase was mainly attributable to $116.4 million of net
proceeds that we withdrew from short-term bank deposits, partially offset by
cash invested for acquisitions and investments in unconsolidated entities of
$72.7 million, and purchases of property and equipment in an amount of $6.5
million.
Cash used in financing activities
We used
$0.7 million of cash in financing activities
during the six months ended June 30, 2023. These financing costs were mostly related to contingent consideration that we paid for
acquisitions.
Capital resources and capital expenditures
Our total
current assets amounted to $610.5 million as of June 30, 2023, of which $205.6 million consisted of cash, cash
equivalents, short-term deposits and restricted cash. Total current
liabilities amounted to $208.8 million. Most
of our cash and cash equivalents and short-term deposits are held in
banks in Israel, the US and the U.K.
The credit risk related
to our accounts receivable is limited, due to the relatively large number of
customers and their wide geographic distribution. In addition, we seek to
reduce the credit exposure related to our accounts receivable by imposing
credit limits, conducting ongoing credit evaluation, and by implementing
account monitoring procedures, as well as credit insurance for many of our
customers.
We believe that we will
have adequate cash and cash equivalents to fund our ongoing operations and that
these sources of liquidity will be sufficient to satisfy our capital
expenditure and working capital needs for the next twelve months.
Critical Accounting Estimates
We have prepared our consolidated financial
statements and related disclosures in conformity with accounting principles
generally accepted in the United States of America. This has required us to
make estimates, judgments and assumptions that affect the amounts we report.
Actual results may differ from those estimates. To better understand
our business activities and those accounting policies that are
important to the presentation of our financial condition and results of
operations and that require management's subjective judgements, please
see our 2022 Annual Report. We
base our judgements on our experience and various assumptions that we believe
to be reasonable under the circumstances.
Forward-Looking Statements and Factors That May Affect Future Results of Operations
Certain information included in or incorporated by reference
into the Report of Foreign Private Issuer on Form 6-K to which this Operating
and Financial Review is appended, or the Form 6-K, may be deemed to be
“forward-looking statements” within the meaning of the Private Securities
Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, and
Section 21E of the Securities Exchange Act of 1934. Forward-looking statements are
those that predict or describe future events or trends and that do not relate
solely to historical matters. You can generally identify forward-looking
statements as statements containing the words “may,” “will,” “could,” “should,”
“expect,” “anticipate,” “intend,” “estimate,” “believe,” “project,” “plan,”
“assume” or other similar expressions, or negatives of those expressions,
although not all forward-looking statements contain these identifying words.
These forward-looking statements may
include, but are not limited to, statements regarding our future strategy,
future operations, projected financial position, proposed products, estimated
future revenues, projected costs, future prospects, the future of our industry
and results that might be obtained by pursuing management’s current plans and
objectives.
You should not place undue reliance on our
forward-looking statements because the matters they describe are subject to
certain risks, uncertainties and assumptions that are difficult to predict. Our
forward-looking statements are based on the information currently available to
us and speak only as of the date of the Form 6-K. Over time, our actual
results, performance or achievements may differ from those expressed or implied
by our forward-looking statements, and such difference might be significant and
materially adverse to our shareholders. We undertake no obligation to update
publicly any forward-looking statements, whether as a result of new
information, future events or otherwise.
Important factors that could cause
actual results, developments and business decisions to differ materially from
those anticipated in these forward-looking statements include, among other
things:
•
the extent of our success at introducing new or improved products and solutions that gain market share;
•
the extent of growth of the 3D printing market generally;
•
the global macro-economic environment, including headwinds caused by inflation, rising interest rates, changing currency exchange rates and potential recessionary conditions;
•
changes in our overall strategy, including as related to any restructuring activities and our capital expenditures;
•
the impact of shifts in prices or margins of the products that we sell or services we provide;
•
the impact of competition and new technologies;
•
the ultimate outcome of the prospective transaction between Stratasys and Desktop Metal, including the possibility that Stratasys shareholders or Desktop Metal stockholders will reject the proposed transaction;
•
the effect of the announcement of the prospective transaction on our ability to operate our business and retain and hire key personnel and to maintain favorable business relationships;
•
the timing of the prospective merger with Desktop Metal;
•
the occurrence of any event, change or other circumstance that could give rise to the termination of the prospective merger with Desktop Metal;
•
the extent to which the parties are able to satisfy closing conditions to the completion of the prospective merger between Stratasys and Desktop Metal;
•
the impact of unsolicited non-binding indicative proposals by 3D Systems to acquire our company and whether any such proposal is ultimately determined by our board of directors to be a “Superior Proposal” under our merger agreement with Desktop Metal;
•
impairments of goodwill or other intangible assets in respect of companies that we acquire;
•
the extent of our success at efficiently and successfully integrating the operations of various companies that we have acquired or may acquire;
•
the degree of our success at locating and acquiring additional value-enhancing, inorganic technology that furthers our business plan to lead in the realm of polymers;
•
the potential adverse impact that recent global interruptions and delays involving freight carriers and other third parties have been and may continue to have on our supply chain and distribution network, and, consequently, our ability to successfully sell both our existing and newly-launched 3D printing products;
•
the potential adverse effects that inflation, and actions taken to reduce inflation, such as increased interest rates, are having or may have on the macro-economic environment, and the degree of our resilience (and that of our customers and suppliers) to those effects, which may have significant consequences for our operations, financial position and cash flows;
•
global market, political and economic conditions, and in the countries in which we operate in particular;
•
government regulations and approvals;
•
litigation and regulatory proceedings;
•
infringement of our intellectual property rights by others (including for replication and sale of consumables for use in our systems), or infringement of others’ intellectual property rights by us;
•
potential cyber attacks against, or other breaches to, our information technologies systems;
• the extent of our success at maintaining our liquidity and financing our operations and capital needs;
•
impact of tax regulations on our results of operations and financial conditions;
•
those factors referred to in Item 3.D, “Key Information - Risk Factors”, Item 4, “Information on the Company”, and Item 5, “Operating and Financial Review and Prospects” in our 2022 Annual Report, as supplemented herein, as well as in other portions of the 2022 Annual Report Readers are urged to carefully review and consider the various disclosures made throughout the Form 6-K, our 2022 Annual Report, and in our other reports filed with or furnished to the SEC, which are designed to advise interested parties of the risks and factors that may affect our business, financial condition, results of operations and prospects.
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Reference is made to Item 11, “Quantitative and Qualitative Disclosures About Market Risk”
in our 2022 Annual Report.
LEGAL PROCEEDINGS
We are subject to various litigation
and other legal proceedings from time to time. For a discussion of our
litigation status, see Note 12-“Contingencies”
in the notes to our unaudited condensed consolidated interim financial
statements attached as Exhibit 99.1 to the Form 6-K.
RISK FACTORS
Adverse macro-economic trends such as inflation and higher
interest rates have been adversely affecting, and may continue to adversely
affect, potentially in a more material manner (including due to measures taken
to reduce their impact), our business, results of operations and
financial condition.
Certain recent global macro-economic trends have been
adversely impacting the global economic environment in the post-COVID-19 pandemic
period. The infusion of money into circulation as part of a “loose” monetary
policy to encourage consumer spending, along with historically low interest
rates for an extended period of time, which were designed to ease economic
conditions during the pandemic, triggered upwards pressure on prices of goods
and services. Supply chain delays, initially caused by closures during the
pandemic, and rising shipping costs, which were exacerbated by the ongoing
Russian invasion of the Ukraine, have contributed further towards inflationary
pressures on many goods and commodities globally. The high rates of inflation
globally caused governments and central banks to act to curb inflation,
including by raising interest rates, which may potentially stifle economic
activity to a large enough extent to cause a recession, whether in individual
countries or regions, or globally. In certain cases, shifts in interest rates
have impacted investor preferences as to investments in different countries,
which has triggered shifts in exchange rates between various currencies, which
has, in turn, exerted an unsteady impact on our results of operations.
We cannot predict
what impact these current or prospective macro-economic trends may have on our
target markets and our expected results of operations. For
example, rising interest rates which are meant to slow down inflation may
worsen credit/financing conditions for our customers and adversely impact their
ability to purchase our products.
In light of these
uncertainties, we continue to monitor the cost-control measures that we
first implemented in February 2020, when the COVID-19 pandemic began, some of
which we have maintained in place since that time.
While we believe
that we are well-positioned to withstand the current adverse macro-economic
trends, given our balance sheet (primarily due to our cash reserves and lack of
debt) and our emphasis on operational efficiencies and execution, we continue
to monitor the situation, assessing further implications for our operations,
supply chain, liquidity, cash flow and customer orders, in an effort to
mitigate potential new adverse consequences should they arise.
However, there is no assurance that we will succeed at doing so.
A potential downturn could
also have a material adverse impact on our business partners’ stability and
financial strength. Given the uncertainties associated with these
macroeconomic trends, it is difficult to fully predict the magnitude of their
effects on our, and our business partners’, business, financial condition and
results of operations.
The guidance that
we provide for 2023 and future periods (including medium term guidance) may
lack the degree of certainty that we once had in providing guidance, due to the
number of variables surrounding the current macro-economic environment.
The trends associated with the current economic environment may also have the effect of amplifying many of the other risks described under the caption “Item 3. Key Information— D. Risk Factors” in our 2022 Annual Report.
Our prospective merger with Desktop Metal may not be completed,
which could require us to pay a sizable termination fee, if the termination occurs
under certain circumstances, and could otherwise adversely affect our company
in various ways.
Our prospective merger with Desktop Metal is subject to a number
of conditions that must be satisfied or waived, in each case, prior to the
completion of the merger, as specified in the related merger agreement. These
conditions to the completion of the merger, some of which are beyond the
control of our company and Desktop Metal, may not be satisfied or waived in a
timely manner or at all, and, accordingly, the merger may be delayed or not
completed. There can be no assurance as to when these conditions will be
satisfied or waived, if at all, or that other events will not intervene to
delay or result in the failure to complete the transaction. No assurance can be
given that the required stockholder, shareholder, governmental and regulatory
consents and approvals will be obtained or that the required conditions to
closing will be satisfied, and, even if all such consents and approvals are
obtained and the conditions are satisfied, no assurance can be given as to the
terms, conditions and timing of such consents, orders and approvals.
Additionally, either Stratasys or Desktop Metal may terminate the merger
agreement under certain circumstances, including, among other reasons, if the merger
is not completed by February 25, 2024 (subject, under certain circumstances, to
extension to May 25, 2024 or August 25, 2024).
If the merger agreement is terminated under certain circumstances
specified therein, we may be required to pay Desktop Metal a termination fee of
$19,000,000 or $32,500,000 or an expense reimbursement in an amount not to
exceed $10,000,000, including certain circumstances in which our board of
directors effects a change of recommendation or we enter into an agreement with
respect to an alternate acquisition proposal following the termination of the merger
agreement.
If the merger is not completed on a timely basis, or at all, for
any reason, including as a result of our shareholders failing to approve a
proposal related to the merger, our share price could be adversely effected, our
ongoing business may be adversely affected and, without realizing any of the
benefits of having completed the merger, we would be subject to a number of additional
risks, including, potentially:
- the time and resources
committed by our management team to matters relating to the merger (including
integration planning) could otherwise have been devoted to our existing
business and the pursuit of other opportunities that may have been beneficial
to Stratasys;
- the market prices of our
ordinary shares could decline to the extent that the current market price
reflects a market assumption that the merger will be completed;
- we may face renewed hostile
takeover pressure from Nano Dimension, whether via (i) a new tender offer that
is similar to the recently-expired hostile Nano tender offer pursuant to which
Nano Dimension sought to increase its holdings of Stratasys ordinary shares to
approximately 46-51% of our outstanding ordinary shares, (ii) an additional
attempt to take control of our board of directors, whether by proposing to
remove current Stratasys directors and replace them with Nano’s own nominees,
or otherwise, or (iii) any other means, and may face protracted litigation in
relation to such tactics of Nano Dimension;
- we could face hostile takeover
pressure from any other third party, including other competitors in the 3D
printing industry or other outside players, which could distract us from our
focus on our business strategies;
- we may experience negative
reactions from our suppliers, customers, distribution channels, business
partners, industry contacts and other third parties, which in turn could affect
our marketing and sales operations or our ability to compete for new business
or obtain renewals in the marketplace more broadly;
- we could experience negative
reactions from market analysts, institutional shareholder groups, significant
shareholders or others that could have an adverse impact on the trading price
of our ordinary shares;
- we may experience negative reactions from employees; or
- we and/or our management teams
could be subject to litigation related to any failure to complete the merger or
any enforcement proceeding commenced against us to perform our obligations
under the merger agreement.
Combining
our business with the business of Desktop Metal may be more difficult, costly
or time-consuming than expected and the combined company may fail to realize
the anticipated benefits of the merger, which may adversely affect the combined
company’s business results and negatively affect the market price of the
ordinary shares of the combined company following the merger.
The success of the Stratasys-Desktop Metal prospective merger will
depend on, among other things, the ability of Stratasys and Desktop Metal to
combine their businesses in a manner that facilitates growth opportunities and
realizes cost savings. We have entered into the merger agreement because our
board of directors believes that the merger and the other transactions
contemplated by the merger agreement are fair to and in the best interests of our
shareholders, and that combining the businesses of Stratasys and Desktop Metal
will produce benefits and cost savings.
If the combined company is not able to successfully achieve these
objectives, the anticipated benefits of the merger may not be realized fully,
or at all, or may take longer to realize than expected.
Our ability to achieve estimated cost and tax synergies in the
expected timeframe, or at all, is subject to various assumptions by our
management, which may or may not prove to be accurate, as well as the
incurrence of costs in our operations that offset all or a portion of such cost
synergies. As a consequence, we may not be able to realize all of these cost
and tax synergies within the timeframe expected or at all. In addition, we may
incur additional or unexpected costs in order to realize these cost and tax
synergies. Our ability to realize tax synergies is subject to uncertainties.
Failure to achieve the expected cost and tax synergies could significantly
reduce the expected benefits associated with the Merger.
Inability to realize the full extent of the anticipated benefits
of the merger and the other transactions contemplated by the related merger agreement,
as well as any delays encountered in the integration process, could have an
adverse effect upon the revenues, level of expenses and operating results of
the combined company, which may adversely affect the value of the ordinary
shares of the combined company after the completion of the merger.
In addition, the actual integration may
result in additional and unforeseen expenses, and the anticipated benefits of
the integration plan may not be realized. Actual growth and cost savings, if
achieved, may be lower than what we expect and may take longer to achieve than
anticipated. If our company and Desktop Metal are not able to adequately
address integration challenges, we may be unable to successfully integrate the
companies’ respective operations or realize the anticipated benefits of the
integration of the two companies.
If Nano’s
legal challenge to our shareholder rights plan is successful, Nano launches and
successfully completes an unsolicited tender offer that is similar to the
recently expired Nano tender offer, or Nano attempts once again and succeeds at
removing and replacing Stratasys’ or the Stratasys- Desktop Metal combined
company’s directors with its own nominees, that could have a material adverse
impact on shareholders’ investment in the combined company.
We are currently subject to litigation in Israel initiated by Nano
in which Nano is challenging the validity, under Israeli law, of our
shareholder rights plan. The Israeli courts have not previously ruled on the
legality of a shareholder rights plan or so-called “poison pill” under the
Israeli Companies Law, 5759-1999, or the Companies Law. On July 18, 2023, in
the context of an interim procedural decision, the court expressed its
preliminary view that: it is inclined to rule that rights plans are permissible
under Israeli law; the adoption of a rights plan by a board should be viewed
“with suspicion”; a board bears the burden of proving that it was informed,
that it acted in good faith, that experts were consulted, and that it
considered the interests of the company and its shareholders, rather than
acting for the sake of entrenching itself, when adopting a shareholder rights
plan. While this interim ruling opens the way for a potential final court
ruling that our shareholder rights plan was valid and validly adopted, there
can be no assurance that the Israeli court will determine that our board of
directors actually met the requisite burden of proof for upholding such
validity.
In addition to its legal challenge to Stratasys’ shareholder
rights plan, Nano may also launch, in the future, a hostile tender offer that
may be similar to the Nano tender offer that it launched on May 25, 2023 and
that expired on July 31, 2023, pursuant to which it may seek to acquire our
ordinary shares which, together with any ordinary shares that it already owns,
may represent a majority or, even if less than a majority, a significant
percentage of the outstanding ordinary shares.
Nano may also utilize its rights pursuant to the provisions of the
Companies Law to demand, as a greater-than 5% shareholder, to call an
extraordinary general meeting of shareholders at which the removal of some or
all of our then-incumbent directors and the election of Nano’s nominees in
their stead would be on the agenda. The relevant majority for approval of any
such proposal would be an ordinary majority of shares represented in person or
by proxy and voting at a general meeting, without excluding the shares of
interested shareholders. If Nano were to hold a substantial portion of our
ordinary shares (regardless of whether we complete our prospective merger with
Desktop Metal) when doing so, Nano’s votes in favor of such a proposal would
give it an advantage in having the proposal approved.
To the extent that the Israeli court invalidates our shareholder
rights plan, declares or provides any further remedies to Nano that facilitate,
and thereby allow, Nano to launch a new tender offer that is similar to the
expired Nano tender offer, that may result in Nano having another opportunity
to attempt to become a majority or significant shareholder of our company
(regardless of whether we complete our prospective merger with Desktop Metal).
Nano would then have significant ability to impact the operations of Stratasys
or the Stratasys-Desktop Metal combined company. Similarly, if Nano succeeds in
the future in replacing any of our directors, that would also give it
significant influence over the management and policies of Stratasys or the
combined company. Either or both of those outcomes would enable Nano to
influence the operations of Stratasys or the combined company for its own
interests, which may be to the detriment of our public/minority shareholders.
Nano could use its voting power, whether as a substantial (or even controlling)
shareholder or on the Stratasys board, to significantly influence the policies
of the combined company in a manner that benefits Nano and adversely impacts
the combined company and its results of operations in a material way. Nano’s
possession of a substantial or controlling interest in Stratasys or the
combined company could also adversely impact trading in Stratasys’ or the
combined company’s ordinary shares and liquidity for Stratasys’ or the combined
company’s public/minority shareholders, potentially causing a decline in the
value of public shareholders’ investment in Stratasys and/or the combined
company.