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, as part of this acquisition we acquired an IP portfolio comprised of
hundreds of patents and pending patents.
Recent Developments-
Potential Business Combinations and Strategic Alternatives
During the third quarter of 2023, we continued to be involved in,
and were the subject of, potential business combination transactions that would
have been potentially transformative to the additive manufacturing industry. At
the end of the fiscal quarter, after none of such transactions had been
completed (for various reasons), we initiated a whole-scale, comprehensive
analysis of our strategic options, which we have been conducting together with
our advisors during the fourth quarter of 2023. We provide a brief overview of
recent developments concerning strategic transactions and processes below.
Termination of Merger Agreement
with Desktop Metal
On May 25, 2023, we and
Desktop Metal, Inc., (“Desktop Metal”), had jointly announced our entry into a
merger agreement, whereby our wholly-owned Delaware subsidiary was to merge
with and into Desktop Metal, with Desktop Metal surviving the merger as a
wholly-owned subsidiary of ours. On September 28, 2023, we
held an extraordinary general meeting of shareholders, at which the merger was
presented for the approval of our shareholders. The merger proposal was not
approved by our shareholders at that meeting, and accordingly, pursuant to our rights
under the merger agreement, we terminated the merger agreement with Desktop
Metal, effective
immediately on September 28, 2023. As
a result, we recorded a termination fee of $10.0 million, which
was included under selling, general & administrative expenses and
was paid to Desktop Metal after the balance sheet date.
Nano Dimension
Uncompleted Tender Offer and Unsuccessful Board Contest
On May 25, 2023, following
the announcement of the then-prospective 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.
Nano also requested from
our company, pursuant to its rights under the Israeli Companies Law as a 5% or
greater shareholder, that we convene an extraordinary shareholder meeting at
which a vote would be held on the removal of all of our directors (except for
S, Scott Crump) and their replacement with officers of Nano whom it had nominated. After
discussions with Nano and related court proceedings, we ultimately brought to a
vote at our annual general meeting of shareholders held on August 8, 2023 a
contested election of directors, at which our board’s eight nominees and Nano’s
seven nominees were subject to election on
a nominee-by-nominee basis, with the eight nominees receiving more “FOR” votes than “AGAINST” votes to be
deemed elected. Based on that agreed voting format, at the annual meeting, each of our board’s eight
nominees, and none of Nano’s seven nominees, were elected. We have also been
subject to litigation with Nano in an Israeli district court regarding our
shareholder rights plan, Nano’s uncompleted tender offer, and the above-described
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. On July
13, 2023, we received an updated proposal from 3D Systems, pursuant to which it
would merge with our company for $7.50 in cash and 1.5444 newly issued shares
of common stock of 3D Systems per Stratasys ordinary share. Our board initially
determined that the 3D Systems proposal of July 13 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. Following an extensive due
diligence process, however, we communicated our concerns regarding the 3D
Systems’ proposal to 3D Systems and indicated that the last proposal was not
itself a transaction that we would be prepared to enter into. 3D Systems
revised its proposal on September 6, 2023, offering $7.00 in cash
and 1.6387 newly issued shares of common stock of 3D Systems per Stratasys
ordinary share. After
consultation with our outside financial and legal advisors, our board of
directors unanimously determined that the September 6 proposal continued to
significantly undervalue our company and did not constitute a “Superior
Proposal” pursuant to the terms of our then-effective merger agreement with
Desktop Metal, and the board accordingly terminated discussions with 3D
Systems.
Initiation of Strategic Alternatives
Process
On September
28, 2023, following the failure of the vote for approval of the merger with
Desktop Metal and our consequent termination of the related merger agreement,
we announced that we had initiated a comprehensive process to explore strategic
alternatives for our company. We noted that we are no longer subject to
restrictions under that merger agreement regarding the solicitation of or entry
into potential transactions. Our board has been conducting that process
together with our advisors during the fourth quarter of 2023.
Business Performance in Macro-Economic Environment
Our
current outlook, as well as our results of operations for the three and nine month periods ended
September 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 three months ended September 30, 2023 remained essentially flat
compared to the corresponding quarter of 2022. For the initial nine months of
2023, revenues decreased by 4.3% relative to the corresponding, nine months ended
September 30, 2022. These quarterly and nine-month revenue results evidence
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 quarterly and nine months results also evidence stronger utilization of our
installed systems by our customers, which drove higher revenues in consumables, as well as increase in consumables revenue based on sales of consumables to customers of
our recently acquired entities.
We
continue to closely monitor macro-economic conditions, including the
headwinds caused by 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 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:
- Israel’s retaliatory war
against the terrorist organization Hamas, currently had a limited impact on our
Israeli or global operations. However given the fact that 25% of our employees
reside in Israel and work at our Israeli offices, and certain of our facilities
are located in central and southern Israel, in case the war widens into a
regional conflict and/or worsens Israeli or global economic conditions, that
could have an adverse impact on our operations;
- 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 third quarter of 2023 with $184.6 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 nine months ended September 30, 2023 with the corresponding period in
2022.
Results of Operations
Comparison of Three Months Ended September 30, 2023 to Three Months Ended September 30, 2022
The following table sets forth certain statement of operations data for the periods indicated:
| | Three Months Ended September 30, |
| | 2023 | | 2022 |
| | | U.S. $ in thousands | | | | % of
Revenues | | | | U.S. $ in thousands | | | | % of
Revenues | |
| Revenues | $ | 162,133 | | | | 100.0 | % | | $ | 162,192 | | | | 100.0 | % |
| Cost of revenues | | 96,484 | | | | 59.5 | % | | | 91,443 | | | | 56.4 | % |
| Gross profit | | 65,649 | | | | 40.5 | % | | | 70,749 | | | | 43.6 | % |
| Research and development, net | | 23,567 | | | | 14.5 | % | | | 23,145 | | | | 14.3 | % |
| Selling, general and administrative | | 84,880 | | | | 52.4 | % | | | 63,230 | | | | 39.0 | % |
| Operating loss | | (42,798 | ) | | | (26.4 | )% | | | (15,626 | ) | | | (9.6 | )% |
| Gain from deconsolidation of subsidiary | | - | | | | 0.0 | % | | | 39,136 | | | | 24.1 | % |
| Financial income, net | | 687 | | | | 0.4 | % | | | 452 | | | | 0.3 | % |
| Income(loss) before income taxes | | (42,111 | ) | | | (26.0 | )% | | | 23,962 | | | | 14.8 | % |
| Income tax expenses | | (645 | ) | | | (0.4 | )% | | | (3,298 | ) | | | (2.0 | )% |
| Share in losses of associated companies | | (4,523 | ) | | | (2.8 | )% | | | (1,915 | ) | | | (1.2 | )% |
| Net income (loss) | | (47,279 | ) | | | (29.2 | )% | | | 18,749 | | | | 11.6 | % |
Discussion of Results of Operations
Revenues
Our products and services revenues in the three months ended September 30, 2023 and 2022, as well as the percentage change reflected thereby, were as follows:
| | | Three Months Ended September 30, | | | |
| | | | 2023 | | | | 2022 | | | | % Change | |
| | | U.S. $ in thousands | | | | |
| Products | | $ | 113,270 | | | $ | 112,133 | | | | 1.0 | % |
| Services | | | 48,863 | | | | 50,059 | | | | (2.4 | )% |
| Total Revenues | | $ | 162,133 | | | $ | 162,192 | | | | 0.0 | % |
Products Revenues
Revenues derived from products (including systems and consumable
materials) increased by $1.1 million, or 1.0%, for the three months ended
September 30, 2023, as compared to the three months ended September 30,
2022, mainly attributable to higher consumables revenues of $5.9 million, as a result of higher usage of our systems, and revenues from
recent acquisitions, partially offset by a decrease in systems revenues as a result of
longer sales cycles, and the impact of the divestiture of MakerBot, which had
accounted for $4.8 million of products
revenues in the three months ended September 30, 2022.
Revenues derived from
systems decreased by $4.8 million, or 8.6%, for the three months ended September 30, 2023,
as compared to the three months ended September 30, 2022. The decrease was mainly attributable to longer sales cycles as well
as the impact of the divestiture of MakerBot, which occurred at the end of
August 2022, which was partially offset by favorable exchange rates of $0.6
million.
Revenues derived from
consumables increased by $5.9 million,
or 10.7%, for the three months ended
September 30, 2023, as compared to the three months ended September 30,
2022. The increase in consumables revenues is mainly attributable to
revenues driven from our recently acquired entities, and higher
utilization rates of systems which requires that initial materials be
replenished, as
well as favorable exchange rates, partially offset by the
impact of the divestiture of MakerBot.
Services Revenues
Services revenues (including Stratasys Direct, maintenance
contracts, time and materials and other services) decreased by $1.2 million for the three months ended
September 30, 2023, or 2.4%, as compared to the three months ended
September 30, 2022. The decrease was
driven primarily by a decrease in Stratasys Direct, or SDM,
revenues in an amount of $1.5 million as well as the divestiture of MakerBot, partially offset by an increase in
service contracts and favorable exchange rates. Within
services revenues, customer support revenue, which includes revenues generated
mainly by maintenance contracts on our systems, increased by 3.6% in three months ended September 30, 2023 compared to the
corresponding period of 2022.
Revenues by Region
Revenues and the percentage of revenues by region for the three months ended September 30, 2023 and 2022, as well as the percentage change in revenues in each such region reflected thereby, were as follows:
| | | Three Months Ended September 30, |
| | | 2023 | | 2022 | | | % Change | |
| | | | U.S.$ in thousands | | | | % of
Revenues | | | | U.S.$ in thousands | | | | % of
Revenues | | | | | |
| Americas* | $ | 101,815 | | | | 62.8 | % | | $ | 107,453 | | | | 66.3 | % | | | (5.2 | )% |
| EMEA | | | 40,611 | | | | 25.0 | % | | | 31,460 | | | | 19.4 | % | | | 29.1 | % |
| Asia Pacific | | 19,707 | | | | 12.2 | % | | | 23,279 | | | | 14.3 | % | | | (15.3 | )% |
| | $ | 162,133 | | | | 100.0 | % | | $ | 162,192 | | | | 100.0 | % | | | 0.0 | % |
* Represent the United States, Canada and Latin America
Revenues in the Americas
region decreased by $5.7 million, or 5.2%, to $101.8 million for the three months ended September 30,
2023, compared to $107.5 million for the three months ended
September 30, 2022. The decrease is mainly attributable to the impact of
the MakerBot divestiture in an amount of $3.5 million as well
as a decrease in systems revenues as a result of longer sales cycles, partially
offset by higher consumables revenues driven by our recent acquisitions.
Revenues in the EMEA region
increased by $9.1 million, or 29.1%, to $40.6 million for the three months ended
September 30, 2023, compared to $31.5 million for the three months ended
September 30, 2022. The increase
was primarily attributable to higher consumables revenues driven
by our recent acquisitions in
an aggregate amount of $2.8 million as well as higher systems and services
revenues.
Revenues
in the Asia Pacific region decreased by $3.6 million, or 15.3%, to $19.7 million for the three
months ended September 30, 2023, compared to $23.3 million for the three
months ended September 30, 2022. The decrease was primarily attributable
to a slowdown in systems revenues, partially offset by higher consumables
revenues.
Gross Profit
Gross profit from our products and services, as well as the percentage change reflected thereby, were as follows:
| | | Three Months Ended September 30, | | | | |
| | | | 2023 | | | | 2022 | | | | | |
| | | U.S. $ in thousands | | | Change in % | |
| Gross profit attributable to: | | | | | | | | | | | | |
| Products | | $ | 53,724 | | | $ | 56,217 | | | | (4.4 | )% |
| Services | | | 11,925 | | | | 14,532 | | | | (17.9 | )% |
| | | $ | 65,649 | | | $ | 70,749 | | | | (7.2 | )% |
Gross profit as a percentage of revenues from our products and services was as follows:
| | | Three Months Ended September 30, |
| | | | 2023 | | | | 2022 | |
| Gross profit as a percentage of revenues from: | |
| Products | | 47.4 | % | | | 50.1 | % |
| Services | | | 24.4 | % | | | 29.0 | % |
| Total gross margin | | 40.5 | % | | | 43.6 | % |
Gross profit attributable
to products revenues decreased by $2.5 million, or 4.4%, to $53.7 million for the three
months ended September 30, 2023, compared to gross profit of $56.2 million for the three months ended September
30, 2022. Gross margin attributable to products revenues decreased to 47.4% for the three months ended
September 30, 2023, as compared to 50.1% for the three months ended September 30, 2022. The decrease in gross profit is
mainly attributable to lower operational efficiencies as a result of reduction in inventories, the
impact of unfavorable product mix and the divestiture of MakerBot partially offset by lower amortization expenses, and an increase in revenues driven by our
recent acquisitions.
Gross profit attributable
to services revenues decreased by $2.6
million, or 17.9%, to $11.9 million for the three months ended September 30,
2023, compared to $14.5 million for the three months ended September 30, 2022.
Gross margin attributable to services revenues decreased to 24.4% for the three months ended
September 30, 2023, as compared to 29.0% for the three months ended September
30, 2022. Our gross profit from services
revenues decreased mainly as a result of Stratasys Direct restructuring and divestments cost, partially offset by favorable product mix.
Operating Expenses
The amount of each type of operating expense for the three months ended September 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 September 30, |
| | | | 2023 | | | | 2022 | | | | % Change | |
| | | U.S. $ in thousands | | | | |
| | | | | | | | | | | | |
| Research and development, net | | $ | 23,567 | | | $ | 23,145 | | | | 1.8 | % |
| Selling, general and administrative | | | 84,880 | | | | 63,230 | | | | 34.2 | % |
| | | 108,447 | | | | 86,375 | | | | 25.6 | % |
| Percentage of revenues | | | 66.9 | % | | | 53.3 | % | | | 13.6 | % |
Operating expenses were $108.4
million in the third quarter
of 2023, compared to operating expenses of $86.4 million in the third quarter
of 2022. The 25.6% increase
in operating expenses was primarily driven by costs related to prospective and potential mergers and acquisitions, our defense
against a hostile
tender offer
and a proxy contest, and related professional
fees, in
an aggregate amount
of $17.2
million, our recent acquisitions,
and a
loss due
to the revaluation of our investment in unconsolidated entities, in
an amount of $4.3
million partially offset
by lower operating expenses due to the divestiture of MakerBot.
Research and development expenses increased by approximately $0.4
million, or 1.8%, to $23.6 million for the three months ended September 30,
2023, compared to $23.1 million for the three months ended September 30, 2022.
The amount of Research and Development expenses constituted 14.5% of our
revenues for the three months ended September 30, 2023, as compared to 14.3%
for the three months ended September 30, 2022. The Research and development
expenses have not changed significantly mainly due to the offsetting
effects of our divestiture of MakerBot, and higher costs driven by our recent
acquisitions.
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 $21.7 million, or 34.2%, to $84.9 million for the three
months ended September 30, 2023, compared to $63.2 million for the three
months ended September 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, our defense against a hostile tender offer and a
proxy contest, and related professional fees, in
an aggregate amount of $17.2
million, a loss due to the revaluation of our investment in
unconsolidated entities, and higher
expenses driven by our recent acquisitions, partially offset by expenses associated with our divestiture of MakerBot. The amount of selling,
general and administrative expenses constituted 52.4% of our revenues for the
three months ended September 30, 2023, as compared to 39.0% for the three months
ended September 30, 2022.
Operating Loss
Operating loss and operating loss as a percentage of our total revenues were as follows:
| | | Three Months Ended September 30, |
| | | | 2023 | | | | | 2022 | |
| | | U.S. $ in thousands |
| | | | | | | | | |
| Operating loss | | $ | (42,798 | ) | | | $ | (15,626 | ) |
| | | | | | | | | | |
| Percentage of revenues | | | (26.4 | )% | | | | (9.6 | )% |
Operating
loss amounted to $42.8 million for the three
months ended September 30, 2023, compared to an operating loss of $15.6 million for the three
months ended September 30, 2022. The absolute increase in the operating
loss of $27.2 million, as well as the
increase of operating loss as a percentage of revenues by 16.8%, were mainly attributable
to the 13.6% increase in operating
expenses as a percentage of revenues due to higher costs related to prospective and potential
mergers and acquisitions, our defense against a hostile
tender offer and a proxy contest, and related professional fees, and by the decrease in gross profit.
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 September 30, 2023,
compared to financial expenses, net of $0.5 million for the three months ended
September 30, 2022.
Income Taxes
Income tax benefit (expenses) and income tax benefit (expenses) as a percentage of net loss before taxes were as follows:
| | | Three Months Ended September 30, |
| | | | 2023 | | | | 2022 | |
| | | U.S. $ in thousands |
| | | | | | | | |
| Income tax benefit (expenses) | | $ | (645 | ) | | $ | (3,298 | ) |
| | | | | | | | | |
| As a percentage of loss before income taxes | | | (1.5 | )% | | | (13.8 | )% |
We had an effective tax rate of (1.5)%
for the three-month period ended September 30, 2023, compared to
an effective tax rate of (13.8)% for the three-month period
ended September 30, 2022. Our effective tax rate in the third 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 September 30, 2023, the loss from our proportionate
share of the losses of our equity method
investments was $4.5 million, compared to a loss of $1.9 million in the three
months ended September 30, 2022; this increase in our share of those
losses following our divestiture of MakerBot and investment in
Ultimaker, which occurred late in August 2022.
Net Loss and Net Loss Per Share
Net loss, and net loss per share were as follows:
| | | Three Months Ended September 30, |
| | | | 2023 | | | | 2022 | |
| | | U.S. $ in thousands |
| | | | | | | | |
| Net income (loss) | | $ | (47,279 | ) | | $ | 18,749 | |
| | | | | | | | | |
| Percentage of revenues | | | (29.2 | )% | | | 11.6 | % |
| | | | | | | | | |
| Basic and diluted net loss per share | | $ | (0.68 | ) | | $ | 0.28 | |
Net loss was $47.3 million for the three
months ended September 30, 2023 compared to net income of
$18.7
million for the three months ended September 30, 2022. The increase
in net loss was attributable to higher costs related to prospective and
potential mergers and acquisitions, our defense against a hostile
tender offer
and a proxy contest, and related professional
fees, in
an aggregate amount of $17.2
million, the gain from deconsolidation
of subsidiary in amount of $39.1 million, that we recorded in the corresponding
period of 2022, the increase of $2.6 million in our
share in losses of associated companies offset, in part, by the reduction in our
income tax expenses by
approximately $2.7 million.
Net loss per share was $0.68 for the three months ended
September 30, 2023 as compared to net income
per share of $0.28 for the three months ended
September 30, 2022. The weighted average fully diluted share count was 69.1 million during the three
months ended September 30, 2023, compared to 67.0 million
during the three months ended September 30, 2022.
Results of Operations
Comparison of Nine Months Ended September 30, 2023 to Nine Months Ended September 30, 2022
The following table sets forth certain statement of operations data for the periods indicated:
| | Nine Months Ended September 30, |
| | 2023 | | 2022 |
| | | U.S. $ in thousands | | | | % of
Revenues | | | | U.S. $ in thousands | | | | % of
Revenues | |
| Revenues | $ | 471,261 | | | | 100.0 | % | | $ | 492,224 | | | | 100.0 | % |
| Cost of revenues | | 273,995 | | | | 58.1 | % | | | 284,405 | | | | 57.8 | % |
| Gross profit | | 197,266 | | | | 41.9 | % | | | 207,819 | | | | 42.2 | % |
| Research and development, net | | 69,347 | | | | 14.7 | % | | | 71,489 | | | | 14.5 | % |
| Selling, general and administrative | | 221,173 | | | | 46.9 | % | | | 195,085 | | | | 39.6 | % |
| Operating loss | | (93,254 | ) | | | (19.8 | )% | | | (58,755 | ) | | | (11.9 | )% |
| Gain from deconsolidation of subsidiary | | - | | | | 0.0 | % | | | 39,136 | | | | 8.0 | % |
| Financial income (expenses), net | | 2,147 | | | | 0.5 | % | | | (2,080 | ) | | | (0.4 | )% |
| Loss before income taxes | | (91,107 | ) | | | (19.3 | )% | | | (21,699 | ) | | | (4.4 | )% |
| Income tax expenses | | (5,145 | ) | | | (1.1 | )% | | | (2,796 | ) | | | (0.6 | )% |
| Share in losses of associated companies | | (11,866 | ) | | | (2.5 | )% | | | (2,089 | ) | | | (0.4 | )% |
| Net loss | | (108,118 | ) | | | (22.9 | )% | | | (26,584 | ) | | | (5.4 | )% |
Discussion of Results of Operations
Revenues
Our products and services revenues in the nine months ended September 30, 2023 and 2022, as well as the percentage change reflected thereby, were as follows:
| | | Nine Months Ended September 30, |
| | | | 2023 | | | | 2022 | | | | % Change | |
| | | U.S. $ in thousands | | | | |
| Products | | $ | 323,353 | | | $ | 340,927 | | | | (5.2 | )% |
| Services | | | 147,908 | | | | 151,297 | | | | (2.2 | )% |
| Total Revenues | | $ | 471,261 | | | $ | 492,224 | | | | (4.3 | )% |
Products Revenues
Revenues derived from product (including systems and consumable
materials) decrease by $17.5 million, or 5.2%, in the nine months ended
September 30, 2023, as compared to the nine months ended September 30,
2022, mainly due to longer sales cycles, the divestiture of MakerBot in
late August 2022, and unfavorable exchange rates partially offset by an increase
attributable to
revenues driven from our
recently acquired entities, and higher utilization rates of systems which requires that initial
materials be replenished.
Revenues derived from systems for the nine
months ended September 30, 2023 decreased by $29.4
million, or 17.3%
as compared to the nine months ended September 30, 2022. The decrease was
mainly attributable to longer sales cycles as well as the impact of the
divestiture of MakerBot.
Revenues derived from consumables increased by $11.9
million, or 6.9%, for
the nine months ended September 30, 2023, as compared to the nine months
ended September 30, 2022. The increase in consumables revenues was mainly attributable to consumables revenues derived from our recently acquired entities,
and higher utilization rates of systems as initial
materials are replenished, partially
offset by the impact of divestiture of MakerBot.
Services Revenues
Services revenues
(including Stratasys Direct, maintenance contracts, time and materials and other services) decreased by $3.4 million for the nine months ended September 30,
2023, or 2.2%, as compared to the nine months ended September
30, 2022 mainly due to the reduction of the services revenues that had been
associated with MakerBot, which was divested in late August 2022, and a decrease in SDM revenues. Within services revenues, customer support revenue,
which includes revenue generated mainly from maintenance contracts on our
systems, increased by 5.5%.
Revenues by Region
Revenues and the percentage of revenues by region for the nine months ended September 30, 2023 and 2022, as well as the percentage change in revenues in each such region reflected thereby, were as follows:
| | | Nine Months Ended September 30, |
| | | 2023 | | 2022 | | | % Change | |
| | | | U.S.$ in thousands | | | | % of
Revenues | | | | U.S.$ in thousands | | | | % of
Revenues | | | | | |
| Americas* | | $ | 294,099 | | | | 62.4 | % | | $ | 313,245 | | | | 63.6 | % | | | (6.1 | )% |
| EMEA | | | 115,365 | | | | 24.5 | % | | | 106,727 | | | | 21.7 | % | | | 8.1 | % |
| Asia Pacific | | | 61,797 | | | | 13.1 | % | | | 72,252 | | | | 14.7 | % | | | (14.5 | )% |
| | | $ | 471,261 | | | | 100.0 | % | | $ | 492,224 | | | | 100.0 | % | | | (4.3 | )% |
* Consists of the United
States, Canada and Latin America
Revenues in the Americas
region decreased by $19.1 million, or 6.1%, to $294.1 million for the nine months ended September 30,
2023, compared to $313.2 million for the nine months
ended September 30, 2022. The decrease was
mainly related to the reduction in revenues caused by the divestiture of
MakerBot, partially offset by $2.3 million of revenues derived from our recently
acquired entities.
Revenues
in the EMEA region increased by $8.7 million, or 8.1%, to $115.4 million for the nine months ended September
30, 2023, compared to $106.7 million for the nine months
ended September 30, 2022. The increase was primarily driven
by higher consumables revenues attributable to our recently acquired entities.
Revenues in the Asia
Pacific region decreased by $10.5 million, or 14.5%, to $61.8 million for the nine months ended September 30,
2023, compared to $72.3 million for the nine months
ended September 30, 2022. The decrease was primarily
driven by a slowdown in systems revenues and unfavorable exchange
rates.
Gross Profit
Gross profit from our products and services, as well as the percentage change reflected thereby, were as follows:
| | | Nine Months Ended September 30, | | | | |
| | | | 2023 | | | | 2022 | | | | | |
| | | U.S. $ in thousands | | | Change in % | |
| Gross profit attributable to: | | | | | | | | | | | | |
| Products | | $ | 155,118 | | | $ | 164,506 | | | | (5.7 | ) % |
| Services | | | 42,148 | | | | 43,313 | | | | (2.7 | ) % |
| | | $ | 197,266 | | | $ | 207,819 | | | | (5.1 | ) % |
Gross profit as a percentage of revenues from our products and services was as follows:
| | | Nine Months Ended September 30, |
| | | | 2023 | | | | 2022 | |
| Gross profit as a percentage of revenues from: | | |
| Products | | | 48.0 | % | | | 48.3 | % |
| Services | | | 28.5 | % | | | 28.6 | % |
| Total gross margin | | | 41.9 | % | | | 42.2 | % |
Gross profit attributable
to products revenues decreased by $9.4 million, or 5.7%, to $155.1 million for the nine months
ended September 30, 2023, compared to gross profit of $164.5 million for the nine months
ended September 30, 2022. Gross margin attributable to products revenues decreased to 48.0% for the nine months ended September 30,
2023, compared to 48.3% for the nine months ended September 30,
2022. Our gross profit from products revenues decreased
mainly as a result of lower year over year products sales and the divestiture of MakerBot, partially offset by lower amortization expenses and higher revenues driven by our recent acquisitions.
Gross profit attributable
to services revenues decreased by $1.2 million, or 2.7%, to $42.1 million for the nine months
ended September 30, 2023, compared to $43.3 million for the nine months
ended September 30, 2022. Gross margin attributable to services revenues
in the nine months ended September 30, 2023 decreased to 28.5%, as compared to
28.6% for the nine months ended September 30, 2022. Our gross profit from services revenues decreased
mainly as a result of restructuring and divestments costs, partially
offset by favorable product mix.
Operating Expenses
The amount of each type of operating expense for the nine months ended September 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 nine month period, were as follows:
| | | Nine Months Ended September 30, | | | | |
| | | | 2023 | | | | 2022 | | | | % Change | |
| | | U.S. $ in thousands | | | | |
| | | | | | | | | | | | | |
| Research and development, net | | $ | 69,347 | | | $ | 71,489 | | | | (3.0 | )% |
| Selling, general and administrative | | | 221,173 | | | | 195,085 | | | | 13.4 | % |
| | $ | 290,520 | | | $ | 266,574 | | | | 9.0 | % |
| | | | | | | | | | | | | |
| Percentage of revenues | | | 61.6 | % | | | 54.2 | % | | | | |
Operating
expenses were $290.5 million in the nine months ended September
30, 2023, compared to operating expenses of $266.6 million in the nine months ended September 30, 2022. The
increase in operating expenses was primarily driven by costs related
to prospective and potential mergers and acquisitions, our defense against a hostile
tender offer and a proxy contest, and related professional fees in an
aggregate amount of $30.5 million, $7.9 million higher costs driven by our recent acquisitions,
partially offset by the $13.4 million reduction in expenses due to our
divestiture of MakerBot in late August 2022, and favorable exchange rate.
Research and development
expenses, net decreased by $2.2 million, or 3.0%, to $69.3 million for the nine months ended September 30, 2023, compared
to $71.5 million for the nine months ended
September 30, 2022. The decrease was mainly attributable to the divestiture of
MakerBot, partially offset by higher costs driven by our
recent acquisitions. The amount of research and
development expenses as a percentage of revenues
remained fairly consistent from period to period, constituting 14.7% of our revenues for the nine months ended September 30, 2023, as compared to 14.5% for the nine months ended September 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 that
will enhance our current solutions offerings.
Selling, general and
administrative expenses increased by $26.1 million, or 13.4%, to $221.2 million for the nine months
ended September 30, 2023, compared to $195.1 million for the nine months ended September 30,
2022. The amount of selling, general and administrative expenses constituted 46.9% of our revenues for the
nine months ended September 30, 2023, as compared to 39.6% for the nine months ended
September 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 in an amount of $30.5 million and restructuring costs,
partially offset by a reduction of selling,
general and administrative costs due to our divestiture of MakerBot in August 2022.
Operating Loss
Operating loss and operating loss as a percentage of our total revenues were as follows:
| | | Nine Months Ended September 30, |
| | | | 2023 | | | | | 2022 | |
| | | U.S. $ in thousands |
| | | | | | | | | | |
| Operating loss | | $ | (93,254 | ) | | | $ | (58,755 | ) |
| | | | | | | | | | |
| Percentage of revenues | | | (19.8 | )% | | | | (11.9 | )% |
Operating loss amounted to $93.3 million
for the nine months ended September 30, 2023, compared to an
operating loss of $58.8 million for the nine months ended
September 30, 2022. Our operating loss increased both on an absolute
basis, and as a percentage of our revenues in the nine months ended September
30, 2023 compared to in the nine months ended September
30, 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 $2.1 million for the nine months ended
September 30, 2023, compared to $2.1 million of financial expenses, net for the nine months ended September
30, 2022.
Income Taxes
Income tax benefit (expenses) and income tax benefit (expenses) as a percentage of net loss before taxes were as follows:
| | | Nine Months Ended
September 30, | | |
| | | | 2023 | | | | 2022 | | | |
| | | U.S. $ in thousands | | |
| | | | | | | | | | | |
| Income tax expenses | | $ | (5,145 | ) | | $ | (2,796 | ) | | |
| | | | | | | | | | | |
| As a percent of loss before income taxes | | | (5.6 | )% | | | (12.9 | )% | | |
We had an effective tax rate of (5.6)% for the nine month period ended September 30,
2023, compared to an effective tax rate of (12.9)% for the nine month period ended September 30, 2022. Our effective tax
rate in the nine months ended September 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 nine months ended
September 30, 2023, the loss from our proportionate share of the
earnings of our equity method investments increased to $11.9 million,
compared to a loss of $2.1 million
in the nine months ended September 30, 2022. This increase in our share of those losses Resulted
from our divestiture of MakerBot and investment in
Ultimaker, which occurred late in August 2022
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:
| | | Nine Months Ended September 30, |
| | | | 2023 | | | | 2022 | |
| | | U.S. $ in thousands |
| | | | | | | | | |
| Net loss | | $ | (108,118 | ) | | $ | (26,584 | ) |
| | | | | | | | | |
| Percentage of revenues | | | (22.9 | )% | | | (5.4 | )% |
| | | | | | | | | |
| Basic and diluted net loss per share | | $ | (1.58 | ) | | $ | (0.40 | ) |
Net loss was $108.1 million for the nine months ended September 30, 2023 compared to a net
loss of $26.6
million for the nine months
ended September 30, 2022. Our net loss increased as a percentage of
our revenues in the nine months ended September 30, 2023 compared to the
nine months ended September 30, 2022, mainly due to higher costs related
to prospective and potential mergers and acquisitions, termination costs related
to the termination of our merger transaction with Desktop Metal, our defense against a hostile tender offer and
our proxy contest and related professional fees, lower gross profit and increased
amounts for our share in losses of associated companies, and higher income
tax expenses by approximately $2.3 million.
Net loss per share was $1.58 and $0.4 for the nine months
ended September 30, 2023 and 2022, respectively. The weighted average
fully diluted share count was 68.4 million for the nine months
ended September 30,
2023, compared to 66.4 million for the nine months ended September
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 nine 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 September 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) | | $65,649 | | | | $12,617 | | | | $78,266 | | | | 70,749 | | | | 7,990 | | | | 78,739 | |
| | | Operating income (loss) (1,2) | | (42,798 | ) | | | 46,885 | | | | 4,087 | | | | (15,626 | ) | | | 20,149 | | | | 4,523 | |
| | | Net income (loss) (1,2,3) | | (47,279 | ) | | | 49,725 | | | | 2,446 | | | | 18,749 | | | | (15,423 | ) | | | 3,326 | |
| | | Net income (loss) per diluted share (4) | $ | (0.68 | ) | | $ | 0.72 | | | $ | 0.04 | | | $ | 0.28 | | | $ | (0.23 | ) | | $ | 0.05 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| (1) | | Acquired intangible assets amortization expense | | | | | | 5,142 | | | | | | | | | | | | 6,941 | | | | | |
| | | Non-cash stock-based compensation expense | | | | | | 891 | | | | | | | | | | | | 1,061 | | | | | |
| | | Restructuring and other related costs | | | | | | 6,584 | | | | | | | | | | | | (12 | ) | | | | |
| | | | | | | | | 12,617 | | | | | | | | | | | | 7,990 | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| (2) | | Acquired intangible assets amortization expense | | | | | | 2,599 | | | | | | | | | | | | 2,138 | | | | | |
| | | Non-cash stock-based compensation expense | | | | | | 6,588 | | | | | | | | | | | | 6,330 | | | | | |
| | | Restructuring and other related costs | | | | | | 2,360 | | | | | | | | | | | | 1,309 | | | | | |
| | | Revaluation of investments | | | | | | 4,300 | | | | | | | | | | | | 901 | | | | | |
| | | Contingent consideration | | | | | | 265 | | | | | | | | | | | | 394 | | | | | |
| | | Legal, consulting and other expenses | | | | | | 18,156 | | | | | | | | | | | | 1,087 | | | | | |
| | | | | | | | | 34,268 | | | | | | | | | | | | 12,159 | | | | | |
| | | | | | | | | 46,885 | | | | | | | | | | | | 20,149 | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| (3) | | Corresponding tax effect | | | | | | 153 | | | | | | | | | | | | 2,993 | | | | | |
| | | Finance expenses | | | | | | 162 | | | | | | | | | | | | | | | | | |
| | | Equity method related amortization and other | | | | | | 2,525 | | | | | | | | | | | | 571 | | | | | |
| | | Gain from deconsolidation of subsidiary | | | | | | - | | | | | | | | | | | | (39,136) | | | | | |
| | | | | | | | | $49,725 | | | | | | | | | | | | (15,423) | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | (4 | ) | Weighted average number of ordinary
shares outstanding- Diluted | | 69,093 | | | | | | | | 69,815 | | | | 67,038 | | | | | | | | 67,038 | |
| | | Nine Months Ended September 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) | $ | 197,266 | | | $ | 29,199 | | | $ | 226,465 | | | $ | 207,819 | | | $ | 27,593 | | | $ | 235,412 | |
| | Operating income (loss) (1,2) | | (93,254 | ) | | | 103,866 | | | | 10,612 | | | | (58,755 | ) | | | 67,235 | | | | 8,480 | |
| | Net income (loss) (1,2,3) | | (108,118 | ) | | | 114,179 | | | | 6,061 | | | | (26,584 | ) | | | 32,295 | | | | 5,711 | |
| | Net income (loss) per diluted share (4) | $ | (1.58 | ) | | $ | 1.67 | | | $ | 0.09 | | | $ | (0.40 | ) | | $ | 0.49 | | | $ | 0.09 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| (1) | Acquired intangible assets amortization expense | | | | | | 14,157 | | | | | | | | | | | | 20,861 | | | | | |
| | Non-cash stock-based compensation expense | | | | | | 2,822 | | | | | | | | | | | | 3,041 | | | | | |
| | Restructuring and other related costs | | | | | | 12,220 | | | | | | | | | | | | 3,691 | | | | | |
| | | | | | | | 29,199 | | | | | | | | | | | | 27,593 | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| (2) | Acquired intangible assets amortization expense | | | | | | 7,479 | | | | | | | | | | | | 6,581 | | | | | |
| | Non-cash stock-based compensation expense | | | | | | 20,920 | | | | | | | | | | | | 21,714 | | | | | |
| | Restructuring and other related costs | | | | | | 6,626 | | | | | | | | | | | | 1,864 | | | | | |
| | Revaluation of investments | | | | | | 4,880 | | | | | | | | | | | | 3,217 | | | | | |
| | Contingent consideration | | | | | | 877 | | | | | | | | | | | | 1,197 | | | | | |
| | Legal, consulting and other expenses | | | | | | 33,885 | | | | | | | | | | | | 5,069 | | | | | |
| | | | | | | | 74,667 | | | | | | | | | | | | 39,642 | | | | | |
| | | | | | | | 103,866 | | | | | | | | | | | | 67,235 | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| (3) | Corresponding tax effect | | | | | | 3,404 | | | | | | | | | | | | 3,219 | | | | | |
| | Equity method related amortization and other | | | | | $ | 1,827 | | | | | | | | | | | $ | 571 | | | | | |
| | Finance expenses | | | | | $ | 5,081 | | | | | | | | | | | $ | 406 | | | | | |
| | Gain from deconsolidation of subsidiary | | | | | $ | - | | | | | | | | | | | $ | (39,136 | ) | | | | |
| | | | | | | $ | 114,179 | | | | | | | | | | | $ | 32,295 | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| (4) | Weighted average number of ordinary
shares outstanding- Diluted | | 68,432 | | | | | | | | 69,046 | | | | 66,356 | | | | | | | | 67,007 | |
Liquidity and Capital Resources
A summary of our statements of cash flows is as follows:
| | Nine Months Ended September 30, |
| | | 2023 | | | | 2022 | |
| | U.S $ in thousands |
| Net loss | $ | (108,118 | ) | | $ | (26,584 | ) |
| Depreciation and amortization | | 37,198 | | | | 44,451 | |
| Impairment of other long-lived assets | | 4,471 | | | | 3,865 | |
| Stock-based compensation | | 23,744 | | | | 24,755 | |
| Foreign currency transactions loss | | 4,087 | | | | 13,978 | |
| Gain from deconsolidation of subsidiary | | - | | | | (39,136 | ) |
| Other non-cash items, net | | 20,041 | | | | 6,132 | |
| Change in working capital and other items | | (35,335 | ) | | | (84,750 | ) |
| Net cash used in operating activities | | (53,912 | ) | | | (57,289 | ) |
| Net cash provided by investing activities | | 10,845 | | | | (23,987 | ) |
| Net cash used in financing activities | | (1,084 | ) | | | (1,407 | ) |
| Effect of exchange rate changes on cash, cash equivalents and restricted cash | | (1,703 | ) | | | (9,787 | ) |
| Net change in cash, cash equivalents and restricted cash | | (45,854 | ) | | | (92,470 | ) |
| Cash, cash equivalents and restricted cash, beginning of period | | 150,686 | | | | 243,293 | |
| Cash, cash equivalents and restricted cash, end of period | | 104,832 | | | | 150,823 | |
Our cash, cash
equivalents, restricted cash and short-term deposits amounted to $184.6
million, of which $104.8 million are cash, cash equivalents and restricted
cash, and $80.0 million short-term deposits. Our cash, cash equivalents and restricted
cash decreased to $104.8 million as of September 30, 2023 from
$150.7 million as of September 30,2022. The decrease in cash, cash
equivalents and restricted cash in the nine months ended September 30,
2023 was primarily due to $53.9 million of cash used in operating activities,
partially offset by $10.8 million of cash generated by investing activities.
Cash used in operating
activities
We used $53.9 million of
cash in operating activities during the
nine months ended September 30, 2023. Cash used
in operating activities reflects our $108.1 million net
loss, negative changes in our working capital of $35.3 million, as reduced in part to eliminate non-cash
line items included in net loss, including depreciation and amortization in an
aggregate amount of $37.2 million, stock-based compensation of $23.7 million
and foreign currency transactions loss of $4.1 million. The negative impact of
changes in our working capital on our cash flows from operations, in an amount of
$35.3 million, was mainly attributable to an increase of $19.7 million in accounts
receivable, as well as a decrease of $13.0 million in accounts payable.
Cash flows from investing activities
We generated $10.8 million of cash from our
investing activities during the nine months ended September 30, 2023, as opposed to using $24.0
million of cash in investing activities in the corresponding period of 2022. The
increase in
cash flows from investment activities was mainly attributable to the withdrawal of $97.4
million of net proceeds from short-term bank deposits, partially offset by the investment of $74.6
million of cash in the complete acquisitions and investments in unconsolidated
entities, as
well as the investment of $8.8 million in the purchases
of property and equipment.
Cash used in financing activities
We used $1.1 million of cash in financing activities during the nine months
ended September 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 $583.3 million as of
September 30, 2023, of which $184.8 million consisted of cash, cash
equivalents, short-term deposits and restricted cash. Total current
liabilities amounted to $200.4 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 outcome and degree of
success of our board’s comprehensive process to explore strategic alternatives
for our company;
•
the degree to which our
company’s operations remain resistant to potential adverse effects of Israel’s
war against the terrorist organization Hamas, despite our Israeli headquarters,
facilities and significant operations;
•
the impact of unsolicited
non-binding indicative proposals by 3D Systems to acquire our company on our
efforts to pursue alternative transactions that we believe may be more
beneficial for maximizing value for our shareholders;
•
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
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 13-“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 our business, results of operations and financial condition.
Certain
recent global macro-economic trends
have been adversely impacting the global economic environment in recent times.
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 COVID-19 pandemic, triggered upwards pressure on prices of goods and
services. 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.
Since
2022, these macro-economic trends have been adversely impacting our target
markets and our results of operations. For example, higher interest
rates, which were imposed by central banks to slow down inflation, have been
worsening credit/financing conditions for our customers and adversely impacting
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 remain 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 continue to 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 the rest of 2023 and for 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.
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’ 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”; and 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 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.
Nano would then have significant ability to impact the operations of Stratasys. 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. Either or both of those outcomes would enable Nano to
influence the operations of Stratasys 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 our company in a manner that benefits Nano and adversely impacts
the company and its results of operations in a material way. Nano’s
possession of a substantial or controlling interest in Stratasys could also adversely impact trading in Stratasys’ ordinary shares and liquidity for Stratasys’ public/minority shareholders, potentially causing a decline in the
value of public shareholders’ investment in Stratasys.
The recent attack by Hamas and other
terrorist organizations from the Gaza Strip and Israel’s war against
them and its hostilities with additional regional terrorist
groups may adversely affect our operations.
In October 2023, Israel was attacked by Hamas and
other terrorist organizations and declared war in
response. As part of the war, Israel has also had lower-level hostilities
with Hezbollah, a Lebanese terrorist group. Our senior executives, some of our
board members and some of our employees live in Israel. A small group of our
employees have been called for military service, and such persons may be
unavailable for extended periods of time. Our operations may be disrupted by
such absence, which, if involving several senior executives or board members
(although not currently the case) may materially affect our operations in
an adverse manner. In the event that our facilities are damaged as a
result of hostile actions, or hostilities otherwise disrupt our ongoing
operations, our ability to deliver or provide products and services in a
timely manner to meet our contractual obligations towards customers and
vendors could be affected.
Currently, our activities in Israel remain largely unaffected, and
we maintain business continuity plans backed by our inventory
levels located outside of Israel. As of the date of the Form 6-K, the impact of the war on our
results of operations and financial condition is not material, but such impact
may increase, and could become material, as a result of the continuation,
escalation or expansion of the war.