Q3 2025 Stratasys Ltd Earnings Call

Speaker #1: Greetings and

Speaker #1: welcome to the Stratasys third quarter 2025 earnings call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation.

Speaker #1: Should anyone require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Yonah Lloyd, Chief Communications Officer and Vice President of Investor Relations.

Speaker #1: Thank you. You may begin.

Speaker #2: Good morning, everyone, and thank you for joining us to discuss our 2025 third quarter financial results. On the call with us today are our CEO, Dr. Yoav Zeif, and our CFO, Eitan Zamir.

Speaker #2: I would like to remind you that access to today's call, including the slide presentation, is available online at the web address provided in our press release.

Speaker #2: In addition, a replay of today's call, including access to the slide presentation, will also be available and can be accessed through the Investor Relations section of our website.

Speaker #2: Please note that some of the information provided during our discussion today will consist of forward-looking statements, including without limitation, those regarding our expectations as to our future revenue gross margin, operating expenses, taxes, and other future financial business outlook.

Speaker #2: performance, and our expectations for our that speak to future performance events, expectations, or results are forward-looking statements. Actual results or trends could differ materially from our forecast.

Speaker #2: cause actual results to be material different from those set forth in forward-looking For risks that could statements, please refer to the risk factors discussed or referenced in Stratasys annual report on Form 20F for the annual report along with our reports filed with or furnished to the SEC throughout 2025 for additional operational and financial Form 6K that are furnished to the SEC on a details.

Speaker #2: Please also refer to that Non-GAAP to GAAP reconciliations are metrics to evaluate our performance. provided in tables in our slide release. I will now turn the call over to our Chief Executive Officer, Dr. presentation and today's press Yoav Zeif.

Speaker #2: quarterly basis and throughout the year provide updated current information regarding the company's operating results Reports on company. Stratasys assumes no and material developments concerning our obligation to update any forward-looking statements or 2024 year.

Speaker #2: dates. As in previous quarters, today's call will information which speak as of their include GAAP and non-GAAP financial respective be read in combination with our GAAP measures.

Speaker #3: Thank you,

Speaker #3: Yonah. Good morning, everyone. And thank you for joining Yoav, us. Our disciplined approach to cost management enabled us to deliver solid operating cash and EPS in the third quarter.

Speaker #3: This continues to demonstrate the underlying strength of our flow generation work to overcome the macro-driven caution facing capital equipment sales. We remain focused on what we can influence: operational excellence, customer partnerships, and executing on our strategy as we advance additive manufacturing adoption with innovative offerings.

Speaker #3: Customer engagement remained substantive, and strategic as we build the foundational infrastructure to drive scale across key high-value verticals of aerospace and defense, particularly drones, automotive tooling, dentures, precision machine components, and medical growth and anatomic modeling.

Speaker #3: We are leaders in these compelling alternative areas, where additive is a to conventional manufacturing. As we create durable, competitive advantages for years to long-term strategy remained centered on the fundamental trends reshaping manufacturing.

Speaker #3: Supply chain localization, next-generation mobility, sustainability goals, personalization, and the unrelenting corporate focus on efficiency and cost reduction. This secular drivers haven't diminished. If anything, they have intensified.

Speaker #3: The evolving trade and tariff landscape while creating near-term complexity ultimately reinforced the strategic value proposition of localized flexible manufacturing precisely what additive delivers. We continue to engage customers on how our technologies can mitigate supply chain risks, address geopolitical issues, and reduce tariff exposure.

Speaker #3: And we believe this conversations will increasingly translate into action as companies seek resilient manufacturing strategies. Now, turning to updates on customer activities that highlight the traction we are building as well as steps we are taking to strengthen key end-market exposure.

Speaker #3: Our year-over-year increase in hardware sales included a strong quarter for aerospace and defense where we see continued progress with new customer purchases across all of our manufacturing-focused systems, such as F-3300, 770, 450, the new Neo 800 Plus, as well as H350 and Origin systems.

Speaker #3: In commercial aviation, we secured wins with industry leaders such as Boeing, Embraer, and others, all demonstrating the continued confidence in our solutions. And the critical role our technology plays in production environments for the world's leading aircraft manufacturers.

Speaker #3: Our defense business also showed strong performance, as we continued to spearhead that sector with notable purchases from Honeywell, TE Connectivity, and L3 Harris. We also participated in Trident Warrior 25, the U.S. Navy's flagship fleet experimentation exercise, where we demonstrated the critical role of distributed advanced manufacturing in enhancing military combat readiness.

Speaker #3: Together with Fleetworks, a naval postgraduate school, we supported the DoD's largest distributed manufacturing demonstration to date. Connecting assets across more than 8,000 miles, this exercise showcased our ability to provide both forward-deployed 3D printing capabilities and reach-back production through Stratasys Direct.

Speaker #3: Creating a comprehensive ecosystem that significantly reduces reliance on traditional logistics chains for mission-critical repair and replacement. During the exercise, seven different sites across the globe leveraged our printers to produce lightweight corrosion-resistant polymer parts that met US military specifications.

Speaker #3: Demonstrating faster turnaround times and lower delivered costs compared to conventional supply chains, this demonstration reinforces our position as a trusted partner for defense applications and highlights the scalable, practical solution we provide to enhance mission readiness and operational resilience across thousands of miles of distributed operations.

Speaker #3: Moving to other areas, we are pleased to share that one of the world's largest US-based technology companies, a leader across social media, AI innovation, and virtual and augmented reality hardware, invested in four of our newest FDM F-3300 systems.

Speaker #3: During the quarter, initially, they will be used for large-scale prototyping for their automation platforms as well as their After which, they plan to use these systems to manufacture production parts for their VR and AR products.

Speaker #3: Our proven SaaS next-gen robot and its expansion across core platform continues in verticals such as aerospace, automotive, and powder-based technology government. Notably, the third quarter marked a significant strategic milestone with the adoption of the H350 platform by a global top three pharmaceutical company.

Speaker #3: Opening the door to exciting new opportunities across medical device and drug development applications. Additionally, our collaboration with FAA, the National Institute for Aviation Research, has launched a comprehensive SaaS characterization program involving five suppliers across key industries positioning us to address emerging demands for drone components, aviation parts, tooling, and low-volume production applications.

Speaker #3: While establishing the technical foundations for expanded adoption in this sector. In automotive, we extended our multi-year partnership with Andretti Global as the official 3D printing partner of Andretti Indica, building on a successful collaboration that dates back to 2018 where our F-370 and Fortus 450 MC systems have supported their engineering efforts.

Speaker #3: We are now designing and optimizing 3D printing labs within Andretti's new headquarters to significantly enhance their editing manufacturing capabilities. This partnership demonstrates the real-world performance advantages our technology delivers in demanding motorsport turnaround times, complex geometries, and higher quality environments.

Speaker #3: success. Now, turning to dental. We are enthused about the strategic investments we are making in our true dent and related solution to accelerated growth in this important vertical.

Speaker #3: during the quarter, we welcomed Chris Cabot, as VP and Global Head of We're faster Most notably, Dental. Chris brings exceptional credentials as one of the world's leaders in digital dentistry and additive manufacturing, combining clinical, technical, and commercial expertise.

Speaker #3: His recent role at affordable care is the largest denture manufacturer in the US, along with his track record of driving dental additive leadership, positions us exceptionally well for the opportunities ahead.

Speaker #3: To enhance our dental portfolio, we launched our soft relax, post-processing solution. Helping dental operators reduce manual labor by 90% while minimizing the use of harmful chemicals.

Speaker #3: We are also proud to be among the first dental additive companies to proactively remove TPO, a common but controversial toxic resins. Reinforcing our commitment to patient safety and sustainability.

Speaker #3: chemical from all our dental With it, I will turn the call to Eitan to review our

Speaker #3: financials.

Speaker #3: financials. Eitan. everyone.

Speaker #2: Thank you,

Speaker #2: Our third-quarter results reflected strong Yoav. execution by our team to leverage notably And good morning, improved lower-adjusted operating expenses by year over year to deliver $440 basis points solid operating cash flow and positive adjusted earnings per share as we effectively worked to offset the continued top line and gross margin pressure.

Speaker #2: For the third quarter, consolidated revenue of $137 million was down 2.1% as compared to the same quarter in 2024. Reflecting continued macro-driven capital equipment spending constraint.

Speaker #2: quarter was $94.1 Product revenue in the third million, flat compared to the same period last year. Service revenue was $42.9 million, compared to $45.9 million in the same period last year.

Speaker #2: Within product revenue, system revenue was $32.1 million, up from $31.7 million we produced in the same period last year. Consumables revenue was $62 million, compared to $62.4 million in the same period last year.

Speaker #2: Within service revenue, customer support revenue was $29.3 million, compared to $31 million in the same period last year. Now, turning to gross margin. GAAP gross margin was 41% for the quarter, compared to 44.8% for the same period last year.

Speaker #2: Non-GAAP gross margin was 45.3% for the quarter, compared to 49.6% in the same period last year. The change versus the prior year period was in large part due to the increase in tariffs.

Speaker #2: When we initially discussed our expectations, the tariff rate had been set at 10%. However, subsequent to our comments, it was raised to 15%. During the quarter, we started to implement select price increases to help offset the impact of tariffs, and look forward to seeing the full quarterly impact in the fourth quarter to help improve gross margins.

Speaker #2: In addition, lower revenues, change in mix, as well as higher absorption due to inventory reduction had an effect as well. GAAP operating expenses were $78.8 million, 57.5% of revenue, compared to $88.2 million, or 63% of revenue during the same period last year.

Speaker #2: The improvement in expenses was due to our cost-saving initiatives among other items. Non-GAAP operating expenses improved to $62 million, $45.3% of revenue, compared to $69.6 million or $49.7% of revenue during the same period last year.

Speaker #2: Due primarily to lower employee-related costs including benefit from the cost-saving initiatives announced last year. Regarding consolidated earnings, GAAP operating loss for the quarter was $22.7 million, compared to a loss of $25.5 million in the same period last year.

Speaker #2: Non-GAAP operating income for the quarter was $0.1 million, compared to an operating loss of $0.1 million for the same period last year. Reflecting the impact of improving operating expenses due to our cost-cutting efforts partially offset by lower gross profit.

Speaker #2: GAAP net loss for the quarter was $55.6 million, or $65 cents per diluted share. Compared to a net loss of $26.6 million or $37 cents per diluted share, for the same period last year.

Speaker #2: During the quarter, we took a non-cash, non-recurring impairment charge of $33.9 million or $0.40 per diluted share. Related to our investment in Ultimaker, a key cause for a larger GAAP net loss in the quarter.

Speaker #2: Non-GAAP net income for the quarter was $1.5 million, or $0.02 per diluted share. Compared to a net income of $0.4 million or $0.01 per diluted share, in the same period last year.

Speaker #2: Adjusted EBITDA was $5 million, for the quarter, compared to $5.1 million in the same period last year. From a cash flow perspective, we generated $6.9 million in cash from operating activities, compared to the use of $4.5 million in the third quarter of last year.

Speaker #2: We continued to expect to generate higher positive operating cash flow for the full year 2025 relative to 2024. We ended the quarter with $255 million in cash, cash equivalent, and short-term deposits, $0.4 million higher than at the end of the second quarter.

Speaker #2: With no debt, remaining well-positioned to act on value-enhancing opportunities. Regarding our outlook for 2025, we are reiterating the non-GAAP guidance we provided on the last call.

Speaker #2: An adjusting the GAAP net income and EPS due to the previously mentioned non-cash impairments. Specifically, we expect profitability to benefit from our ongoing efforts, to drive cost reductions along with our additional plan to mitigate the impact from higher tariffs with select price increases.

Speaker #2: We are reaffirming that full year 2025 revenue will range between $550 to $560 million with non-GAAP gross margin ranging from $46.7% to $47% and full year non-GAAP operating margin ranging from $1.5% to 2%.

Speaker #2: We still expect adjusted earnings per share of $13 to $16 cents, with adjusted EBITDA ranging from $30 to $32 million. We also anticipate producing year-over-year growth in operating cash flow.

Speaker #2: Please see the press release or slide presentation for further details. With that, let me turn the call back over to Yoav for closing remarks.

Speaker #2: Yoav. Thank you, Eitan. As we look to the future, we are seeing encouraging signs in the specific verticals and applications where we are focusing.

Speaker #2: And the stability of our recurring revenue streams continues to provide an important foundation to build growth. While the timeline for broader adoption has extended we remain poised to seize opportunities as the industry inevitably improves.

Speaker #2: Our margin discipline and cost actions are helping us effectively protect profitability which positions us well to leverage our strengthened balance sheet to maintain our technology leadership through strategic investments.

Speaker #2: As a technology leader, with a comprehensive portfolio spanning systems, materials, and software, we remain confident in our competitive position. Our continuing penetration into key growth industries where we are building the infrastructure to grow in the key verticals where we lead such as defense, and aerospace parts, and automotive tooling reinforces our conviction in additive manufacturing's expanding role in production applications.

Speaker #2: As we look to maximize value for shareholders in the coming years, with that, let's open it up for questions operator.

Speaker #3: Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad.

Speaker #3: A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue.

Speaker #3: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we pull for questions.

Speaker #3: The first question is from Brian Drab from William Blair. Please go ahead.

Speaker #4: Good Good morning. Thanks for taking my questions. And I guess it's not morning for you. So I acknowledge that too. Can you talk about the gross margin?

Speaker #4: And I know you said that you're putting into place the mitigating actions and the pricing. What do you expect the trajectory to be for quickly do you think you can get it back maybe to the levels that you were gross margin and how seeing last year fourth quarter, first quarter, second quarter?

Speaker #4: Can you talk about that trajectory of gross margin? We should model.

Speaker #2: Sure. Thank you, Brian, for the question. We anticipate so first of all, as you mentioned, the impact of the tariff and the mix and also the absorption due to inventory reduction, which is a good thing.

Speaker #2: It all had impact on our Q3 gross margin. As you also mentioned, we introduced price increases during Q3 and we expect a full impact in Q4.

Speaker #2: We anticipate the improvement, the increase in gross margin as early as Q4. So in the coming quarter, and we anticipate this to continue to improve also into 2026.

Speaker #2: It's hard to say at this point at which level, but you should expect improvement in Q4.

Speaker #4: Okay. Thanks. And then, Yoav, you mentioned a couple what sound like pretty significant opportunities. With the social media AI company and others, are any of those something for 2026 where you feel like they move the needle on revenue?

Speaker #4: What are you most excited about? In terms of opportunities, specific opportunities that can maybe add some incremental material incremental revenue in 2026? Thanks.

Speaker #2: Thank you, Brian, for the question. We have a clear strategy. We are going from manufacturing. Period. And this position has us I would say better than other players.

Speaker #2: So if I look relatively at the premium markets, those use cases that we are focusing on, and I will elaborate on them, we are in a better position than we ever have been.

Speaker #2: Because we are the strongest player now in those premium markets, which are our targets. And I'm talking about use cases that practically we just getting started there.

Speaker #2: Aerospace and defense, dental, medical, tooling, and some industrial machine components. But the main ones are those aerospace and defense and tooling and also when you talk about machine components and components for consumer goods, those are the AI and consumer good company, the media company that we shared.

Speaker #2: No doubt that we will see growth in those use cases next year. We already have seen significant growth in those use cases, especially in hardware, this year.

Speaker #2: So this is our growth going forward. And this is the direction. And I'm sure you will hear more about it during next year.

Speaker #3: The next question is from Greg Palm from Craig Hallam Capital Group. Please go ahead.

Speaker #3: ahead. Yeah.

Speaker #4: Thanks. Kind of following up on that last question, but I know last quarter we were talking a lot about some of these more substantial production applications, longer sales cycles that initially maybe earlier this year potentially could land this year.

Speaker #4: I know that got pushed out. But can you just maybe give us an update on where some of that lies and just to be clear on some of the stuff that you talked about?

Speaker #4: Are these the same or are these sort of additional

Speaker #4: opportunities?

Speaker #2: So those are the same

Speaker #2: opportunities. Because we are very focused. So those are the same opportunities. And talking about or asking about sales cycle, we are not there yet, but it's the first quarter for a long time, that we see some light at the end of the tunnel.

Speaker #2: Slight improvement in the sales cycle. Because those sales cycles are long, as you said. It could be between a year to two years. And you need specific capabilities as a company to deliver the sales and to have the ability to enable the customers and our partners to be successful with those full solutions.

Speaker #2: So going forward, this is the focus. Those are the use cases that I mentioned. And we have great examples. Maybe I'll share a real-world example.

Speaker #2: Of how additive manufacturing really address real-world problems. And I'm talking about in aerospace, I'm talking about supply chain and logistic problems in commercial aviation.

Speaker #2: I don't know if you remember, but around 18 months ago, we announced a strategic investment in collaboration with Amcraft. It's a European, I think it's EASA-certified aviation parts manufacturer.

Speaker #2: We entered into a commercial agreement with them. To extend the certification. Of 3D printed aviation part based on our technologies. And only this quarter, they purchased two more F900.

Speaker #2: And together, the F900 fleet and F3300 reach now 10 machines. 10 machines that consume significant amount of material. Because it's reproduction. And aerospace is attractive because there is a real problem that they are solving there.

Speaker #2: You go to the association, I forgot the I think it's IATA, the Association of the Commercial Aviation there is a supply chain problem there.

Speaker #2: the cost to the airline, because And only of shortage and supply chain issues, will be 11 billion dollars only in 2025. And also there is a backlog of new airplanes.

Speaker #2: So the two big players, Airbus and Boeing, are not meeting the demand. And there is a huge backlog of 17,000 aircraft. It means that the old fleet is aging.

Speaker #2: And need more spare parts. And here, the solution of additive is exactly addressing the problem. Because you can print in hubs near the airports, and you solve problems.

Speaker #2: So take, for example, a seat that is broken. And this seat needs to be replaced. And you don't have the part. And if it's a business seat, it could be between 5,000 dollars to 10,000 dollars that the airline is losing on one flight.

Speaker #2: So recently, Amcraft certified or qualified our Texas strategies direct manufacturing site. To produce those certified parts. And in the short term, we're going to certify also our Arizona site and also our Minnesota site.

Speaker #2: And effectively, it will

Speaker #1: , where of Worldwide biggest is the market and essentially it creates distributed network for on demand production of spare parts . Well , it takes time to build this infrastructure , but once you are there , it's a new world of production and maintenance .

Speaker #1: This is our focus , and this one is only example out of five . Use cases .

Speaker #2: Understood . Yep . Okay . Thanks for that . That color . And then my my second question on on consumables . You know it's trending down a little bit on on a year year over basis through the I know first nine months .

Speaker #2: point we were thinking a little bit of growth . This year . Is that is that still the case or what's your the what's sort of implied revenue range for Q4 for consumables specifically ?

Speaker #3: Okay .

Speaker #1: Thank you . Consumable . Practically this year are flat or . And stable , and this is despite the challenging you know environment that we all see around us of in terms constraints on expenses a resilient , because we have model , there where people are keep buying our material , but there will be a change because I'm trying to it connect to our focus on use cases , manufacturing , use cases every manufacturing machine much more consume than a prototyping machine .

Speaker #1: It's not secret that we are not focusing on our installed base in entry level rapid prototyping and low and rapid prototyping . So we are not focusing there .

Speaker #1: means that someone else It will sell in the installed base . this We are focusing on the high end on those use cases that consume sometimes ten times more .

Speaker #1: In terms of utilization and consumption of than a rapid prototype machine . And because we are selling more 300 like to this F30 media company and more H350 and more FDM and P3 and SLA , large machines industrial , real machines , will see we consumption going up .

Speaker #4: The next question Troy is from Jensen from Cantor Please Fitzgerald . go ahead .

Speaker #5: Hey gentlemen , thanks for taking my questions . Maybe to start with Aton , opex here 62 million on a basis , non-GAAP do you expect that to start to grow now on a sequential go forward basis , or are we still doing cost cuts and cost controls here ?

Speaker #1: Sure . Thanks , Troy . For for the question . As you mentioned , if you compare year over year , we're at 69.6 million Q3 last year we're down to 62 million .

Speaker #1: And I believe we shared you a with quarter , quarter after quarter , the tight management of our of our opex continue to do that , and we expect Q4 to trend slightly relative to Q3 in opex terms .

Speaker #1: But continue to invest , of course . So we're going we forward . We will balance between tight cost management and of course , securing our growth engine and investing in R&D sales and and marketing .

Speaker #5: Got it . Okay . And maybe for Yoav here on the production applications , I've always been told that it's the material pricing is the biggest variable in the price per part .

Speaker #5: So just talk about can you pricing structure . How do you just thoughts on like forward gross margins on materials to with maybe potential pricing structures on material pricing ?

Speaker #1: Thank you , Troy , for the question . This Definitely . is one of the are making investments and areas we sure that we will differentiate ourselves because we are creating scales in material .

Speaker #1: So we are acquiring material players . You know , it and we are consolidating the back operation and making sure that we are creating the scale and with coming more affordable materials .

Speaker #1: Having said that , the high material performance in most of the many , that applications we are targeting is not a barrier . So if I take aerospace high performance material , the barrier is certifications cost of the material and not the because we are solving such a huge problem in aerospace that we have enough space to charge .

Speaker #1: we understand But that long term , this is something that we need work on year over , year over year . And we are doing it .

Speaker #1: And you will see gradually we are that improving the material in order to prices penetrate more applications .

Speaker #4: The next question is from Alex Valero from Loop Capital Markets . Please go ahead .

Speaker #6: Thank you for taking my Yeah . question . Yeah , I wanted to I wanted to ask , can you speak to how big you dental view the now and how opportunity how much you think you can capture there .

Speaker #6: And additionally any , any details timing . on

Speaker #1: Thank you , Alex , for the question . So are not sharing specific numbers around specific applications , but you know , I can only share on dental that we lately recruited .

Speaker #1: Probably one of the most talented digital dental expert in the world , Chris Kabat came . He from Affordable Care , which are the largest denture player in the US .

Speaker #1: And you just do one by one , he selected us because of the technology and the prospects of our technology going forward . We have clear plan there .

Speaker #1: We know exactly what we are doing , where we need to focus . It's about restorative dental . It's about specific use cases that we can win with our two unique technologies .

Speaker #1: The Polyjet P3 and the . And as you know , as is being reflected already , we have already two of the leading us providers , the Affordable Care and Glidewell , are our already customers .

Speaker #1: So its main focus for , we are us very positive about it , and we believe that we have the most superior offering in terms of color option , lightweight cost we take it forward .

Speaker #1: This is for us is this is the way forward ? It's personalization . It's customization . It's all the value that additive brings with the unique innovations and strategies it's bringing to the table .

Speaker #6: Super helpful on that . And just a follow up is so on the purchase of four of your F 3300 by an AI social media company , which sounds like a meta .

Speaker #6: Do you do you foresee any future purchases and additionally , I believe you said that the uses for initial prototyping with a to manufacture to plan manufacture production parts , when they if and reach the point of manufacturing , what does that look like for you in terms of incremental products and software purchases

Speaker #1: Thank

Speaker #1: you . ? Of course , we cannot share the name of the customer , but we the prospect of the application very excited about it .

Speaker #1: From two aspects of from two different viewpoints . One , the huge , but the potential is we other . Have been chosen from many other competitors .

Speaker #1: After a very long sales cycle , which is a proof point to our capabilities in and FDM . So the Flt a story .

Speaker #1: It 300 is not went through certification , it went through tests , we printed benchmark . The same with aerospace . way , By the and we are talking about those companies want to create capabilities where they start with prototyping , but immediately they can use the same machine from a fracturing , which is a huge advantage in terms speed of and being in the market before their competitors .

Speaker #1: So this is the main thing business wise , that they see in our technology .

Speaker #4: This concludes the question and answer session . I to turn the would like floor back over to Yoav Zeif for comments closing .

Speaker #1: Thank you for joining us . Looking forward to updating you again next quarter .