Stratasys Reports Record Q2 Financial Results

System Shipments Increased 50%

MINNEAPOLIS—(BUSINESS WIRE)—Aug. 1, 2006— Stratasys, Inc. (Nasdaq: SSYS) today announced record second quarter financial results.

Revenues rose 28% to $26.7 million for the second quarter ended June 30, 2006 over the $20.8 million reported in the same quarter of the previous year. Non-GAAP net income was $3.2 million in the second quarter, or $0.30 per share, which excludes the impact of stock-based compensation expense required under Financial Accounting Standard (SFAS) 123R. GAAP net income was $2.9 million in the second quarter, or $0.28 per share. This compares to net income of $2.9 million, or $0.27 per share for the second quarter in 2005. Stock-based compensation expenses were not included in the 2005 second quarter financial results. Total system shipments increased 50% to a record 527 units for the second quarter of 2006 compared with 351 units for the second quarter in 2005.

GAAP net income for fiscal 2006 includes stock-based compensation expense required under the implementation of SFAS 123R. This expense, net of tax, amounted to approximately $227,000, or $0.02 per share, in the second quarter of fiscal 2006. The reconciliation between non-GAAP and GAAP financial performance is provided in a table at the end of this press release.

Revenues rose 23% to $48.9 million for the six months ended June 30, 2006 over the $39.6 million reported in the same period of the previous year. Non-GAAP net income was $5.5 million in the six-month period, or $0.53 per share, which excludes the impact of stock-based compensation expense required under Financial Accounting Standard (SFAS) 123R. GAAP net income was $5.0 million in the six-month period, or $0.48 per share, compared to net income of $5.3 million, or $0.49 per share for the same period in 2005. Stock-based compensation expenses were not included in the 2005 six-month financial results. Total system shipments increased 48% to 930 units for the six-month period compared with 628 units for the same period in 2005.

Stratasys also announced that in the second quarter it received its first order for an ARCAM(R) EBM S400, a rapid manufacturing and prototyping system that makes solid metal parts 3 to 5 times faster than other metal additive fabrication methods. Employing the patented CAD to Metal(R) process, which is based on Electron-Beam Melting (EBM), the system produces parts from titanium powder. The system will be delivered to the customer and recognized as revenue during the third quarter.

"We are pleased with our second quarter performance, as we generated record results across multiple business units," said Scott Crump, chairman and chief executive officer of Stratasys. "The launch of our Dimension 1200 3D printer was a success, as 3D printer unit sales expanded by 61%. Dimension was the primary driver behind our record revenue and unit shipments.

"Our growing base of installed systems contributed to significant growth in our consumable and maintenance businesses, which grew to record levels. In addition, our paid parts business grew by 75% during the second quarter, in part from several rapid-manufacturing orders received during the period.

"The growth in our paid parts business was an indicator of the future potential of using our proprietary FDM technology for the manufacture of end-use parts. Early-stage feasibility evaluations are ongoing with major manufacturers for rapid manufacturing applications, which could lead to significant new growth opportunities for our company.

"Our long-term vision takes the company beyond applications within the design and engineering phase of new product development, and provides innovative alternatives for end-use part manufacturing. We believe our core FDM technology will be the driver behind these new applications.

"We remain confident in our growth goals for 2006 following our second quarter results. Our new 3D-printer initiatives are driving demand in the elastic market, while expanding on product functionality. Our recurring revenue components are building, and new applications for our technology are emerging. We are looking forward to continuing our strong growth the second half of 2006," Crump concluded.

Stratasys released the following information regarding its financial guidance for the fiscal year ending Dec. 31, 2006:

-- Reaffirm revenue guidance of $98 million to $102 million or growth of 18% to 23% over fiscal 2005.

-- Reaffirm non-GAAP earnings guidance of $1.15 to $1.25 per share, which excludes the impact of stock-based compensation required under SFAS 123R.

-- Reaffirm GAAP earnings guidance of $1.05 to $1.15 per share.

The reconciliation between non-GAAP and GAAP financial projections is provided in a table at the end of this press release.

The company will hold a conference call to discuss second quarter financial results on August 1, 2006 at 8:30 a.m. EDT. To access the call, dial 877-407-0782 (or 201-689-8567 internationally). A recording of the call will be available for two weeks. To access the recording, dial 877-660-6853 (or 201-612-7415 internationally) and enter account 286 and conference I.D. 207019.

A live webcast will be available through the Investors section of the Stratasys Web site ( www.stratasys.com). A replay of the webcast will be made available on the Stratasys Web site for 90 days.

Stratasys Inc., Minneapolis, manufactures office-based rapid prototyping and manufacturing systems and 3D printers; and offers rapid prototyping and manufacturing parts services. According to Wohlers Report 2006, Stratasys supplied 34 percent of all systems installed worldwide in 2005, making it the unit market leader, for the fourth consecutive year. Stratasys patented the rapid prototyping process known as fused deposition modeling (FDM). The process creates functional models directly from any 3D CAD program using ABS plastic, polycarbonate, and PPSF. The company holds 175 granted or pending rapid prototyping patents globally. Stratasys products are used in the aerospace, defense, automotive, medical, education, electronic, and consumer product industries. The company's systems are also used for rapid manufacturing and rapid tooling applications. For more information on the company, go to www.Stratasys.com; www.RedEyeRPM.com; or www.DimensionPrinting.com.

Forward Looking Statement

All statements herein that are not historical facts or that include such words as "expects", "anticipates", "projects", "estimates" or "believes" or similar words are forward-looking statements that we deem to be covered by and to qualify for the safe harbor protection covered by the Private Securities Litigation Reform Act of 1995. Our belief that we have the largest part-building service claim is based on the number of dedicated machines. Except for the historical information herein, the matters discussed in this news release are forward-looking statements that involve risks and uncertainties; these include the continued market acceptance and growth of our Dimension (TM)line, Prodigy Plus, FDM Maxum(TM), FDM Vantage(TM), and Titan(TM) product lines; the size of the 3D printing market; our ability to penetrate the 3D printing market; our ability to maintain the growth rates experienced in this and preceding quarters; our ability to introduce and market new materials such as PC-ABS and the market acceptance of this and other materials; the impact of competitive products and pricing; the timely development and acceptance of new products and materials; our ability to effectively and profitably market and distribute the Eden polyjet line and the Arcam product line; the success of our recent R&D initiative to expand the rapid manufacturing capabilities of our core FDM technology; the success of our RedEyeRPM(TM) and other parts services; and the other risks detailed from time to time in our SEC Reports, including the annual report on Form 10-K for the year ended December 31, 2005 and 10-Q filed throughout 2006.

Non-GAAP Discussion

The information discussed within this release includes financial results and forward-looking financial guidance that are in accordance with U.S. generally accepted accounting principles (GAAP). In addition, non-GAAP financial guidance has been included that excludes certain expenses. The non-GAAP financial measures are provided in an effort to give information that investors may deem relevant to the company's operations and comparative performance; primarily the identification and exclusion of expenses associated with stock-based compensation required under SFAS 123R.

This release is also available on the Stratasys Web site at www.Stratasys.com.

STRATASYS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

======================================================================
                      Three Months Ended         Six Months Ended
                           June 30,                  June 30,
                                 -------------------------  -------------------------
                                              2006                  2005                  2006                  2005
                                      (unaudited)    (unaudited)    (unaudited)    (unaudited)
--------------------------------------------  -------------------------

Net  Sales
    Product                    $21,677,819    $16,904,541    $39,221,145    $31,727,712
    Services                      5,021,466        3,880,404        9,701,235        7,920,052
                                      -------------------------  -------------------------
                                        26,699,285      20,784,945      48,922,380      39,647,764
                                      -------------------------  -------------------------


Cost  of  goods  sold
      Product                    10,555,355        7,466,598      19,588,928      13,764,804
      Services                    1,546,319        1,129,328        2,937,067        2,319,505
                                      -------------------------  -------------------------
                                        12,101,674        8,595,926      22,525,995      16,084,309
                                      -------------------------  -------------------------

Gross  profit                14,597,611      12,189,019      26,396,385      23,563,455
                                      -------------------------  -------------------------

Costs  and  expenses
      Research  and
        development            1,857,945        1,687,140        3,291,521        3,073,728
      Selling,
        general  and
        administrative      8,605,360        6,853,228      16,147,863      13,446,914
                                      -------------------------  -------------------------
                                        10,463,305        8,540,368      19,439,384      16,520,642
                                      -------------------------  -------------------------

Operating
  income                            4,134,306        3,648,651        6,957,001        7,042,813
                                      -------------------------  -------------------------

Other  income
  (expense)
      Interest
        income                          389,683            438,104            749,183            815,582
          Other                          (62,027)        (342,912)        (181,590)        (311,453)
                                      -------------------------  -------------------------
                                              327,656              95,192            567,593            504,129
                                      -------------------------  -------------------------

  Income  before
    income  taxes              4,461,962        3,743,843        7,524,594        7,546,942

  Income
    taxes                            1,525,991            852,681        2,573,413        2,259,828
                                      -------------------------  -------------------------

  Net  income                  $2,935,971      $2,891,162      $4,951,181      $5,287,114
                                      =========================  =========================

Earnings  per
  common  share
          Basic                              $0.29                $0.28                $0.49                $0.51
                                      =========================  =========================
          Diluted                          $0.28                $0.27                $0.48                $0.49
                                      =========================  =========================

Weighted  average
  number  of  common
  shares
  outstanding
          Basic                    10,161,391      10,451,351      10,142,479      10,451,374
                                      =========================  =========================
          Diluted                10,463,490      10,779,798      10,390,091      10,812,319
                                      =========================  =========================


STRATASYS,  INC.

CONSOLIDATED  BALANCE  SHEETS

======================================================================
                                                                                          June  30,        December  31,
                                                                                              2006                    2005
                                                                                        (unaudited)
----------------------------------------------------------------------

ASSETS

Current  assets
    Cash  and  cash  equivalents                                  $10,797,272      $10,105,199
    Short-term  investments                                          20,000,000        20,000,000
    Accounts  receivable,  less  allowance  for
      returns  and  doubtful  accounts  of
      $1,100,506  in  2006  and  $1,584,149  in
      2005                                                                            25,557,581        20,019,177
    Inventories                                                                13,415,579        10,887,198
    Net  investment  in  sales-type  leases                  2,494,885          2,036,386
    Prepaid  expenses                                                        1,252,456          2,289,173
    Deferred  income  taxes                                                  597,000              597,000
                                                                                      ---------------------------
        Total  current  assets                                          74,114,773        65,934,133
                                                                                      ---------------------------


Property  and  equipment,  net                                    18,759,156        17,294,575
                                                                                      ---------------------------

Other  assets
    Intangible  assets,  net                                            4,654,912          4,380,193
    Net  investment  in  sales-type  leases                  3,272,006          3,143,157
    Deferred  income  taxes                                                  392,000              392,000
    Long-term  investments                                              8,994,070        11,297,550
    Other                                                                              2,361,400          2,237,985
                                                                                      ---------------------------
                                                                                          19,674,388        21,450,885
                                                                                      ---------------------------

                                                                                      $112,548,317    $104,679,593
                                                                                      ===========================
LIABILITIES  AND  STOCKHOLDERS'  EQUITY

Current  liabilities
    Accounts  payable  and  other  current
      liabilities                                                              $9,782,655        $9,545,265
    Unearned  maintenance  revenue                                9,755,232          8,865,253
                                                                                      ---------------------------
        Total  current  liabilities                                19,537,887        18,410,518
                                                                                      ---------------------------

Stockholders'  equity
  Common  stock,  $.01  par  value,  authorized
    15,000,000  shares,  issued  12,344,771
    shares  in  2006  and  12,287,205  shares  
    in  2005                                                                              123,447              122,872
    Capital  in  excess  of  par  value                          74,118,546        72,465,952
    Retained  earnings                                                    35,747,126        30,795,945
    Accumulated  other  comprehensive  loss                  (187,594)          (324,599)
    Less  cost  of  treasury  stock,  2,171,529
      shares  in  2006  and  2005,  respectively        (16,791,095)    (16,791,095)
        Total  stockholders'  equity                              93,010,430        86,269,075
                                                                                      ---------------------------

                                                                                      $112,548,317    $104,679,593
                                                                                      ===========================


STRATASYS,  INC.

RECONCILIATION  OF  NON-GAAP  TO  GAAP  RESULTS  OF  OPERATIONS

======================================================================
                                                                            Three  Months  Ended  June  30,
                                                                  -------------------------------------
                                                                          2006                                          2006
                                                                  (unaudited)      Non-GAAP      (unaudited)
                                                                  As  Reported    Adjustments      Non-GAAP
                                                                                                    (1)
----------------------------------------------------------------------


Selling,  general  and
  administrative                                      $8,605,360      $(284,282)    $8,321,078
                                                                  -------------------------------------

Total  operating  expenses                    10,463,305        (284,282)    10,179,023

Operating  income                                      4,134,306          284,282        4,418,588
                                                                  -------------------------------------

Income  before  income  taxes                  4,461,962          284,282        4,746,244

  Income  taxes                                            1,525,991            57,356        1,583,347

  Net  income                                              $2,935,971        $226,926      $3,162,897

Earnings  per  common  share
        Basic                                                            $0.29              $0.02                $0.31
                                                                  =====================================
        Diluted                                                        $0.28              $0.02                $0.30
                                                                  =====================================

Weighted  average  number  of
  common  shares  outstanding
        Basic                                                  10,161,391                              10,161,391
                                                                  =====================================
        Diluted                                              10,463,490                              10,463,490
                                                                  =====================================


                                                                  =====================================
                                                                              Six  Months  Ended  June  30,
                                                                  -------------------------------------
                                                                        2006                                          2006
                                                                  (unaudited)      Non-GAAP      (unaudited)
                                                                  As  Reported    Adjustments      Non-GAAP
                                                                                                    (1)
----------------------------------------------------------------------


Selling,  general  and
  administrative                                    $16,147,863      $(696,992)  $15,450,871
                                                                  -------------------------------------

Total  operating  expenses                    19,439,384        (696,992)    18,742,392

Operating  income                                      6,957,001          696,992        7,653,993
                                                                  -------------------------------------

Income  before  income  taxes                  7,524,594          696,992        8,221,586

  Income  taxes                                            2,573,413          169,310        2,742,723

  Net  income                                              $4,951,186        $527,682      $5,478,868

Earnings  per  common  share
        Basic                                                            $0.49              $0.05                $0.54
                                                                  =====================================
        Diluted                                                        $0.48              $0.05                $0.53
                                                                  =====================================

Weighted  average  number  of
  common  shares  outstanding
        Basic                                                  10,142,479                              10,142,479
                                                                  =====================================
        Diluted                                              10,390,091                              10,390,091
                                                                  =====================================


(1)  These  adjustments  reconcile  the  Company's  GAAP  results  of
        operations  to  its  non-GAAP  results  of  operations.  The  Company
        believes  that  presentation  of  results  excluding  non-cash
        stock-based  compensation  provides  meaningful  supplemental
        information  to  both  management  and  investors  that  is  indicative  of
        the  Company's  core  operating  results  and  facilitates  comparison  of
        operating  results  across  reporting  periods.  The  Company  uses  these
        non-GAAP  measures  when  evaluating  its  financial  results  as  well  as
        for  internal  planning  and  forecasting  purposes.  These  non-GAAP
        measures  should  not  be  viewed  as  a  substitute  for  the  Company's
        GAAP  results.  The  Company  adopted  the  fair-value  recognition
        provisions  of  SFAS  No.  123  revised  (123R)  to  expense  stock-based
        compensation  effective  January  1,  2006.  Prior  to  the  adoption  of
        SFAS  No.  123R,  the  Company  accounted  for  employee  stock-based
        compensation  using  the  intrinsic  value  method  prescribed  by  APB
        No.  25.


STRATASYS,  INC.

FISCAL  YEAR  2006
RECONCILIATION  OF  NON-GAAP  FORWARD  LOOKING  GUIDANCE

                                                                            Earnings  Per  Diluted  Share  Range
======================================================================

U.S.  GAAP  measure                                                          $1.05    to    $1.15

Adjustments  to  exclude  the  effects
    of  expenses  related  to  stock-based
    compensation  under  SFAS  123R                                          $0.10



Non-GAAP  estimates                                                        $1.15    to    $1.25
 


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