Stratasys Reports Record Fourth Quarter and Full Year Financial Results

MINNEAPOLIS—(BUSINESS WIRE)—February 26, 2008— Stratasys, Inc. (Nasdaq: SSYS) today announced record fourth quarter and fiscal year financial results. The results and financial guidance have been adjusted to reflect the two-for-one stock split completed in August, 2007.

Revenues rose to $30.2 million for the fourth quarter ended December 31, 2007 over the $29.7 million reported for the same period in 2006. Revenue from proprietary products and services, which excludes all distributed products, increased by 20% in the fourth quarter over the same period last year. Total system shipments increased to a record 536 for the fourth quarter of 2007 compared with 483 for the same period in 2006.

GAAP net income increased 18% to $4.3 million for the fourth quarter, or $0.20 per diluted share, compared to net income of $3.7 million, or $0.18 per diluted share, for the same period in 2006. Income tax expense amounted to $1.1 million for the fourth quarter, or an effective rate of 20%.

Non-GAAP net income increased 16% to $4.5 million for the fourth quarter, or $0.21 per diluted share, compared to Non-GAAP net income of $3.9 million, or $0.19 per diluted share, for the same period in 2006. Non-GAAP net income excludes the impact of stock-based compensation expense required under Financial Accounting Standard (SFAS) 123R. This expense, net of tax, amounted to approximately $202,000, or $0.01 per diluted share, for the fourth quarter of fiscal 2007, and $222,000, or $0.01 per diluted share, for the same period in 2006.

Income tax expense for the fourth quarter includes approximately $710,000, or $0.03 per diluted share, in previously unrecognized state tax credits for prior years' research and development expenditures.

Revenues rose to $112.2 million for the twelve months ended December 31, 2007 over the $103.8 million reported for the same period of the previous year. Revenue from proprietary products and services increased by 25% in the twelve-month period over the same period last year, which excludes all distributed products. Total system shipments increased 21% to a record 2,169 for the twelve-month period of 2007 compared with 1,796 for the same period in 2006.

GAAP net income increased 28% to $14.3 million for the twelve-month period, or $0.66 per diluted share, compared to net income of $11.2 million, or $0.54 per diluted share, for the same period in 2006.

Non-GAAP net income increased 24% to $15.1 million for the twelve-month period, or $0.70 per diluted share, compared to Non-GAAP net income of $12.1 million, or $0.59 per diluted share, for the same period in 2006. Non-GAAP net income excludes the impact of stock-based compensation expense required under SFAS 123R. This expense, net of tax, amounted to approximately $748,000, or $0.03 per diluted share, for the twelve-month period, and $972,000, or $0.05 per diluted share, for the same period in 2006.

Income tax expense for fiscal year 2007 includes approximately $822,000, or $0.04 per diluted share, in previously unrecognized state tax credits for prior years' research and development expenditures.

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

"Revenue from our core businesses grew impressively during the fourth quarter," said Scott Crump, chairman and chief executive officer of Stratasys. "However, our operating profit was impacted by higher operating expenses, as well as sales and product mix shifts. The higher operating costs were mostly related to a short-term increase in commission expenses, as well as the acceleration of new product and market development programs, which will benefit 2008 and beyond.

"We expect our new product initiatives will generate positive results in both our Dimension 3D printer and high-end FDM system businesses in the near future. The impact has already been dramatic for our high-end systems, as system revenue for the group increased by 25% during the fourth quarter versus last year. This growth was a result of improved marketing focus on proprietary products, as well as the introduction of two new systems in 2007, the FDM 200mc and 400mc.

"Building on these successes, we made a significant new high-end product introduction in December, with the introduction of the FDM 900mc. The 900mc represents the most advanced FDM system in our company's history, exhibiting significant improvements in speed, build accuracy and part quality. Most noticeable is the new system's size, which has a build chamber approximately 9X larger than that of the 400mc, and can build parts that are over four and one-half feet long. We began commercial production of the 900mc during the first quarter of 2008 of this year, and plan to gradually ramp to full production by the end of the third quarter.

"We began 2008 with four new high-end systems, the FDM 200mc, 360mc, 400mc and 900mc. The products have all been well received, and we have established a strong sales pipeline. Our high-end system initiatives represent a strategy to solidify our value proposition for prototype applications, but more importantly target incremental opportunities for the manufacture of end use parts, or direct digital manufacturing (DDM). The 900mc is our first system that directly targets these types of applications, and we are excited about the new system's potential. We are becoming increasingly confident that DDM applications can provide incremental growth opportunities for Stratasys.

"Dimension 3D printer revenue increased by 21% during the fourth quarter versus last year. The Dimension Elite, which was introduced in January of 2007, continued to perform above our expectations, remaining one of our best-selling 3D printers in the fourth quarter. This higher-priced system has proven the importance of offering 3D printers with high functionality, in addition to an attractive price. The Elite provides users with our hands-free support removal option, Waterworks, as well a premium material, ABSplus, which produces stronger, functional models that exhibit finer feature detail and improved surface finish.

"Following this success, today we launched two new 3D printers that incorporate the same premium ABSplus material found only previously on the Dimension Elite. The new systems, the Dimension 1200es BST and 1200es SST, will replace the existing Dimension 1200 line, and will be offered only with the ABSplus material. Given the added functionality of ABSplus, which is up to 40% stronger than our standard ABS, we are introducing the new systems at a significant price premium to our legacy Dimension 1200 systems. Customers that have legacy 1200 systems will be offered an enhancement package to upgrade their existing 1200 to a 1200es for $5,000.

"We recently announced the rollout of our instant internet quoting and ordering service, RedEyeRPM.com, into Europe, as well as the opening of a new rapid prototyping and direct digital manufacturing center in Australia. In addition, we announced a new initiative, www.RedEyeARC.com, which serves the emerging opportunity for architectural applications, producing 3D scaled replica models of residential and commercial buildings. Although our Redeye paid parts business grew by only 14% during the fourth quarter versus last year, the business grew by 30% for fiscal 2007, and we are optimistic about the positive impact of our new initiatives in 2008.

"With over 2,000 units shipped in 2007, we have now shipped more than 5,000 units over the past three years, exceeding the combined shipments of the previous ten-years. We believe the total market potential is for 500,000 systems, by targeting the 5 million 3D CAD seats that currently exist worldwide. In addition to this large target market, it's important to note that a significant growth opportunity still exists in 3D CAD, as we estimate that less than half the mechanical designers and engineers that exist worldwide currently utilizing the modeling software.

"The rapid expansion in our installed base is contributing to strong growth in our high-margin proprietary consumables revenue, which grew by 27% during the fourth quarter compared to last year. Consumables revenue will remain a central part of our growth strategy considering our estimate of the market's potential and our expectation of continued strong growth in system sales. We are planning for 4,000 units per year in the near future, with a longer-term vision of 13,000 units per year.

"Our year-end backlog of $5.7 million is almost entirely composed of products that were introduced in 2007, such as the Elite, and the FDM 400mc and 900mc. This year will benefit from the new products that were introduced throughout 2007, as well as our announcement today of two new higher-priced 3D printers. It's worth noting that in addition to effectively raising the price of two 3D printers with today's product release, we are maintaining stable pricing on our remaining portfolio of printers.

"We will invest heavily in new product and market development this year, as well as in quality initiatives that will make our products more competitive and attractive for new applications. Our recent success with new products makes us confident that these investments will generate favorable returns in the near future. Although product mix and higher spending levels impacted our fourth quarter profits, our long-term strategy remains intact, and we look forward to a very successful 2008," Crump concluded.

Stratasys released the following information regarding its financial guidance for the fiscal year ending Dec. 31, 2008:

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