Stratasys Reports Record Third Quarter Financial Results

MINNEAPOLIS—(BUSINESS WIRE)—November 3, 2008— Stratasys, Inc. (Nasdaq:SSYS) today announced record third quarter revenue and earnings.

Revenue rose to $30.6 million for the third quarter ended September 30, 2008 over the $26.5 million reported for the same period in 2007, an increase of 16%. Revenue from proprietary products and services for the third quarter increased by 20% over the same period last year. System shipments totaled 497 units for the third quarter of 2008, versus 521 for the same period last year.

Operating profit increased 30% to $5.3 million for the third quarter, compared to operating profit of $4.1 million for the same period in 2007.

Net income increased 15% to $3.7 million for the third quarter, or $0.18 per share, compared to net income of $3.2 million, or $0.15 per share, for the same period last year. The 2007 results are adjusted to reflect the two-for-one stock split completed in August, 2007.

Stock-based compensation expense required under Financial Accounting Standard (SFAS) 123R was approximately $238,000 net of tax, or $0.01 per share for the third quarter of 2008, and approximately $203,000 net of tax, or $0.01 per share, for the same period last year.

Revenue rose to $92.6 million for the nine-month period ended September 30, 2008 over the $82.0 million reported for the same period last year, an increase of 13%. Revenue from proprietary products and services for the nine-month period increased by 16% over the same period last year. System shipments totaled 1,614 units for the nine-month period, versus 1,633 for the same period last year.

Operating profit increased 23% to $16.6 million for the nine-month period, compared to operating profit of $13.6 million for the same period in 2007.

Net income increased 16% to $11.6 million for the nine-month period, or $0.54 per share, compared to net income of $10.0 million, or $0.47 per share, for the same period last year.

Stock-based compensation expense required under SFAS 123R was approximately $767,000 net of tax, or $0.04 per share for the nine-month period of 2008, and approximately $546,000 net of tax, or $0.03 per share, for the same period in 2007.

We are very pleased with our third quarter results considering the current global economic environment, said Scott Crump, chairman and chief executive officer of Stratasys. Our strong third quarter performance was driven by an impressive 68% increase in our proprietary high-end system revenue, which resulted from the positive momentum of our new high-end products. Operating profit in the third quarter grew by 30% over last year, the fastest year-over-year growth since the first quarter of 2007.

While the growth in our high-end system business may seem to defy conventional expectation given the current economic environment, this performance reflects our successful new product and marketing strategies which target new applications for direct digital manufacturing (DDM). Given that the positive momentum within this business has continued into the first part of the fourth quarter, we remain cautiously optimistic.

Consumable revenue for the third quarter grew by 20% over last year, a result of our growing installed base of systems. In addition, we believe that our consumable sales are benefiting from the recent growth in our high-end systems, which traditionally operate at significantly higher rates of consumable usage. For example, the FDM 900mc, our largest and fastest high-end system, will annually consume over 10 times the material consumed by the average 3D printer in a year.

Our paid parts business continued to improve in the third quarter, with quarterly revenue expanding by 22% over last year. The improved performance is attributable to the changes we have made within our sales and marketing activities, as well as to the growth from new opportunities for architectural and direct digital manufacturing applications. We believe this positive momentum will lead to another strong performance for this business in the fourth quarter.

3D printer system revenue for the third quarter was flat over last year, a continuation of the trend we observed in the second quarter, and reflective of our expectations. The business continues to be negatively impacted by customers that are less inclined to make innovative investments within a weak manufacturing environment. While we expect these trends will continue into the fourth quarter, we believe that our planned initiatives should accelerate 3D printer unit growth in the coming periods.

While the impact of the current economic crisis is difficult to predict, we are generating positive cash flow from operations and our current expectations and outlook are for a strong finish in 2008. In addition, we are well positioned for economic uncertainty given our strong cash position and no long-term debt.

Despite a potential downturn in the capital equipment market, our innovative products and services are helping our manufacturing customers to reduce development costs, shorten product release schedules, and provide alternatives to traditional manufacturing processes. We believe these factors will continue to drive strong demand growth for our products, and we remain optimistic about our future, Crump concluded.

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