Greetings, and welcome to the Stratasys First Quarter 2024 Earnings Call. 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. Thank you. You may begin.

Good afternoon, everyone, and thank you for joining us to discuss our 2024 1st quarter financial results. On the call with us today are our CEO, Dr. Yoav Zeif; and our CFO, Eitan Zamir. 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. 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. Please note that some of the information you will hear 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 performance and our expectations for our business outlook. All statements that speak to future performance, events, expectations or results are forward-looking statements. Actual results or trends could differ materially from our forecast. For risks that could cause actual results to be materially different from those set forth in forward-looking statements, please refer to the risk factors discussed or referenced in Stratasys' annual report on Form 20-F for the 2023 year. Please also refer to our operating and financial review and prospects for 2023 and for the first quarter of 2024, which are included as Item 5 of our annual report on Form 20-F for 2023 and in Exhibit 99.2 to the report on Form 6-K that we are furnishing to the SEC tomorrow, respectively. Please also see the press release that announces our earnings for the first quarter of 2024, which is attached as Exhibit 99.1 to a separate report on Form 6-K that we are furnishing to the SEC today. Our reports on Form 6-K that we furnish to the SEC on a quarterly basis and throughout the year, provide updated current information regarding our operating results and material developments concerning our company. Stratasys assumes no obligation to update any forward-looking statements or information which speak as of their respective dates. As in previous quarters, today's call will include GAAP and non-GAAP financial measures. The non-GAAP financial measures should be read in combination with our GAAP metrics to evaluate our performance. Non-GAAP to GAAP reconciliations are provided in tables in our slide presentation and today's press release. I will now turn the call over to our Chief Executive Officer, Dr. Yoav Zeif.

Thank you, Yonah. Good afternoon, everyone, and thank you for joining us. Our solid results for the first quarter of 2024 reflect the resilience of our business model even as we are seeing constrained capital spending across the industry, resulting in relatively flat year-over-year revenue after backing out divestitures. Gross margins improved and consumables recurring revenue reached a record high, reflecting the strong utilization of our existing systems and demonstrating the impact of this revenue stream. Our customers are using their systems at a high level, displaying a promising indication of the increasing reliance on 3D printing as they expand usage in manufacturing applications while also managing costs. Our results this quarter and throughout the prolonged capital spending market downturn demonstrate the effectiveness of our strategy that drives high-margin consumables and our unique approach that continues to produce strong results. Specifically, in the quarter, we generated over $7 million of cash from operations and positive free cash flow. We believe that our financial discipline strongly differentiates us in our sector and will help drive increased growth and profit as the current macro CapEx challenges subside and spending normalizes. We continue to maintain a healthy balance sheet that provides us stability to manage the current environment and optionality to support our growth through both organic investments and accretive acquisitions. And when capital spending returns to normal levels, our differentiated offering of industry-leading printer technologies, materials and software solutions positions us to meaningfully accelerate growth, driving sustainable long-term shareholder returns. Now let me give you an update on our exciting recent technology offering, the F3300, which we launched at the end of last year. As we have shared, the F3300 establishes a new standard in FDM industrial 3D printing for manufacturing, with up to twice the speed and throughput of standard FDM systems. The value proposition continues to resonate in the market with our sales funnel growing. After securing our first buyer, Toyota, we are building on that momentum. BAE Systems, Europe's largest defense contractor, purchased F3300s to drive production improvement and reduce costs in time to market across their air sector products. And our new FDM technology is perfectly suited to deliver that need. Sikorsky, a Lockheed Martin Company, a world leader in vertical flight, purchased the F3300 to help them stay at the forefront of additive manufacturing through the production of end-use parts for their aircraft in a faster and more cost-effective way. And Nissan, the automotive OEM, has also become an F3300 customer, where our technology is replacing that of a 3D printing competitor for multiple use cases. Our F3300 pipeline is strong with accelerating interest and engagement levels. Orders have surpassed our expectations in the first half of this year, and we look forward to achieving and sharing more details on customer wins throughout the year. We also recently introduced new SAF HighDef printing capabilities with the launch of our H350 version 1.5, which provides additional applications and use cases for a growing set of manufacturing end users without compromising speed or quality. Now I'd like to highlight a couple of milestones subsequent to quarter end. First, we announced the promotion of our new COO, Amir Kleiner. Amir has been with Stratasys for over 12 years, and he will now lead the company's global operations, MIS and quality team, while continuing to manage the customer success team. This appointment will strengthen the connection between the customer success organization and the operations and supply chain divisions. Also post quarter end, we proudly published our second ESG and sustainability report. Sustainability is core to 3D printing with benefits to our customers, employees, people and the planet. It's also at the heart of our DNA at Stratasys, as we are clear ESG leaders in our industry. Our achievements include improved environmental impact, employee health and safety, diversity and inclusion, good governance and ethical conduct. The certifications, processes and practices we have implemented are a critical component to help cement our leadership role as we partner with some of the largest manufacturing companies in the world. We are an increasingly important part of our customers' journey to decarbonize their operations and optimize supply chains and production. We invite our investors and customers to join us on the shift to what we call mindful manufacturing, where we leverage additive manufacturing technology to produce pulp in a more sustainable manner. Overall, we are driving ahead to serve as our customers' most trusted additive manufacturing partner and believe we will see meaningfully improved results when the current CapEx downcycle reverses. To that end, we are continuing to invest in technological innovation, best-in-class sales channels and key partnerships, building on our meaningful foundations for growth that will drive our industry leadership for the long term. Before I turn it over to our CFO to cover the details of the financial results, let me provide an update regarding our ongoing strategic review. We continue to run a comprehensive process as our Board of Directors considers and evaluates all avenues to maximize value. As we have communicated previously, we will disclose further development on the process where we determine that such disclosure is appropriate or necessary. Over to you, Eitan.

Thank you, Yoav, and good afternoon, everyone. We are encouraged by multiple improvements in the results of the first quarter relative to the first quarter of last year, while we continue to experience the effect of macroeconomic weakness in customer CapEx spending. Despite the relatively flat revenues, our gross margins improved, thanks in part to another record level in our consumables sales. And we generated over $7 million in operating cash and over $4 million in free cash flow. For the first quarter, consolidated revenue of $144.1 million was down 3.5% compared to Q1 2023. Excluding the non-core divestitures, our revenues were relatively flat. Product revenue in the first quarter was $99.2 million compared to $101 million in the same period last year or down by 0.9%, excluding divestitures. Within product revenue, system revenue was $32.9 million compared to $40.5 million in the same quarter last year. Excluding divestitures, revenue declined 17.8%. Consumables revenue grew 9.6% to $66.3 million compared to the same period last year. This represents yet another record level for Stratasys. And as Yoav pointed out, it signals that utilization rates of the systems we have thought continue to be strong. Service revenue, including our Stratasys Direct Service Bureau, was $44.9 million compared to $48.4 million in the same period last year. Absent divestitures, service revenue was up 1.8%. Within service revenue, customer support revenue remains at strong levels and was up 3.3% compared to the same period last year, another indication of strong use of our system. Now turning to gross margins. GAAP gross margin expanded to 44.4% for the quarter compared to 43.8% for the same period last year. Non-GAAP gross margin also grew to 48.6% for the quarter compared to 47.3% in the same period last year. The improvement versus the prior year period was driven in part by a greater mix of consumables, higher margins at Stratasys Direct due to divestitures and better operational efficiency. GAAP operating expenses were $88.4 million compared to $82.2 million during the same period last year. The change in expenses was primarily related to our recent acquisitions and extraordinary expenses associated with our strategic review process. Non-GAAP operating expenses were $71.2 million compared to $69.2 million during the same period last year due to the inclusion of Covestro and higher operational costs. Non-GAAP operating expenses were 49.5% of revenue for the quarter compared to 46.3% for the same period last year. Regarding our consolidated earnings, GAAP operating loss for the quarter was $24.5 million compared to a loss of $16.8 million for the same period last year. Non-GAAP operating loss for the quarter was $1.2 million, compared to operating income of $1.5 million for the same period last year. The change reflects the change in overall revenues and increase in OpEx, offset somewhat by a $4.7 million improvement in non-GAAP cost of goods sold. GAAP net loss for the quarter was $26 million or $0.37 per diluted share, compared to a net loss of $22.2 million or $0.33 per diluted share for the same period last year. Non-GAAP net loss for the quarter was $1.7 million or $0.02 per diluted share, compared to non-GAAP net income of $1.1 million or $0.02 per diluted share in the same period last year. Adjusted EBITDA was $4.1 million for the quarter compared to $7 million in the same period last year. We generated $7.3 million of cash in our operations during the first quarter compared to the use of $17.9 million of cash from operations in the same quarter last year. After $3 million of capital expenditures, we generated free cash flow for the quarter of $4.3 million. We ended the quarter with $161.1 million in cash, cash equivalents and short-term deposits compared to $162.6 million at the end of 2023. Our balance sheet remains strong and we are well-capitalized and well-positioned to identify and capture value enhancing market opportunities. Now let me turn to our outlook for 2024. We expect the ongoing challenging backdrop to most likely persist this year, continuing to cause delayed purchases and longer sales cycles. Based on our first quarter results and current visibility to our end markets, we are reiterating our full year guidance as follows. We are reiterating our expectation of revenues between $630 million to $645 million with sequential quarterly revenue growth, notably higher in the second half. Given the ongoing softness in customer capital expenditures, we expect the second quarter revenue to show slight improvement sequentially from the first quarter this year and declined relative to the second quarter of 2023. From a gross margin perspective, we continue to expect full year 2024 to be in the range of 49% to 49.5% with improved year-over-year growth in the second half of 2024. We expect our margins to be over 50% next year. In 2024, we expect our operating expenses to range between $292 million to $297 million. We continue to expect non-GAAP operating margins between 2.5% to 3.5% for the full year. We anticipate a GAAP net loss of $88 million to $72 million or $1.24 to $1.01 per diluted share, and non-GAAP net income of $9 million to $14 million or $0.12 to $0.19 per diluted share for the full year of 2024. Adjusted EBITDA is expected to be in the range of $40 million to $45 million for the year. Capital expenditures are expected to range between $20 million to $25 million for the year. And finally, for the full year, we continue to expect positive cash flow from operating activities. The second quarter will not generate positive operating cash flow due to certain quarter-specific costs, but we expect to see a reversal back to positive operating cash flow in the second half of the year.

Thank you, Eitan. In summary, we delivered another solid quarter in a persistently challenging environment. The strength of our system sales in past periods flows through our results today in the form of consumables, as our customers continue to heavily utilize previously purchased systems. We expect that those systems will be replaced with higher performance, more advanced offerings in the coming years. The investments we are making to drive innovation and greater capabilities in additive manufacturing means that we will be ready to meet those needs when the cycle turns. We are laser focused on our commitment to delivering differentiated products and solutions to customers across a wide array of use cases. That, coupled with our relentless focus on execution, is setting the stage for us to drive relative outperformance and enhance shareholder value. With that, let's open it up for questions. Operator?

Our first question comes from Troy Jensen with Cantor Fitzgerald.

Congrats on the good results here in the positive cash flows. Maybe first off for Eitan, a couple of questions. I guess, could you talk to us about Q2 seasonality? I mean, you guys are kind of two months through the quarter now. So would you expect normal seasonality in Q2? And then on top of that, are we going to see incremental revenues from the F3300 here this quarter?

Thank you, Troy, for the question. So we expect a slight increase compared to Q1. So there is, in that regard, the normal seasonality of Q2 being better than Q1. However, the macroeconomic situation is still creating some headwinds in the short term. And with respect to the F3300, what was again the question?

Is it going to be initial revenues in Q2? I guess I'm trying to think base business, is that kind of seasonal, seasonality? And then is the F3300 going to be incremental to that?

Yes, we expect to have revenue in Q2, but it will be much more significant in the second half of the year.

Okay. Perfect. So I'd love to get a third question. I've got one more here for Eitan, I want to do a follow-up for Yoav. But, Eitan, long-term deferred revenues, they've been down a couple of quarters in a row now. I'm guessing that's just multiyear service contracts, but can you just touch on why long-term deferred revenues have been turning the wrong direction?

There is no specific trend. It's sometimes a mix of the number of years of contract. So there is no specific reason or trend.

Okay. All right. That's fine. All right. Now Yoav, for you, this quarter was interesting, right? You guys reported two weeks later than normal, and there is just kind of a lot of chatter about consolidation and I personally believe you guys had a lot of executives out in Barcelona. We're expecting to hear more about the strategic review update. So I know you kind of touched on it briefly in your prepared remarks, but is there any more color you can talk about here about when you guys plan to really kind of do something on the strategic review?

Well, on the late report of the quarter, it's a logistics issue, scheduling some resources that are attached to the war, but nothing really important and nothing that really impacts our operations. As for the strategic review, we are precluded from sharing any details. What I can say on the strategic review is that we are engaging, we are making progress. And of course, we will update when it will culminate.

All right. Understood. Good luck guys.

Our next question comes from Greg Palm with Craig-Hallum.

This is Danny Eggerichs on for Greg today. Maybe just as we kind of think about the last time we talked a few months ago, obviously, the macro remains challenging, but any kind of change in how you're seeing maybe overall visibility, sales cycles continue to elongate or kind of stay the same? Any color you can give us there would be great.

Thank you for the question. We find ourselves in a situation similar to last quarter. There has been some improvement in the sales cycle, although it's not a substantial change. We observed some stabilization, as the pace of change has slowed. Sales cycles are stabilizing, and while we haven't experienced a significant breakthrough yet, it's on the horizon. Based on our customer engagements, which are increasingly driven by our new product, the F3300, there is a clear appetite in the market. However, many of our large customers, particularly in the high-end segment we target, are holding back on their capital expenditures due to constraints. This situation has its limits because we have new models and drones on the way, and demand is present. We are taking advantage of this stable period; we haven't declined and have maintained our position year-over-year in a challenging market while also increasing our market share over the past three years. We plan to leverage this time to prepare for greater market share and meet the demand that exists, ready to respond when it arises. We have the growth engine in place for this. While macro pressures remain, we are focused on the micro factors to ensure we remain a leader in this industry.

Okay. That makes sense. I'd like to discuss consumables. It appears that performance was strong again this quarter, and printer utilization seems to be holding up well. Can you tell me how much Covestro contributed to that business during the quarter? Should we anticipate continued growth for that segment as the year progresses? What’s your perspective on this?

Thank you for the question. So Covestro, as we discussed in the past, Covestro levels are $4 million to $5 million a quarter. So the growth was both Covestro and organic growth and better utilization of our printers, which is something that creates a lot of confidence for the future.

I would like to add that our focus on consumables stems from our belief that they will drive the adoption of additive manufacturing by enabling new applications. We take pride in the growth of our consumable performance year-over-year, both with and without Covestro. We have seen increased utilization, and specifically in our SBM, we have achieved record-high utilization across the board. We have steadily increased our manufacturing installed base even during challenging times. All of this ensures that the trend of selling more consumables and maintaining or even increasing their share of our total revenue will continue for a considerable time. This is a key strength for Stratasys.

Our next question comes from Brian Drab with William Blair.

I wanted to discuss consumables further because the increase from the fourth quarter to the first quarter has really caught my attention; it's a significant rise. Could you elaborate on what is driving this change? Are you surprised to see this increase in a challenging environment? Additionally, is the F3300 contributing to the consumables usage, and do you think this will help maintain the momentum in consumables?

Thank you, Brian. So maybe first with your first question. So to your point, when you look at the trend for the last 3 or 4 quarters, and I'm talking about the trend after the acquisition of Covestro, when you think about Q2 2023 onwards, we're up from $60.8 million to $61.8 million to $63 million in Q4, as you mentioned, and then to $66.3 million this quarter. That's to Yoav's point from earlier, demonstrates the higher utilization and that creates confidence. So we have confidence in our ability to achieve levels above $63 million. But sometimes, where every quarter lands in this range between maybe $63 million to $66 million, it also depends on specific deals. So to your question, we do see the trend is a positive trend. We believe we can achieve higher than $63 million during the 2024 quarter. But sometimes, the specifics can move somewhere within this range. Hopefully, it helps.

Okay. Yes, that's helpful. And then on the F3300, I guess as my follow-up, what is the consumables usage attach rate or usage relative to other machines?

The F3300 was specifically designed for manufacturing with large pulp, featuring high-performance materials. These machines consume a lot of high-performance materials due to their large parts and high utilization rates. For instance, our F900 machines operate at 90% to 95% utilization, significantly higher than our prototyping machines, which typically operate at around 10% to 15%. I'm very optimistic about the F3300 because it is intended for manufacturing and is paired with our high-end materials.

And our next question comes from Jacob Stephan with Lake Street Capital Markets.

Congrats on the results. I just wanted to get some clarity on the comment, Yoav, you made earlier in the prepared remarks. You kind of mentioned that orders have surpassed expectations so far in the first half of the year. I mean, maybe you could just provide a little clarity on is that in the base business? Or is that just the F3300? Any color there would be helpful.

Jacob, thank you. It's an opportunity to clarify. I related to the F3300. Of course, like every time that we launch a new product, we have a plan and we are on plan and exceeding it with the F3300. Of course, there is a ramp-up, and the ramp-up is starting at H1, but will culminate at H2. So that's what I meant. And we are definitely surpassing in terms of purchase orders and in terms also of the quality of the customers. Because we have Nissan, we have Sikorsky, we have BAE, we have Toyota, and this is something that creates this flying wheel effect that we are looking for. Because if they can use it for end-use parts, also others will use it for end-use parts.

Yes, I understand. You have established strong relationships with prominent customers, but could you discuss the mid-market opportunities you're identifying with the F3300? What kind of traction are you observing with those companies that may not have the financial resources of your larger clients?

We are seeing traction in the mindset that FDM can run and also in the mid-market can run application, pure manufacturing application, because this machine has doubled the speed and almost double the throughput and almost halved the cost. So it's a disruption in the high-end, large part FDM market.

Our next question comes from Alek Valero with Loop Capital Markets. We are seeing traction in the mindset that FDM can run and also in the mid-market can run application, pure manufacturing application, because this machine has doubled the speed and almost double the throughput and almost halved the cost. So it's a disruption in the high-end, large part FDM market.

It's Alex on for Ananda. Congrats on the results. My first question is have you guys seen any notable changes in the conversational tone with customers? And if so, what kinds of things are they focusing on?

That's a great question. I would say that the level of engagement that we have is much more specific. And I'm very proud of my team as well that we are not anymore talking high-level, 36,000 feet. We are talking about what is the application? What are their requirements? How we work together with our customers to meet those requirements? This is the only way to get those blue-chip customers. That's the only way. And I think this change in mindset is also happening within Stratasys. So it's a different level of engagement than 3 years ago and 4 years ago when I joined Stratasys because we are talking about real requirements. We are talking about what do we need to meet? What type of standards? We are working with the right institutions? And customers when you do that start to understand the benefit of additive manufacturing. And the benefit is very clear. Of course, it's different from each application. For each application, it's completely different, but it's there. And we are not trying to compete on the injection molding part. We are trying to compete where we have absolute advantage on personalization, on lightweight, on specific geometries and so on and so forth. And the customers are with us on this journey.

Very helpful. As a quick follow-up, what are some of the more notable things in the industry and company that we should all be focusing on in the second half of 2024?

So that's a great question. Thank you. I think we should focus on how the additive manufacturing industry can deliver real value. So talking about the promise, and how we can deliver value to specific applications. And this is a combination of the reliability of the machine; the TCO, the total cost of ownership of the part. It's a matter of materials and good other material. It's related to the software and how we can help the customer be successful along the digital thread with our software, and that's exactly what we are doing. The moment the industry will be there, it's only a matter of time. And I know that today, the industry is kind of depressed because of the macro condition, because we are in a transition crossing the chasm. But we have absolute advantages, and we are going to deliver them. And that's the way to analyze or to judge each one of the players. Do you have the fundamentals to deliver the value? And I think that Stratasys has the fundamentals. We are leading with a lot of stability, financial stability. It's very important to the customers, by the way. You see the discipline and to understand that there is someone there, a partner in additive that can take the journey with them for many years to come with the right fundamentals. With the portfolio, with a go-to-market, with a service, with the software, with the material portfolio, that should be the focus. Not about promising, but about delivering.

Very helpful.

Our next question comes from Jim Ricchiuti with Needham & Company.

This is Chris Grenga on for Jim. With respect to systems that were shipped in the quarter, are the customers replacing existing systems or expanding existing fleets? Or are they new to 3D printing? Or is there any breakout that you would call attention to there?

Thank you, Chris, for the question. It's a combination. We have a significant installed base of nearly 40,000 machines, which helps us even in difficult times. Our loyal customers trust us and are willing to purchase additional Stratasys machines without us needing to prove ourselves again. We are focusing on maintaining the satisfaction of our existing customers while also expanding into manufacturing and seeking new clients. But to answer your question, it is indeed a combination.

Got it. And then just with respect to the outlook, does it assume no incremental change with respect to customer CapEx patterns that you've observed so far? Or is there any change that is embedded in the outlook?

Chris, the outlook is based on what we see now and the outlook that we currently see for the second quarter and the second half of the year.

Thank you. And ladies and gentlemen, there are no further questions at this time. I'll hand the floor back to Yoav Zeif for closing remarks. Thank you.

Thank you for joining us. Looking forward to updating you again next quarter.

Thank you. This concludes today's conference. All parties may disconnect. Have a good day.