Earnings Call Transcript - SSYS Q1 2026

Operator, Operator

Good day, and welcome to today's conference call to discuss Stratasys' First Quarter 2026 Financial Results. My name is Darryl, and I'll be your operator for today's call. And now I'd like to hand the call over to Yonah Lloyd, Chief Communications Officer and Vice President of Investor Relations for Stratasys. Mr. Lloyd, please go ahead.

Yonah Lloyd, Chief Communications Officer & Vice President, Investor Relations

Good morning, everyone, and thank you for joining us to discuss our 2026 first 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 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 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 2025 year. Please also refer to that annual report, along with our reports filed with or furnished to the SEC throughout 2026 for additional operational and financial details. Reports on Form 6-K that are furnished to the SEC on a quarterly basis and throughout the year provide updated current information regarding the company's 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. Yoav?

Dr. Yoav Zeif, Chief Executive Officer

Thank you, Yonah. Good morning, everyone, and thank you for joining us. Our first quarter results reflect the continued resilience of our operating model in a measured spending environment. Recurring revenue streams from consumables and customer support continue to provide stability, while printer purchasing timelines remained extended as customers exercise capital discipline amid ongoing global uncertainty. Meanwhile, we remain focused on executing our strategy to grow as we deepen our penetration into manufacturing. On a sequential basis, compared to the fourth quarter of 2025, consumables and services both grew slightly, and Stratasys Direct delivered over 10% sequential growth and 23% organically after divestments when compared to the first quarter of 2025, reinforcing the trajectory of our production parts business as was the case for the full year 2025. The top three parts customers were again all U.S.-based drone-related companies. But note that Stratasys Direct produces and uses parts across a wide variety of industrial applications using Stratasys printers almost exclusively, demonstrating the versatility of our technologies and the view into its potential future benefits. At the same time, we continue to make meaningful strategic progress. Innovation, customer engagement and market development remain the foundation of our long-term growth strategy, one that centers on secular megatrends of supply chain protection and operational efficiency, reshaping global manufacturing. Nowhere are these megatrends more pronounced than in aerospace and defense, where mission-critical performance requirements, supply chain resilience mandates and expanding U.S. Department of Defense investment in advanced digital manufacturing are creating a strong structural demand environment. To that point, we believe Stratasys is uniquely positioned to win. In a tariff-sensitive environment, in particular, our platform's ability to enable local, rapid and cost-effective production is a genuine competitive advantage, one we continue to highlight in customer conversations and one we expect will accelerate adoption over time. Turning to new technology developments and customer activity. In aerospace and defense, we continue to demonstrate the depth and durability of our position this quarter. As a reminder, Stratasys has deployed thousands of systems across aerospace and defense production environments worldwide. We serve as a program of record for the U.S. Air Force and NAVAIR. Our technology is embedded across active platforms from C-17 microvanes that save an estimated $14 million annually in Air Force fuel costs to certified flight-ready parts produced for the world's leading aircraft manufacturer. Stratasys Direct, our parts manufacturing division, ships over 100,000 parts annually to the defense industry and operates under certified quality systems, including AS9100, ISO 9001, CMMC compliance and ITAR requirements. This is not prototype stage or pilot stage engagement. This is production scale additive manufacturing at operational tempo for the most demanding customers in the world. Against that backdrop, our selection in the first quarter for the U.S. Department of Defense's Joint Additive Manufacturing Acceptability IV pilot parts program is a meaningful endorsement. JAMA IV is a multimillion-dollar initiative to accelerate the qualification and deployment of 3D printed parts across military platforms and Stratasys Direct was selected on the basis of its proven production role across thousands of active military systems. The program positions us to extend our share of U.S. defense additive spending, a budget which surged 83% for fiscal year 2026 and continues to flow into qualification and deployment for the Department of Defense. More broadly, our customer engagement across leading aerospace contractors and OEMs remains substantive with use cases advancing through qualification pipelines from production tooling to certified flight-ready components. These cycles are long, but the outcomes generate durable recurring demand, anchored in certification and workflow integration, exactly the kind of revenue profile that strengthens our business over time. And we are seeing continued momentum in high reliability aerospace applications with thousands of parts in orbit, leveraging our materials. In fact, on the recent Artemis II moon mission, hundreds of components produced with Stratasys Antero materials on our FDM system were flown, highlighting the maturity and scalability of additive manufacturing in space systems. This is a strong validation of the high-performance applications of our materials and our position in mission-critical environments, reinforcing the growing role of additive in next-generation space and defense platforms. In Dental, we reached an important regulatory milestone. TrueDent Resin received CE Class IIa medical device certification, making TrueDent the first polychromatic monolithic 3D printed denture solution certified at this classification in Europe, a segment projected at $2.45 billion by 2028. This upgrade from the prior CE Class I designation extends TrueDent's indications to include long-term intraoral removables and crowns and bridges, broadening the range of restorative cases dental laboratories can address through a single integrated digital workflow. CE Class IIa is a regulatory classification clinicians and laboratories routinely expect for restorative dental materials. Achieving it removes a meaningful adoption barrier, strengthens biocompatibility and safety confidence for clinicians and patients, and positions Stratasys to deepen penetration across European dental labs and clinics as digital denture production scales. Importantly, the transition to Class IIa requires no change to print settings, formulation, workflow or shelf life on our J5 DentaJet platform, making this a frictionless expansion of our commercial reach in regulated European regions. We believe we are building the commercial and regulatory foundation for meaningful growth in this vertical. On the material and software side, we continue to invest in expanding what our installed base can do. ULTEM 1010 resin is now available as filament for the F3300 printer, enabling the production of aerospace-grade high-temperature parts with the lowest coefficient of thermal expansion in our FDM portfolio. Optimized for composite tooling applications, ULTEM 1010 on the F3300 allows manufacturers to produce precision fixtures and tools that maintain reliability in demanding environments and to do so faster at lower cost per part relative to prior configurations. And on our PolyJet systems, we recently expanded TUF1 to be available on the J3 and J5 series. TUF1 is an advanced material engineered for strong, durable functional prototyping as well as end-use parts. Materials extensions like these are designed to further drive consumable attach rate and deepen application coverage. On the software side, measurement-based warped adaptive modeling has been integrated into GrabCAD Print Pro, using measured dimensional data to automatically correct warping on the Origin P3 platform. For complex parts like electrical connectors, precision jigs and industrial fixtures, this eliminates the iterative correction cycles that have historically added time and cost, and it delivers a meaningfully better experience for customers scaling production on our DLP platforms. With that, I will turn the call to Eitan to review our financials. Eitan?

Eitan Zamir, Chief Financial Officer

Thank you, Yoav, and good morning, everyone. Our first quarter results reflect continued execution against the operational priorities we established at the start of the year. In an environment where customers remain deliberate on capital spending, we maintained adjusted EBITDA profitability and generated positive operating cash flow, outcomes that reflect both the structural improvement embedded in our cost model and the stability of our recurring revenue base. Let me get into the details. First quarter consolidated revenue was $132.7 million, down approximately 2.4% year-over-year. Product revenue in the first quarter was $88.8 million compared to $93.8 million in the same period last year. Within product revenue, system revenue was $28.8 million compared to $31.2 million in the same period last year. Consumables revenue was $60 million compared to $62.6 million in the same period last year. Service revenue, which includes Stratasys Direct, was $43.9 million compared to $42.2 million in the same period last year, driven by 23% organic growth after divestments in Stratasys Direct as compared to the first quarter of 2025. Within service revenue, customer support revenue was $29.7 million compared to $30 million in the same period last year. Now turning to gross margins. GAAP gross margin was 41.7% for the quarter compared to 44.3% for the same period last year. Non-GAAP gross margin was 46.3% for the quarter compared to 48.3% in the same period last year. The change was primarily due to the 180 basis point impact of $2.4 million of year-over-year incremental tariff expense as well as from lower revenue. While we typically do not reference sequential margin improvement, we believe that despite the reduction in revenue from the fourth quarter, margins were sequentially flat, marking a positive mix efficiency. GAAP operating expenses were $81.9 million compared to $72.6 million during the same period last year. The rise in expenses was primarily due to an increase in professional fees and the impact of foreign currency exchange due to the significant appreciation of the new Israeli shekel relative to the U.S. dollar. Non-GAAP operating expenses were $64.6 million compared to $62.6 million during the same period last year. The increase was primarily due to the impact of foreign currency exchange rates given the increased strength of the shekel against the dollar of approximately $3.1 million. Regarding our consolidated earnings, GAAP operating loss for the quarter was $26.5 million compared to a loss of $12.4 million for the same period last year. Non-GAAP operating loss for the quarter was $3.2 million compared to operating income of $3 million for the same period last year. Adjusted EBITDA was $2 million for the quarter compared to $8.2 million in the same period last year. The change in both was primarily due to the impact of approximately $5.3 million of FX and tariff pressures. GAAP net loss for the quarter was $23.8 million or $0.28 per diluted share compared to a net loss of $13.1 million or $0.18 per diluted share for the same period last year. Non-GAAP net loss for the quarter was $1.3 million or $0.01 per diluted share compared to a net income of $2.9 million or $0.04 per diluted share in the same period last year. From a cash flow perspective, we generated $2.4 million in operating cash flow in the first quarter, reflecting working capital discipline and the structural cost improvements we've embedded over the past several quarters. This builds on the $15.1 million in operating cash flow we delivered for the full year of 2025, and we remain confident in our ability to expand cash generation as revenue scales through the year. We ended the quarter with $237.8 million in cash, cash equivalents and short-term deposits. Our balance sheet remains strong and debt-free, providing the financial flexibility to continue investing in technology, market development and inorganic opportunities to drive further growth. Regarding our outlook for 2026, our first quarter performance is consistent with the framework we established at the start of the year, and we are reiterating the full year guidance we provided on our last call. Revenues are expected to range between $565 million to $575 million, growing sequentially each quarter through the year, and we expect 2026 consumable revenue to increase over 2025. Please refer to the press release or slide presentation for further details. With that, let me turn the call back over to Yoav for closing remarks. Yoav?

Dr. Yoav Zeif, Chief Executive Officer

Thank you, Eitan. Coming out of the first quarter, our customer engagement continues to increase, and our deal pipeline for 2026 and beyond continues to build, especially in defense. The strategic progress we shared today reinforces the trajectory we plan for tomorrow. Our solutions for the defense industry are no longer just emerging, but are established, certified and operating at scale across active military platforms. We have increased access to multibillion-dollar regulated European dental verticals. With a product already proven and deployable without workflow disruption, supported by positive operating cash flow and a debt-free balance sheet, we have built multiple opportunities to generate profitable growth, both through inorganic and organic opportunities, focusing on our position in high-requirement use cases as we capitalize on the increased demand for additive manufacturing solutions. With that, let's open it up for questions. Operator?

Operator, Operator

Operator provided instructions on how participants may ask questions. Our first questions come from the line of Greg Palm with Craig-Hallum.

Jackson Schroeder, Analyst (on behalf of Greg Palm, Craig-Hallum)

This is Jackson Schroeder on for Greg Palm. I wanted to start on this defense opportunity, everyone obviously seeing the top line budget request. Curious if you could really talk on opportunities, particularly outside of drones with what's happening in Iran and ammunition replenishment. There's a lot of opportunities here as well as the JAMA IV program. So I just want to get some more color on that.

Dr. Yoav Zeif, Chief Executive Officer

Thank you, Jackson, for the question. Let me take a step back and talk a little bit about aerospace and defense because this is, frankly, a leading vertical today with a very promising pipeline. When we look at aerospace and defense, what we are experiencing is part of what's going on in the industry. Practically, aerospace and defense is going through transformation globally, not only in the U.S. The transformation is both in terms of the increased budget, like numbers that we haven't seen in the past, and also new solutions like drones, but also ammunition, missiles and others. So we see it across the board, not only in drones. We have, for example, parts in missiles, which are a very strong growing area in defense. No doubt that additive manufacturing is playing and will play a major role in this transformation because we deliver things that no other advanced manufacturing methodology can. We are more agile. We are where you need to produce. We are versatile. We secure the supply chain, and we can deliver lightweight geometries that no other manufacturing methodology can. Put all this together and Stratasys is in a strong position to benefit from this transformation because we worked on this for years. We have relationships with the Department of Defense and the large OEMs. Practically all the leaders in defense are sitting in our customer advisory board, and they are having an impact on our R&D as well, so they know what we are developing for them. On top of that, we have relationships with key bodies that are adopting additive like NAVAIR, the U.S. Air Force and others. So we are talking here about a very strong position that is also supported by our Stratasys Direct business. Stratasys Direct grew 23% year-over-year, led by drones, but also other applications. We are in munitions and in sustainment. Sustainment is major for us. For example, take a legacy aircraft that needs to fly for the next 20 years; it will be nearly 100 years old over its lifecycle. We are there. We're already part of sustainment programs in the U.S. When you look at Stratasys Direct, our SDM unit, this is the best indicator you can have for demand for OEM machine solutions in the future because the parts business is practically indicating what the customers will adopt internally in the future. The first thing they do is order parts. So we see it across the board. Back to your question, we see it across different applications; drones are leading because this is a clear example of the transformation of this industry. And you can see it also in the numbers. If I remember right, the U.S. Department of Defense is asking for a large increase in its budget for 2027, which includes a substantial allocation for advanced digital manufacturing; additive will have a major part here. We are excited about it. We are working with everybody and we have more confidence in our pipeline in aerospace and defense.

Operator, Operator

Our next questions come from the line of Trevor Sahr with William Blair.

Trevor Sahr, Analyst (William Blair)

This is Trevor on for Brian. I wanted to stick with A&D, if we can here. I'm trying to square your opportunity with some of your largest A&D customers on production versus prototyping. It would be helpful to hear any kind of detail you could give or examples. You don't have to name a customer, obviously, but how should we think about your development with some of these largest customers and where you are in your business with them on a production versus prototyping standpoint?

Dr. Yoav Zeif, Chief Executive Officer

Great question, Trevor. Currently, we are focusing on manufacturing. The main areas are the drone transition or drone dominance, sustainment, and everything related to maritime and catching up on the ability to renew fleets. The main indicator now is Stratasys Direct. We shipped over 100,000 production parts annually, and we have never seen this level of demand in defense before. We are working through different routes to market. One is through government channels. We are very strong with the U.S. government and other governments globally because we have the reputation, and we see large programs that are being built with allocated budgets. The majority of this demand is for production parts, not prototypes. We also see demand for tooling because when you need to refresh or renew a depot, you need many tools, same with shipyards. The fastest way to have tools is to print them. Tooling is a major area now in defense because you need to put new production lines in place, and additive manufacturing is the quickest way to equip those lines with tools. This is not only a U.S. phenomenon; it is global. It's the strongest demand we see in the U.S., but we see increasing budgets and programs in Europe, Japan and elsewhere. We have strong solution lines that match high-requirement demands.

Trevor Sahr, Analyst (William Blair)

That's great. I wanted to switch back over to Dental. You gave some great detail there on the European market and that you project it to be $2.45 billion by 2028. I'm just trying to get a sense of what your specific opportunity is in the European 3D printed removable market. And maybe if you could give any kind of indication of where you expect your share might be within that market by 2028.

Dr. Yoav Zeif, Chief Executive Officer

The dental market is one of the leading industries in adopting additive manufacturing because of the ability to personalize quickly. Traditionally, the dental market is labor-intensive, and we are bringing solutions that solve two major issues: the lack of professional labor and dramatically reducing chair time for the doctor or clinic. Chair time is extremely valuable to a dentist. Our removable solutions, including dentures and night guards, focus on restorative dental using our PolyJet technology. It is the only multi-material technology for dental applications that enables parts other technologies cannot deliver. We are already established in the U.S. with leading partners like Affordable and Glidewell, and we plan to grow to be the largest player in Europe because we have the first-mover advantage as the first player with polychromatic dentures that received the Class IIa certification. This is a great position and opens up new applications like partial dentures and crowns and bridges, where we will see growth.

Operator, Operator

Our next questions come from the line of Alek Valero with Loop Capital Markets.

Alek Valero, Analyst (Loop Capital Markets)

Yes, just kind of on that same point on TrueDent. So you projected the European segment at $2.45 billion by 2028. I wanted to ask, did this certification come sooner than you were expecting? And what is the likelihood that we could see more certifications down the road? And how would that expand your TrueDent opportunity? And additionally, a clarification question: Is the $2.45 billion in addition to the American market?

Dr. Yoav Zeif, Chief Executive Officer

The $2.45 billion is an analyst projection for the European market. With TrueDent, the certification will allow us to enter new applications we were not in before, like partial dentures and crowns and bridges, and we have first-mover advantage there. In the U.S., the removables opportunity is larger, roughly approaching $5 billion when you look at removables. We're at the beginning; we are improving materials, machines and workflows. We are building the foundation and the best offering for restorative dental, and once we have this foundation we expect to experience exceptional growth.

Alek Valero, Analyst (Loop Capital Markets)

Just a quick follow-up. Two quarters ago, you mentioned a large tech company that bought some F3300s. Any update there? And any color on what potential applications they could be using these products for?

Dr. Yoav Zeif, Chief Executive Officer

Unfortunately, we cannot share details about that customer. But I want to share a perspective that connects today's questions. We are progressing according to our growth plan, the plan we shared last quarter. Q1 is often softer and H1 tends to be softer than H2, but H2 is expected to be defense-driven. We are maintaining our guidance and we are on plan. This will be the first year in three years that we will grow. Our transition plan from prototyping to manufacturing that we also shared in the past will generate growth this year. Our transition is working.

Operator, Operator

Our next questions come from the line of Kieran McCabe with Cantor Fitzgerald.

Kieran McCabe, Analyst (Cantor Fitzgerald)

It's Kieran on for Troy Jensen. You mentioned that customer engagement continues to be strong or increasing, but customers are maintaining capital discipline. Can we read any insight into the Stratasys Direct organic growth that may be a precursor to an inflection in system sales in the future at all? And my follow-up is that you have a strong balance sheet, no debt, cash on hand. You talked about taking advantage of inorganic opportunities. Can you provide any color on where you see areas you'd want to add to, or areas of interest on the inorganic side?

Dr. Yoav Zeif, Chief Executive Officer

Hi Kieran, thanks for the question. As we mentioned earlier, the parts business is an indicator of OEM behavior. When we print parts, the cycle is quick and we can see growth relatively soon. We demonstrated 23% organic growth in Q1, which supports our confidence in the ability to see hardware and OEM business growth as the strong pipeline develops for the second half. We expect Q2 revenue to be similar to Q2 2025 levels. Regarding inorganic opportunities, we aim to leverage our balance sheet to capture acquisitions that strengthen our position in high-requirement use cases, because that is our strategy. We focus on high-value, high-requirement applications, not basic prototyping where competition becomes a race to the bottom. There are plenty of inorganic opportunities in those areas, and that is the direction we will pursue. It is aligned with our strategy and we will capture those opportunities.

Operator, Operator

We've reached the end of our question-and-answer session. I'd now like to hand the call back over to Dr. Yoav Zeif for any closing comments.

Dr. Yoav Zeif, Chief Executive Officer

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

Operator, Operator

Ladies and gentlemen, thank you so much. This does conclude today's teleconference. We appreciate your participation. You may disconnect your lines at this time and enjoy the rest of your day.