Stratasys Ltd (SSYS) 2009 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to Stratasys' first quarter 2009 earnings conference call. My name is Mary, and I will be your coordinator for today. (Operator instructions.) As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the presentation over to your host for today's call, Mr. Shane Glenn, Director of Investor Relations. Please proceed.

Good morning, and welcome to the Stratasys' conference call to discuss first quarter financial results. Representing Stratasys' Executive Management on the conference call today is the Chairman and CEO of Stratasys, Scott Crump, and CFO, Bob Gallagher.

A quick reminder that today's conference call is being transmitted over the web and can be accessed through our Investor Section of our website at stratyasys.com.

We will begin with the Safe Harbor statement. All statements herein that are not historical facts or that include such words as, "expects, anticipates, projects, estimates, envision, planning, or believes," or similar words constitute forward-looking statements covered by the Safe Harbor Protection of the Private Securities Litigation Reform Act of 1995.

Except for the historical information herein, the matters discussed in this news release are forward-looking statements and involve risks and uncertainties. These include statements regarding projected revenue and income in future quarters, the size of the 3D printing market, our objectives for the market and sale of our Dimension 3D printers and our Fortus 3D productions systems, particularly for use in direct digital manufacturing, the demand for our proprietary consumables, the expansion of our paid parts service, and our beliefs with respect to the growth in demand for our products.

Other risks and uncertainties that may affect our business include 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 produce and market new materials such as ABSplus and ABS-M30 and the market acceptance of these and other materials, the impact of competitive products and pricing, our timely development of new products and materials and market acceptance of those products and materials, the success of our recent R&D initiative to expand the DDM capabilities of our core FDM technologies, and the success of our RedEye OnDemand and other paid parts services.

Actual results may differ from those expressed or implied in our forward-looking statements. These statements represent beliefs and expectations only as of the date they are made. We may elect to update forward-looking statements but we expressly disclaim any obligation to do so even if our beliefs and expectations change.

In addition to the statements described above, such forward-looking statements include the risks and uncertainties described more fully in our reports filed or to be filed with the Securities and Exchange Commission, including our Annual Reports on Form 10-K and Quarterly Reports on Form 10-Q.

The information discussed within this conference call includes financial results that are in accordance with US Generally Accepted Accounting Principles or GAAP. In addition, non-GAAP financial measures are included that exclude certain expenses.

Non-GAAP financial measures are provided in an effort to give information investors may deem relevant to the Company's operations and comparative performance, primarily the identification and exclusion of expenses associated with an impairment charge for certain auction rate securities, restructuring expenses, and the expenses associated with stock-based compensation required under SFAS 123R

The Company uses these non-GAAP financial measures for evaluating comparable financial performance against prior periods. The appropriate reconciliations between non-GAAP and GAAP financial measures are provided in a table at the end of our press release.

Now, I'd like to turn the call over to our CEO, Scott Crump.

Good morning, and thank you for joining us to discuss our first quarter financial results. The first quarter represented a challenging economic environment for our Company. Market conditions deteriorated significantly from levels observed in the fourth quarter of last year.

The global slowdown impacted all of our businesses as customers reduced capital budgets with the start of the new budget cycle in January of this year. Despite these unprecedented conditions we generated $3 million in cash flow from operations during the first quarter. In addition, we maintain a healthy balance sheet, with close to $50 million of cash and short-term investments. I believe that we are the most stable company within our industry.

Our new product and branding initiatives have been well executed. Our introduction of the world's first personal 3D printer, the uPrint, has been a success. And we have successfully implemented a new distribution model for our Fortus 3D production systems in North America. We believe that we are well positioned for when the global economy rebounds.

I'll return later to update you on some of these initiatives, but first I'd like to turn the call over to our CFO, Bob Gallagher, who will further highlight our first quarter results. Here's Bob.

Thank you, Scott.

Total revenue declined by 25% to $23.1 million for the first quarter of 2009, compared to $30.7 million for the same period last year. The Company shipped 591 systems during the first quarter versus 577 last year.

Market conditions deteriorated significantly in the first quarter compared to conditions observed in the fourth quarter of last year. Although we experienced strong sales of our new uPrint 3D printer, sales of our higher priced 3D printers and Fortus 3D production systems fell significantly.

First quarter product revenue declined by 32% to$17 million when compared to $25.1 million for the same period last year. Three main factors impacted our product revenue growth in the first quarter.

First, revenue from Fortus 3D production systems declined by 62% when compared to last year. This was a result of the relatively low backlog coming into the first quarter, combined with a precipitous drop in order activity.

With the start of a new capital budget cycle in January, our customers have reacted to the weak economic conditions by reducing design and engineering resources. This has had an impact on sales activity, as well as system usage during the first quarter.

Second, although 3D printer units increased 11% during the first quarter, 3D printer revenue declined by 34%. Sales of our new uPrint 3D printer were strong but total 3D printer sales continued to be impacted by the weak global economy. Customers gravitated to the lower priced uPrint, which represented 66% of all 3D printer units sold during the quarter.

Sales of our higher priced Dimension Elite and 1200 FST were down 72% over last year. While there was most certainly some cannibalistic affect of introducing the lower priced uPrint we believe the overriding factor impacting our 3D printer business is the weak global economy.

Lastly, our consumable revenue was down 6% during the first quarter, as our users have cut-back on design and engineering resources. To give you an example, one of our larger automotive customers that maintains several machines, idled their equipment for four months in response to the current economic environment.

First quarter service revenue increased by 11% to $6.2 million compared to $5.6 million for the same period last year. Our maintenance revenue increased by 14% for the first quarter compared to last year. The growth in maintenance revenue is less susceptible to the current economic environment, given that the revenue is generated from contracts signed in the prior periods.

Revenue in our RedEye paid parts business grew by 3% in the first quarter. Growth in the paid parts business was negatively impacted by an aggressive pricing environment, as small competitors are fighting for their survival in this difficult economy.

Gross profit declined 45% to $9.6 million for the first quarter of 2009, when compared to the same period last year. Gross profit as a percentage of sales declined to 41.4% compared to 56.5% for the same period last year. A factor driving our decline in gross profit percentage versus last year was the impact of our fixed costs being allocated over a relatively lower total revenue for the quarter.

In addition, the decline in gross profit percentage was driven by a significant shift within our 3D printer business as we began shipping the uPrint 3D printer and sales of our higher priced 3D printers declined significantly.

As you'll recall, our 3D printer mix last year favored our higher priced, higher margined 3D printers. The uPrint represents 66% of all 3D printers shipped in the first quarter, and although we continue to generate solid gross profit margin on uPrint system sales, the system represents our lowest margined 3D printer.

We are working on initiatives that we expect will reduce the material cost of uPrint 3D printers by 15% before the end of this year. It's important to emphasize that we believe the uPrint can significantly expand our installed base of systems going forward, which bodes well for future sales of high margin consumable revenue.

We have an operating loss, including discrete items of $1.6 million for the first quarter of 2009, compared to our profit of $5.5 million for the same period last year. Operating expenses including discrete items declined by 6% to $11.2 million during the first quarter compared to last year.

We are pleased to announce our research and development collaboration with an unnamed Fortune 500 company has been extended for additional development projects. The original contract was announced in 2005 and was successfully completed last year. The new agreement includes incremental research and development commitments aimed at advancing our proprietary FDM technology for direct digital manufacturing applications.

The first quarter of 2009 included a restructuring charge totaling $779,000, and is a result of headcount reductions that were taken in the first quarter. The restructuring expense net of tax was approximately $512,000 or $0.03 per share. We believe headcount reductions taken in the first quarter will amount to $2.7 million in annualized savings for our Company.

SG&A expense in the first quarter this year included $251,000 of stock based compensation expense required under Statement of Financial Accounting Standards, or SFAS 123R, compared to $315,000 for the same period last year. Stock based compensation expense net of tax was $197,000 or $0.01 per share in the first quarter compared to $261,000 net of tax or $0.01 per share for the same period last year.

A table within our press release provides itemized details surrounding non-GAAP items included during both periods.

Our pretax loss including discrete items was $1.1 million for the first quarter of 2009, compared to a profit of $5.8 million for the same period last year.

Total interest and other income for the quarter increased to $537,000 from $297,000 last year.

Income taxes as reported amounted to a benefit of $367,000 in the first quarter or an effective tax rate of 34.3% compared to $2 million expense for the same period last year or an effective rate of 34.5%.

We incurred a loss of $704,000 for the first quarter of 2009 or $0.03 per share, compared to a profit of $3.8 million or $0.18 per share for the same period last year.

Excluding stock based compensation expenses, as well as all other non-GAAP items, net income was a profit of approximately $5,000 in the first quarter of 2009 compared to a profit of $4.3 million or $0.20 per share for the same period last year.

Our diluted shares outstanding declined by 1.3 million from the first quarter last year, a result of our lower stock price, as well as significant share repurchases made in 2008. Despite the loss reported for the first quarter we generated positive cash flow from operations of $3 million during the period.

Our cash and investment position amounted to approximately $49.4 million at the end of the first quarter compared to our approximately $47.7 million at the end of fiscal 2008.

We have no debt on our balance sheet.

Inventory balances were $20.2 million at the end of the first quarter, which was flat with the $19.9 million at the end of the fiscal 2008. Our inability to reduce our inventory balances was principally a result of a more robust sales forecast relative to realized sales in the first quarter. However, we remain confident we will significantly reduce our inventory balance in 2009.

Accounts receivable at the end of the first quarter was $23.7 million compared to $26.5 million at the end of fiscal 2008, and the $30.1 million at the end of the first quarter last year.

Days sales outstanding, or DSO, was 90 days compared to 89 days at the end of the first quarter last year.

And, now, I would like to turn the call over to our Director of Investor Relations, Shane Glenn, for further comments regarding our outlook.

Thank you, Bob.

We appreciate the need to provide financial guidance to our shareholders and investment community, but based on the current economic environment, Stratasys is currently not providing financial guidance for the fiscal year ending December 31st, 2009.

Although we've performed well during periods of economic weakness in the past, we are currently operating in an environment with unprecedented economic volatility and uncertainty. This uncertainty combined with the many changes in our go-to-market and product strategies over the past few months make visibility in 2009 extremely difficult.

However, qualitatively, we are observing similar market conditions in the second quarter when compared to the conditions we observed in the first quarter of this year. We will continuously reevaluate our position and provide you with updates as conditions change and our visibility improves.

And, now, I'd like to turn the call back over to Scott Crump.

Despite the challenges presented by the economy, our vision has not changed and we remain passionate in executing our plan and attaining our goals. Our new distribution model in North America has been successfully implemented, with all Stratasys' systems now distributed through an indirect channel worldwide.

Because the uPrint is proving to be robust and reliable as a product, we believe that it appeals to a broader network of resellers, and expanding uPrint distribution will be a priority in coming quarters.

In addition, we believe our new distribution structure will make the most of our repositioned Fortus line and our new DDM initiatives now that we have expanded our sales feet on the street by about fourfold in North America compared to our previous direct sales force.

We remain optimistic about our DDM business for the year, and we remain excited about our new branding and product strategies that target these new applications. For instance, we shipped a 900 MC system to Rapid PSI in Wichita during the first quarter. Now, Rapid PSI is focused on conducting prototype development, as well as short production runs or DDM for the aerospace industry.

The company is offering fabrication and assembly tools, as well as in use parts with our new ULTEM material. If you recall, our recently introduced ULTEM material is a lightweight and flame retardant material widely used on the interiors of commercial aircraft for things such as environmental control ducts, construction panels, and various interior cabin components.

Although our Fortus 3D production system sales declined versus last year, we're also building a pipeline of opportunities that will contribute to accelerated growth when the economy conditions improve.

We've been pleased with the market's response to our new personal 3D printer, the uPrint, following its successful introduction in January. The uPrint represents a significant inflection point at $14,900 in our long-term strategy to make our printers more affordable. The uPrint is a full product CAD solution that has widened our lead over competition by improving on system functionality, reliability, ease of use and office compatibility.

Although overall sales of our 3D printers have been disappointing, uPrint sales have been strong, and we believe this new product represents a significant milestone for our Company. Despite the current economic environment, we remain passionate in our long-term vision to accelerate the adoption of 3D printers among designers and engineers worldwide, and we are confident that our strategy will meet that goal.

What we'd like to draw your attention to, several promotional videos that we recently added to our Corporate website, including the Dimension 3D printer application with Jay Leno at Jay Leno's Garage, which is a very interesting place to tour with Jay. The web address for these videos can be found on today's press release.

Our RedEye paid parts and system consumable businesses were also impacted by the weak global economy during the first quarter. Although our paid parts business grew slightly over last year, it was negatively impacted by an aggressive competitive environment, as Bob mentioned, as many paid parts competitors are fighting for their very survival.

Our consumables business felt the impact of a decline in system usage, as our users have cut-back on design and engineering resources in this difficult economy. But we believe these trends are temporary and will reverse with an eventual rebound in the markets that we serve.

The near-term outlook continues to suggest a difficult market environment, as Shane has mentioned. And, as Bob outlined, we have taken additional steps to reduce our operating expenses. However, the strong value proposition for our product and services has not changed, nor our long-term outlook and strategy for growth.

But before we open up the call for questions, I want to reiterate something that I said earlier about our plans for 3D printing. We believe that we have a great product and a great market opportunity, and we recognize the need to expand our distribution to meet our goals, and we are working diligently on this plan.

Okay, I'll return with some closing comments, but, first, I'd like to address any questions that you might have. Operator, let's open up the call for questions.

(Operator instructions.)

Our first question comes from the line of Troy Jenson, Piper Jaffray.

Good morning, gentlemen.

Good morning.

Good morning, Troy.

Hey, Scott, quick for you, do you think that changing you guys' distribution strategy for the high end sales impacted Q1, at all?

Well, I think any change impacts. I think there's probably as much up side by going to their network as there was in the transitional downside. But I think, as Shane pointed out, the primary affect is the economy, the economic impact on our business.

Okay, and then shifting gears here, you guys talked about this expanded R&D relationship with the unnamed Fortune 500 company, could you just give us any insight as to what are the development milestones? Are they looking for faster systems, bigger parts, better accuracy, and what's--?

Speed of the systems is an incremental part of some of the efforts being done, along with some other confidential pieces to it.

All right. I'll get out of the queue guys. Good luck going forward.

Troy, just as one quick follow-up on the, your first question, you know, when you look at our international revenue, our international revenue was down significantly more than our domestic revenue in the quarter, and as you know the distribution change was a domestic change.

All right, got it. Good luck, guys.

Thanks.

You have a question from Eric Martinuzzi, Craig-Hallum

Hi, it's Eric Martinuzzi from Craig-Hallum. I'm wondering about the inventory -- it sounds like your inventory levels at the Corporate level are under control, what about within the channel with your distribution partners? Are they -- are you seeing any reorder patterns from the initial, let's say, uPrint, in particular, are you seeing that flowing through to end users or is there still a lot at the VAR level?

Well, Eric, I think in our history when we introduce a new product and we have people together at resellers meetings that we have what we refer to as a big tent sale, and usually during those times we see an increase of inventory at the reseller locations. I don't think Q1 was any different of that. We've seen continued orders in Q2 for uPrint, so there's a flow through. But typically in quarters where we introduce a product we do see some increase in inventory in the channel. That's pretty normal in our business.

And for the high end systems, the same question, has there been given the dramatic falloff in high end is -- are you seeing continued order flow through for those new VARs in North America, in particular?

Yes, I don't think we've seen any substantial difference between the VARs in North America relative to the rest of the world.

Okay, the $23.1 million that you guys report in Q1, your commentary about the current quarter is that things haven't changed dramatically, that Q2 sounds like it's going to suffer from the same macroeconomic issues that Q1 did. What variables in either the services or the systems side, product or the services side, could we see that would change that revenue line significantly?

I, you know, given the weakness in the economy we're not giving -- we've tried to give you some color around Q2, other than that we're not going to give guidance related to Q2 or the remainder of 2009, it's just too volatile.

Okay, thanks.

Thanks.

Your next question comes from Jim Ricchiuti from Needham & Company.

Thank you. Just a question as it relates to, as you guys do begin to see signs of recovery, would you anticipate it showing up first in the paid parts business in the consumables? Just kind of curious, how you would -- you might see that unfolding?

Yes, Jim, I don't know, that's a good question. I mean I think that the -- my first, my gut reaction would be to say that we would first see it in the consumables, you know, we could see a rebound in the consumable sales, but then again we have some pretty quick, or some short lead-times on 3D printing, as well, so we could see it there. I think, obviously, our longer lead-time products at the high end may take a little bit longer, but that's just speculation.

Okay, and I wonder if you could be a little bit more specific in terms of the geographic breakdown of the revenues? I'm just curious, you mentioned international down more than domestic, can you elaborate on that a little bit more?

Yes, we saw approximately a 9% decline on our domestic revenue year-over-year and a 41% on the international. One of the things that impacts the year-over-year comparison, though, is the backlog coming into both of those quarters. Our backlog at the end of 2007 coming into the quarter was about $5.7 million, and at the end of -- coming into this quarter was about a $2.6 million.

The majority of that $5.7 million last year was international systems, so we saw a greater weakness on the international side than we did, but it's not because of the backlogs coming into the quarter, it slants it a little bit more than -- and it doesn't really give you a complete clarity of it. We saw specific weaknesses in the [Azianne] region in India, as well as in Asia. Europe was reasonable.

Okay, thank you.

Your next question comes from the line of Clint Morrison, Feltl and Company.

Now, hey, guys, you referenced the weakness in consumables and you put out a suggestion that one customer had idled equipment. How much of that weakness do you think was sort of customers not using the machines versus taking down their own inventory? And do you think that that sort of inventory depending on the consumables side is largely done or where are we at there?

Well, there's certainly multiple affects. The primary affect is less engineers working on the projects and less projects. And it doesn't seem to be only focused in one region, it seems to be across the board. Now, of course, when you're doing product development you do see cycles, but I think that there's the fact that there's today a bit less engineers doing development projects.

But then I think, to your point, there's always in order to do business offshore and to fully serve the customers there's always going to be some small amount of inventory at mainly distributors, but I think the primary affect is less usage because of simply less projects going on.

Okay, and can you just comment -- the press release indicated sort of further cost cuts coming in the second quarter, can you comment as to sort of the magnitude of those, or--?

No, not, at all. No, we were talking about cost reductions that actually were made in the first quarter. I think I just wanted to clarify that.

So there aren't plans for further cost reductions in the current quarter?

No, we had done cost reductions in Q1 that we said should generate about $2.7 million in annualized savings from headcount reductions that we did in Q1.

Okay, thank you.

You have a question from Brian Drab of William Blair.

Good morning.

Good morning.

The first question is just on the end markets that you might be seeing some, you know, relative strength in. It sounds like there are at least a moderate level of sales for the uPrint, can you give us an idea of what end markets that's being sold into?

As we've looked across the markets, segments that we've seen, is that it -- our business relative to the segments that we talked about historically we haven't seen a significant change in the makeup of our markets. We looked at that closely, and it seems that the drop in sales is really across all of the verticals that we usually serve. A reverse trend would say that the uPrint has been selling into those same verticals on a relatively similar scale to what we've seen in the past.

In addition to the commercial, as you know, we also sell into education, and that was consistent, it was about roughly a third of the 3D printers which is our -- historically that's where we've been with the education.

Okay, and then one more question on the cost savings that you're expecting from restructuring, can you give us any specifics as to what type of impact you're going to see in the cost of goods or on SG&A going forward, at least maybe a range of what type of decline in absolute dollars you'd expect?

Of that, as I said, the annualized savings from that would be approximately $2.7 million. The -- it's probably the vast majority of that savings was in the SG&A area.

Okay, thank you very much.

Okay.

The next question comes from the line of Steve Denault, Northland Securities.

Good morning, everybody. Can you repeat the year-over-year change, both a unit volume and a dollar basis for Fortus and 3D dimension printers?

3D printer revenue declined by 34%. And --

Give us a minute here.

-- Fortus declined by 62% from a product revenue.

Okay, what about the unit volumes?

The unit -- we didn't give a unit volume as it relates to Fortus because remember there's such a variation in the products within there that it -- that the individual units can be misleading. We did say that for -- that we had a unit increase of 11% within our 3D printer business, as it was heavily focused on the uPrint. In overall systems we said we're 591 systems versus 577 systems last year.

Okay, and the final question, you make reference in terms of really being serous about expanding distribution for uPrint, how should we think about that? Is this out of the box kind of distribution or adding resellers, how should we think about that?

We're, you know, we're looking at multiple ways to expand, including looking at our reseller base, as well as some nontraditional ways. Because the uPrint really will lend itself to a different model than we've had before. We can sell through resellers that don't have any experience with hardware before, like the CAD software people, because it's a robust product and we have a third-party service model that previously we didn't have available. So we're looking at a lot of different avenues because our long-term goal is to have a very significant expansion in our system sales.

Steve, frankly, we wanted to really assess the capabilities of uPrint in the field with our existing network, prior to aggressively going after any additional resellers. The uPrint has proven to be a very robust product, and as you recall we had a new service model with that product, as well, and that is working as planned. So our focus now is going to be on expanding our distribution reach for that product.

Okay, thanks much.

You have a question form Andy Schopick, Nutmeg Securities.

Thanks, good morning, gentlemen. Bob, I've got a question for you, and then one for Scott.

On the gross margin can you quantify to any degree how much of this decline could be directly attributed to poor overhead absorption issues as opposed to product mix?

Yes, Andy, I would say that if you look at our cost of sales within the quarter probably 20% of it, 20% of our cost of sales was in the fixed category.

20% in fixed category?

Yes.

Okay, and also, Scott, with respect to the sales strategy at this point, actually, Bob may want to answer this, as well -- I'm wondering how much of your sales were direct in 2008 and can we assume that substantially all sales are going to be indirect in '09?

Yes, all of our sales globally with a system sales are indirect through the channels, we sell direct with RedEye. Of course, a lot of that's through the internet, and we of course continue to do some direct sales on consumables, this would be legacy consumables.

But on the system side everything is going to be indirect in '09?

That is correct.

What was the direct component of the system sales as a percent of revenue last year?

In terms of overall system sales, Andy, last year it would have only been the Fortus systems in North America, and I would say that that was probably 15% to 20% of the overall system sales.

Okay, thank you.

You have a question from Jeff Evanson, Dougherty & Company.

Good morning, gentlemen.

Good morning.

I was wondering if you could talk a little bit about how much uPrinter, how many uPrinter systems you have in finished goods inventory? And then I'd like it if you could give me some detail around how and when you'll be able to get the uPrinter [bond] down 15%, please? Thank you.

In terms of uPrints in finished goods inventory at the end of the quarter, we had very little as it related to uPrint, as the uPrint was a very good seller in Q1.

I'd say we had unfilled orders, too, right?

Yes, and it is some of our backlog. But as we look at the build of materials we've got specific areas within the uPrint that -- initiatives that we're going after, and I said that we'd be able to reduce the cost, the material cost of the uPrint by 15% during -- by the end of the year, that's going to come incrementally some -- on various components throughout the year.

Okay, thank you.

Thanks, Jeff.

Your next question comes from Graeme Rein from [Bares Capital].

Scott, you mentioned the pipeline and that Fortus is growing significantly. I mean what gives you optimism that those sales are going to kind of come thorugh? Is it a new interest level or new applications, or can you just kind of give a little bit more color on why you feel good about that pipeline?

Yes, maybe I can reflect back to last year, we had significant growth in DDM, which is a portion of our applications, new applications for the Fortus line, numbers like I think it was first quarter 27%, 33%, 40%. And in this shift of direct to indirect we had to by definition move pipelines which is usually pretty difficult to do, so we did our best to sell as much as possible at fourth quarter, end of the year, and then start anew, maybe not totally anew but start anew with the new North American channel managers.

But within this there's a lot of new pioneering, a lot of new systems that went in two years ago, and certainly last year that tests either the fixtures and assembly tools in that application. And, of course, when those are successful you typically get multiple orders.

And then, also, new applications of in use parts, which we have seen actually over the last three years, and those also, those applications have to be tested for compatibility and with that you typically get multiple orders.

So I'm very optimistic that because of the seeds that we've successfully sown in the last two and three years that we really saw the growth in 2008, and 2008 was a depressionary, recessionary type of a year, we still got average 40% growth in that set of applications. So I'm actually optimistic about 2009 with the DDM application, which is Fortus.

The other component to that I think that is important is the ULTEM material is a flame resistant material that we recently introduced, and I think that opens up some new doors and some new customers that weren't there before, and a lot of those customers do have cash, they just have proven to be reluctant to spend their cash in this economy.

Okay, that's helpful. And then the follow-up is I mean your balance sheet is in great shape, you're still generating cash, you're well positioned competitively. What's the status of the buyback and do you anticipate buying shares in the current quarter?

Yes, Graeme, we're not going to comment on our plans there, but I just want to say that we still have about $11 million left on the authorization and we didn't buy any stock back during the first quarter, and we'll -- we will continue to evaluate that based on the parameters that we can operate within.

Okay, so $11 million still outstanding on the current authorized--?

Right.

That's correct.

Okay, thank you.

You have a question from [Dan Draber], [Barron News].

Yes, can you please address rumors about a potential patent dispute you guys have with the [NUSCA], please?

Could you elaborate or at least enunciate the words? Hello?

He has removed himself from queue. I'm going to next --

Let me speak on it, we have no pending or existing lawsuits, whether they're patents, or his question was to patents -- so, no, there's no threat of or patent lawsuits out there.

Next question, please?

you have a question from Ryan Thibodeaux from Maple Leaf Partners.

Hey, guys. Considering that the climate in Q2 is similar to Q1, do we expect to lose money in Q1, as well? I mean in Q2, as well?

No, we've given you the economic parameters as best as we could in Q2. We've talked about what steps we've taken in terms of operating expenses to give you some color around that, and beyond that we're not going to comment as it relates to Q2 or the remainder of the year from a financial guidance.

Are there any factors that affected Q1 gross margin that will not be present in Q2 if the mix remains roughly the same?

If the mix remains roughly the same you're going to have similar factors, as I indicated in the response to one of the questions. Sales volume, our fixed overhead of about 20% is obviously an influence on the gross margin, also.

Okay, and can you -- I know you guys have been reluctant to do so in the past, but could you talk a little bit more about the current gross margin for the file on uPrint and, or at least relations, you know, how it relates to the older generation 3D printers?

We have some very strong margins on our high-end 3D printers, and we have indicated that the uPrint is still a strong gross margin product but we have indicated that it is our lowest gross margin system that we have. We see it as part of the expanding of our installed base and then driving our consumables sales there.

So if you were able to reduce the cost by this 15% would it be more in line with the historical margin that you enjoyed on the 3D printer business?

We would pick-up substantial margin on the uPrint, probably to the tune of about 8 points with those cost reduction efforts.

All right, thanks.

You have a question from Jim Ricchiuti, Needham & Company.

Yes, the question just regarding the overall health of the reseller channel, just in light of the economic conditions, are you seeing more of these folks struggling? Any -- do you anticipate any of these guys maybe falling by the wayside?

Well, we definitely have a healthy reseller distribution channel worldwide, but, Bob, why don't you comment on more detail?

Yes, the good news on our reseller channel is that a number of these resellers, channels, we've been doing business with for a number of years, and as we've grown they've been profitable over those years.

Clearly, in this economic environment some of them are struggling more than they have historically, but we've gotten up-to-date financial statements on all these people, we've talked to them on a regular basis, and we're monitoring it very closely. So we're doing all the steps that we can prudently in this. But some of them are weaker than they were last year, there's no question about that.

And just a final question, Scott or Bob, in the past, previous downturns, has the issue of used equipment coming out on the market has that been an issue in previous downturns? Do you anticipate any kind of problems along those lines?

Well, there's always an ongoing used portion in the market but we don't anticipate that. We're, let's say, not seeing that either increase or decrease.

Okay, thanks a lot.

It's interesting, sometimes those few sales, which in the past Stratasys has done, as well, in the program that we have for off and on for doing trade-ups, those can get us into big and small companies that can blossom into significant installations, and there's a lot of good portions to that, it's just not negative. And the obvious consumables sales, as well.

Most of our installed base is within the last five years, so we -- there's not a significant used market out there on our equipment currently.

Okay, thanks very much.

Thank you. There are no other questions. At this time, I would like to hand the call to Scott Crump for closing remarks.

Well, in closing, we have a strong balance sheet and remain committed to our realized long-term goals and objectives. We remain confident in our ability to provide long-term value to our customers, channel partners, and shareholders, and we are well positioned for the future.

I'd like to thank you for your interest in Stratasys, and we look forward to speaking with you again in July. Good-bye.

Thank you for your participation in today's conference. This concludes the presentation, and you may now disconnect. Have a great day.