Stratasys Ltd (SSYS) 2011 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Third Quarter 2011 Stratasys Incorporated Earnings Conference Call. My name is Kim and I will be your coordinator for today. At this time, all participants are in a listen-only mode. We will conduct a question and answer session at the end of today's conference. (Operator Instructions). As a reminder, this call is being recorded.

I will now turn the conference over to your host for today's conference, Mr. Shane Glenn, Director of Investor Relations at Stratasys. Please proceed, Mr. Glenn.

Thank you, Kim.

Good morning and welcome to the Stratasys conference call to discuss our third 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 the Investor section of our website at www.Stratasys.com or directly by accessing the link provided in our press release.

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, vision, planning, could, plan, believes, desires, intends, assume, 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 that 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 marketing and sales of our Dimension and uPrint 3D printers, and our Fortus 3D Production Systems, particularly for use in direct digital manufacturing, our agreement with HP to expand the distribution and sales of our 3D printers, our support removal systems, the demand for our proprietary consumables, the expansion of our paid parts service, and our beliefs with respect to the growth and 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, produce, and market new materials such as ABS-ESD7, 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 the market acceptance of those products and materials, the success of our recent R&D initiative to expand the DDM capabilities of our core FDM technology, our ability to successfully integrate and market Solidscape products, our ability to retain management, and our ability to protect and defend intellectual property, and the success of our RedEye On Demand 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 were made. We may elect to update forward-looking statements, but we expressly disclaim any obligations 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 10K and quarterly reports on Form 10Q.

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 and income. The non-GAAP financial measures are provided in an effort to give information that investors may deem relevant to the Company's operations and comparative performance, primarily the identification and exclusion of expenses associated with impairment charges, restructuring expenses, and expenses associated with stock-based compensation.

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 third quarter financial results.

We're very pleased with our record performance. The third quarter is typically a seasonally weak period for Stratasys but revenue and profitability reached the highest level in our Company's history.

Total revenue expanded to a record $39.7 million for the third quarter, driven by the sales of our higher margin products. Operating profit almost doubled during the third quarter and as a percentage of sales reached the highest level in seven years.

Fortus system revenue doubled in the third quarter over last year driven by strong sales across our entire Fortus line. This included the very successful introduction of our Fortus 250mc earlier this year.

Consumable revenue continued to grow impressively during the third quarter, increasing by 19% over last year when you include the effects of our recent acquisition for comparison purposes. The Fortus line is driving a disproportionate amount of this growth given the product line's rapidly growing installed base and relatively higher utilization rates.

We continue to observe a significant untapped sales potential within our Dimension and uPrint 3D printer lines. We continue to manufacture an HP-branded 3D printer which they in turn distribute within all major European markets. In addition, we're developing independent channel strategies that will augment our HP collaboration.

We're working hard on several new initiatives within 3D printing that we believe will position our Dimension and uPrint 3D printer products for stronger growth in coming months. We remain encouraged by the positive trends within our business and are optimistic about the balance of 2011.

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

Thank you, Scott. As I begin, I want to remind everyone of the financial implications of our recent acquisition of Solidscape.

We closed the acquisition on April 30 of this year. Consequently, Solidscape's results are included in our third quarter financial results for 2011. During our discussion today we will provide you with certain pro forma financial metrics that exclude Solidscape. We believe this will provide you with a more appropriate comparison of our third quarter financial performance relative to last year.

Total revenue was a record $39.7 for the third quarter, a 31% increase over the $30.3 million for the same period last year. Excluding Solidscape from our results, revenue would still have represented a record at $36.8 million, a 21% increase over last year. Including Solidscape the Company shipped a total of 600 units during the third quarter versus 631 last year. Unit shipments of all our Fortus 3D production systems were strong during the quarter, nearly tripling levels sold during the same period last year.

However, it's important to keep this performance in context. Given the significant impact of our recently introduced Fortus 250mc which was our best selling system during the third quarter. The 250mc has a build envelope similar to a Dimension 1200 and fills a void at the lower end of the Fortus lineup. It is positioned very close to our Dimension 3D printer line within the marketplace. We believe the new product generated significant interest from customers that would've otherwise purchased a Dimension 3D printer.

This likely tilted the unit growth trends during the quarter by favoring our higher end Fortus system over lower end 3D printers. The 250mc will likely have an impact on unit sales mix over the coming quarters. Unit shipments of our Dimension, uPrint, and HP 3D printers were down 34% during the third quarter over last year. For the reasons we just discussed, we believe that the Fortus 250mc introduction had a significant impact on our 3D printer sales during the period. Approximately 60% of our resellers sell our entire product line and can up-sell their customers to a Fortus system from our lower end 3D printers.

As we have discussed on prior calls, our resellers have been very successful in up-selling to Fortus given the positive momentum within the market created by the emerging direct digital manufacturing applications. This trend continued to be evident in the third quarter. Although we continue to manufacture an HP branded 3D printer for distribution in Europe, unit sales of the HP systems were disappointing, declining by 71% in the third quarter over last year. As we mentioned last quarter, our 3D printer channel remained under-developed and the sales and marketing commitments have been inadequate to achieve the full potential of our products. As Scott will discuss later, our primary focus to expand sales within 3D printer have turn independently expanding our channel and developing new product strategies independent of the collaboration with HP.

Third quarter product revenue is $32.3 million. Excluding Solidscape, third quarter product revenue was $29.4 million, a 23% increase over the $24 million reported for the same period last year. Two factors drove our product revenue growth during the quarter. First, Fortus system revenue more than doubled when compared to the same period last year. As we mentioned earlier, Fortus sales have continued their strong positive momentum, driven by the successful introduction of the 250mc, the successful up-selling trends within our channel, as well as the rising demand from customers using their systems for new DDM applications.

3D printer system revenue was down 28% during the third quarter over last year for the reasons we discussed earlier. The second quarter driving product revenue growth in the third quarter was a 26% increase in consumable revenue over last year which was up 19% when you exclude the impact of Solidscape. The biggest driver behind consumable revenue growth has been our rapidly growing Fortus line which typically uses more consumables.

Third quarter service revenue was $7.4 million. Excluding Solidscape, third quarter service revenue was $7.3 million which is up 17% when compared to the same period last year. Our maintenance revenue increased 15% for the third quarter over last year or 12% when you exclude the impact of Solidscape. Our maintenance revenue is benefiting from our strong Fortus system sales given Fortus systems generally have higher attachment rates for maintenance contracts relative to our 3D printers.

Revenue in our RedEye paid parts service increased by 19% in the third quarter over last year. After witnessing a slow start to the year, RedEye is benefiting from improvements in new customer business and an increase in average sales price from large parts produced on the 900mc. Excluding Solidscape, domestic sales grew by 28% during the third quarter over last year and represented $21.5 million or 58% of total revenue. Excluding Solidscape, international sales grew by 14% to $15.3 million, representing 42% of total revenue. Despite global concerns over Europe, sales into the region were up 20% over last year when you exclude the impact of our recent acquisition.

Gross profit was $21.6 million for the third quarter or 54.3% of sales. Excluding the Solidscape acquisition, gross profit was $20.2 million for the third quarter, a 37% increase over the $14.7 million reported for the same period last year. The pro forma gross margin was 55% of sales versus 48.6% for the same period last year. The strong growth in our higher margin products, especially Fortus systems and consumables, contributed to the significant improvements in gross margins. The most notable impact on gross margin in the third quarter was the strong sales of our recently introduced Fortus 250mc, the highest margin system we sell. In addition, sales of our lower margin 3D printers have been below our expectations which is having a positive impact on the overall margin profile.

Operating profit was $17.9 million for the third quarter or 19.8% of sales. This represented the highest operating profit in our Company's history and the highest operating margin in seven years. Excluding Solidscape, operating profit was $7.8 million for the third quarter, a 91% increase over the $4.1 million reported for the same period last year. The pro forma operating profit was 21.1% of sales versus 13.4% for the same period last year. Operating expenses increased by 29% in the third quarter over last year. The biggest impact on operating expenses was the addition of Solidscape and a 44% increase in non-Solidscape related R&D expenses driven by our new product initiatives.

Funds provided by our unnamed Fortune 500 partner to develop DDM applications for our Fortus line was $170,000 for the third quarter versus $352,000 for the same period last year. This compares to the $208,000 for the second quarter of 2011. We have recently agreed to continue this collaboration into 2012. SG&A expense in the third quarter included $345,000 of stock based compensation expense net of tax or $0.02 per share, compared to $262,000 net of tax or $0.01 per share for the same period last year.

Other income in the third quarter included a one-time gain associated with the sale of an auction rate security. During the financial crisis of 2008, with the assistance of an outside consultant, we determined our $2.6 million investment in Jefferson County, Alabama bonds had incurred both a temporary and more permanent impairment. We recorded an impairment charge at that time following and adjustment to the fair value of that security. The auction rate security was sold during the third quarter at a price above its carrying value, resulting in a $394,000 gain net of tax or $0.02.

Net income was $5.9 million for the third quarter of 2011. Non-GAAP net income was $5.8 million for the third quarter or $0.28 per share, a 69% increase over the $3.4 million or $0.16 per share reported for the same period last year. Non-GAAP net income excludes a one-time gain associated with the auction rate securities sales as well as stock based compensation expense. A table provided within our press release provides itemized details surrounding all the non-GAAP items incurred during both periods.

We generated $5.9 million in cash from operations during the third quarter and finished the period with $61 million in cash and investments. Inventory balances were $22 million at the end of the third quarter which is up modestly from the $21.2 million at the end of the second quarter. Inventories have risen due to the Solidscape acquisition as well as to match the strong order flow for both Fortus systems and consumables. Accounts receivable was $23.8 million at the end of the third quarter. Days Sales Outstanding or DSO was 55 days at the end of the third quarter compared 57 days at the end of the second quarter.

Overall we are pleased with our financial performance during the third quarter. Our Fortus system and consumable revenue continued to grow impressively, both having sustained strong double-digit growth over the past five quarters. The growth at these businesses has been the primary contributor to our strong financial performance over the past year as revenue and profitability have reached record levels. Notably, our strong growth comes in spite of our underperforming 3D printing business.

We recognize and acknowledge that the HP collaboration has not progressed as we had planned. However, we are taking steps to remedy the performance of our 3D printing business which we will believe will begin to demonstrate strong growth in the coming quarters. Although we believe our recent results have been impressive, we are excited about the prospects of all our businesses operating to their fullest potential and the positive implications this will have on our future financial performance.

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

Thanks, Bob. Stratasys provided the following information regarded financial guidance for fiscal year ending December 31, 2012. Revenue guidance of $175 million to $190 million, GAAP earnings guidance of $1.02 to $1.13 per share. Earnings guidance includes the expense related to stock options which should approximate about $0.08 per share for the year.

We'd also like to provide some additional details surrounding the assumptions behind our 2012 guidance. We continue to observe a favorable market environment for our products and we're assuming that will continue into 2012. However, we believe that the growth in our Fortus system sales will moderate next year from the very high levels we have recently observed. We're also assuming that our new initiatives within 3D printing will lead to higher sales of our 3D printers in 2012 which should lead to an acceleration in system unit sales. This should bode well for future consumable sales for higher margin consumable revenue. Higher relative sales of our most affordable 3D printers would likely have a moderating impact on gross margin in 2012. In addition, the programs we have planned in 3D printing will lead to some incremental operating expenses in 2012.

Although we're not providing specific financial guidance for the balance of 2011, we would like to highlight a few items that we believe are notable when considering our performance for the current quarter. We continue to observe a favorable environment within our markets and a strong pipeline of order activity. We'll be investing approximately $250,000 in additional sales and marketing programs in the fourth quarter not previously budgeted to support our 3D printer channel expansion. And lastly, we expect higher relative commission expense in Q4 given the impact of our strong growth in Fortus and our expectation of higher commission accelerators.

Now I'd like to turn the call back to Scott Crump.

Thank you, Shane. Again, we are very pleased with our record third quarter performance, considering the seasonal weakness that's typical during the period. Our higher margin Fortus line sustained strong positive momentum in the third quarter. This growth was a result of strong sales across our entire Fortus line which included the successful introduction of our Fortus 250mc. The highly affordable 250mc combines the improved functionality of a Fortus 3D production system with the ease of use of a Dimension 3D printer.

The new product has filled a void in our Fortus line and was the best selling system during the third quarter. Direct digital manufacturing applications remain a big driver behind the sales growth within Fortus. We now have a dedicated DDM group at Stratasys that's led by a specialist with manufacturing experience with years of additive manufacturing experience as well. The DDM groups affords our sales and marketing efforts, improving our ability to target specific industry requirements for DDM applications. These efforts are generating new opportunities within the aerospace, defense, and automotive industries.

A great example of how we're helping a Company get their products to market faster and more affordably is Kelly Manufacturing in Wichita. Kelly is a leader in the manufacture of general aviation instrumentation. The company recently began making certain instrument housing directly from a Fortus system using our high-temperature resistance ULTEM material. The housings were previously made through a urethane casting process that made it difficult to hold tight dimensional tolerances. In addition, traditional tooling had to be produced at a considerable cost whenever design changes occurred.

This need was eliminated with the use of a Fortus system saving the company several weeks in time to market with their product. In the end, the company was able to produce a higher quality product in a matter of days at a reduced cost. Aerospace is just one industry where we recognize numerous opportunities to transform traditional manufacturing processes and I would encourage you to read more about this application in the following link at the end of our third quarter press release.

To further our goals within DDM, we are pleased to announce that we recently extended the collaboration with our Fortune 500 partner to develop new platforms for DDM applications. This will bring their total spending and product development projects with Stratasys to over $8 million over the past six years to further develop our Fortus line for DDM. The importance of this collaboration should not be under appreciated. They view and we view this project as highly strategic and critical to future programs. We're excited that this industry-leading company shares our vision and recognizes the huge potential for our FDM technology for manufacturing of end-use parts.

The unique capabilities of our Fortus like are also having a positive impact on our RedEye paid parts service which grew by 19% in the third quarter over last year. Our RedEye paid parts business has 120 Stratasys systems now operating globally. Now, this includes multiple 900mc systems. The 900mc is the largest, most accurate system we offer which produces very large parts in seven highly durable thermal plastics. We've been adding these systems to RedEye to address the growing demand for large, functional prototypes and DDM parts, applications that the 900mc is uniquely positioned to address. While we continue to observe a significant untapped sales potential within our dimension and uPrint 3D printer products, we believe additional channel development is critical to this business.

We continue to manufacture an HP branded 3D printer for their distribution in Europe. In addition, we're developing independent channel strategies that will augment our HP collaboration. This includes expanding the number of resellers that are dedicated to selling only our most affordable 3D printers. We're also developing a product strategy that aligns with our long-term goals by incenting our channel partners to drive higher volumes of system sales. We're in the process of implementing these new initiatives and have yet to fully articulate these programs to our channel partners. Consequently, we're not in a position to divulge the full details of our plans at this time. However you will see some of these programs in this fourth quarter.

We do believe these initiatives will allow us to better capitalize on a significant untapped market opportunity and accelerate the unit sales of our 3D printers in 2012. Consumable revenue continued to grow impressively during the third quarter. Fortus line is driving a disproportionate amount of this growth given the product lines, a rapidly growing install base, and relatively higher utilization rates. We believe customers using Fortus equipment for DDM applications remain a primary driver behind this growth. Our ability to offer unique materials such as ULTEM as well as our recent introduction of an electrostatic-free thermoplastic that we introduced earlier this year have opened up previously untapped opportunities. We expect these trends to continue with the Fortus line which bodes well for future consumable sales.

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

(Operator Instructions). Your first question comes from the line of Jim Ricchiuti with Needham & Company. Please proceed.

Hi. Thanks. Good morning. Congratulations on the quarter. Question on the Fortus 250mc. You're indicating you think it's cannibalizing some of the Dimension sales. Can you give us any color as to the placement of the machines in new versus existing customers and to what extent do you think you're also potentially taking some share from other 3D printers out there with this new machine?

Jim, I'll answer the customer placements. We don't have data on that. We just began shipping the system in the third quarter and obviously we sell through a channel so we don't have -- we really don't have good data from a customer standpoint.

The initial indications -- I mean, we don't have the data behind it. Initial indications is several of those systems are going to people that already have Fortus DDM systems.

Okay. I wonder if you'd also comment on what you're seeing in the education market, just given concerns folks have about funding and budgetary constraints? How was the quarter in the education market?

Actually education was pretty good in the educational market for us. We had growth in that 10% to 15% range for units which are going to be predominantly 3D printing and obviously we gave you the total number for 3D printing, it being down. So, we're very pleased with education in the third quarter.

Thank you.

Thanks, Jim.

Your next question comes from the line of Troy Jensen with Piper Jaffray. Please proceed.

Congrats on the really nice quarter, gentlemen.

Thanks, Troy.

So, can we just dive in a little bit deeper on competition? I'd be curious to know like on the 900mc and the higher end systems, who do you see in the market now? Is it EOS? Or is the SLA and SLS technology?

You know, Troy, what's really interesting, we had a conversation about this three days ago on the 900mc and the comments that we're hearing from our channel partners, our internal sales people, is there's just not another system that the 900mc competes against. If you look at the fact that given the size of parts and the fact that you can make the parts with highly durable thermoplastics through the FDM process, it really fills a niche that we're not seeing a lot of competition with on the 900mc and I'm glad you mentioned that, the 900mc. Because the 900mc was -- we did talk about the 250mc which was strong, but we've seen really strong sales of the 900mc. Considering the fact it's our highest priced system, that's very encouraging. And we're seeing a strong pipeline of opportunities as well for that product.

That's good to know. Just moving to the desktop market, the competition specifically -- I know a lot of times you guys point to the HP launch hasn't been as successful as you wanted obviously but I'm just curious to know if you're seeing from competition from Objet's new desktop launch they've had and then also within the education vertical, do you see a [bits per bytes] more frequently. Is that market actually growing [under the land]? Or you guys just seeing a little share right now?

I think, Troy, from a competitive standpoint, yes, we do see Objet. I think when you look at some of the other systems that are more characterized as the personal 3D printers, the ones that are targeted for the hobbyist or what we call the maker market, we're not seeing that from a commercial -- we're not seeing them as commercial competition. We kind of distinguish our products from these lower end systems given the capabilities and value propositions that we give to customers with our full product offering.

We really emphasize the fact that it's a lot more about have a low-priced system that can make the conformed part of a three dimensional CAD file. You've got to have a whole product offering and that's what we offer with our product lines. We don't see a lot of these products as very viable within our core commercial markets. Once again, it's kind of -- we think it appeals more at this point to the hobbyist. We also would note that if you look at our market share within the commercial markets, we've maintained our share there in the most recent data that's been released by the industry.

Our 3D printing is really about our execution related to the channel and we believe some of the initiatives that you'll start to see in the fourth quarter will address this and you'll see significant unit growth in our 3D printers in 2012.

Alright, guys. Keep up the good work.

Thanks, Troy.

Your next question comes from the line of Brian Drab with William Blair. Please proceed.

Good morning. Congratulations on a great quarter.

Thanks, Brian.

On the 2012 guidance, it appears that the revenue guidance is likely to be up 15% to 25%, something in that range and EPS growth to be below that, maybe in the 10% to 20% range depending on where the 2011 year shakes out. Can you talk a little bit about why that is? Are we going to see market contraction possibly because of further investment in the sales channel? Any detail you could provide?

Yes. I think there's a few things that to highlight here, we do expect -- we're anticipating some moderation in the growth of our Fortus system sales which as you know has been contributing to the real strong margins that we've seen here in the last several quarters. As much as we would like Fortus to continue to double every quarter, we're really not going to build on assumptions that we can sustain that kind of growth.

We also are assuming, as Bob mentioned, that we're going to see a significant acceleration in our unit volume in 3D printing. This would be at the lower end of our price ranges of products and it's -- we're -- it's no secret that those products are lower margin systems. When you build that into the mix, that could have some moderating impact on the gross margin. And the last thing is that, yes, we are going to be spending and investing more in channel development which will show up -- and some of that will show up in the operating expense.

And the key reason that we're anticipating growth in the lower end, in the 3D printers is related to the build out of the sales channel and that investment?

It relates to the build out -- it's a combination of things. It's the build up of the channel. Investments we're making there. But it also relates to things that we may do surrounding the products and our programs there. So, it's a combination.

In terms of new products?

We're not going to get into specifics for competitive reasons and market stability continuity here. But it involves the channel. It involves our product strategies and that could include a lot of different things.

Okay. At this point is there any discussion with HP regarding distribution in North America?

The best thing to say about HP is too talk about the contractual relationship that we have which is just in Europe today for the two products going through September 2012.

Okay. Maybe I'm asking too many here but I'm going to have to jump off and won't be able to jump back on. But was there possibly any channel fill from the 250mc in this quarter that boosted sales?

Any time we enter into -- we made no secret about it in the past. Any time that we introduce a new product we try to sell as many as we can and certainly there have been probably been a small impact on that for the 250mc during the quarter.

Got it. Thanks, guys.

Thanks.

Your next question comes from the line of Andrea James with Dougherty and Company. Please proceed.

Hi. Good morning, everyone.

Hi, Andrea.

So, quick question about the guidance. Does that for next year, does it include the full extent of the channel expansion plans and can you give us a sense of the schedule of maybe the ramp and when you expect that channel -- when you'll be satisfied with the channel or when you'll think it's complete?

I'll answer the guidance question. It does take into consideration the investments that we're making in channel development. Now, as it relates to when we're going to be happy with the channel, I'll let Bob answer that.

We plan for a significant expansion that's going to -- you're going to start to see some of those initiatives in the fourth quarter of this year and continue throughout all of 2012 and I think longer-term is you're going to see continued channel expansion from Stratasys over multiple years. So, I don't think we're going to be satisfied with what we do in '12. It will be a continuing effort into the future.

Okay. Thank you. Then as far as HP units, I think you had said they were down 71% year over year. Do you think that has more to do with the fact that HP was building up its inventory last year? Or do you think it's tied more to end demand? I guess I'm just trying to get at what's going on there but also whether we should expect the HP sales to be sort of more lumpy than the non-HP business?

I think there could've been some of that impact as you look in between years. I think that was an impact and there will be some lumpiness. We've seen a higher order demand from them in Q4 already relative to what we saw in Q3.

Thank you so much.

Your next question comes from the line of Andy Schopick. Please proceed.

Thank you and good morning.

Good morning, Andy.

Scott, I want to ask you this question about HP and it's a subjective perhaps commentary but to what extent do you think the change in executive management that the internal turmoil may be impacting any other plans to go forward with you? Have you sense anything like that?

It's a good question, difficult to really determine since they had actually a couple different executive management changes. I think that the way Bob answered that is the most factual which is really based on our contract. We really have them selling in Europe with two products and we'll see relative to the expansion. In terms of their interest level, they definitely continue a very high interest level in 3D printing. They definitely see Stratasys as providing the best solution in that 3D printing area so I feel from a subjective standpoint, midterm and long-term that they are interested and therefore players. It's definitely an issue of timing. But it's hard to say.

Can I direct a question to Bob as well? It's been a long time since the Company's issued any type of formal guidance and I'm curious to ask why you've chosen to do it here at the end of the third quarter while there's still quite a few things here in flux, certainly a lot of macro type uncertainties as we enter 2012. What you're really implying here is kind of the EPS, the earnings per share are going to flat line in the 25%, 30% kind of range on average going through the next 12 months. Again, I'm just curious why you've chosen to give the guidance now instead of at least waiting till year end and talking to us in January about it?

One of the things from a Street perspective is we've continued to be asked to give guidance. We think we have as good of visibility as we're going to get to 2012 now as we go through our planning process as we will have in the next few months. Obviously the macro issues -- we don't know how that's going to change but that's going to be an ongoing thing that exists for every company. We're trying to address comments that we've got back from the Street and we think we're in a reasonable position in order to accommodate that.

Okay. Thank you.

Thanks, Andy.

Your next question comes from the line of Chuck Murphy with Sidoti & Company. Please proceed.

Good morning, guys. Similar to what Troy asked about the 900mc Fortus, who are the competitors for the 250mc?

The competitors for the 250mc would be probably our own products and then probably Objet would be the one that we would see most often within the marketplace.

So, not so much like 3D or ZCorp?

No.

How does it compare to Objet's similar product? Why would somebody buy yours instead of theirs?

Simply put, the 250mc provides real thermoplastic -- industrial thermoplastic output and you can do engineering analysis, meaning modeling either at the prototype level or at the DDM level and then if you compare that to the, let's say, comparable Objet system, the primary advantage of Objet would be the surface finish would typically have a higher surface finish. However, typically those parts are used more in concept models or fit in concept models. They tend to not be as strong. So, it very much depends on whether the engineer wants to use the part all the way to the fit, form, function and sometimes into the beta testing.

So, yours is a little bit more for function, theirs is more for aesthetics? I mean, I guess historically I was under the impression that the types of prototypes that you and the rest of the industry are producing aren't really that suitable for the functional and drop testing type stuff. What kind of functional testing specifically or what are we talking about?

I think it covers all prototyping whether you're going to do ergonomic testing where you have to have an interface with the human. So I think the prior generation of UV polymers was called SLA and that technology as well as the polyjet Objet technology pretty much has proven that those parts are typically not strong. They're not stable over a length of time. They're not stable in the UV light. And I'm talking about they will warp due to the stress concentrations. So, for a quick concept model that needs to look good, I would say it's a reasonably good offering but if you want to take that all the way through the normal process of most prototyping, the type of prototyping that 17,000 of our systems are doing around the world today, really the FDM and to your question, the 250mc is more suitable.

Got you. Okay. And then another question. Can you say what percentage of your total revenue Fortus is and then what DDM is of Fortus?

Chuck, as you know, we don't provide a whole lot of segmentation on our business. I think if as a general -- some general ideas though, about half of our revenue is going to be system related and depending on the quarter, that could favor Fortus or in other quarters possibly 3D printing. We're still estimating that 30% or roughly a third of the decisions to buy a Fortus system are being done primarily for a DDM application. So, that's similar to what we've said in the past.

I didn't know if it changed much. Okay. Thanks, guys.

Thanks, Chuck.

Your next question comes from the line of Jim Ricchiuti with Needham & Company. Please proceed.

Hi. I jumped off for a second but I just wanted to know if this question has been asked but I was just curious, looking at the other resellers, the resellers that don't currently sell the 250mc, can you talk a little bit about how the demand for Dimension uPrint has been in that segment of the channel in terms of the growth?

Unfortunately, Jim, I think the real answer as we all look at each other here is we don't have the statistics in front of us in order to appropriately address your question.

Okay. And then it sounds like you're still seeing fairly good demand in Europe and did you get any color as to how the business shaped up in Asia in the quarter?

Asia was weak within the quarter and it's interesting, as we looked behind that it varies from country to country. It had grown in the second quarter and then we saw some weakness which is typically to see some weakness in Q3, Q4. And we're going to continue to investigate and look at some of the trends that come within that quarter. We have trips planned from both Scott's perspective and Tom Stenoien, our Chief Operating Officer over there in the fourth quarter.

And read through just in terms of thus far in Q4? Is that continuing to be the case?

It's too early in the quarter to make a statement one way or the other.

Okay. Thanks.

Thanks, Jim.

Your next question comes from the line of Ryan Thibodeaux with Maple Leaf Partners. Please proceed.

Good morning.

Good morning, Ryan.

Good morning. On the channel expansion efforts in 2012, is that going to be for defining a new leased retail -- new resellers that are going to sell the uPrint only? Is that how I understand it?

Yes. It's going to be focused on our line products, yes.

Okay. Wasn't that part of the challenge in 2011 is the guys that were selling both uPrint and Dimension were essentially just not selling any uPrint?

Correct.

So, are these going to be new resellers to Stratasys?

One of the things that in Scott's comments on the call is we're in the process of rolling out and talking to our channel partners now. We don't want to get into too much specifics in the program itself. You're going to see some of the initiatives, see fruition of that starting in Q4 and throughout 2012.

But the program does include definitely additional channel, additional resellers.

Presumably you're not going to go back to the same resellers as last year. You're going to find new channel partners to sell the uPrint exclusively. Is that right?

We're going to focus on building out a separate channel focused on the low end of our product line.

Okay. Is that in the US only?

Initial programs will be directed at the US.

Okay. Initial programs in the fourth quarter or initial programs in 2012?

Initial programs you're going to see starting in the fourth quarter of this year.

Okay. But potentially expanding beyond the US?

Yes.

Also, are there any plans for this new channel to have any other lower priced configurations, lower than the current uPrint price point?

We're not going to comment on that, Ryan, for competitive reasons.

Okay. Lastly, along the same lines, do you guys have any plans to attack the MakerBot type price points at any point in the future?

We're not going to comment on pricing.

Alright. Thanks.

It looks like there's no further questions at this time. I would now like to turn the call back over to Mr. Scott Crump for closing remarks.

Okay. In summary, we entered the fourth quarter with positive momentum in our Fortus product line and RedEye paid parts service. In addition, our consumable business continues to benefit from our growing install base of systems as well as the higher utilization trends provided by DDM applications. We remain excited about our recent acquisition of Solidscape which was accretive in the third quarter and has provided an additional technology platform that we will develop to expand into new applications. And finally, we're working hard on several new initiatives within 3D printing that we believe will position our Dimension uPrint 3D printer lines for stronger growth in the future. We look forward to completing a successful year and a strong start to 2012 and we'd like to thank you for your interest in Stratasys and look forward to speaking with you again next quarter. Goodbye.

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the presentation. You may now disconnect and have a great day.