Stratasys Ltd (SSYS) 2012 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Q1 2012 Stratasys' earnings conference call. My name is Caroline, and I'm your operator for today. At this time, all participants are in listen-only mode. We will conduct a question-and-answer session towards the end of this conference. (Operator Instructions) As a reminder, this call is being recorded for replay purposes.

And now I'd like to hand the call over to Shane Glenn, Director of Investor Relations. Please proceed, sir.

Thanks, Caroline. Good morning, everyone, and thank you for joining us to discuss our first-quarter results. On the call with us today are Scott Crump, Chairman and CEO of Stratasys, and Bob Gallagher, CFO of Stratasys. Following the prepared remarks, we will open the call for questions. An audio replay of the call will also be available on our website later today.

Statements during this call about Stratasys' beliefs, intentions and expectations, including statements regarding the expected timing and ultimate closing of the merger of Stratasys and Objet Ltd. as well as the benefits thereof, are forward-looking statements. The statements involve risks and uncertainties both known and unknown that may cause actual results to differ materially from those projected in this presentation.

Actual results may differ materially due to a number of factors, including risks and uncertainties relating to Stratasys' ability to penetrate the 3D printing market; the success of Stratasys' distribution agreement with HP; Stratasys' ability to achieve the growth rates experienced in preceding quarters; Stratasys' ability to introduce, produce and market consumable materials, and the market acceptance of those materials; the impact of competitive products and pricing; Stratasys' timely development of new products and materials, and market acceptance of those products and materials; the success of Stratasys' recent R&D initiative to expand the DDM capabilities of its core FDM technology; the success of Stratasys' RedEye, On Demand, and other paid part services; and Stratasys' ability to complete its transaction with Objet Ltd. on the proposed terms and schedule, and achieve the anticipated benefits of the transaction.

These and other applicable factors are discussed in this presentation, and in Stratasys' filings with the Securities and Exchange Commission, including its report on Form 10-K for the year ended December 31, 2011 and subsequent filings. Any forward-looking statements included in this presentation are as of the date they are given, and Stratasys does not intend to update them if its views later change, except as may be required by law. These forward-looking statements should not be relied upon as representing Stratasys' views as of any date subsequent to the date they are given.

The information discussed within this conference call includes financial results in accordance with accounting principles generally accepted in the United States, or GAAP. In addition, certain non-GAAP financial measures have been provided that exclude certain charges, expenses and income. The non-GAAP measures should be read in conjunction with the corresponding GAAP measures, and should be considered in addition to, and not as an alternative or substitute for, the measures prepared in accordance with GAAP.

The non-GAAP financial measures are provided in an effort to provide information that investors may deem relevant to evaluate results from the Company's core business operations, and to compare the Company's performance with prior periods. Non-GAAP financial measures primarily identify and exclude certain discreet items, such as restructuring expenses, amortization expenses, expenses associated with stock-based compensation required under ASC 718, and the expenses related to completing the proposed combination with Objet. The Company uses these non-GAAP financial measures for evaluating comparable financial performance against prior periods.

Now I would like to turn the call over to Scott Crump, CEO of Stratasys.

Good morning, and thank you for joining us to discuss our financial results. The first quarter was a busy one for us, and we are very pleased with our performance. Total revenue expanded to a record $45 million for the first quarter, an increase of 30% over last year. Non-GAAP operating profit was also impressive, increasing by 43% over last year, and we just raised our guidance for 2012.

As we observed for the past several quarters, the first quarter benefited from the strong sales of our higher margin Fortus 3D production systems, which grew by over 60% compared to last year. This strong performance in our Fortus line also helped drive impressive consumable revenue growth of 30% year-over-year for the first quarter. We are continuing to benefit from the expanding use of direct digital manufacturing applications, which maintain relatively higher consumable utilization rates. We continue to believe the emerging market for DDM, direct digital manufacturing, applications is at the beginning of a multi-year secular growth opportunity.

There are many exciting developments to discuss this quarter. Just this week, we announced a revolutionary new 3D printing platform called Mojo, which was three years in the making. We believe Mojo is an ideal product to combine with our new channel development initiatives aimed at growing the sales of our most affordable products. We have now recruited and trained over 90 new sales agents that will focus on our most affordable products, including our uPrint line and new Mojo 3D printer.

And, of course, we are excited about our recently announced plan to combine with Objet, a leading global manufacturer and distributor of 3D printing and rapid prototyping systems. Combining with Objet will provide a complementary product line that we can leverage into our rapidly growing market opportunity.

I'll return later to discuss these developments in more detail, but first I'd like to turn the call over to our CFO, Bob Gallagher, who will provide the highlights of our first-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 in May of last year. Consequently, Solidscape's results are included in our first-quarter financial results for 2012. During our discussion today, we will provide you with certain pro forma financial metrics that exclude Solidscape. We will also provide you pro forma financial metrics that exclude certain expenses such as stock-based compensation, amortization expense of acquired Solidscape intangibles, and the expenses associated with our proposed combination with Objet Ltd. We believe this will provide you with more appropriate comparison of our first-quarter financial performance relative to last year.

Total revenue was a record $45 million for the first quarter, a 30% increase over the $34.6 million reported for the same period last year. Excluding Solidscape from our results, revenue would have still been a record at $41.6 million, a 20% increase over last year. The Company shipped a total of 822 units during the first quarter versus 567 last year. Solidscape represented 71 of the systems shipped in the first quarter of this year.

As we observed over the past three quarters, our Fortus system sales were very strong during the period, and positively impacted by the introduction of our Fortus 250mc, which was our best-selling system during the first quarter. The 250mc has a build envelope similar to a Dimension 1200, and fills a void at the lower end of our Fortus product 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 have otherwise purchased a Dimension 3D printer. Similar to prior periods, this likely skewed the unit growth trends during the quarter by favoring our higher-end Fortus systems over our lower-end 3D printers.

Unit shipments of our Dimension, uPrint, and HP 3D printers were up 15% during the first quarter over last year. For the reasons we just discussed, and similar to previous quarters, we believe the Fortus 250mc introduction had a moderating impact on our 3D printers sales during the quarter. Approximately 60% of our resellers sell our entire product line, and can upsell their customers to a Fortus system from our lower-end 3D printer. As we discussed on prior calls, our resellers have been very successful in upselling to Fortus, given the positive momentum within the marketplace created by the emerging direct digital manufacturing applications. This trend continued to be evident in the first quarter, which is why we are developing a channel to focus exclusively on our lower-end products.

We continue to manufacture an HP branded 3D printer for distribution in Europe. Unit sales of our HP branded 3D printers grew by 145% during the first quarter over last year. Despite this strong growth, sales of the HP branded systems remain below levels needed to sustain a profitable OEM relationship with HP. However, we believe that growth in HP units during the quarter is a positive indicator of the market's potential. We will continue to work with HP on a limited basis in Europe, but our primary focus has now turned to the opportunities presented to us with combining our channel development initiatives with our recently introduced Mojo 3D printer.

And more importantly, we have begun to focus on the many opportunities that will arise from our proposed combination with Objet. We continue to believe our 3D printer channel remains underdeveloped, and that the sales and marketing commitments must expand if we are to achieve the full potential of our most affordable products. Scott will discuss this later in the call, how we're making progress in developing a more focused channel strategy.

First-quarter product revenue was $37.5 million, an increase of 34% over last year. Excluding Solidscape, first-quarter product revenue was $34.3 million, a 22% increase over the $28.1 million for the same period last year. Two factors drove our product revenue growth during the quarter. First, Fortus system revenue increased by 61% when compared to the same period last year. As we discussed earlier, Fortus sales have continued their strong positive momentum, driven by the successful introduction of the 250mc, the successful upselling 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 12% during the first quarter over last year for the reasons we discussed earlier.

The second factor driving product revenue growth in the first quarter was a 30% increase in consumable revenue over last year, which was up 22% when you exclude the impact of Solidscape. Consumable revenue in the first quarter was the highest in the Company's history. The biggest driver behind consumable revenue growth has been our rapidly growing Fortus line, which generally uses more consumables.

First-quarter service revenue was $7.4 million. Excluding Solidscape, first-quarter service revenue was $7.3 million, which is up 13% when compared to the same period last year.

Our maintenance revenue increased by 7% for the first quarter over last year, or 4.7% when you exclude the impact of Solidscape. Our maintenance revenue is benefiting from our strong sales of our higher-priced Fortus systems, given Fortus systems generally have higher attachment rates for maintenance contracts relative to our 3D printers. This positive impact has been offset by lower maintenance revenue from our lower-end 3D printers, as well as a relatively low maintenance revenue generated from sales of our Fortus 250mc.

Revenue in our RedEye paid parts business increased by 25% in the first quarter over last year. Our RedEye business continues to benefit from customers accessing our significant capacity, as well as our ability to produce large parts made of high-grade thermoplastics. We also generated a significant amount of orders during the quarter for ancillary services, and for parts made with Objet's PolyJet technology. We currently outsource the fulfillment of these services and PolyJet orders to a third party.

Excluding Solidscape, North American sales grew by 12% during the first quarter over last year, and represented $21 million, or 50% of total revenue. Excluding Solidscape, international sales grew by 28% to $20.6 million, representing 50% of total revenue. Despite global concerns over Europe, sales into the region were up 22% over last year when you exclude the impact of Solidscape.

Gross profit was $23 million for the first quarter, or 51.1% of sales. Excluding the Solidscape acquisition, gross profit was $21.4 million for the first quarter, a 17.3% increase over the $18.3 million reported for the same period last year. This pro forma gross margin without Solidscape was 51.5% of sales versus 52.8% for the same period last year. The strong growth in our higher-margin products, especially Fortus systems and consumables, made positive contributions to gross margin. However, this was offset by stronger growth in our RedEye paid part services business for parts made on Objet PolyJet technology, as well as for other third-party RedEye services. We currently outsource this business, and generate lower gross margin on those orders relative to orders made on our FDM technology.

Operating profit was $7.2 million for the first quarter, or 16% of sales. Non-GAAP operating profit was $9.3 million for the first quarter, a 43% increase over the $6.5 million reported for the same period last year. Non-GAAP operating margin was 21% of sales versus 19% for the same period last year.

Operating expenses increased by 30% in the first quarter over last year. The biggest impact of operating expenses was the addition of Solidscape, and approximately $1 million of expenses related to our proposed combination with Objet.

Funds provided by our unnamed Fortune 500 partner to develop DDM applications for our Fortus line was $150,000 for the first quarter versus $131,000 for the same period last year. This compares to $160,000 in the fourth quarter of 2011. We expect this collaboration will continue throughout [2011].

Net income was $4.5 million for the first quarter of 2012. Non-GAAP net income was $6.1 million for the first quarter, or $0.28 per share, a 38% increase over the $4.4 million or $0.21 per share reported for the same period last year. The three expense items excluded in calculating our non-GAAP net income during the first quarter were the expenses related to employee stock options, expenses related to the amortization of acquired Solidscape intangible assets, and the expenses associated with our recently announced plan to combine with Objet. We should note that the vast majority of expenses incurred for the purposes of completing our combination with Objet are not tax deductible. A table provided within our press release provides itemized details surrounding all the non-GAAP items incurred during both periods.

We generated approximately $6.9 million in cash from operations during the first quarter, and finished the period with $72 million in cash and investments. Inventory balances were $21.6 million at the end of the first quarter, which is down modestly from the $22.8 million at the end of the fourth quarter. Accounts receivable was $28.1 million at the end of the first quarter. Days sales outstanding, or DSO, was 57 days at the end of the first quarter, and remained relatively unchanged from the levels at the end of the fourth quarter.

Overall, we are pleased with our financial performance during the first quarter. Our Fortus system and consumable revenue continue to grow impressively, both having sustained strong sales growth over the past several quarters. The growth of these businesses has been primarily the contributor to our strong financial performance. Notably, our strong growth comes in spite of our underperforming 3D printer business.

We recognize and acknowledge that the HP collaboration has not progressed as we had planned, and we are taking independent steps to remedy the performance of our 3D printing business, which we believe will begin to demonstrate strong growth in the coming quarters. This includes our recent recruitment and training of over 90 sales agents, as well as a revolutionary new Mojo 3D printer. Although we believe our recent results have been impressive, we are excited about the prospect of all our businesses operating at their fullest potential and the positive implications this will have on our future financial performance.

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

Thank you, Bob. Stratasys has revised its financial guidance for the fiscal year ending December 31, 2012 as follows. Revenue guidance range of $183 million to $193 million versus a previous guidance range of $175 million to $190 million. Non-GAAP earnings guidance range of $1.29 to $1.38 per share versus a previous guidance range of $1.17 to $1.28 per share.

GAAP earnings guidance range of $0.97 to $1.13 per share versus a previous guidance range of $1.02 to $1.13 per share. GAAP earnings guidance includes the estimated impact of Objet transaction related expenses prior to the close. Financial guidance does not reflect the potential combined performance of Stratasys Inc. and Objet, nor does it include the estimated incremental transaction related costs that would be incurred upon closing the transaction. In addition to excluding the impact of expenses associated with the proposed combination with Objet, non-GAAP earnings guidance excludes the impact of stock-based compensation expense and the amortization expense of acquired Solidscape intangibles.

Qualitatively, we continue to observe a favorable market environment for our products, and we are assuming that will continue through 2012. However, we are assuming that the growth in our Fortus system sales will moderate in the coming months relative to the very high levels we have recently observed. We are also assuming that our new initiatives within 3D printing will lead to higher sales of our 3D printers in 2012.

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

Thank you, Shane. Based on our strong first-quarter performance, we are looking forward to a great year. As Bob mentioned, our higher-margin Fortus line continued its strong positive sales momentum in the first quarter. Manufacturers continue to recognize the value of our technology for in-use part production, including fixtures and assembly tools used in manufacturing. In addition, the capabilities of our technology allow for the production of complex geometries that would be impossible to produce through conventional processes. The 900mc has been particularly strong for DDM applications within the aerospace and automotive sectors.

Our expanding base of Fortus 3D production systems and higher usage rates generated by DDM applications is driving the growth of our consumables. Consumable revenue reached another record level in the first quarter, growing by 30% over last year. Revenue within our RedEye paid parts business also represented a record level, expanding by 25% over the first quarter last year. Our RedEye business continues to benefit from customers ordering larger functional prototypes and DDM in-use parts, in addition to other service offerings.

We believe the announcement of our revolutionary new low-cost Mojo 3D printer platform this week represents a significant milestone in our goal to accelerate the sales of 3D printers worldwide to expand market share. The Mojo print pack comes with everything the commercial user needs to print models, including start-up materials, all for under $10,000. This new platform is small enough to fit on a desktop measuring only 25 inches wide, 18 inches high, and 21 inches deep. The relatively small size makes the system more affordable and easier to merchandise to end users.

To produce a model, Mojo employs a variation of the traditional FDM material extrusion. The ABS material spool and print head are integrated in one single package called the Quick Pack print engine. To ensure reliability, the print engine is for single use only, and a fresh print head is part of each material change. Material loading is similar to snapping in an inkjet cartridge in your paper printer. The system prints at a resolution of 0.007 inch, and this option was previously only available on the Dimension Elite or our Fortus line. In addition, our new Mojo offers a speed of 1.5 times faster than the Dimension Elite when building at the same resolution setting. The Mojo Print Pack also comes with a self-contained hands-free support removal system called the WaveWash 55.

At $9,500, we believe Mojo represents the first commercially viable whole product 3D printer available to end users that's priced under $10,000. This is approximately $4,000 below our previous entry level price for a 3D printer, the uPrint, at $13,900. We believe this attractive price point will allow us to capitalize on a market we believe is price elastic by capturing incremental customers who had previously viewed 3D printing as unaffordable or unreliable.

We believe the Mojo platform is a significant step forward in 3D printing that has the potential to expand the addressable market opportunity. There are approximately 14 million total CAD seats, and over 5 million 3D CAD seats currently worldwide, and that number continues to grow. However, despite this large addressable market, only 42,500 3D printers have been installed through the end of 2010, suggesting a significant opportunity for us. Our goal with the Mojo platform is to eventually ship over 10,000 units per year.

We believe the Mojo platform will also be incrementally positive to our operating model. Although the system is priced approximately 30% below our entry-level uPrint, we engineered this product to less than 50% of the manufacturing cost of a uPrint. So significant that, at $9,500, the Mojo generates a higher gross profit margin percentage when compared to the uPrint at $13,900. This significant engineered reduction in manufacturing cost is a critical development for our Company, and a result of over three years of product development and testing.

Mojo was well received following its confidential introduction to our channel partners in late April, and we are very excited about the product's potential. We would encourage all of you to access the video link provided in our press release to learn more about this revolutionary new product.

Mojo will also allow us to further leverage our new channel development programs that are aimed at expanding the sales of our most affordable systems. As we communicated over the past several quarters, we believe additional channel development is required to accelerate the growth of our most affordable products.

We have now recruited and trained over 90 sales agents in the US who are focused exclusively on selling our uPrint and Mojo 3D printer lines. Our new goal is to have a total of 150 agents in the US recruited and trained by the third quarter. We expect this new channel initiative, combined with the revolutionary new low-cost Mojo 3D printing platform, will allow us to better capitalize on a significant untapped market opportunity.

While we are very excited about the opportunities that will arise from our recently announced plan to combine with Objet, a privately held global company that manufacturers 3D printers for rapid prototyping. Together with Objet, we will be a leader within our industry with a broader, more comprehensive product and technology portfolio, and the resources, team and financial strength to achieve our goals.

Similar to Stratasys, Objet has a strong financial model, driven by its broad portfolio of high-performance systems and proprietary consumables. The company has a strong history of revenue growth, and achieved more than $121 million in revenue in 2011, and a compounded annual growth rate of nearly 34% from 2009 through 2011. Objet has been profitable for the last seven years, generating $14.7 million in net income last year, and has successfully grown its installed base and revenue over the last three years.

Objet's PolyJet technology allows for high-resolution printing that creates highly detailed models with the look and the feel of the final design product. Their systems can deposit two materials simultaneously, enabling the printing of models with a wide range of physical attributes, including building models that have both rigid and flexible materials, all within a single part. These attributes are highly complementary to the Stratasys portfolio of products, which provide a great set of solutions for functional prototypes and direct digital manufacturing applications. Together, we will offer customers a broad array of innovative 3D printing and direct digital manufacturing solutions, all from the same Company.

Looking at the combined Company, our sales and marketing organization will be very impressive. We believe together we will expand the market and our business opportunity to create dynamic cross-selling opportunities for our combined portfolio of products. Our combined channel will offer solutions across the entire design and manufacturing spectrum, from concept modeling through direct digital manufacturing.

As a larger organization, our recent product introductions, we expect to grow overall customer awareness of 3D printing, rapid prototyping and direct digital manufacturing. We believe this will create new opportunities to sell our combined products. The combined Company will be positioned at the sweet spot of a growing demand for 3D printing and direct digital manufacturing. As the use of 3D tools and content continues to grow, so will the opportunity to provide products such as 3D printers that can add value by utilizing that content. This growth opportunity should also be augmented by improvements in 3D printing technology that will create more functional, affordable and easier-to-use 3D printers. We believe the combined Company will be a leader in providing those new, innovative products to customers.

From a financial standpoint, we expect the transaction to be accretive to cash earnings per share within the first 12 months after closing. It will also provide for significant incremental long-term earnings accretion based upon a higher growth rate, operational synergies, and a significantly stronger long-term operating model. In short, we believe this combination will drive significant shareholder value.

We've begun to develop a 100-day integration plan that will initiate upon closing of the transaction. This is with the help of a global integration planning and consulting firm that we mutually hired five weeks ago. We continue to target a third-quarter close following customary regulatory reviews and shareholder approval.

So, in summary, we are pleased with our first-quarter performance, and very excited about the future. We believe our Company is well positioned with technologies that are reshaping the way new products are designed and manufactured. We also believe our recent introduction of Mojo, a revolutionary new 3D printer, combined with our game-changing combination with Objet, represents two critical events that will define the future of Stratasys, and position the Company to be a leader within a market that has only begun to develop.

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.

Thank you. (Operator Instructions) Troy Jensen.

Congratulations on the nice quarter, gentlemen.

Thanks, Troy.

So quick question on Mojo, can you talk about consumable pricing and what you think annual consumable consumption will be persistent per year?

Yes, Troy, the consumable pricing to the end user is going to be very similar to what you see with our other 3D printers. That being around or a little less than $5 per cubic edge. the-- what we expect from the usage, it's a little too early obviously to say, we don't have any products in the field. We do believe that we're going to pick up some incremental users, a lot of incremental users with the products' attractive price point. Now the utilizations may not be at the levels that we see with some of our other products, but as you know the goal here is to greatly expand the unit volume and get the products into the field which ultimately will use a higher level of total consumables.

Sure, sure it's all additive. So how about quick, just be curious to know if you're experiencing any channel conflict. Adding 90 agents and going to 150 agents in the US for uPrint and Mojo versus dimension retailers. Has there been any conflicts in the channel with this expansion?

Well we're at the beginning phase of it that we don't anticipate and we haven't seen any significant channel conflicts. Of course part of our job is to manage these smoothly, but we're not anticipating a significant one.

Stratasys has had a long history of having a good relationship with our resellers and we don't see anything in the channel expansion that we've done that's changed our relationship with our resellers. It's still very positive.

Okay, fair. I'm going to sneak another one in Bob for you. Gross margin on services, am I calculating this right, was it 43% versus 60% last quarter. Then what-- can you just explain that drop?

Yes, there's a couple of things that were playing in there. We had some lower margin on our maintenance overall, but RedEye, part of their sales growth was operating additional third-party services including outsourcing PolyJet. And when we're outsourcing those things to third parties, that has a negative impact overall on the margin percentage but a positive contribution to overall margin dollars. We would expect that to raise back up in future quarters.

Okay. So good luck with the Objet integration.

Thanks.

Thanks, Troy.

James Ricchiuti at Needham & Company.

I was wondering about-- another question on Mojo, to what extent does the introduction of Mojo potentially cannibalize uPrint sales? And is the product going to be widely available in Europe as well?

Well the product features of course are different, they're more complementary. For instance, Mojo has a five-inch envelope versus the larger 3D printers offer a larger -- basically different offerings. The overall strategy has always been for the last ten years to have some cannibalization, but significantly positive growth on an overall net basis. It's the old idea of controlling the growth and controlling what gets cannibalized. And we're very, very positive about it.

Jim, just -- there are some differences between the product lines. When you look at Mojo versus a uPrint, or a Dimension, the Mojo does have a smaller build envelope, it can only build in one slice. There is only one material, there's no color option currently with the Mojo. So there are some functionality features with the higher priced 3D printers that may appeal to certain customers versus the lower end or the most affordable product. But to Scott's point, it's really all about expanding the total installed base.

Got it. And the availability in Europe and implications in terms of HP, will they be carrying the product?

Mojo is going to be a worldwide product. I think from what we saw from HP in the quarter was positive sales momentum which is great for Stratasys, but our relationship to date is clearly defined with HP with uPrint and uPrint Plus, and I don't want to speculate on this call relative to relationship that we don't have.

Okay. And Bob, just a transaction expense in this quarter can you talk about that, I wasn't sure if you mentioned that or not?

Yes, we said it was about $1 million of expenses that we incurred in the quarter and most of those expenses are not tax deductible so the impact -- we have a non-GAAP table that we included in the press release, so the impact of that is much greater than you would typically put relative to EPS. But I think if you look at the non-GAAP table you'll be able to see the impacts of that.

Right, sorry I wasn't clear. I was just-- what should we anticipate in the current quarter, sorry, for transaction expense?

Yes and we haven't gone out and projected that externally and we're not providing guidance relative to that today. You can see that there's a large differentiation between our guidance between non-GAAP and GAAP, and it's widened from what it was previously and part of that is very much then the anticipation of the cost that we're going to incur relative to the combination with Objet.

So Jim, if you back-- if you take the EPS range adjustment there that's provided in the reconciliation table, you can back into the estimate for the Objet related expenses we expect to incur prior to closing. And then on closing, we would have some additional cost that we would incur and those are not estimated.

Yes, okay. So and the GAAP, non-GAAP that range, I'm just trying to get a sense will more of that happen in Q2, Q3, but I guess we'll have to see how that plays out.

Yes.

Thanks, Jim.

Thank you.

Steve Dyer from Craig-Hallum.

Just kind of back on Mojo, the 90 sales agents going to 150, is that above and beyond the current reseller channel just so I understand how it is going to be distributed? Is some or all of the current reseller channel going to be distributing this in addition to these specialist or what does the overall footprint look like?

Yes, the sales agents are incremental individuals that are selling the lower end products. Some of those are going to be agents that are added by the current reseller channel and some of those probably around half are going to be, or a little over half are going to be agents that are independent of any individual reseller.

Okay, so what percentage of the current reseller base will be offering this? If you have any estimate.

The vast majority of our resellers today will be offering Mojo. They're all excited about the product.

Yes we are definitely --

Just to repeat, that would be in addition-- the sales agents to be in addition to the vast majority of our resellers.

Okay. And then initially, or I guess both initially and then as you look forward, what do you expect for margin profile on the Mojo?

Well as we said in the comments, I think by Scott, we said that the while the price is lower it's actually a higher margin products for us than the uPrint. But the cost of Mojo is less than half of what uPrint is today. So we're pretty excited about reaching -- that's why we consider it a revolutionary because we've really reached new price points both from a customer perspective and then from an internal cost perspective.

And I know Bob, right-- coming right out of the gate with uPrint, it was lower margin for a little while until you were able to ring all the cost out. Do expect kind of a similar ramp with this or should this be kind of immediately very profitable?

Yes, we took a little different tact on Mojo trying to be-- trying reach that $10,000 price point. We really-- we took our time as Scott mentioned, it took over three years for us to develop this product and we had a focus on the cost of this product right from the beginning. It's not to say we were always looking for opportunities to lower the cost of the product which benefits everybody, but unlike uPrint, I think we don't project to have a significant decrease in the cost of the product in the near term.

Okay, great. And then as it relates to Objet, a couple questions there. One, any discussions I guess with HP to maybe, and I think you sort of touched on this earlier, but would you anticipate HP kind of working the Objet putting one of their products in the bag as well over there, or is that strictly going to be your printers?

Yes, like I said I think we need to focus on the relationship that we have with HP as opposed to speculating about what might be in the future.

Okay. Last one, Hart-Scott-Rodino regulatory review, when you would you expect sort of that initial look and do you have any I guess commentary there just given the dominance of the two of you? You feel okay about that going through et cetera?

Yes, we feel very confident the representation that we have and we're confident that we'll be able to complete this transaction because we believe we have complementary products, very much so, and I think we'll see that from our customers. And we'll know more when we talk about our second quarter conference call.

Okay, great. Thanks, guys.

Andrea James from Dougherty & Company.

Hi, thank you for taking my questions and congrats on the quarter and the new product.

Thank you.

Yes, so if I take-- if I estimate the GMs on the uPrint and I cut that production cost in half, then I get a GM on the Mojo that's about 60%, is that-- am I looking at that right?

Yes, we're not going to go into individual product. What we've said previously that the uPrint was our lower of the margin products and what we're trying to get across here is that's not the same case for the Mojo and we're not going to give individual product margins.

Okay. And then do think your gross margins would increase throughout the year or would the Q1 number be what you're thinking for the full year given the effect of the services business?

Yes, as a Company, we've always stayed away, depending on what our product mix is, we've always really tried to focus our shareholders on operating income, growth in sales and growth in operating income and this is true still today in terms of the guidance that we give. So at the level of guidance is we're comfortable what we've given is what you should rely on.

Okay and then tax rate seemed to be a little higher in Q1.

Yes, there's no doubt we had a higher tax rate. As we mentioned the $1 million of Objet expenses, primarily those are not tax deductible expenses. The other thing is I'm sure you're aware is the research and development credit in the US has expired as of 12/31/2011. We do expect that tax-- the R&D tax credit to come back later on in the year, so you're going to see some volatility in our tax rate this year that hasn't been there historically.

Thanks so much, guys.

Thank you.

[Andy Schopick], private investor.

Scott, I'm glad you got your Mojo back.

I got my Mojo back. (Laughter)

Bob I have two questions I'd like to ask you. First, could you give me the split between domestic and international on the revenue?

On the revenue it was 50/50.

It was 50/50. And about how much of the international revenue is derived from Western Europe?

I think overall, Europe represented almost 30% of our revenue in the quarter.

About 30%?

Yes and that's excluding Solidscape so it's on an apples-to-apples basis.

Okay, that helps. Bob question about the pending acquisition with Objet. I did try and look at the 8-K filings, I was looking for a little more detail here because in your press release when you did announce the deal as having -- is expected to have a combined equity value of $1.4 billion based on the closing price or based on the price in mid-April, which was around $36 million and now your stock is selling over $50 million, I can't really tell here how many shares are likely to be issued or how the change in the price level from the time you announce the deal may affect the terms of this deal. At what point are we going to be able to make our own kind of assessment of the financial impact in terms of understanding how many shares may be issued to complete the deal and when any pro forma numbers might be available for analysis?

Yes, I think what's very easy on this is this is a combination of two very successful companies. What you're going to see at the close is you're going to see Stratasys' shareholders will own 55% of the combined Company irrespective of what's going on in the stock price.

Okay, so that's a fixed--

And that's fixed. So we believe the combination is really built based on the performance of the Company as they've been and less so on the relative market value of our stock because we're in the same industry. In terms of answering your question when you're going to be able to see more relative to the financials of the two Companies, we're working currently on getting a proxy out to our shareholders which will give all the reasons that our Board unanimously voted for approval, recommending approval of this for our shareholders. And included that will be all the reasons that they put in that including our financial analysis of the combined Companies.

At about what time frame can we expect that?

Yes, I would expect some time within the next 30 days.

Thank you. Good luck.

Thank you, Andy.

(Operator Instructions) [Patrick Wu] of Battle Road Research.

I just wanted to ask a quick question about the Dimension as well as the lower end printing systems. As that-- sales from those products are lower than your expectations, would you say that is systemic to lower demand for those printers? Or are you seeing greater competition in those lines?

I think if you look at it-- I think important to say overall our units are up 822, versus 567 last year and 700 at the end of the year. So I think there's some very positive trends overall. I think what we're seeing is there's an impact from clearly from our Dimension 250mc and the ability of our channel to be able to upsell. And then part of our channel is during this quarter we've been building out our channel we've been-- for our sales team. We've also been focused on launching the Mojo. So I think it's-- there's very positive results within our numbers overall in terms of units and we think we're very much an expanding market as we've said multiple times, very underpenetrated.

Great, great. In terms of the Mojo, what-- can you guys identify possibly the largest market for that product? And really, is this any different from uPrint's targeted market as well?

Well with the lower price at a, what I think is an inflection point below $10,000, it covers all of the mechanical applications, mechanical CAD applications. Right now there's about nine of those verticals. They also expands into the lower budget groups of the architectural and of course, education. So it's really more about more volume at the inflection point of price elasticity than let's say in DDM, where you're actually creating whole new applications.

So you would say that they are vying for similar customers as the uPrint?

Yes.

But one of the things we think is key is it changes whose the-- we think $10,000 is a bright point relative to the approval of who has to approve that with in the Company. So that's where we think that the Mojo is going to be an exciting opportunity for us.

Great, if I may, I just want to squeeze in one last one. In terms of revenue contribution, how much did Asia-Pacific bring in this quarter? I know you said Europe contributor 30% from a question before, so I just wanted to see--

Yes, Asia-Pacific would be 15% to 17%.

Okay, great, that's all I have. Thank you.

Thank you Patrick.

Jim Ricchiuti from Needham & Company.

Hi, you gave the percentage increase for the consumables revenue year over year, I was just curious, what was the increase sequentially? What was it up from Q4?

Yes Jim, I don't have that at our fingertips but it was definitely up, given the fact that Q1 was an all time record. Remember, you do have the seasonality factor that you need to take into account. Even though we are very pleased the fact it was up sequentially, but I don't have that number in front of me.

Right. It just sounds as though there perhaps was less seasonality than you've normally seen.

Well I think the seasonality was there, it was just muted by the fact that we have business that's overall has just continued to grow very rapidly there.

Got it. And don't recall you giving units and you may have in the past for Solidscape. There's 71 units, how does that compare from the prior year if you-- or from Q4? Just tying to get a sense if you're seeing some more momentum in that product area?

Yes, we've consistently given the Solidscape unit numbers. So that's available out there on the previous calls, I think-- and it was up I think it was 68 units in Q4 of 2011. So it's up three units quarter over quarter.

Got it, thanks for clarifying that.

Thanks Jim.

Tim Mulrooney from William Blair.

Good morning, guys. I just-- I apologize if I missed this on the call. I know that you said 3D printer revenue was down 12% and Fortus revenue was up 61%. But I'm not sure if you guys gave the units for each, do you have that available?

Yes Tim. The 3D printing units which I believe we gave were up 15% and the Fortus units I believe we did not give. But we've tried to stay away from that, given the fact that we've introduced the 250mc and it's having such an extraordinary impact on the unit growth. But it-- the Fortus units were up well over 100%

But-- and when you've got things at a price point from the 250mc all the way up to the 900mc, we believe that giving the Fortus units is actually really kind of misleading for people.

Okay. Would it be fair to say that Fortus units were up sequentially?

Absolutely, they were up sequentially also.

Thanks, Tim.

Thank you, ladies and gentlemen, I would now like to turn the call over to Scott Crump your CEO for closing remarks.

Okay in conclusion, we enter 2012 well positioned for the long term. We have -- continue to see positive momentum in our Fortus product line. In addition, our consumable business continues to benefit primarily from our growing installed base of Fortus systems and higher utilization trends provided by DDM applications. We're very excited about the introduction of our new Mojo product line, which we believe can drive market expansion to a new level. Finally, we look forward to combining with Objet. This is an important transaction for companies as well as for the industry. We believe this combination will create significant value for all our stakeholders. We look forward to an exciting 2012 and would like to thank you for your interest in Stratasys and look forward to speaking with you again next quarter. Good-bye.

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