Stratasys Reports Third Quarter Financial Results

Stratasys, Inc. (NASDAQ:SSYS) today announced third quarter financial

results.

The company reported revenue of $30.3 million for the third quarter

ended September 30, 2010, a 24% increase over the $24.3 million reported

for the same period in 2009. System shipments for the third quarter

totaled a record 631 units, a 39% increase over the 454 for the same

period last year.

The company reported net income of $3.2 million for the third quarter,

or $0.15 per share, compared to net income of $1.6 million, or $0.08 per

share, for the same period last year.

Non-GAAP net income, which excludes stock-based compensation expense,

was $3.4 million, or $0.16 per share, for the third quarter of 2010

compared to $1.8 million, or $0.09 per share, for the same period last

year.

Revenue was $83.3 million for the nine-month period ended September 30,

2010, compared to $72.1 million reported for the same period in 2009.

System shipments totaled a record 1,923 units for the nine-month period,

a 29% increase over the 1,487 units shipped during the same period last

year.

The nine-month period in 2010 included a $5.0 million one-time non-cash

charge against revenue. The charge against revenue was taken in the

first quarter, and represents the fair value of a warrant issued to HP

(NYSE: HPQ) for 500,000 shares of Stratasys, Inc. common stock, in

connection with the distribution agreement signed in January 2010.

Non-GAAP revenue for the nine-month period, which excludes the warrant

charge, was $88.3 million, a 22% increase over the $72.1 million

reported for the same period in 2009.

Net income was $5.1 million for the nine-month period, or $0.24 per

share, compared to net income of $1.7 million, or $0.09 per share for

the same period last year.

Non-GAAP net income, which excludes the warrant charge, certain discrete

items and stock-based compensation expense, was $8.9 million, or $0.42

per share, for the nine-month period of 2010 compared to $2.8 million,

or $0.14 per share, for the same period last year.

Appropriate reconciliations between GAAP and non-GAAP financial measures

are provided in a table at the end of this press release. The table

provides itemized detail of the non-GAAP financial measures.

“The third quarter results represent the continuation of an improvement

in business conditions within our core markets,” said Scott Crump,

chairman and chief executive officer of Stratasys. “In addition, the

third quarter represents a building of positive momentum within our

business when you consider the seasonal weakness that is typical during

the period. Reflecting this momentum, our 3D printer and Fortus system

revenue grew by 26% and 39%, respectively. We are very pleased with our

financial performance.

“Our game-changing collaboration with HP continues to generate positive

results. HP orders remained strong during the third quarter and

end-customer demand for their new Designjet 3D printer continued to

build. The unit sales of Designjet in markets served by HP were more

than double the comparable uPrint sales generated within those markets

last year, an impressive achievement. Within HP markets, total 3D

printer unit volume, which includes the Designjet, expanded by 88% over

2009.

“We believe HP’s distribution capabilities can significantly expand the

unit system sales of our 3D printers over the long term. The HP brand

and marketing muscle have the potential to drive increased awareness and

product adoption. Although HP is using its initial launch in Europe to

refine a go-to-market strategy and better understand the 3D printing

market, it has an deep understanding of the end customer and the

market’s potential. HP has communicated its desire to move into

additional markets, and we are optimistic about expanding the

collaboration in the future.

“Our consumable revenue grew by 34% during the third quarter over 2009,

the fastest quarterly growth rate within the past three years. The

growth is being driven by a rebound in customer usage, as well as the

positive impact from our growing installed base of systems. We believe

this positive momentum can be sustained, as channel surveys suggest

consumable usage is accelerating, and reseller inventories remain

relatively tight. In addition, the 39% growth in system units for the

third quarter bodes well for future growth in consumable revenue.

“Fortus system sales growth during the third quarter was driven by the

ongoing economic recovery, as well as the incremental demand created by

emerging direct digital manufacturing, or DDM, applications. The

aerospace industry remains a leading innovator in using our technology

for DDM. We recently worked with Delta Airlines to provide a DDM

solution to address a priority maintenance issue on approximately 200 of

their aircraft. This unique application will include several hundred

end-use parts made on Fortus systems using our high-temperature ULTEM

material.

“We enter the fourth quarter with positive sales momentum in nearly all

aspects of our business and a strong pipeline of opportunities. We have

leveraged our growth with a distribution strategy that limits the

expansion of operating expenses, while continuing to invest aggressively

for the future. We believe these investments will yield evolutionary new

platforms developed from our proprietary technologies that can further

accelerate the adoption of our products.

“We are well positioned competitively and our financial health is the

strongest in our company’s history. We generated nearly $12 million in

cash from operations during the third quarter alone, and now maintain

approximately $84 million in cash and investments on our balance sheet.

Most importantly, we look forward to expanding our distribution

agreement with HP and realizing the full potential of that

collaboration. We are excited about our future,” Crump concluded.

Stratasys plans to hold a conference call to discuss its third quarter

financial results on Tuesday, October 26, 2010 at 8:30 a.m. (ET). The

investor conference call will be available via live webcast on the

Stratasys Web site at www.stratasys.com

under the "Investors" tab; or directly at the following web address: http://phx.corporate-ir.net/playerlink.zhtml?c=61402&s=wm&e=3415299.

To participate by telephone, the domestic dial-in number is

866-543-6405, and the international dial-in is 617-213-8897. The access

code is 22325390. Investors are advised to dial into the call at least

ten minutes prior to the call to register. The webcast will be available

for 90 days on the "Investors" page of the Stratasys Web site or by

accessing the provided web address.

(Financial tables follow)

Stratasys, Inc., Minneapolis, is a maker of additive

manufacturing machines for prototyping and producing plastic parts. The

company markets under the brands Dimension 3D Printers and Fortus 3D

Production Systems. The company also operates RedEye On Demand, a

digital manufacturing service for prototypes and production parts.

According to Wohlers Report 2010, Stratasys supplied more additive

manufacturing systems in 2009 than any other manufacturer, making it the

unit market leader for the eighth consecutive year. Stratasys patented

and owns the process known as FDM.^® The process creates

functional prototypes and manufactured goods directly from any 3D CAD

program, using high-performance industrial thermoplastics. The company

holds more than 285 granted or pending additive manufacturing patents

globally. Stratasys products are used in the aerospace, defense,

automotive, medical, business & industrial equipment, education,

architecture, and consumer-product industries. Online at: www.Stratasys.com.

*ULTEM is a trademark of SABIC Innovative Plastics IP BV. Stratasys,

FDM, Dimension, RedeyeRPM, and Fortus are registered trademarks of

Stratasys, Inc.

Forward Looking Statements

All statements herein that are not historical facts or that include

such words as “expects,” “anticipates,” “projects,” “estimates,”

“vision,” “could,” “potential,” “planning”, “intends”, “desires” 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 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 sale of our Dimension

®

and uPrint

3D Printers; our WaveWash support removal system; and our Fortus

TM

3D Production Systems, particularly for use in direct digital

manufacturing (DDM); the demand for our proprietary consumables; the

expansion of our paid parts service; and our beliefs with respect to the

growth in the demand for our products.

Other risks and

uncertainties that may affect our business include our ability to

penetrate the 3D printing market; the success of our distribution

agreement with HP; our ability to achieve the growth rates experienced

in preceding quarters; our ability to introduce, 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

technology; and the success of our RedEyeOnDemand

TM

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 obligation to do so, even if our beliefs and

expectations change. In addition to the statements described above, such

forward-looking statements are subject to 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.

Financial Tables & Non-GAAP Discussion

The information discussed within this release includes financial

results that are in accordance with accounting principles generally

accepted in the United States (GAAP).

In addition, certain

non-GAAP financial measures have been provided that exclude certain

charges and expenses.

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.

The non-GAAP financial measures primarily identify and

exclude certain discrete items, such as the warrant charge,

restructuring expenses, and expenses associated with stock-based

compensation required under ASC 718.

The company uses these

non-GAAP financial measures for evaluating comparable financial

performance against prior periods.

This release is also available on the Stratasys Web site at

www.Stratasys.com

.