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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 6-K

REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE 13a-16 OR 15d-16

UNDER THE SECURITIES EXCHANGE ACT OF 1934

 

For the month of August 2020

Commission File Number 001-35751

STRATASYS LTD.

(Translation of registrant’s name into English)

c/o Stratasys, Inc.

9600 West 76th Street

Eden Prairie, Minnesota 55344

1 Holtzman Street, Science Park

P.O. Box 2496

Rehovot, Israel 76124

(Address of principal executive office)

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F. Form 20-F ☒ Form 40-F ☐

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): ____

Note: Regulation S-T Rule 101(b)(1) only permits the submission in paper of a Form 6-K if submitted solely to provide an attached annual report to security holders.

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): ____

The contents of this Report of Foreign Private Issuer on Form 6-K (this “Form 6-K”), including Exhibits 99.1, 99.2 and 101 annexed hereto, are incorporated by reference into the Registrant’s registration statements on Form S-8, SEC file numbers 333-190963 and 333-236880, filed by the Registrant with the SEC on September 3, 2013 and March 4, 2020, and shall be a part thereof from the date on which this Form 6-K is furnished, to the extent not superseded by documents or reports subsequently filed or furnished.

CONTENTS

On August 5, 2020, Stratasys Ltd., or Stratasys, released its financial results for the three and six months ended June 30, 2020.

Attached hereto as Exhibit 99.1 are the unaudited, condensed consolidated financial statements of Stratasys for the three and six months ended June 30, 2020 (including the notes thereto) (the “Q2 2020 Financial Statements”).

Attached hereto as Exhibit 99.2 is Stratasys’ review of its results of operations and financial condition for the three and six months ended June 30, 2020, including the following:

(i)

Operating and Financial Review and Prospects

(ii)

Quantitative and Qualitative Disclosures About Market Risk

(iii)

Legal Proceedings

(iv)

Risk Factors

Attached hereto as Exhibit 101 are the Q2 2020 Financial Statements, formatted in IXBRL (eXtensible Business Reporting Language), consisting of the following sub-exhibits:

Exhibit

Number

Document Description

EX-101.INS

IXBRL Taxonomy Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document

EX-101.SCH

IXBRL Taxonomy Extension Schema Document

EX-101.CAL

IXBRL Taxonomy Calculation Linkbase Document

EX-101.DEF

IXBRL Taxonomy Extension Definition Linkbase Document

EX-101.LAB

IXBRL Taxonomy Label Linkbase Document

EX-101.PRE

IXBRL Taxonomy Presentation Linkbase Document

EX-104

Cover Page Interactive Data File – the cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

STRATASYS LTD.

Dated: August 5, 2020

By:

/s/ Lilach Payorski

Name:

Lilach Payorski

Title:

Chief Financial Officer

Exhibit 99.1

STRATASYS LTD.

CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED

JUNE 30, 2020

(UNAUDITED)

INDEX TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2020

(UNAUDITED)

Item

 

Page

Consolidated Balance Sheets

2

Consolidated Statements of Operations and Comprehensive Income (Loss)

3

Consolidated Statements of Changes in Equity

4

Consolidated Statements of Cash Flows

5

Notes to Condensed Consolidated Interim Financial Statements

6-17

1

STRATASYS LTD.

CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(Unaudited)

Consolidated Balance Sheets

(in thousands, except share data)

 

 

 

 

 

 

 

 

 

 

June 30, 2020

 

December 31, 2019

ASSETS

 

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

284,742

 

 

$

293,484

 

Short-term Deposits

 

 

28,300

 

 

 

28,300

 

Accounts receivable, net

 

 

102,212

 

 

 

132,558

 

Inventories

 

 

164,588

 

 

 

168,504

 

Prepaid expenses

 

 

7,056

 

 

 

6,567

 

Other current assets

 

 

19,969

 

 

 

29,659

 

Total current assets

 

 

606,867

 

 

 

659,072

 

Non-current assets

 

 

 

 

 

 

 

 

Property, plant and equipment, net

 

 

194,437

 

 

 

189,706

 

Goodwill

 

 

385,636

 

 

 

385,658

 

Other intangible assets, net

 

 

75,638

 

 

 

87,328

 

Operating lease right-of-use assets

 

 

17,738

 

 

 

20,936

 

Other non-current assets

 

 

33,744

 

 

 

38,819

 

Total non-current assets

 

 

707,193

 

 

 

722,447

 

Total assets

 

$

1,314,060

 

 

$

1,381,519

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

 

Accounts payable

 

$

30,600

 

 

$

35,818

 

Accrued expenses and other current liabilities

 

 

23,743

 

 

 

28,528

 

Accrued compensation and related benefits

 

 

29,548

 

 

 

34,013

 

Deferred revenues

 

 

48,617

 

 

 

52,268

 

Operating lease liabilities - short-term

 

 

8,667

 

 

 

9,292

 

Total current liabilities

 

 

141,175

 

 

 

159,919

 

Non-current liabilities

 

 

 

 

 

 

 

 

Deferred revenues - long-term

 

 

13,489

 

 

 

16,039

 

Operating lease liabilities - long-term

 

 

9,493

 

 

 

12,445

 

Other non-current liabilities

 

 

31,576

 

 

 

35,343

 

Total non-current liabilities

 

 

54,558

 

 

 

63,827

 

Total liabilities

 

$

195,733

 

 

$

223,746

 

Contingencies (see note 11)

 

 

 

 

 

 

 

 

Redeemable non-controlling interests

 

 

572

 

 

 

622

 

Equity

 

 

 

 

 

 

 

 

Ordinary shares, NIS 0.01 nominal value, authorized 180,000 thousands shares; 55,030 thousands shares and 54,441 thousands shares issued and outstanding at June 30, 2020 and December 31, 2019, respectively

 

 

150

 

 

 

148

 

Additional paid-in capital

 

 

2,717,963

 

 

 

2,706,894

 

Accumulated other comprehensive loss

 

 

(8,494

)

 

 

(7,716

)

Accumulated deficit

 

 

(1,591,864

)

 

 

(1,542,175

)

Total equity

 

 

1,117,755

 

 

 

1,157,151

 

 

Total liabilities and equity

 

$

1,314,060

 

 

$

1,381,519

 

The accompanying notes are an integral part of these condensed consolidated interim financial statements.

2

STRATASYS LTD.

CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(Unaudited)

Consolidated Statements of Operations and Comprehensive Income (Loss)

 

 

 

Three Months Ended June 30,

 

Six Months Ended June 30,

in thousands, except per share data

 

2020

 

2019

 

2020

 

2019

Net sales

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Products

 

$

73,877

 

 

$

110,341

 

 

$

157,049

 

 

$

215,432

 

Services

 

 

43,746

 

 

 

52,822

 

 

 

93,481

 

 

 

103,031

 

 

 

 

117,623

 

 

 

163,163

 

 

 

250,530

 

 

 

318,463

 

Cost of sales

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Products

 

 

39,969

 

 

 

47,095

 

 

 

79,217

 

 

 

91,264

 

Services

 

 

33,918

 

 

 

34,901

 

 

 

67,707

 

 

 

69,575

 

 

 

 

73,887

 

 

 

81,996

 

 

 

146,924

 

 

 

160,839

 

Gross profit

 

 

43,736

 

 

 

81,167

 

 

 

103,606

 

 

 

157,624

 

  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development, net

 

 

21,303

 

 

 

24,040

 

 

 

45,497

 

 

 

46,614

 

Selling, general and administrative

 

 

51,711

 

 

 

56,322

 

 

 

107,287

 

 

 

113,476

 

 

 

 

73,014

 

 

 

80,362

 

 

 

152,784

 

 

 

160,090

 

Operating income (loss)

 

 

(29,278

)

 

 

805

 

 

 

(49,178

)

 

 

(2,466

)

  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial income (expenses), net

 

 

149

 

 

1,755

 

 

 

(680

)

 

 

2,508

 

  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) before income taxes

 

 

(29,129

)

 

 

2,560

 

 

 

(49,858

)

 

 

42

 

  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income tax expenses (benefit)

 

 

(2,128

)

 

 

1,280

 

 

 

(1,907

)

 

 

2,498

 

  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Share in profits (losses) of associated companies

 

 

(950

)

 

 

(195

)

 

 

(1,788

)

 

 

1,228

 

  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

$

(27,951

)

 

$

1,085

 

 

$

(49,739

)

 

$

(1,228

)

  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) attributable to non-controlling interests

 

 

35

 

 

 

(67

)

 

 

(50

)

 

 

(110

)

  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) attributable to Stratasys Ltd.

 

$

(27,986

)

 

$

1,152

 

 

$

(49,689

)

 

$

(1,118

)

  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net earnings (loss) per ordinary share attributable to Stratasys Ltd. - basic and diluted

 

$

(0.51

)

 

$

0.02

 

 

$

(0.91

)

 

$

(0.02)

 

  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average ordinary shares outstanding -

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

54,917

 

 

 

54,231

 

 

 

54,733

 

 

 

54,102

Diluted

 

 

54,917

 

 

 

54,687

 

 

 

54,733

 

 

 

54,102

  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

 

(27,951

)

 

 

1,085

 

 

 

(49,739

)

 

 

(1,228

)

Other comprehensive income (loss), net of tax:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

 

287

 

 

(17

)

 

 

(1,667

)

 

 

(444

)

Unrealized gains on derivatives designated as cash flow hedges

 

 

67

 

 

 

155

 

 

 

889

 

 

 

1,150

 

Other comprehensive income (loss), net of tax

 

 

354

 

 

138

 

 

 

(778)

 

 

 

706

 

Comprehensive income (loss)

 

 

(27,597

)

 

 

1,223

 

 

 

(50,517

)

 

 

(522

)

Less: comprehensive income (loss) attributable to non-controlling interests

 

 

35

 

 

(67

)

 

 

(50

)

 

 

(110

)

Comprehensive income (loss) attributable to Stratasys Ltd.

 

$

(27,632

)

 

$

1,290

 

 

$

(50,467

)

 

$

(412

)

The accompanying notes are an integral part of these condensed consolidated interim financial statements.

3

STRATASYS LTD.

CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(Unaudited)

Consolidated Statements of Changes in Equity

(in thousands)

Three and Six Months Ended June 30, 2020 and 2019

Ordinary Shares

Additional

Paid-In

Accumulated

Accumulated

Other

Comprehensive

Total

Equity

Number of

Par

shares

Value

Capital

deficit

Loss

Balance as of December 31, 2019

54,441

148

2,706,894

(1,542,175

)

(7,716

)

1,157,151

 

Issuance of shares in connection with stock-based compensation plans

358

1

29

-

-

30

 

Stock-based compensation

-

-

4,907

-

-

4,907

 

Comprehensive loss

-

-

-

(21,703

)

(1,132

)

(22,835

)

Balance as of March 31, 2020

$

54,799

$

149

$

2,711,830

$

(1,563,878

)

$

(8,848

)

$

1,139,253

Issuance of shares in connection with stock-based compensation plans

231

1

22

-

-

23

 

Stock-based compensation

-

-

6,111

-

-

6,111

 

Comprehensive income (loss)

-

-

-

(27,986

)

354

(27,632

)

Balance as of June 30, 2020

$

55,030

$

150

$

2,717,963

$

(1,591,864

)

$

(8,494

)

$

1,117,755

 

Ordinary Shares

Additional

Paid-In

Accumulated

Accumulated

Other

Comprehensive

Total

Equity

Number of

Par

shares

Value

Capital

deficit

Loss

Balance as of December 31, 2018

53,881

 

146

2,681,048

(1,531,326

)

 

(7,753

)

 

1,142,115

 

Cumulative effect of changes in accounting principles

-

-

-

-

-

-

Issuance of shares in connection with stock-based compensation plans

167

*

2,222

-

-

2,222

 

Stock-based compensation

-

-

4,229

-

-

4,229

 

Comprehensive income (loss)

-

 

-

 

-

 

(2,270

)

568

 

(1,702

)

Balance as of March 31, 2019

54,048

 

$

146

 

$

2,687,499

 

$

(1,533,596

)

$

(7,185

)

$

1,146,864

 

 

Issuance of shares in connection with stock-based compensation plans

296

1

2,030

-

-

2,031

 

Stock-based compensation

-

-

6,093

-

-

6,093

 

Comprehensive income

-

 

-

 

-

 

1,152

 

138

 

1,290

 

Balance as of June 30, 2019

54,344

 

$

147

 

$

2,695,622

 

$

(1,532,444

)

$

(7,047

)

$

1,156,278

 

* Represents an amount less than 0.5 thousand

 

The accompanying notes are an integral part of these condensed consolidated interim financial statements.

4

STRATASYS LTD.

CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(Unaudited)

Consolidated Statements of Cash Flows

Six Months Ended June 30,

in thousands

2020

2019

Cash flows from operating activities

Net loss

$

(49,739

)

$

(1,228

)

Adjustments to reconcile net loss to net cash provided by operating activities:

Depreciation and amortization

25,104

25,063

Stock-based compensation

11,018

10,322

Foreign currency transaction loss (gain)

1,006

(1,603

)

Deferred income taxes

(26

)

(1,123

)

Gain from sale of unconsolidated entity

-

(3,578

)

Share in losses (profits) of associated companies

1,788

(1,228

)

Other non-cash items, net

385

903

Change in cash attributable to changes in operating assets and liabilities:

Accounts receivable, net

29,858

6,372

Inventories

2,382

(27,128

)

Net investment in sales-type leases

679

1,801

Other current assets and prepaid expenses

5,512

(6,390

)

Other non-current assets

3,046

3,875

Accounts payable

(8,684

)

8,812

Other current liabilities

(7,992

)

(12,798

)

Deferred revenues

(6,092

)

(1,357

)

Other non-current liabilities

(6,723

)

122

Net cash provided by operating activities

1,522

837

Cash flows from investing activities

Purchase of property and equipment

(13,030

)

(10,423

)

Proceeds from sale of equity method investment

3,175

-

Net proceeds from divestitures of subsidiaries and associated companies

1,000

-

Proceeds from sale of plant and property

-

129

Purchase of intangible assets

(726

)

(800

)

Proceeds from sale of subsidiaries and unconsolidated entity

-

4,909

Other investing activities

144

(385

)

Net cash used in investing activities

(9,437

)

(6,570

)

Cash flows from financing activities

Repayment of debt

-

(27,293

)

Proceeds from exercise of stock options

53

4,252

Net cash provided by (used in) financing activities

53

(23,041

)

Effect of exchange rate changes on cash, cash equivalents and restricted cash

(880

)

1,697

Net change in cash, cash equivalents and restricted cash

(8,742

)

(27,077

)

Cash, cash equivalents and restricted cash, beginning of period

293,597

393,734

Cash, cash equivalents and restricted cash, end of period

$

284,855

$

366,657

Supplemental disclosures of cash flow information:

Transfer of inventory to fixed assets

1,327

2,614

Transfer of fixed assets to inventory

21

127

The accompanying notes are an integral part of these condensed consolidated interim financial statements.

5

STRATASYS LTD.

NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED)

Note 1. Business Description and Basis of Presentation

Stratasys Ltd. (collectively with its subsidiaries, the “Company”) is a global provider of applied additive technology solutions for a broad range of industries. The Company focuses on customers’ business requirements and seeks to create new value for its customers across their product lifecycle processes, from design prototypes to manufacturing tools and final production parts. The Company operates a 3D printing ecosystem of solutions and expertise, comprised of: 3D printers ranging from entry-level desktop 3D printers to systems for rapid prototyping (“RP”) and large production systems for direct digital manufacturing (“DDM”) based on precise fused deposition modeling (“FDM”) and PolyJet technologies; advanced materials for use with its 3D printers; software with voxel level control; application-based services; on-demand parts; and key partnerships.

The condensed consolidated interim financial information herein is unaudited; however, such information reflects all adjustments (consisting of normal, recurring adjustments), which are, in the opinion of management, necessary for a fair statement of results for the interim period. The condensed consolidated interim financial statements include the accounts of Stratasys Ltd. and its subsidiaries. All intercompany accounts and transactions, including profits from intercompany sales not yet realized outside the Company, have been eliminated in consolidation.

The Company financial statements are prepared in conformity with U.S. generally accepted accounting principles ("GAAP"), which requires the Company to make estimates based on assumptions about current and, for some estimates, future economic and market conditions which affect reported amounts and related disclosures in its financial statements. Although the Company current estimates contemplate current and expected future conditions, as applicable, it is reasonably possible that actual conditions could differ from the Company expectations, which could materially affect its results of operations and financial position.

In particular, a number of estimates have been and will continue to be affected by the ongoing Coronavirus Disease 2019 (COVID-19) pandemic. The severity, magnitude and duration, as well as the economic consequences of the COVID-19 pandemic, are uncertain, rapidly changing and difficult to predict. As a result, the accounting estimates and assumptions may change over time in response to COVID-19. Such changes could impact the Company’s goodwill, long-lived asset and intangible asset valuation; inventory valuation; assessment of the annual effective tax rate; and the allowance for expected credit losses and bad debt.

The results of operations for the three and six months ended June 30, 2020 are not necessarily indicative of the results to be expected for the full year. Certain financial information and footnote disclosures normally included in the annual consolidated financial statements prepared in accordance with GAAP have been condensed or omitted. The reader is referred to the audited consolidated financial statements and notes thereto for the year ended December 31, 2019, filed with the U.S. Securities and Exchange Commission (the “SEC”) as part of the Company’s Annual Report on Form 20-F for such year on February 26, 2020.

Note 2. New Accounting Pronouncements

Accounting Pronouncements Adopted in the Current Period

In August 2018, the Financial Accounting Standards Board (the “FASB”) issued an Accounting Standards Update (an “ASU”) that clarifies the accounting for implementation costs in cloud computing arrangements. This ASU requires the implementation costs incurred by customers in cloud computing arrangements to be deferred and recognized over the term of the arrangement, if those costs would be capitalized by the customers in a software licensing arrangement. The Company adopted this guidance effective January 1, 2020, with no material impact on its consolidated financial statements.

In June 2016, the FASB issued an ASU that supersedes the existing impairment model for most financial assets to a current expected credit loss model. The new guidance requires an entity to recognize an impairment allowance equal to its current estimate of all contractual cash flows the entity does not expect to collect. The ASU also requires that credit losses relating to available-for-sale debt securities will be recorded through an allowance for credit losses. The Company adopted this guidance effective January 1, 2020, with no material impact on its consolidated financial statements.

6

STRATASYS LTD.

NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED)

Recently Issued Accounting Pronouncements Not Yet Adopted

In December 2019, the FASB issued new guidance to simplify the accounting for income taxes by removing certain exceptions to the general principles and simplification of areas such as franchise taxes, step-up in tax basis goodwill, separate entity financial statements and interim recognition of enactment of tax laws or rate changes The guidance will be effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020, with early adoption permitted. The Company is currently evaluating the impact of the adoption of the new guidance on its consolidated financial statements.

7

STRATASYS LTD.

NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(UNAUDITED)

Note 3. Revenues

Disaggregation of Revenues

The following table presents the Company’s revenues disaggregated by geographical region (based on the Company's customers' locations) and revenue type for the three and six months ended June 30, 2020 and 2019:

Three months ended June 30,

Six months ended June 30,

2020

2019

2020

2019

(U.S. $ in thousands)

(U.S. $ in thousands)

Americas

Products

$

44,800

$

67,137

$

93,044

$

125,191

Service

33,901

 

40,888

72,230

 

79,332

Total Americas

78,701

 

108,025

165,274

 

204,523

 

EMEA

Products

15,743

23,323

36,490

51,408

Service

5,172

 

6,826

11,345

 

13,524

Total EMEA

20,915

 

30,149

47,835

 

64,932

 

Asia Pacific

Products

13,334

19,881

27,515

38,833

Service

4,673

 

5,108

9,906

 

10,175

Total Asia Pacific

18,007

 

24,989

37,421

 

49,008

 

 

 

Total Revenues

$

117,623

$

163,163

$

250,530

$

318,463

The following table presents the Company’s revenues disaggregated based on the timing of revenue recognition (at a specific point in time or over the course of time) for the three and six months ended June 30, 2020 and 2019:

Three months ended June 30,

Six months ended June 30,

2020

2019

2020

2019

(U.S. $ in thousands)

(U.S. $ in thousands)

Revenues recognized in point in time from:

Products

$

73,877

$

110,341

$

157,049

$

215,432

Services

8,778

 

10,747

19,422

 

21,374

Total revenues recognized in point in time

82,655

 

121,088

176,471

 

236,806

 

Revenues recognized over time from:

Services

34,968

 

42,075

74,059

 

81,657

Total revenues recognized over time

34,968

 

42,075

74,059

 

81,657

 

Total Revenues

$

117,623

$

163,163

$

250,530

$

318,463

8

STRATASYS LTD.

NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED)

Contract Assets and Contract Liabilities

Contract assets are recorded when the Company's right to consideration is conditional on constraints other than the passage of time. The Company had no material contract assets as of June 30, 2020 and December 31, 2019.

Contract liabilities include advance payments and billings in excess of revenue recognized, which are primarily related to advanced billings for service type warranty. Contract liabilities are presented under deferred revenues. The Company's deferred revenues as of June 30, 2020 and December 31, 2019 were as follows:

 

June 30,

2020

 

December 31,

2019

 

U.S. $ in thousands

Deferred revenues*

62,106

 

68,307

*Includes $13.5 million and $16.0 million under long term deferred revenue in the Company's consolidated balance sheets as of June 30, 2020 and December 31, 2019, respectively.

Revenue recognized in 2020 that was included in deferred revenue balance as of January 1, 2020 was $13.6 million and $31.6 million for the three and six months ended June 30, 2020, respectively.

Remaining Performance Obligations

Remaining Performance Obligations ("RPO") represents contracted revenue that has not yet been recognized, which includes deferred revenue and amounts that will be invoiced and recognized as revenue in future periods. As of June 30, 2020, the total RPO amounted to $84.0 million. The Company expects to recognize $66.8 million of this RPO during the next 12 months, $12.0 million over the subsequent 12 months and the remaining $5.2 million thereafter.

Incremental Costs of Obtaining a Contract

Sales commissions earned mainly by the Company’s sales agents are considered incremental costs of obtaining a contract with a customer, as the Company expects the benefit of those commissions to be longer than one year. The majority of the sales commissions are not subject to capitalization, as the commission expense is recognized as the related revenue is recognized. Sales commissions for initial contracts related to the service type warranty are deferred and then amortized on a straight-line basis over the expected customer relationship period if the Company expects to recover those costs. Amortization expense is included in selling, general and administrative expenses in the consolidated statements of operations. As of June 30, 2020 and December 31, 2019, the deferred commission amounted to $4.0 million and $3.9 million respectively.

9

STRATASYS LTD.

NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED)

Note 4. Inventories

Inventories consisted of the following:

June 30,

2020

December 31,

2019

U.S. $ in thousands

Finished goods

$

84,616

$

87,967

Work-in-process

2,982

3,106

Raw materials

 

76,990

 

77,431

 

 

164,588

 

168,504

Note 5. Goodwill and Other Intangible Assets

Goodwill

Changes in the carrying amount of the Company’s goodwill for the six months ended June 30, 2020 were as follows:

U.S. $ in thousands

Goodwill as of January 1, 2020

$

385,658

Foreign currency translation adjustments

(22

)

Goodwill as of June 30, 2020

$

385,636

 

During the fourth quarter of 2019, the Company performed a quantitative assessment for goodwill impairment for its Stratasys-Objet reporting unit.

Following its quantitative assessment, the Company concluded that the fair value of its Stratasys-Objet reporting unit exceeded its carrying amount by approximately 8.7%, with a carrying amount of goodwill assigned to this reporting unit in an amount of $386 million.

When evaluating the fair value of its Stratasys-Objet reporting unit, the Company used a discounted cash flow model which utilized Level 3 measures that represent unobservable inputs into the valuation method. Key assumptions used to determine the estimated fair value include: (a) expected cash flows for five years following the assessment date which were based on, among other factors, expected revenue growth, costs to produce, operating profit margins and estimated capital needs; (b) an estimated terminal value that utilized a terminal year growth rate of 3.1% that was determined based on the growth prospects of the reporting unit; and (c) a discount rate of 13.5% based on management’s best estimate of the after-tax weighted average cost of capital. If any of these were to vary materially from the Company's estimates, the Company could face impairment of goodwill allocated to this reporting unit in the future.

Actual results may differ from those assumed in the Company's valuation method. It is reasonably possible that the Company's assumptions described above could change in future periods. If any of these were to vary materially from the Company's plans, it may record impairment of goodwill allocated to this reporting unit in the future.

A hypothetical decrease in the growth rate of 1% or an increase of 1% to the discount rate would have reduced the fair value of Stratasys-Objet reporting unit by approximately $45 million and $81 million, respectively.

Based on the Company’s assessment as of December 31, 2019, no goodwill was determined to be impaired.

10

STRATASYS LTD.

NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED)

During the first quarter of 2020, the Company performed an analysis of the impact of recent events, including business and industry specific considerations, on the fair value of Stratasys-Objet reporting unit. As part of this analysis the Company considered the potential impacts of COVID-19 and the sensitivity of estimates and assumptions used in the last annual impairment test as well as changes in market capitalization.

During the second quarter of 2020, the Company announced a restructuring plan to reduce operating expenses as part of a cost realignment program to focus on profitable growth (the "Plan"). The Plan’s cost-cutting measures included workforce reductions affecting approximately 10% of employees, as well as other cost-mitigation measures. Please refer to Note 12 for further discussion. The Company reassessed its analysis from the first quarter in light of macroeconomic developments and its cost-cutting measures.

While the goodwill of the reporting unit is not currently impaired, there can be no assurances that goodwill will not be impaired in future periods. The Company will continue to monitor the impact of COVID-19 as well as events and changes in circumstances such as a deterioration in the business climate or operating results, significant decline in the Company's share price, changes in management’s business strategy or downward changes to the Company's cash flows projections.

Other Intangible Assets

Other intangible assets consisted of the following:

June 30, 2020

December 31, 2019

Carrying Amount,

Net of

Impairment

Accumulated

Amortization

Net

Book

Value

Carrying Amount,

Net of

Impairment

Accumulated

Amortization

Net

Book

Value

U.S. $ in thousands

Developed

technology

$

294,105

$

(254,881

)

$

39,224

$

299,100

$

(252,136

)

$

46,964

Patents

15,839

(7,768

)

8,071

15,142

(7,067

)

8,075

Trademarks and trade names

26,004

(20,544

)

5,460

25,991

(19,966

)

6,025

Customer

relationships

101,589

(78,706

)

22,883

102,936

(76,813

)

26,123

Capitalized software

development costs

18,489

(18,489

)

-

18,630

(18,489

)

141

 

$

456,026

$

(380,388

)

$

75,638

$

461,799

$

(374,471

)

$

87,328

Amortization expenses relating to intangible assets for the three-month periods ended June 30, 2020 and 2019 were approximately $6.2 million and $6.0 million, respectively. Amortization expenses relating to intangible assets for the six-month periods ended June 30, 2020 and 2019 were approximately $12.4 million and $12.1 million, respectively.

As of June 30, 2020, the estimated amortization expenses relating to intangible assets for each of the following periods were as follows:

Estimated

amortization expense

(U.S. $ in thousands)

Remaining 6 months of 2020

$

12,421

2021

24,734

2022

24,668

2023

7,732

Thereafter

6,083

Total

75,638

11

STRATASYS LTD.

NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED)

Note 6. Earnings (Loss) Per Share

The following table presents the numerator and denominator of the basic and diluted net earnings (loss) per share computations for the three and six months ended June 30, 2020 and 2019:

Three months ended June 30,

Six months ended June 30,

2020

2019

2020

2019

In thousands, except per share amounts

In thousands, except per share amounts

Numerator:

Net income (loss) attributable to Stratasys Ltd.

$

(27,986

)

$

1,152

$

(49,689

)

$

(1,118

)

Denominator:

Weighted average shares - denominator for

Basic

54,917

54,231

54,733

54,102

Diluted

54,917

54,687

54,733

54,102

Net earnings (loss) per share attributable to  Stratasys Ltd.

Basic

$

(0.51

)

$

0.02

$

(0.91

)

$

(0.02

)

Diluted

$

(0.51

)

$

0.02

$

(0.91

)

$

(0.02

)

The computation of diluted net loss per share excluded share awards of 4.9 million shares and 5.1 million shares for the six months ended June 30, 2020 and 2019, respectively, because their inclusion would have had an anti-dilutive effect on the diluted net loss per share.

The computation of diluted net earnings (loss) per share excluded share awards of 4.9 million shares and 3.5 million shares for the three months ended June 30, 2020 and 2019, respectively, because their inclusion would have had an anti-dilutive effect on the diluted net earnings (loss) per share.

Note 7. Income Taxes

The Company had income tax benefit of $2.1 million for the three-month period ended June 30, 2020 compared to income tax expenses of $1.3 million for the three month period ended June 30, 2019, and income tax benefit of $1.9 million for the six-month period ended June 30, 2020 compared to income tax expenses of $2.5 million for the six-month period ended June 30, 2019. The Company’s effective tax rate as of June 30, 2020 was primarily impacted by higher discrete tax benefits following expiration of applicable tax statute of limitations as well as geographic mix of its earnings and losses.

12

STRATASYS LTD.

NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED)

Note 8. Fair Value Measurements

Financial instruments measured at fair value

The following tables summarize the Company’s financial assets and liabilities that are carried at fair value on a recurring basis, in its consolidated balance sheets:

June 30, 2020

December 31, 2019

(U.S. $ in thousands)

Assets:

Foreign exchange forward contracts not designated as hedging instruments

$

207

$

63

Foreign exchange forward contracts designated as hedging instruments

479

315

 

Liabilities:

Foreign exchange forward contracts not designated as hedging instruments

(162

)

(388

)

Foreign exchange forward contracts designated as hedging instruments

 

(19

)

 

(326

)

$

505

 

$

(336

)

The Company’s foreign exchange forward contracts are classified as Level 2, as they are not actively traded and are valued using pricing models that use observable market inputs, including interest rate curves and both forward and spot prices for currencies (Level 2 inputs).

Other financial instruments consist mainly of cash and cash equivalents, current and non-current receivables, net investment in sales-type leases, accounts payable and other current liabilities. The fair value of these financial instruments approximates their carrying values.

13

STRATASYS LTD.

NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED)

Note 9. Derivative instruments and hedging activities

Since the Company conducts its operations globally, it is exposed to global market risks and to the risk that its earnings, cash flows and equity could be adversely impacted by fluctuations in foreign currency exchange rates. The Company enters into transactions involving foreign currency exchange derivative financial instruments. The Company manages its foreign currency exposures on a consolidated basis, which allows the Company to net exposures and take advantage of any natural hedging. The transactions are designed to manage the Company’s net exposure to foreign currency exchange rates and to reduce the volatility of earnings and cash flows associated with changes in foreign currency exchange rates. The Company does not enter into derivative transactions for trading purposes.

The Company is primarily exposed to foreign exchange risk with respect to recognized assets and liabilities and forecasted transactions denominated in the New Israeli Shekel (“NIS”), Euro, Korean Won, Chinese Yuan and the Japanese Yen. The gains and losses on the hedging instruments partially offset losses and gains on the hedged items. Financial markets and currency volatility may limit the Company’s ability to hedge these exposures. These contracts mature through April 2021.

The following table summarizes the consolidated balance sheets classification and fair values of the Company’s derivative instruments:

Fair Value

Notional Amount

Balance sheet location

June 30,

2020

December 31,

2019

June 30,

2020

December 31,

2019

U.S. $ in thousands

Assets derivatives - Foreign exchange contracts, not designated as hedging instruments

Other current assets

$

207

$

63

$

62,627

$

11,001

Assets derivatives-Foreign exchange contracts, designated as cash flow hedge

Other current assets

479

315

49,980

25,045

Liability derivatives -Foreign exchange contracts, not designated as hedging instruments

Accrued expenses and other current liabilities

(162

)

(388

)

29,348

92,929

Liability derivatives - Foreign exchange contracts, designated as hedging instruments

Accrued expenses and other current liabilities

(19

)

(326

)

9,555

45,262

$

505

$

(336

)

$

151,510

$

174,237

Foreign exchange contracts not designated as hedging instruments

As of June 30, 2020, the notional amounts of the Company’s outstanding exchange forward contracts, not designated as hedging instruments, were $92.0 million, and were used to reduce foreign currency exposures. With respect to such derivatives, losses of $1.1 million and $0.04 million were recognized under financial income (expense), net for the three-month periods ended June 30, 2020 and 2019, respectively and gains of $0.9 million and $1.2 million were recognized under financial income (expense), net for the six-month periods ended June 30, 2020 and 2019, respectively. Such gains or losses partially offset the foreign currencies revaluation changes of the balance sheet items. These foreign currencies revaluation changes are also recognized under financial income (expense), net.

Cash Flow Hedging—Hedges of Forecasted Foreign Currency Payroll

As of June 30, 2020, the Company had in effect foreign exchange forward contracts, designated as cash flow hedge for accounting purposes, for the conversion of $25.5 million into NIS. The Company uses short-term cash flow hedge contracts to reduce its exposure to variability in expected future cash flows resulting mainly from payroll costs denominated in NIS. The changes in fair value of those contracts are included in the Company’s accumulated other comprehensive loss.

14

STRATASYS LTD.

NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED)

Cash Flow Hedging—Hedges of Forecasted Foreign Currency Revenue

As of June 30, 2020, the Company had in effect foreign exchange forward contracts, designated as cash flow hedges for accounting purposes, for the conversion of 30.0 million Euro into U.S. dollars. The Company transacts business in U.S. dollars and in various other currencies. The Company may use foreign exchange or forward contracts to hedge certain cash flow exposures resulting from changes in these foreign currency exchange rates. These foreign exchange contracts, carried at fair value, have maturities of up to twelve months. The Company enters into these foreign exchange contracts to hedge a portion of its forecasted foreign currency denominated revenue in the normal course of business and accordingly, they are not speculative in nature.

Note 10. Equity

a. Stock-based compensation plans

Stock-based compensation expenses for equity-classified stock options, restricted share units (“RSUs”) and performance stock units ("PSUs") were allocated as follows:

Three Months Ended

June 30,

Six Months Ended

June 30,

2020

2019

2020

2019

U.S $ in thousands

U.S $ in thousands

Cost of sales

$

497

$

541

$

900

$

895

Research and development, net

1,702

1,511

3,259

2,270

Selling, general and administrative

 

3,912

 

4,041

 

6,859

 

7,157

Total stock-based compensation expenses

$

6,111

$

6,093

$

11,018

$

10,322

A summary of the Company’s stock option activity for the six months ended June 30, 2020 is as follows:

Number of Options

Weighted Average

Exercise Price

Options outstanding as of January 1, 2020

1,961,532

$

31.16

Granted

360,000

17.10

Exercised

(2,237

)

8.09

Forfeited

(76,753

)

28.74

Options outstanding as of June 30, 2020

2,242,542

$

29.01

Options exercisable as of June 30, 2020

1,732,704

$

32.24

As of June 30, 2020, the unrecognized compensation cost of $2.96 million related to all unvested, equity-classified stock options is expected to be recognized as an expense over a weighted-average period of 3.1 years.

15

STRATASYS LTD.

NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED)

A summary of the Company’s RSUs and PSUs activity for the six months ended June 30, 2020 is as follows:

Number of RSUs and PSUs

Weighted Average Grant

Date Fair Value

Unvested as of January 1, 2020

 

 

2,362,991

 

 

$

24.10

Granted

1,189,436

18.17

Vested

(587,225

)

23.57

Forfeited

(286,091

)

22.45

Unvested as of June 30, 2020

2,679,111

$

21.76

The fair value of RSUs and PSUs is determined based on the quoted price of the Company’s ordinary shares on the date of the grant.

As of June 30, 2020, the unrecognized compensation cost of $48.8 million related to all unvested, equity-classified RSUs and PSUs is expected to be recognized as expense over a weighted-average period of 2.8 years.

b. Accumulated other comprehensive loss

The following tables present the changes in the components of accumulated other comprehensive income (loss), net of taxes, for the six months ended June 30, 2020 and 2019, respectively:

 

 

Six months ended June 30, 2020

 

 

 

Net unrealized

gain (loss)

on cash

flow hedges

 

Foreign

currency

translation

adjustments

 

Total

 

 

 

U.S. $ in thousands

 

Balance as of January 1, 2020

 

$

(10

)

 

$

(7,706

)

 

$

(7,716

)

Other comprehensive income (loss) before reclassifications

 

 

856

 

 

 

(1,667

)

 

 

(811

)

Amounts reclassified from accumulated other comprehensive loss

 

 

33

 

 

-

 

 

 

33

Other comprehensive income (loss)

 

 

889

 

 

 

(1,667

)

 

 

(778

)

Balance as of June 30, 2020

 

$

879

 

 

$

(9,373

)

 

$

(8,494

)

16

STRATASYS LTD.

NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED)

Six months ended June 30, 2019

Net unrealized

gain (loss)

on cash

flow hedges

Foreign

currency

translation

adjustments

Total

U.S. $ in thousands

Balance as of January 1, 2019

$

(627

)

$

(7,126

)

$

(7,753

)

 

Other comprehensive income (loss) before reclassifications

 

1,277

(444

)

833

Amounts reclassified from accumulated other comprehensive loss

 

(127

)

 

-

 

 

(127

)

Other comprehensive income (loss)

 

1,150

 

 

(444

)

 

706

 

Balance as of June 30, 2019

$

523

 

$

(7,570

)

$

(7,047

)

Note 11. Contingencies

Legal proceedings

The Company is a party to various legal proceedings from time to time, the outcome of which, in the opinion of management, will not have a significant effect on the financial position, profitability or cash flows of the Company.

 

Note 12. Restructuring Plan

On June 2, 2020, the Company announced a restructuring plan to reduce operating expenses as part of a cost realignment program to focus on profitable growth (the "Plan"). The Plan’s cost-cutting measures included workforce reductions affecting approximately 10% of employees, as well as other cost-mitigation measures.

The Company recorded $5.2 million and $3.6 million of employee related charges and other related charges, respectively, during the second quarter of 2020. With regards to the employee related charges, $0.6 million was paid during the current period and the rest are expected to be paid during the third quarter. The Company expects to incur additional restructuring charges of approximately $0.5 million, as part of this Plan.

 

17

Exhibit 99.2

OPERATING AND FINANCIAL REVIEW AND PROSPECTS.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited consolidated financial statements and the related notes included as Exhibit 99.1 to the Report of Foreign Private Issuer on Form 6-K to which this Operating and Financial Review and Prospects is attached, or the Form 6-K. The discussion below contains forward-looking statements (within the meaning of the United States federal securities laws) that are based upon our current expectations and are subject to uncertainty and changes in circumstances. Actual results may differ materially from these expectations due to inaccurate assumptions and known or unknown risks and uncertainties, including those identified in “Forward-Looking Statements and Factors that May Affect Future Results of Operations”, below, as well in the “Risk Factors” in Item 3.D of our Annual Report on Form 20-F for the year ended December 31, 2019, or our 2019 Annual Report.

Overview of Business and Trend Information

We are a leading global provider of applied additive technology solutions for industries including aerospace, automotive, healthcare, consumer products and education. We focus on customers’ business requirements and seek to create new value for our customers across their product lifecycle processes, from design prototypes to manufacturing tools and final production parts. We operate a 3D printing ecosystem of solutions and expertise, comprised of advanced materials; software with voxel level control; precise, repeatable and reliable fused deposition modeling 3D printers (utilizing proprietary FDM™ technology) and inkjet-based 3D printers (utilizing proprietary PolyJet™ technology); application-based services; on-demand parts and key partnerships. We strive to ensure that our solutions are integrated seamlessly into each customer’s evolving workflow. Our applications are industry-specific and geared towards accelerating business processes, optimizing value chains and driving business performance improvements. Our customers range from individuals and smaller businesses to large, global enterprises, and we include a number of Fortune 100 companies among our customers.

Our 3D printers include systems ranging from entry-level desktop 3D printers to systems for rapid prototyping, or RP, and large production systems for direct digital manufacturing, or DDM. We also develop, manufacture and sell materials for use with our systems and provide related services offerings. We offer a powerful range of additive manufacturing materials, including clear, rubberlike and biocompatible photopolymers, and tough high-performance thermoplastics. We believe that the range of 3D printing consumable materials that we offer, consisting of over 60 FDM™ spool-based filament materials, over 45 PolyJet cartridge-based resin materials, 158 non-color digital materials, and over 500,000 color variations, is the widest in the industry. Our service offerings include Stratasys Direct Manufacturing printed parts services, as well as our professional services.

We conduct our business globally and provide products and services to our global customer base through our offices in North America and internationally, including: Baden-Baden, Germany; Shanghai, China; and Tokyo, Japan, as well as through our worldwide network of approximately 160 agents and resellers. Additionally, through our MakerBot subsidiary, we deploy an online sales channel. We have approximately 2,100 employees and hold approximately 1,000 granted patents and have approximately 500 pending patent applications worldwide.

1

Our results of operations for the three months and six months periods ended June 30, 2020 should be understood in light of the ongoing global COVID-19 crisis, which has disrupted businesses on a global scale. On March 11, 2020, the World Health Organization classified the COVID-19 outbreak as a pandemic. The timing of our revenues in fiscal quarters tends to be late, with a significant portion of business traditionally occurring in the final few weeks of each quarter. Consequently, the impact of the global pandemic outbreak late in the first quarter of 2020 was more notable for our results for that quarter. However, even earlier in the first quarter, our business in Asia had been already affected by the pandemic, followed by Europe and then the United States. The second quarter of 2020 for our company was adversely impacted by COVID-19 for the entire quarter, across all regions of our business.

As we entered this global crisis, our top priority was securing the well-being of our employees worldwide. Consequently, as early as February 3, 2020 we imposed travel restrictions on our staff and have tried to be ahead of the curve wherever possible. Soon thereafter, we also implemented work-from-home options. To help mitigate the economic impact of the pandemic, we began to implement cost-control measures at the end of February and continue to closely manage them. During the second quarter, all of our employees were effectively reduced to a four-day work-week, we have instituted a nonessential hiring freeze and we have adjusted our cost base and production plan accordingly.

In our efforts to support the global fight against the pandemic, we were quick to mobilize our additive manufacturing network, leverage our application expertise, our channel and partner network and our corporate-wide resources to help get a variety of printed parts quickly to where they were most needed.

On June 2, 2020 we announced a global workforce reduction as part of a strategic plan to accelerate growth with a leaner operating model. This reduction, advanced sooner due to the impact of COVID-19, affected approximately 10% of our employees, and is designed to reduce operating expenses as part of a cost realignment program to focus on profitable growth.

The vast majority of the reduction took place in the second quarter and we plan to complete the reduction during the third quarter of this year.

This reduction is an essential step in our ongoing strategic process, designed to better position the company for sustainable and profitable growth. This measure is not expected to affect the progress of our forthcoming product launch plans. During the second quarter we were able to begin the commercial production of our new PolyJet J55, which began shipping the last week of June. The J55 is a printer for the Design community that brings most of the features of our premium PolyJet technology into an office-friendly system featuring a unique, patented turntable format.

Because of the unprecedented nature, scope and uncertainty associated with this global crisis, the full duration and extent of its ongoing impact on our business cannot be reasonably estimated at this time. We therefore withdrew our 2020 financial guidance during the first quarter of 2020. Because we believe the next few quarters will continue to be unpredictable, and visibility will be limited due to COVID-19, we have continued, as of the end of the second quarter of 2020, the suspension of our full year guidance for 2020, at least until the economic environment stabilizes.

We have been monitoring the situation, assessing implications for our operations, supply chain, liquidity, cash flow and customer orders, and have been acting in an effort to mitigate adverse consequences as needed. We ended the second quarter of 2020 with $313.0 million in cash, cash equivalents and short-term deposits. We believe that we are well prepared to manage the COVID-19 crisis with a strong balance sheet and no debt, while focusing on cost controls and cash generation. We selectively applied the R&D cost controls to ensure that the NPI programs were not affected, and we plan to continue investing as needed in order to support our new product development programs.

2

Summary of Financial Results

Our unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America, or GAAP. In the opinion of our management, all adjustments considered necessary for a fair statement of the unaudited condensed consolidated financial statements have been included herein and are of a normal recurring nature. The following discussion compares the actual results, on a GAAP basis, for the three and six months ended June 30, 2020 with the corresponding period in 2019.

Results of Operations

Comparison of Three Months Ended June 30, 2020 to Three Months Ended June 30, 2019

The following table sets forth certain statement of operations data for the periods indicated:

Three Months Ended June 30,

2020

2019

U.S. $ in

thousands

% of

Revenues

U.S. $ in

thousands

% of

Revenues

Revenues

$

117,623

100.0

%

$

163,163

100.0

%

Cost of revenues

73,887

62.8

%

81,996

50.3

%

Gross profit

43,736

37.2

%

81,167

49.7

%

Research and development, net

21,303

18.1

%

24,040

14.7

%

Selling, general and administrative

51,711

44.0

%

56,322

34.5

%

Operating income (loss)

(29,278

)

-24.9

%

805

0.5

%

Financial income (expense)

149

0.1

%

1,755

1.1

%

Income (loss) before income taxes

(29,129

)

-24.8

%

2,560

1.6

%

Income tax expenses (benefit)

(2,128

)

-1.8

%

1,280

0.8

%

Share in losses of associated companies

(950

)

-0.8

%

(195

)

-0.1

%

Net income (loss) attributable to non-controlling interests

35

0.0

%

(67

)

0.0

%

Net income (loss) attributable to Stratasys Ltd.

(27,986

)

-23.8

%

1,152

0.7

%

Discussion of Results of Operations

Revenues

Our products and services revenues in the three months ended June 2020 and 2019, as well as the percentage change reflected thereby, were as follows:

Three Months Ended June 30,

2020

2019

% Change

U.S. $ in thousands

Products

$

73,877

$

110,341

-33.0

%

Services

43,746

52,822

-17.2

%

$

117,623

$

163,163

-27.9

%

3

Products Revenues

Revenues derived from products (including AM systems and consumable materials) decreased by $36.5 million, or 33.0%, for the three months ended June 30, 2020, as compared to the three months ended June 30, 2019.

Systems revenues for the three months ended June 30, 2020 decreased by 35.6% as compared to the three months ended June 30, 2019. Consumables revenues for the three months ended June 30, 2020 decreased by 30.6% as compared to the three months ended June 30, 2019.

The decrease in revenues was driven primarily by the effective shut-down, from a purchasing and consumption perspective, of a portion of our customer base due to the effects of COVID-19.

Our second quarter results reflect the impact of a full quarter of COVID-19, with revenues challenged by a weak macro environment and a pause in capital investments worldwide. Cost-mitigation has been a universal business priority which impacts the purchasing activities of our customers. In addition, printer utilization, and therefore materials usage, was low, as many users across our install base were not working on site.

Services Revenues

Services revenues (including SDM, maintenance contracts, time and materials and other services) decreased by $9.1 million for the three months ended June 30, 2020, or 17.2%, as compared to the three months ended June 30, 2019. Within services revenues, customer support revenue, which includes revenue generated mainly by maintenance contracts on our systems, decreased by 7.5%, reflecting lower printer utilization due to the effects of COVID-19.

Revenues by Region

Revenues and the percentage of revenues by region for the three months ended June 30, 2020 and 2019, as well as the percentage change in revenues in each such region reflected thereby, were as follows:

Three Months Ended June 30,

2020

2019

% Change

U.S.$ in thousands

% of

Revenues

U.S.$ in

thousands

% of

Revenues

Americas*

$

78,701

66.9

%

$

108,025

62.1

%

-27.1

%

EMEA

20,915

17.8

%

30,149

22.4

%

-30.6

%

Asia Pacific

18,007

15.3

%

24,989

15.5

%

-27.9

%

$

117,623

100.0

%

$

163,163

100.0

%

-27.9

%

* Represent the United States, Canada and Latin America

Revenues in the Americas region decreased by $29.3 million, or 27.1%, to $78.7 million for the three months ended June 30, 2020, compared to $108.0 million for the three months ended June 30, 2019. The decrease was primarily driven by COVID-19 impact on some of our key industries, such as Aerospace, Dental and Auto.

Revenues in the EMEA region decreased by $9.2 million, or 30.6%, to $20.9 million for the three months ended June 30, 2020, compared to $30.1 million for the three months ended June 30, 2019. The decrease was primarily driven by lower consumables revenues. On a constant currency basis when using prior period’s exchange rates, revenues decreased by $8.8 million, or 29.2%.

Revenues in the Asia Pacific region decreased by $7.0 million, or 27.9%, to $18.0 million for the three months ended June 30, 2020, compared to $25.0 million for the three months ended June 30, 2019. The decrease was primarily driven by lower systems revenues.

4

Gross Profit

Gross profit from our products and services, as well as the percentage change reflected thereby, was as follows:

Three Months Ended June 30,

2020

2019

U.S. $ in thousands

Change in %

Gross profit attributable to:

Products

$

33,908

$

63,246

-46.4

%

Services

9,828

17,921

-45.2

%

$

43,736

$

81,167

-46.1

%

Gross profit as a percentage of revenues from our products and services was as follows:

Three Months Ended June 30,

2020

2019

Gross profit as a percentage of revenues from:

Products

45.9

%

57.3

%

Services

22.5

%

33.9

%

Total gross profit

37.2

%

49.7

%

Gross profit attributable to products revenues decreased by $29.3 million, or 46.4%, to $33.9 million for the three months ended June 30, 2020, compared to gross profit of $63.2 million for the three months ended June 30, 2019. Gross profit attributable to products revenues as a percentage of products revenues decreased to 45.9% for the three months ended June 30, 2020, compared to 57.3% for the three months ended June 30, 2019.

Gross profit attributable to services revenues decreased by $8.1 million, or 45.2%, to $9.8 million for the three months ended June 30, 2020, compared to $17.9 million for the three months ended June 30, 2019. Gross profit attributable to services revenues as a percentage of services revenues in the three months ended June 30, 2020 decreased to 22.5%, as compared to 33.9% for the three months ended June 30, 2019. Our gross profit from services revenues was impacted by the mix of revenue sources, as well as an unfavorable impact of foreign currencies translation.

The decrease in gross profit was primarily driven by product mix which was based on the lower proportion of hardware and consumables out of the total revenue due to the impact of COVID-19 and unfavorable impact of foreign currencies translation.

5

Operating Expenses

The amount of each type of operating expense for the three months ended June 30, 2020 and 2019, as well as the percentage change reflected thereby, and total operating expenses as a percentage of our total revenues in each such quarter, were as follows:

Three Months Ended June 30,

2020

2019

% Change

U.S. $ in thousands

Research and development, net

$

21,303

$

24,040

-11.4

%

Selling, general and administrative

51,711

56,322

-8.2

%

$

73,014

$

80,362

-9.1

%

 

Percentage of revenues

62.1

%

49.3

%

Research and development expenses, net decreased by $2.7 million, or 11.4%, to $21.3 million for the three months ended June 30, 2020, compared to $24.0 million for the three months ended June 30, 2019. The amount of research and development expenses constituted 18.1% of our revenues for the three months ended June 30, 2020, as compared to 14.7% for the three months ended June 30, 2019.

Our research and development expenses were impacted by the reduction on our workweek to 80%, and the timing of project spending and product launches. We selectively applied the R&D cost controls to ensure that our new product introduction programs were not affected, and we plan to continue investing as needed in order to support our new product development programs.

Selling, general and administrative expenses decreased by $4.6 million, or 8.2%, to $51.7 million for the three months ended June 30, 2020, compared to $56.3 million for the three months ended June 30, 2019, driven by proactive cost-cutting measures. The amount of selling, general and administrative expenses constituted 44.0% of our revenues for the three months ended June 30, 2020, as compared to 34.5% for the three months ended March 31, 2019.

Operating Loss

Operating loss and operating loss as a percentage of our total revenues were as follows:

Three Months Ended June 30,

2020

2019

U.S. $ in thousands

Operating income (loss)

$

(29,278

)

$

805

 

Percentage of revenues

-24.9

%

0.5

%

Operating loss amounted to $29.3 million for the three months ended June 30, 2020, compared to an operating income of $0.8 million for the three months ended June 30, 2019. The increase in operating loss was primarily attributable to lower gross profit for the three months ended June 30, 2020 compared to the three months ended June 30, 2019, as discussed above.

Financial Income, net

Financial income, net, which was primarily comprised of foreign currencies effects, interest income and interest expenses, was $0.1 million for the three months ended June 30, 2020, compared to financial income, net of $1.8 million for the three months ended June 30, 2019.

6

Income Taxes

Income taxes and income taxes as a percentage of net loss before taxes, as well as the percentage change in each, year over year, reflected thereby, were as follows:

Three Months Ended

June 30,

2020

2019

U.S. $ in thousands

Change in %

Income tax expense (benefit)

$

(2,128

)

$

1,280

-266.3

%

 

As a percent of income or loss before income taxes

7.3

%

50.0

%

-85.4

%

We had an effective tax rate of 7.3% for the three-month period ended June 30, 2020, compared to an effective tax rate of 50.0% for the three-month period ended June 30, 2019. Our effective tax rate as of June 30, 2020 was primarily impacted by higher discrete tax benefits following expiration of applicable tax statute of limitations as well as geographic mix of its earnings and losses.

Share in Losses of Associated Companies

Share in losses of associated companies reflects our proportionate share of the losses of unconsolidated entities accounted for by using the equity method of accounting. During the three months ended June 30, 2020, the loss from our proportionate share of the losses of our equity method investments was $0.95 million, compared to a loss of $0.2 million in the three months ended June 30, 2019.

Net Income (Loss) Attributable to Stratasys Ltd. and Net Earnings (Loss) Per Share

Net income (loss) attributable to Stratasys Ltd., and diluted net earnings (loss) per share were as follows:

Three Months Ended June 30,

2020

2019

U.S. $ in thousands

Net income (loss) attributable to Stratasys Ltd.

$

(27,986

)

$

1,152

Percentage of revenues

-23.8

%

0.7

%

Diluted net earnings (loss) per share

$

(0.51

)

$

0.02

Net loss attributable to Stratasys Ltd. was $28.0 million for the three months ended June 30, 2020 compared to net income of $1.2 million for the three months ended June 30, 2019. The increase in the net loss attributable to Stratasys Ltd. was primarily attributable to decreased gross profit, mainly due to the effects of COVID-19, as described above.

Diluted net loss per share was $0.51 for the three months ended June 30, 2020, as compared to diluted net earnings per share of $0.02 for the three months ended June 20, 2019. The weighted average fully diluted share count was 54.9 million for the three months ended June 30, 2020, compared to 54.7 million for the three months ended June 30, 2019.

7

Results of Operations

Comparison of Six Months Ended June 30, 2020 to Six Months Ended June 30, 2019

The following table sets forth certain statement of operations data for the periods indicated:

Six Months Ended June 30,

2020

2019

U.S. $ in

thousands

% of

Revenues

U.S. $ in

thousands

% of

Revenues

Revenues

$

250,530

100.0

%

$

318,463

100.0

%

Cost of revenues

146,924

58.6

%

160,839

50.5

%

Gross profit

103,606

41.4

%

157,624

49.5

%

Research and development, net

45,497

18.2

%

46,614

14.6

%

Selling, general and administrative

107,287

42.8

%

113,476

35.6

%

Operating loss

(49,178

)

-19.6

%

(2,466

)

-0.8

%

Financial income (expense)

(680

)

-0.3

%

2,508

0.8

%

Income (loss) before income taxes

(49,858

)

-19.9

%

42

0.0

%

Income tax expenses (benefit)

(1,907

)

-0.8

%

2,498

0.8

%

Share in profits (losses) of associated companies

(1,788

)

-0.7

%

1,228

0.4

%

Net loss attributable to non-controlling interests

(50

)

0.0

%

(110

)

0.0

%

Net loss attributable to Stratasys Ltd.

(49,689

)

-19.8

%

(1,118

)

-0.4

%

Discussion of Results of Operations

Revenues

Our products and services revenues in the six months ended June 2020 and 2019, as well as the percentage change reflected thereby, were as follows:

Six Months Ended June 30,

2020

2019

% Change

U.S. $ in thousands

Products

$

157,049

$

215,432

-27.1

%

Services

93,481

103,031

-9.3

%

$

250,530

$

318,463

-21.3

%

8

Products Revenues

Revenues derived from products (including AM systems and consumable materials) decreased by $58.4 million, or 27.1%, for the six months ended June 30, 2020, as compared to the six months ended June 30, 2019.

Systems revenues for the six months ended June 30, 2020 decreased by 37.5% as compared to the six months ended June 30, 2019. Consumables revenues for the six months ended June 30, 2020 decreased by 18.0% as compared to the six months ended June 30, 2019.

The decrease in revenues was driven primarily by the effective shut-down, from a purchasing and consumption perspective, of a portion of our customer base being effectively shut down due to the COVID-19 effects.

Services Revenues

Services revenues (including SDM, maintenance contracts, time and materials and other services) decreased by $9.5 million for the six months ended June 30, 2020, or 9.3%, as compared to the six months ended June 30, 2019.

Revenues by Region

Revenues and the percentage of revenues by region for the three months ended June 30, 2020 and 2019, as well as the percentage change in revenues in each such region reflected thereby, were as follows:

Six Months Ended June 30,

2020

2019

% Change

U.S.$ in thousands

% of

Revenues

U.S.$ in

thousands

% of

Revenues

Americas*

$

165,274

66.0

%

$

204,523

64.2

%

-19.2

%

EMEA

47,835

19.1

%

64,932

20.4

%

-26.3

%

Asia Pacific

37,421

14.9

%

49,008

15.4

%

-23.6

%

$

250,530

100.0

%

$

318,463

100.0

%

-21.3

%

* Consists of United States, Canada and Latin America

Revenues in the Americas region decreased by $39.2 million, or 19.2%, to $165.3 million for the six months ended June 30, 2020, compared to $204.5 million for the six months ended June 30, 2019.

Revenues in the EMEA region decreased by $17.1 million, or 26.3%, to $47.8 million for the six months ended June 30, 2020, compared to $64.9 million for the six months ended June 30, 2019.

Revenues in the Asia Pacific region decreased by $11.6 million, or 23.6%, to $37.4 million for the six months ended June 30, 2020, compared to $49.0 million for the six months ended June 30, 2019.

9

Gross Profit

Gross profit from our products and services, as well as the percentage change reflected thereby, was as follows:

Six Months Ended June 30,

2020

2019

U.S. $ in thousands

Change in %

Gross profit attributable to:

Products

$

77,832

$

124,168

-37.3

%

Services

25,774

33,456

-23.0

%

$

103,606

$

157,624

-34.3

%

Gross profit as a percentage of revenues from our products and services was as follows:

Six Months Ended June 30,

2020

2019

Gross profit as a percentage of revenues from:

Products

49.6

%

57.6

%

Services

27.6

%

32.5

%

Total gross profit

41.4

%

50.5

%

Gross profit attributable to products revenues decreased by $46.3 million, or 37.3%, to $77.8 million for the six months ended June 30, 2020, compared to gross profit of $124.2 million for the six months ended June 30, 2019. Gross profit attributable to products revenues as a percentage of products revenues decreased to 49.6% for the six months ended June 30, 2020, compared to 57.6% for the six months ended June 30, 2019.

Gross profit attributable to services revenues decreased by $7.7 million, or 23.0%, to $25.8 million for the six months ended June 30, 2020, compared to $33.5 million for the six months ended June 30, 2019. Gross profit attributable to services revenues as a percentage of services revenues in the six months ended June 30, 2020 decreased to 27.6%, as compared to 32.5% for the six months ended June 30, 2019.

10

Operating Expenses

The amount of each type of operating expense for the six months ended June 30, 2020 and 2019, as well as the percentage change reflected thereby, and total operating expenses as a percentage of our total revenues in each such quarter, were as follows:

Six Months Ended June 30,

2020

2019

% Change

U.S. $ in thousands

Research and development, net

$

45,497

$

46,614

-2.4

%

Selling, general and administrative

107,287

113,476

-5.5

%

$

152,784

$

160,090

-4.6

%

 

Percentage of revenues

61.0

%

50.3

%

Research and development expenses, net decreased by $1.1 million, or 2.4%, to $45.5 million for the six months ended June 30, 2020, compared to $46.6 million for the six months ended June 30, 2019. The amount of research and development expenses constituted 18.2% of our revenues for the six months ended June 30, 2020, as compared to 14.6% for the three months ended June 30, 2019.

Selling, general and administrative expenses decreased by $6.2 million, or 5.5%, to $107.3 million for the six months ended June 30, 2020, compared to $113.5 million for the six months ended June 30, 2019. The amount of selling, general and administrative expenses constituted 42.8% of our revenues for the six months ended June 30, 2020, as compared to 35.6% for the six months ended June 30, 2019.

Operating Loss

Operating loss and operating loss as a percentage of our total revenues were as follows:

Six Months Ended June 30,

2020

2019

U.S. $ in thousands

Operating income (loss)

$

(49,178

)

$

(2,466

)

 

Percentage of revenues

-19.6

%

-0.8

%

Operating loss amounted to $49.2 million for the six months ended June 30, 2020, compared to an operating loss of $2.5 million for the six months ended June 30, 2019.

Financial Income (Expenses), net

Financial expenses, net, which were primarily comprised of foreign currencies effects, interest income and interest expenses, were $0.7 million for the six months ended June 30, 2020, compared to financial income, net of $2.5 million for the six months ended June 30, 2019.

11

Income Taxes

Income taxes and income taxes as a percentage of net loss before taxes, as well as the percentage change in each, year over year, reflected thereby, were as follows:

Six Months Ended

June 30,

2020

2019

U.S. $ in thousands

Change in %

Income tax expense (benefit)

$

(1,907

)

$

2,498

-176.3

%

 

As a percent of income or loss before income taxes

3.8

%

5947.6

%

-99.9

%

We had an effective tax rate of 3.8% for the six-month period ended June 30, 2020, compared to an effective tax rate of 5947.6% for the six-month period ended June 30, 2019.

Share in Profits (Losses) of Associated Companies

Share in profit (losses) of associated companies reflects our proportionate share of the earnings of unconsolidated entities accounted for by using the equity method of accounting. During the six months ended June 30, 2020, the loss from our proportionate share of the earnings of our equity method investments was $1.8 million, compared to a profit of $1.2 million in the six months ended June 30, 2019.

Net Income (Loss) Attributable to Stratasys Ltd. and Net Loss Per Share

Net loss attributable to Stratasys Ltd., and diluted net loss per share were as follows:

Six Months Ended June 30,

2020

2019

U.S. $ in thousands

Net loss attributable to Stratasys Ltd.

$

(49,689

)

$

(1,118

)

Percentage of revenues

-19.8

%

-0.4

%

Diluted net loss per share

$

(0.91

)

$

(0.02

)

Net loss attributable to Stratasys Ltd. was $49.7 million for the six months ended June 30, 2020 compared to net loss of $1.1 million for the six months ended June 30, 2019.

Diluted net loss per share was $0.91 and $0.02 for the six months ended June 30, 2020 and 2019, respectively. The weighted average fully diluted share count was 54.7 million for the six months ended June 30, 2020, compared to 54.1 million for the six months ended June 30, 2019.

12

Supplemental Operating Results on a Non-GAAP Basis

The following non-GAAP data, which excludes certain items as described below, are non-GAAP financial measures. Our management believes that these non-GAAP financial measures are useful information for investors and shareholders of our company in gauging our results of operations (i) on an ongoing basis after excluding mergers, acquisitions and divestments related expense or gains and restructuring-related charges or gains, and (ii) excluding non-cash items such as stock-based compensation expenses, acquired intangible assets amortization, including intangible assets amortization related to equity method investments and impairment of long-lived assets. These non-GAAP adjustments either do not reflect actual cash outlays that impact our liquidity and our financial condition or have a non-recurring impact on the statement of operations, as assessed by management. These non-GAAP financial measures are presented to permit investors to more fully understand how management assesses our performance for internal planning and forecasting purposes. The limitations of using these non-GAAP financial measures as performance measures are that they provide a view of our results of operations without including all items indicated above during a period, which may not provide a comparable view of our performance to other companies in our industry. Investors and other readers should consider non-GAAP measures only as supplements to, not as substitutes for or as superior measures to, the measures of financial performance prepared in accordance with GAAP. Reconciliation between results on a GAAP and non-GAAP basis is provided in a table below.

13

Reconciliation of GAAP to Non-GAAP Results of Operations

The following tables present the GAAP measures, the corresponding non-GAAP amounts and the related non-GAAP adjustments for the applicable periods:

Three Months Ended June 30,

2020

Non-GAAP

2020

2019

Non-GAAP

2019

GAAP

Adjustments

Non-GAAP

GAAP

Adjustments

Non-GAAP

U.S. dollars and shares in thousands (except per share amounts)

Gross profit (1)

$

43,736

$

9,612

$

53,348

$

81,167

$

4,441

$

85,608

Operating income (loss) (1,2)

(29,278

)

21,228

(8,050

)

805

8,246

9,051

Net income (loss) attributable to Stratasys Ltd. (1,2,3)

(27,986

)

20,634

(7,352

)

1,152

7,372

8,524

Diluted net earnings (loss) per share attributable to Stratasys Ltd. (4)

$

(0.51

)

$

0.38

$

(0.13

)

$

0.02

$

0.14

$

0.16

 

(1) Acquired intangible assets       amortization expense

4,065

3,900

Non-cash stock-based compensation expense

497

541

Restructuring and other related costs

 

5,050

 

 

-

 

9,612

4,441

 

(2) Acquired intangible assets       amortization expense

2,125

1,783

Non-cash stock-based compensation expense

5,614

5,552

Restructuring and other related costs

 

3,798

 

(3,530

)

Other expenses

79

-

 

11,616

 

 

3,805

 

 

21,228

 

 

8,246

 

 

(3) Corresponding tax effect

(669

)

(874

)

Equity method amortization, divestments and impairments

 

75

 

 

-

$

20,634

 

$

7,372

 

 

(4) Weighted average number of ordinary shares outstanding- Diluted

54,917

54,917

54,687

54,687

14

Six Months Ended June 30,

2020

Non-GAAP

2020

2019

Non-GAAP

2019

GAAP

Adjustments

Non-GAAP

GAAP

Adjustments

Non-GAAP

U.S. dollars and shares in thousands (except per share amounts)

Gross profit (1)

$

103,606

$

14,026

$

117,632

$

157,624

$

8,693

$

166,317

Operating income (loss) (1,2)

(49,178

)

32,719

(16,459

)

(2,466

)

18,321

15,855

Net income (loss) attributable to Stratasys Ltd. (1,2,3)

(49,689

)

31,771

(17,919

)

(1,118

)

15,299

14,181

Diluted net earnings (loss) per share attributable to Stratasys Ltd. (4)

$

(0.91

)

$

0.58

$

(0.33

)

$

(0.02

)

$

0.28

$

0.26

 

(1) Acquired intangible assets       amortization expense

8,130

7,798

Non-cash stock-based compensation expense

899

895

Restructuring and other related costs

 

4,997

 

 

-

 

14,026

8,693

 

(2) Acquired intangible assets       amortization expense

4,267

3,672

Non-cash stock-based compensation expense

10,119

9,427

Restructuring and other related costs

 

3,829

 

(3,471

)

Other expenses

478

-

 

18,693

 

 

9,628

 

 

32,719

 

 

18,321

 

 

(3) Corresponding tax effect

(1,100

)

(1,418

)

Equity method amortization, divestments and impairments

 

152

 

 

(1,604

)

$

31,771

 

$

15,299

 

 

(4) Weighted average number of ordinary shares outstanding- Diluted

54,733

54,733

54,102

54,585

15

Liquidity and Capital Resources

A summary of our statement of cash flows is as follows:

Six Months Ended June 30,

2020

2019

U.S $ in thousands

Net loss

$

(49,739

)

$

(1,228

)

Depreciation and amortization

25,104

25,063

Deferred income taxes

(26

)

(1,123

)

Stock-based compensation

11,018

10,322

Other non-cash item, net

3,179

(5,505

)

Change in working capital and other items

11,986

(26,692

)

Net cash provided by operating activities

1,522

837

Net cash used in investing activities

(9,437

)

(6,570

)

Net cash provided by (used in) by financing activities

53

(23,041

)

Effect of exchange rate changes on cash, cash equivalents and restricted cash

(880

)

1,697

Net change in cash, cash equivalents and restricted cash

(8,742

)

(27,077

)

Cash, cash equivalents and restricted cash, beginning of period

293,597

393,734

Cash, cash equivalents and restricted cash, end of period

$

284,855

$

366,657

Our cash, cash equivalents and restricted cash balance decreased to $284.9 million as of June 30, 2020 from $293.6 million as of December 31, 2019. The decrease in cash, cash equivalents and restricted cash in the six months ended June 30, 2020 was primarily due to investing activities in an amount of $9.4 million, partially offset by operating activities.

Cash flows from operating activities

We generated $1.5 million of cash from operating activities during the six months ended June 30, 2020. That cash generation reflects our $49.7 million net loss, as adjusted upwards to eliminate non-cash charges included in net loss, including $25.1 million of depreciation and amortization and $11.0 million of stock-based compensation expenses. Favorable changes in our working capital balances were mainly driven by a decrease in our accounts receivable balances.

Cash flows from investing activities

We used $9.4 million of cash in our investing activities during the six months ended June 30, 2020. Cash was primarily used to invest $13.7 million to purchase property and equipment, which was partially offset by cash proceeds from our past sale of an investment that we accounted for under the equity method. Our principal property and equipment purchases were for our new buildings complex under construction in Rehovot, Israel. The new facility in Rehovot, Israel, which will contain two buildings, houses our Israeli headquarters, research and development facilities and certain marketing activities.

Cash flows from financing activities

Cash amounts provided by financing activities during the six months ended June 30, 2020 were immaterial.

16

Capital resources and capital expenditures

Our total current assets amounted to $606.9 million as of June 30, 2020, of which $284.8 million consisted of cash, cash equivalents and restricted cash. Total current liabilities amounted to $141.2 million. Most of our cash and cash equivalents are held in banks in Israel and the U.S.

The credit risk related to our accounts receivable is limited due to the relatively large number of customers and their wide geographic distribution. In addition, we seek to reduce the credit exposure related to our accounts receivable by imposing credit limits, conducting ongoing credit evaluation, and by implementing account monitoring procedures, as well as credit insurance for many of our customers.

We believe that we will have adequate cash and cash equivalents to fund our ongoing operations and that these sources of liquidity will be sufficient to satisfy our capital expenditure and working capital needs for the next twelve months.

Long-Term Bank Loan and Credit Line

In December 2016, we entered into a secured loan agreement with Bank Hapoalim Ltd. in connection with our new office facility in Israel, which agreement we refer to as the Bank Loan Agreement. Pursuant to the Bank Loan Agreement, we borrowed $26 million initially in December 2016, which we refer to as the Bank Loan, and secured a credit line for an additional $24 million, or the Credit Line. Any loans to be drawn upon the Credit Line were to be under similar terms as the Bank Loan. The Bank Loan was to mature in December 2023 and was payable in equal consecutive quarterly principal installments of principal and accrued interest. Any early repayment of the Bank Loan was subject to, within the initial three year term of the Bank Loan, a maximum 1% penalty of the amount prepaid. The repayment of the Bank Loan was secured by a first-priority lien on all of our company’s rights in the property of our new office facility in Israel. The Bank Loan bore interest at the rate of LIBOR plus 3.35%. The Bank Loan Agreement contained customary representations and warranties, affirmative covenants and negative covenants, which included, without limitation, restrictions on indebtedness, liens, investments, and certain dispositions with respect to the property secured by the lien.

The Bank Loan Agreement also contained customary events of default that entitled the lender to cause any or all of our company's indebtedness to become immediately due and payable and to foreclose on the lien, and included customary grace periods before certain events were to be deemed events of default. Borrowings under the Bank Loan Agreement were available mainly for the financing of our new facility in Israel.

In the first quarter of 2019, we repaid the full outstanding principal amount of the Bank Loan, in an aggregate amount of $27.3 million, plus all interest accrued thereon, thereby fulfilling all of our remaining obligations under the Bank Loan Agreement. In connection with the repayment, the first-priority lien on all of our rights with respect to the property of our new office facility in Israel was removed.

Critical Accounting Policies

We have prepared our consolidated financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America. This has required us to make estimates, judgments, and assumptions that affected the amounts we reported. Actual results may differ from those estimates. To facilitate the understanding of our business activities, certain accounting policies that are important to the presentation of our financial condition and results of operations and that require management’s subjective judgments are described in our 2019 Annual Report. We base our judgments on our experience and various assumptions that we believe to be reasonable under the circumstances.

17

Forward-Looking Statements and Factors That May Affect Future Results of Operations

Certain information included in or incorporated by reference into the Report of Foreign Private Issuer on Form 6-K to which this Operating and Financial Review is appended, or the Form 6-K, may be deemed to be “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements are those that predict or describe future events or trends and that do not relate solely to historical matters. You can generally identify forward-looking statements as statements containing the words “may,” “will,” “could,” “should,” “expect,” “anticipate,” “intend,” “estimate,” “believe,” “project,” “plan,” “assume” or other similar expressions, or negatives of those expressions, although not all forward-looking statements contain these identifying words.

These forward-looking statements may include, but are not limited to, statements regarding our future strategy, future operations, projected financial position, proposed products, estimated future revenues, projected costs, future prospects, the future of our industry and results that might be obtained by pursuing management’s current plans and objectives.

You should not place undue reliance on our forward-looking statements because the matters they describe are subject to certain risks, uncertainties and assumptions that are difficult to predict. Our forward-looking statements are based on the information currently available to us and speak only as of the date of this Form 6-K. Over time, our actual results, performance or achievements may differ from those expressed or implied by our forward-looking statements, and such difference might be significant and materially adverse to our shareholders. We undertake no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise.

Important factors that could cause actual results, developments and business decisions to differ materially from those anticipated in these forward-looking statements include, among other things:

•

the extent of our success at introducing new or improved products and solutions that gain market share;

•

the extent of growth of the 3D printing market generally;

•

the duration of the global COVID-19 pandemic, which may continue to have material adverse consequences for our operations, financial position, cash flows, and those of our customers and suppliers;

•

changes in our overall strategy, including as related to any restructuring activities and our capital expenditures;

•

the impact of shifts in prices or margins of the products that we sell or services we provide;

•

the impact of competition and new technologies;

•

impairments of goodwill or other intangible assets in respect of companies that we acquire;

•

the extent of our success at efficiently and successfully integrating the operations of various companies that we have acquired or may acquire;

•

global market, political and economic conditions, and in the countries in which we operate in particular;

•

government regulations and approvals;

•

litigation and regulatory proceedings;

•

infringement of our intellectual property rights by others (including for replication and sale of consumables for use in our systems), or infringement of others’ intellectual property rights by us;

•

the extent of our success at maintaining our liquidity and financing our operations and capital needs;

•

impact of tax regulations on our results of operations and financial conditions; and

18

•

those factors referred to in Item 3.D, “Key Information - Risk Factors”, Item 4, “Information on the Company”, and Item 5, “Operating and Financial Review and Prospects” in our 2019 Annual Report, as supplemented herein, as well as in other portions of the 2019 Annual Report

Readers are urged to carefully review and consider the various disclosures made throughout the Form 6-K, our 2019 Annual Report, and in our other reports filed with or furnished to the SEC, which are designed to advise interested parties of the risks and factors that may affect our business, financial condition, results of operations and prospects.

QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

Reference is made to Item 11, “Quantitative and Qualitative Disclosures about Market Risk” in our 2019 Annual Report.

LEGAL PROCEEDINGS

We are subject to various litigation and other legal proceedings from time to time. For a discussion of our litigation status, see Note 11-“Contingencies” in the notes to our unaudited condensed consolidated interim financial statements attached as Exhibit 99.1 to the Form 6-K.

RISK FACTORS

The global COVID-19 health pandemic has been adversely affecting and could potentially severely adversely affect, our business, results of operations and financial condition due to impacts on the industries in which our customers operate, as well as impacts from actions taken to contain the disease or treat its impact, and due to the unknown the speed and extent of the recovery from the disease.

COVID-19, which was discovered in Wuhan, China in December 2019 and which was declared by the World Health Organization to be a global pandemic on March 11, 2020, has had numerous adverse effects on the global economy. Governmental authorities around the world have implemented measures to reduce the spread of COVID-19. These measures, including shutdowns and “shelter-in-place” orders suggested or mandated by governmental authorities or otherwise elected by companies as a preventative measure, have adversely affected workforces, customers, consumer sentiment, economies and financial markets, and, along with decreased consumer spending, have led to an economic downturn in many of the markets into which we sell our products and services.

Those effects of the pandemic have been adversely impacting our financial results for our operations in all global regions, beginning already in the first quarter of 2020 and continuing for the entire second quarter of 2020.

While we have imposed counter-measures to try to mitigate the impact of the pandemic on our operating results, there is no certainty that those measures will succeed. As early as February 3, 2020, we imposed travel restrictions on our staff and have tried to proactively prevent any harm to our workforce wherever possible. Soon thereafter we also implemented work-from-home options. In order to try to lessen the impact of the pandemic on our profitability, we began to implement cost-control measures at the end of February 2020 and continue to closely manage them. All of our employees were effectively reduced to a four-day work-week during the second quarter of 2020, and we have instituted a nonessential hiring freeze and have adjusted our cost base and production plan accordingly.

While we continue to monitor the situation, assessing further implications for our operations, supply chain, liquidity, cash flow and customer orders, and have implemented the foregoing measures in an effort to mitigate adverse consequences, while simultaneously abiding by any government-imposed restrictions, market by market, there is no assurance that we can succeed at doing so.

In addition to the adverse impact of the COVID-19 pandemic on our business and operating results, we furthermore face uncertainty as to the degree and duration of that impact going forward. We do not know the length of time that the pandemic and related disruptions will continue, the impact of governmental regulations or easement of regulations in response to the strengthening or weakening of the pandemic, and the degree of overall potentially permanent changes in consumer behavior that may be caused by the pandemic. The pandemic may furthermore even lead to a global economic downturn that is more than temporary and that could adversely affect demand for our products and services generally. A downturn could also have a material adverse impact on our business partners’ stability and financial strength. Given the uncertainties associated with COVID-19, it is difficult to fully predict the magnitude of effects on our, and our business partners’, business, financial condition and results of operations.

As a result of the disruption in the industries into which we sell our products and services, and the lack of visibility as to the severity and duration of the pandemic, we have maintained, as of the date hereof, our withdrawal of full-year guidance for 2020. We cannot predict whether we will be able to restore our guidance later in 2020.

The COVID-19 pandemic may also have the effect of amplifying many of the other risks described under the caption “Item 3. Key Information— D. Risk Factors” in our 2019 Form 20-F.

19