OPERATING AND FINANCIAL REVIEW AND PROSPECTS.
Overview of Business and Trend Information
Business Performance in Macro-Economic Environment
Our current outlook, as well as our results of operations for the three and nine month periods ended September 30, 2022, should be evaluated in light of current global macroeconomic conditions, including challenging trends that have arisen in the post-COVID-19 period. Our revenues in the first nine months of 2022 evidenced a significant improvement over the corresponding period in 2021, during which our recovery from the COVID-19 pandemic was ongoing, but incomplete. Our revenues during the nine-month period ended September 30, 2022 grew by 11.8% on a year-over-year basis, compared to the nine months ended September 30, 2021, when the COVID-19 pandemic was still adversely impacting our revenues. Our improved performance in the nine months ended September 30, 2022, was primarily driven by a 23.2% increase in systems revenues, a 5.8% increase in consumables revenues, and a 7.5% increase in services revenues (in each case, compared to the corresponding period of 2021). Our revenues in the first nine months of 2022 surpassed pre-COVID-19 levels (an improvement of 3.4% compared to the first nine months of 2019), signaling that we have achieved full recovery from the pandemic with respect to our top-line results.
- further actions taken by central banks in Europe and the U.S. to increase interest rates as a means to slow down inflation, which may worsen credit/financing conditions for our customers who purchase our products;
- potential contraction of economic activities and recessionary conditions that could arise as a result of interest rate increases and a decrease in consumer demand;
- any further government-mandated shutdowns in China due to COVID-19 outbreaks, which could slow down our supply chain; and
- the continued depreciated value of the Euro relative to the U.S. dollar, which has been having and may continue to have an adverse impact on the U.S.- denominated value of our European-derived revenues for purposes of our financial statements.
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 nine months ended September 30, 2022 with the corresponding periods of 2021.
Results of Operations
Comparison of Three Months Ended September 30, 2022 to Three Months Ended September 30, 2021
The following table sets forth certain statement of operations data for the periods indicated:
Three Months Ended September 30, | |||||||||||||||
2022 | 2021 | ||||||||||||||
U.S. $ in thousands | % of Revenues | U.S. $ in thousands | % of Revenues | ||||||||||||
Revenues | $ | 162,192 | 100.0 | % | $ | 159,009 | 100.0 | % | |||||||
Cost of revenues | 91,443 | 56.4 | % | 90,821 | 57.1 | % | |||||||||
Gross profit | 70,749 | 43.6 | % | 68,188 | 42.9 | % | |||||||||
Research and development, net | 23,145 | 14.3 | % | 22,645 | 14.2 | % | |||||||||
Selling, general and administrative | 63,230 | 39.0 | % | 67,462 | 42.4 | % | |||||||||
Operating loss | (15,626 | ) | (9.6 | )% | (21,919 | ) | (13.8 | )% | |||||||
Gain from deconsolidation of subsidiary | 39,136 | 24.1 | % | - | 0.0 | % | |||||||||
Financial income (expenses), net | 452 | 0.3 | % | (634 | ) | (0.4 | )% | ||||||||
Income (loss) before income taxes | 23,962 | 14.8 | % | (22,553 | ) | (14.2 | )% | ||||||||
Income tax (benefit) expense | 3,298 | 2.0 | % | (699 | ) | (0.4 | )% | ||||||||
Share in losses of associated companies | (1,915 | ) | (1.2 | )% | 3,778 | 2.4 | % | ||||||||
Net income (loss) | 18,749 | 11.6 | % | (18,076 | ) | (11.4 | )% |
Discussion of Results of Operations
Revenues
Our products and services revenues in the three months ended September 30, 2022 and 2021, as well as the percentage change reflected thereby, were as follows:
Three Months Ended September 30, | |||||||||||||||
2022 | 2021 | % Change | |||||||||||||
U.S. $ in thousands | |||||||||||||||
Products | $ | 112,133 | $ | 108,888 | 3.0 | % | |||||||||
Services | 50,059 | 50,121 | (0.1 | )% | |||||||||||
Total Revenues | $ | 162,192 | $ | 159,009 | 2.0 | % |
Products Revenues
Revenues derived from products (including systems and consumable materials) increased by $3.2 million, or 3.0%, for the three months ended September 30, 2022, as compared to the three months ended September 30, 2021. Revenues derived from products excluding divestitures grew on a constant currency basis by 10.5%, as compared to the three months ended September 30, 2021.
Services Revenues
Services revenues (including SDM, maintenance contracts, time and materials and other services) decreased by $0.1 million for the three months ended September 30, 2022, or 0.1%, as compared to the three months ended September 30, 2021. Revenues derived from services excluding divestitures grew on a constant currency basis by 2.1%, as compared to the three months ended September 30, 2021.Within services revenues, customer support revenue, which includes revenue generated mainly by maintenance contracts on our systems, increased by 4.7%.
Revenues by Region
Revenues and the percentage of revenues by region for the three months ended September 30, 2022 and 2021, as well as the percentage change in revenues in each such region reflected thereby, were as follows:
Three Months Ended September 30, | ||||||||||||||||||||
2022 | 2021 | % Change | ||||||||||||||||||
U.S.$ in thousands | % of Revenues | U.S.$ in thousands | % of Revenues | |||||||||||||||||
Americas* | $ | 107,453 | 66.3 | % | $ | 103,572 | 65.2 | % | 3.7 | % | ||||||||||
EMEA | 31,460 | 19.4 | % | 34,061 | 21.4 | % | (7.6 | )% | ||||||||||||
Asia Pacific | 23,279 | 14.3 | % | 21,376 | 13.4 | % | 8.9 | % | ||||||||||||
$ | 162,192 | 100.0 | % | $ | 159,009 | 100.0 | % | 2.0 | % |
* Represent the United States, Canada and Latin America
Revenues in the Americas region increased by $3.9 million, or 3.7%, to $107.5 million for the three months ended September 30, 2022, compared to $103.6 million for the three months ended September 30, 2021. The increase was in all revenue streams.
Revenues in the EMEA region decreased by $2.6 million, or 7.6%, to $31.5 million for the three months ended September 30, 2022, compared to $34.1 million for the three months ended September 30, 2021. On a constant currency basis, when using the prior year period’s exchange rates, revenues increased by $1.9 million, or 5.6%.
Revenues in the Asia Pacific region increased by $1.9 million, or 8.9%, to $23.3 million for the three months ended September 30, 2022, compared to $21.4 million for the three months ended September 30, 2021. The increase was primarily driven by higher systems revenues. On a constant currency basis, when using the prior year period’s exchange rates, revenues increased by $3.6 million, or 16.6%.
Gross Profit
Gross profit from our products and services, as well as the percentage change reflected thereby, was as follows:
Three Months Ended September 30, | ||||||||||||
2022 | 2021 | |||||||||||
U.S. $ in thousands | Change in % | |||||||||||
Gross profit attributable to: | ||||||||||||
Products | $ | 56,217 | $ | 54,068 | 4.0 | % | ||||||
Services | 14,532 | 14,120 | 2.9 | % | ||||||||
$ | 70,749 | $ | 68,188 | 3.8 | % |
Gross profit as a percentage of revenues from our products and services was as follows:
Three Months Ended September 30, | ||||||||
2022 | 2021 | |||||||
Gross profit as a percentage of revenues from: | ||||||||
Products | 50.1 | % | 49.7 | % | ||||
Services | 29.0 | % | 28.2 | % | ||||
Total gross profit | 43.6 | % | 42.9 | % |
Gross profit attributable to products revenues increased by $2.1 million, or 4.0%, to $56.2 million for the three months ended September 30, 2022, compared to gross profit of $54.1 million for the three months ended September 30, 2021. Gross profit attributable to products revenues as a percentage of products revenues increased to 50.1% for the three months ended September 30, 2022, compared to 49.7% for the three months ended September 30, 2021.
Gross profit attributable to services revenues increased by $0.4 million, or 2.9%, to $14.5 million for the three months ended September 30, 2022, compared to $14.1 million for the three months ended September 30, 2021. Gross profit attributable to services revenues as a percentage of services revenues in the three months ended September 30, 2022 increased to 29.0%, as compared to 28.2% for the three months ended September 30, 2021.
Operating Expenses
The amount of each type of operating expense for the three months ended September 30, 2022 and 2021, 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 September 30, | ||||||||||||
2022 | 2021 | % Change | ||||||||||
U.S. $ in thousands | ||||||||||||
Research and development, net | $ | 23,145 | $ | 22,645 | 2.2 | % | ||||||
Selling, general and administrative | 63,230 | 67,462 | (6.3 | )% | ||||||||
86,375 | 90,107 | (4.1 | )% |
Research and development expenses, net increased by $0.5 million, or 2.2%, to $23.1 million for the three months ended September 30, 2022, compared to $22.6 million for the three months ended September 30, 2021. The amount of research and development expenses constituted 14.3% of our revenues for the three months ended September 30, 2022, as compared to 14.2% for the three months ended September 30, 2021.
Our research and development expenses were impacted by the timing of project spending and product launches, based on our portfolio management. We continue to invest in strategic long-term initiatives that include advancements in our core FDM and PolyJet technologies and in our new powder-based and photopolymer-based, SAF and P3 technologies, advanced composite materials, software and development of new applications which will enhance our current solutions offerings.
Selling, general and administrative expenses decreased by $4.2 million, or 6.3%, to $63.2 million for the three months ended September 30, 2022, compared to $67.5 million for the three months ended September 30, 2021.The decrease in these expenses reflected the trend of [improved operating efficiencies that we have been implementing in our operations since the onset of the COVID-19 pandemic in 2020]. The amount of selling, general and administrative expenses constituted 39.0% of our revenues for the three months ended September 30, 2022, as compared to 42.4% for the three months ended September 30, 2021.
Operating Loss
Operating loss and operating loss as a percentage of our total revenues were as follows:
Three Months Ended September 30, | |||||||||
2022 | 2021 | ||||||||
U.S. $ in thousands | |||||||||
Operating loss | $ | (15,626 | ) | $ | (21,919 | ) | |||
Percentage of revenues | (9.6 | )% | (13.8 | )% |
Operating loss amounted to $15.6 million for the three months ended September 30, 2022, compared to an operating loss of $21.9 million for the three months ended September 30, 2021. Our operating loss decreased both on an absolute basis and as a percentage of our revenues in the third quarter of 2022 compared to the third quarter of 2021, reflecting our improved operating efficiencies and business scalability, which resulted in modest gross margin growth and lower operating expenses.
Gain From Deconsolidation Of Subsidiary
On August 31, 2022, we completed the previously-announced merger of our subsidiary MakerBot with Ultimaker, into a new company that had been created under the name Ultimaker. The transaction was accounted for as an equity method investment, and, accordingly, we recorded an investment of $105.6 million, and a net gain from deconsolidation of MakerBot of $39.1 million.
Financial Income (Expenses), net
Financial income, net, which was primarily comprised of foreign currencies effects, interest income and interest expenses, was $0.5 million for the three months ended September 30, 2022, compared to $0.6 million of financial expenses, net for the three months ended September 30, 2021.
Income Taxes
Income tax (benefit) expense and income tax (benefit) expense as a percentage of net income (loss) before taxes, as well as the percentage change in each, year over year, reflected thereby, were as follows:
Three Months Ended September 30, | |||||||||||||
2022 | 2021 | ||||||||||||
U.S. $ in thousands | Change in % | ||||||||||||
Income tax (benefit) expense | $ | 3,298 | $ | (699 | ) | (571.8 | )% | ||||||
As a percent of income (loss) before income taxes | 13.8 | % | (3.1 | )% | 344.1 | % |
We had an effective tax rate of 13.8% for the three-month period ended September 30, 2022, compared to an effective tax rate of (-3.1)% for the three-month period ended September 30, 2021. Our effective tax rate in the third quarters of each of 2022 and 2021 was primarily impacted by the geographic mix of foreign taxable earnings and losses, as well as changes in our valuation allowance.
Share in Profit (Loss) of Associated Companies
Share in profit (loss) of associated companies reflects our proportionate share of the profits of unconsolidated entities accounted for by using the equity method of accounting. During the three months ended September 30, 2022, the loss from our proportionate estimated share of the losses of our equity method investments was $1.9 million, compared to a profit of $3.8 million in the three months ended September 30, 2021. The foregoing losses was attributable to our equity investment in the new merged entity Ultimaker and MakerBot following the deconsolidation, in the third quarter of 2022, of MakerBot which was previously held as a subsidiary of Stratasys.
Net Income (Loss) and Net Income (Loss) Per Share
Net income (loss), and net income (loss) per share were as follows:
Three Months Ended September 30, | ||||||||
2022 | 2021 | |||||||
U.S. $ in thousands | ||||||||
Net income (loss) | $ | 18,749 | $ | (18,076 | ) | |||
Percentage of revenues | 11.6 | % | (11.4 | )% | ||||
Basic and diluted income (loss) per share | $ | 0.28 | $ | (0.28 | ) |
Net income was $18.7 million for the three months ended September 30, 2022 compared to net loss of $18.1 million for the three months ended September 30, 2021. The income is primarily attributable to the gain from deconsolidation of MakerBot.
Net income per share was $0.28 for the three months ended September 30, 2022 as compared to net loss per share of $0.28 for the three months ended September 30, 2021. The weighted average fully diluted share count was 67.0 million during the three months ended September 30, 2022, compared to 65.0 million during the three months ended September 30, 2021.
Results of Operations
Comparison of Nine Months Ended September 30, 2022 to Nine Months Ended September 30, 2021
The following table sets forth certain statement of operations data for the periods indicated:
Nine Months Ended September 30, | |||||||||||||||
2022 | 2021 | ||||||||||||||
U.S. $ in thousands | % of Revenues | U.S. $ in thousands | % of Revenues | ||||||||||||
Revenues | $ | 492,224 | 100.0 | % | $ | 440,203 | 100.0 | % | |||||||
Cost of revenues | 284,405 | 57.8 | % | 253,168 | 57.5 | % | |||||||||
Gross profit | 207,819 | 42.2 | % | 187,035 | 42.5 | % | |||||||||
Research and development, net | 71,489 | 14.5 | % | 65,683 | 14.9 | % | |||||||||
Selling, general and administrative | 195,085 | 39.6 | % | 184,353 | 41.9 | % | |||||||||
Operating loss | (58,755 | ) | (11.9 | )% | (63,001 | ) | (14.3 | )% | |||||||
Gain from deconsolidation of subsidiary | 39,136 | 8.0 | % | - | 0.0 | % | |||||||||
Financial expenses, net | (2,080 | ) | (0.4 | )% | (1,383 | ) | (0.3 | )% | |||||||
Loss before income taxes | (21,699 | ) | (4.4 | )% | (64,384 | ) | (14.6 | )% | |||||||
Income tax expense | 2,796 | 0.6 | % | 6,009 | 1.4 | % | |||||||||
Share in profit (loss) of associated companies | (2,089 | ) | (0.4 | )% | 1,229 | 0.3 | % | ||||||||
Net loss | (26,584 | ) | (5.4 | )% | (57,146 | ) | (13.0 | )% |
Discussion of Results of Operations
Revenues
Our products and services revenues in the nine months ended September 30, 2022 and 2021, as well as the percentage change reflected thereby, were as follows:
Nine Months Ended September 30, | ||||||||||||
2022 | 2021 | % Change | ||||||||||
U.S. $ in thousands | ||||||||||||
Products | $ | 340,927 | $ | 299,517 | 13.8 | % | ||||||
Services | 151,297 | 140,686 | 7.5 | % | ||||||||
Total Revenues | $ | 492,224 | $ | 440,203 | 11.8 | % |
Products Revenues
Revenues derived from products (including AM systems and consumable materials) increased by $41.4 million, or 13.8%, for the nine months ended September 30, 2022, as compared to the nine months ended September 30, 2021.
Revenues derived from consumables increased by $9.4 million, or 5.8%, for the nine months ended September 30, 2022, as compared to the nine months ended September 30, 2021. The increase in consumables reflects the impact of strong systems sales throughout 2021 and their initial flow-through to consumables as initial materials began to be replenished in the first nine months of 2022.
Services Revenues
Services revenues (including SDM, maintenance contracts, time and materials and other services) increased by $10.6 million for the nine months ended September 30, 2022, or 7.5%, as compared to the nine months ended September 30, 2021. Within services revenues, customer support revenue, which includes revenue generated mainly by maintenance contracts on our systems, increased by 7.9%.
Revenues by Region
Revenues and the percentage of revenues by region for the nine months ended September 30, 2022 and 2021, as well as the percentage change in revenues in each such region reflected thereby, were as follows:
Nine Months Ended September 30, | ||||||||||||||||||||
2022 | 2021 | % Change | ||||||||||||||||||
U.S.$ in thousands | % of Revenues | U.S.$ in thousands | % of Revenues | |||||||||||||||||
Americas* | $ | 313,245 | 63.6 | % | $ | 278,634 | 63.3 | % | 12.4 | % | ||||||||||
EMEA | 106,727 | 21.7 | % | 95,502 | 21.7 | % | 11.8 | % | ||||||||||||
Asia Pacific | 72,252 | 14.7 | % | 66,067 | 15.0 | % | 9.4 | % | ||||||||||||
$ | 492,224 | 100.0 | % | $ | 440,203 | 100.0 | % | 11.8 | % |
* Consists of United States, Canada and Latin America
Revenues in the Americas region increased by $34.6 million, or 12.4%, to $313.2 million for the nine months ended September 30, 2022, compared to $278.6 million for the nine months ended September 30, 2021. The increase was in all revenue streams.
Revenues in the EMEA region increased by $11.2 million, or 11.8%, to $106.7 million for the nine months ended September 30, 2022, compared to $95.5 million for the nine months ended September 30, 2021. The increase was primarily driven by higher products revenues.
Revenues in the Asia Pacific region increased by $6.2 million, or 9.4%, to $72.3 million for the nine months ended September 30, 2022, compared to $66.1 million for the nine months ended September 30, 2021. The increase was primarily driven by higher systems revenues.
Gross Profit
Gross profit from our products and services, as well as the percentage change reflected thereby, were as follows:
Nine Months Ended September 30, | ||||||||||||
2022 | 2021 | |||||||||||
U.S. $ in thousands | Change in % | |||||||||||
Gross profit attributable to: | ||||||||||||
Products | $ | 164,506 | $ | 148,046 | 11.1 | % | ||||||
Services | 43,313 | 38,989 | 11.1 | % | ||||||||
$ | 207,819 | $ | 187,035 | 11.1 | % |
Gross profit as a percentage of revenues from our products and services was as follows:
Nine Months Ended September 30, | ||||||||
2022 | 2021 | |||||||
Gross profit as a percentage of revenues from: | ||||||||
Products | 48.3 | % | 49.4 | % | ||||
Services | 28.6 | % | 27.7 | % | ||||
Total gross profit | 42.2 | % | 42.5 | % |
Gross profit attributable to products revenues increased by $16.5 million, or 11.1%, to $164.5 million for the nine months ended September 30, 2022, compared to gross profit of $148.0 million for the nine months ended September 30, 2021. Gross profit attributable to products revenues as a percentage of products revenues decreased to 48.3% for the nine months ended September 30, 2022, compared to 49.4% for the nine months ended September 30, 2021.
Gross profit attributable to services revenues increased by $4.3 million, or 11.1%, to $43.3 million for the nine months ended September 30, 2022, compared to $39.0 million for the nine months ended September 30, 2021. Gross profit attributable to services revenues as a percentage of services revenues in the nine months ended September 30, 2022 increased to 28.6%, as compared to 27.7% for the nine months ended September 30, 2021.
The above gross profit results were impacted by growth in logistics and materials costs, reflecting global inflationary trends, offset by our increased revenues from systems and consumables, along with operational efficiencies and the divestment of MakerBot, during the first nine months of 2022 compared to the first nine months of 2021.
Operating Expenses
The amount of each type of operating expense for the nine months ended September 30, 2022 and 2021, as well as the percentage change reflected thereby, and total operating expenses as a percentage of our total revenues in each such period, were as follows:
Nine Months Ended September 30, | ||||||||||||
2022 | 2021 | % Change | ||||||||||
U.S. $ in thousands | ||||||||||||
Research and development, net | $ | 71,489 | $ | 65,683 | 8.8 | % | ||||||
Selling, general and administrative | 195,085 | 184,353 | 5.8 | % | ||||||||
$ | 266,574 | $ | 250,036 | 6.6 | % | |||||||
Percentage of revenues | 54.2 | % | 56.8 | % |
Operating expenses were $266.6 million in the nine months ended September 30, 2022, compared to operating expenses of $250.0 million in the nine months ended September 30, 2021. The increase in operating expenses was driven primarily by the impact of the addition of the operating expenses of three recently-acquired companies— Xaar, Origin, and RPS— to our consolidated results of operations, as well as higher commissions based on our increased revenues.
Research and development expenses, net increased by $5.8 million, or 8.8%, to $71.5 million for the nine months ended September 30, 2022, compared to $65.7 million for the nine months ended September 30, 2021. The amount of research and development expenses constituted 14.5% of our revenues for the nine months ended September 30, 2022, as compared to 14.9% for the nine months ended September 30, 2021.
Our research and development expenses were impacted by the timing of project spending and product launches, based on our management of our product portfolio. We continue to invest in strategic long-term initiatives that include advancements in our core FDM and PolyJet technologies and in our new powder-based and photopolymer-based, SAF and P3 technologies, advanced composite materials, software and development of new applications which will enhance our current solutions offerings.
Selling, general and administrative expenses increased by $10.7 million, or 5.8%, to $195.1 million for the nine months ended September 30, 2022, compared to $184.4 million for the nine months ended September 30, 2021. The increase in these expenses reflected the trend of increased operating activity which began in 2021 and carried over with even greater strength into the first nine months of 2022. The amount of selling, general and administrative expenses constituted 39.6% of our revenues for the nine months ended September 30, 2022, as compared to 41.9% for the nine months ended September 30, 2021.
The decrease in each category of operating expenses as a percentage of our revenues in the first nine months of 2022 compared to the first nine months of 2021 reflects our improved operational efficiencies.
Operating Loss
Operating loss and operating loss as a percentage of our total revenues were as follows:
Nine Months Ended September 30, | |||||||||
2022 | 2021 | ||||||||
U.S. $ in thousands | |||||||||
Operating loss | $ | (58,755 | ) | $ | (63,001 | ) | |||
Percentage of revenues | (11.9 | )% | (14.3 | )% |
Operating loss amounted to $58.8 million for the nine months ended September 30, 2022, compared to an operating loss of $63.0 million for the nine months ended September 30, 2021, reflecting both a decrease in our absolute operating loss, and a decrease in our operating loss as a percentage of our revenues in the first nine months of 2022 compared to the first nine months of 2021.
Gain From Deconsolidation Of Subsidiary
On August 31, 2022, we completed the previously-announced merger of our subsidiary MakerBot with Ultimaker, into a new company that had been created under the name Ultimaker. The transaction was accounted for as an equity method investment, and, accordingly, we recorded an investment of $105.6 million, and a net gain from deconsolidation of MakerBot of $39.1 million.
Financial Expenses, net
Financial expenses, net, which were primarily comprised of foreign currencies effects, interest income and interest expenses, were $2.1 million for the nine months ended September 30, 2022 and $1.4 million for the nine months ended September 30, 2021.
Income Taxes
Income tax expense and income tax expense as a percentage of net loss before taxes, as well as the percentage change in each, year over year, reflected thereby, were as follows:
Nine Months Ended September 30, | |||||||||||||
2022 | 2021 | ||||||||||||
U.S. $ in thousands | Change in % | ||||||||||||
Income tax expense | $ | 2,796 | $ | 6,009 | (53.5 | )% | |||||||
As a percent of loss before income taxes | (12.9 | )% | (9.3 | )% | 38.1 | % |
We had an effective tax rate of (-12.9)% for the nine-month period ended September 30, 2022, compared to an effective tax rate of (-9.3)% for the nine-month period ended September 30, 2021. Our effective tax rate in the nine months ended September 30, 2022 was primarily impacted by the geographic mix of foreign taxable earnings and losses, as well as changes in our valuation allowance.
Share in profit (Loss) of Associated Companies
Share in profit (loss) of associated companies reflects our proportionate share of the profits of unconsolidated entities accounted for by using the equity method of accounting. During the nine months ended September 30, 2022, the loss from our proportionate estimated share of the losses of our equity method investments was $2.1 million, compared to a profit of $1.2 million in the nine months ended September 30, 2021. The foregoing losses was attributable to our equity investment in the new merged entity Ultimaker and MakerBot following the deconsolidation, in the first nine months of 2022, of MakerBot which was previously held as a subsidiary of Stratasys.
Net Loss and Net Loss Per Share
Net loss, and net loss per share were as follows:
Nine Months Ended September 30, | ||||||||
2022 | 2021 | |||||||
U.S. $ in thousands | ||||||||
Net loss | $ | (26,584 | ) | $ | (57,146 | ) | ||
Percentage of revenues | (5.4 | )% | (13.0 | )% | ||||
Basic and diluted net loss per share | $ | (0.40 | ) | $ | (0.91 | ) |
Net loss for the first nine months ended September 30, 2022 was $26.6 million, compared to a net loss of $57.1 million for the nine months ended September 30, 2021, reflecting a decrease in our net loss, and a decrease in our net loss as a percentage of our revenues in the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021. The decrease is primarily attributable to the gain from the deconsolidation of MakerBot.
Net loss per share was $0.40 and $0.91 for the nine months ended September 30, 2022 and 2021, respectively. The weighted average fully diluted share count was 66.4 million for the nine months ended September 30, 2022, compared to 62.9 million for the nine months ended September 30, 2021.
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, legal provisions 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, impairment of long-lived assets and goodwill, revaluation of our investments and the corresponding tax effect of those items.
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 September 30, | ||||||||||||||||||||||||||
2022 | Non-GAAP | 2022 | 2021 | Non-GAAP | 2021 | |||||||||||||||||||||
GAAP | Adjustments | Non-GAAP | GAAP | Adjustments | Non-GAAP | |||||||||||||||||||||
U.S. dollars and shares in thousands (except per share amounts) | ||||||||||||||||||||||||||
Gross profit (1) | $ | 70,749 | $ | 7,990 | $ | 78,739 | $ | 68,188 | $ | 8,507 | $ | 76,695 | ||||||||||||||
Operating income (loss) (1,2) | (15,626 | ) | 20,149 | 4,523 | (21,919 | ) | 23,739 | 1,820 | ||||||||||||||||||
Net income (loss) (1,2,3) | 18,749 | (15,423 | ) | 3,326 | (18,076 | ) | 18,592 | 516 | ||||||||||||||||||
Net income (loss) per diluted share (4) | $ | 0.28 | $ | (0.23 | ) | $ | 0.05 | $ | (0.28 | ) | $ | 0.29 | $ | 0.01 | ||||||||||||
(1 | ) | Acquired intangible assets amortization expense | 6,941 | 5,495 | ||||||||||||||||||||||
Non-cash stock-based compensation expense | 1,061 | 804 | ||||||||||||||||||||||||
Restructuring and other related costs | (12 | ) | 67 | |||||||||||||||||||||||
Impairment charges | - | 2,141 | ||||||||||||||||||||||||
7,990 | 8,507 | |||||||||||||||||||||||||
(2 | ) | Acquired intangible assets amortization expense | 2,138 | 2,205 | ||||||||||||||||||||||
Non-cash stock-based compensation expense | 6,330 | 7,154 | ||||||||||||||||||||||||
Impairment of long-lived assets | - | 1,242 | ||||||||||||||||||||||||
Restructuring and other related costs | 1,309 | 210 | ||||||||||||||||||||||||
Revaluation of investments | 901 | 2,025 | ||||||||||||||||||||||||
Contingent consideration | 394 | 197 | ||||||||||||||||||||||||
Other expenses | 1,087 | 2,199 | ||||||||||||||||||||||||
12,159 | 15,232 | |||||||||||||||||||||||||
20,149 | 23,739 | |||||||||||||||||||||||||
(3 | ) | Corresponding tax effect | 2,993 | (376 | ) | |||||||||||||||||||||
Equity method related amortization, divestments and impairments | 571 | (4,771 | ) | |||||||||||||||||||||||
Gain from deconsolidation of subsidiary | (39,136 | ) | - | |||||||||||||||||||||||
$ | (15,423 | ) | $ | 18,592 | ||||||||||||||||||||||
(4 | ) | Weighted average number of ordinary shares outstanding- Diluted | 67,038 | 67,038 | 65,018 | 65,950 |
Nine Months Ended September 30, | ||||||||||||||||||||||||||
2022 | Non-GAAP | 2022 | 2021 | Non-GAAP | 2021 | |||||||||||||||||||||
GAAP | Adjustments | Non-GAAP | GAAP | Adjustments | Non-GAAP | |||||||||||||||||||||
U.S. dollars and shares in thousands (except per share amounts) | ||||||||||||||||||||||||||
Gross profit (1) | $ | 207,819 | $ | 27,593 | $ | 235,412 | $ | 187,035 | $ | 22,192 | $ | 209,227 | ||||||||||||||
Operating income (loss) (1,2) | (58,755 | ) | 67,235 | 8,480 | (63,001 | ) | 59,657 | (3,344 | ) | |||||||||||||||||
Net income (loss) (1,2,3) | (26,584 | ) | 32,295 | 5,711 | (57,146 | ) | 52,284 | (4,862 | ) | |||||||||||||||||
Net income (loss) per diluted share (4) | $ | (0.40 | ) | $ | 0.49 | $ | 0.09 | $ | (0.91 | ) | $ | 0.83 | $ | (0.08 | ) | |||||||||||
(1 | ) | Acquired intangible assets amortization expense | 20,861 | 16,368 | ||||||||||||||||||||||
Non-cash stock-based compensation expense | 3,041 | 2,226 | ||||||||||||||||||||||||
Restructuring and other related costs | (174 | ) | 1,457 | |||||||||||||||||||||||
Impairment charges | 3,865 | 2,141 | ||||||||||||||||||||||||
27,593 | 22,192 | |||||||||||||||||||||||||
(2 | ) | Acquired intangible assets amortization expense | 6,581 | 6,598 | ||||||||||||||||||||||
Non-cash stock-based compensation expense | 21,714 | 20,914 | ||||||||||||||||||||||||
Impairment of long-lived assets | - | 2,664 | ||||||||||||||||||||||||
Restructuring and other related costs | 1,864 | 2,370 | ||||||||||||||||||||||||
Revaluation of investments | 3,217 | 556 | ||||||||||||||||||||||||
Contingent consideration | 1,197 | 590 | ||||||||||||||||||||||||
Other expenses | 5,069 | 3,773 | ||||||||||||||||||||||||
39,642 | 37,465 | |||||||||||||||||||||||||
67,235 | 59,657 | |||||||||||||||||||||||||
(3 | ) | Corresponding tax effect | 3,219 | (2,770 | ) | |||||||||||||||||||||
Equity method related amortization, divestments and impairments | 571 | (4,603 | ) | |||||||||||||||||||||||
Finance expenses | 406 | - | ||||||||||||||||||||||||
Gain from deconsolidation of subsidiary | (39,136 | ) | - | |||||||||||||||||||||||
$ | 32,295 | $ | 52,284 | |||||||||||||||||||||||
(4 | ) | Weighted average number of ordinary shares outstanding- Diluted | 66,356 | 67,007 | 62,888 | 62,888 |
Liquidity and Capital Resources
A summary of our statements of cash flows is as follows:
Nine Months Ended September 30, | |||||||
2022 | 2021 | ||||||
U.S $ in thousands | |||||||
Net loss | $ | (26,584 | ) | $ | (57,146 | ) | |
Depreciation and amortization | 44,451 | 41,412 | |||||
Impairment of other long-lived assets | 3,865 | 1,944 | |||||
Stock-based compensation | 24,755 | 23,140 | |||||
Foreign currency transactions loss | 13,978 | 4,210 | |||||
Gain from deconsolidation of subsidiary | (39,136 | ) | - | ||||
Other non-cash item, net | 6,132 | (309 | ) | ||||
Change in working capital and other items | (84,750 | ) | 18,145 | ||||
Net cash provided by (used in) operating activities | (57,289 | ) | 31,396 | ||||
Net cash provided by (used in) investing activities | (23,987 | ) | (191,166 | ) | |||
Net cash provided by (used in) by financing activities | (1,407 | ) | 222,955 | ||||
Effect of exchange rate changes on cash, cash equivalents and restricted cash | (9,787 | ) | (2,413 | ) | |||
Net change in cash, cash equivalents and restricted cash | (92,470 | ) | 60,772 | ||||
Cash, cash equivalents and restricted cash, beginning of period | 243,293 | 272,216 | |||||
Cash, cash equivalents and restricted cash, end of period | 150,823 | 332,988 |
Our cash, cash equivalents and restricted cash balance decreased to $155.0 million as of September 30, 2022 from $243.3 million as of December 31, 2021. The decrease in cash, cash equivalents and restricted cash in the nine months ended September 30, 2022 was primarily $57.3 million of cash used in operating activities and $24.0 million of cash used in investing activities.
Cash used in operating activities
We used $57.3 million of cash in operating activities during the nine months ended September 30, 2022. That cash use reflected our $26.6 million net loss, as reduced to eliminate non-cash charges included in net loss, such as $44.5 million of depreciation and amortization, $24.8 million of share-based compensation expenses, and gain from deconsolidation of subsidiary of $39.1 million. Changes in our working capital balances, which adjustments had an unfavorable net impact of $84.8 million on our cash flows, which changes were mainly driven by increased inventory purchases.
Cash used in investing activities
We used $24.0 million of cash in our investing activities during the nine months ended September 30, 2022. The net cash use during the nine months ended September 30, 2022, mostly reflects $67.3 million used investments in unconsolidated entities, and $11.8 million that we invested for the purchase of property and equipment, partly offset by net proceeds that we withdrew from short-term bank deposits.
Cash used in financing activities
We used $1.4 million of cash in financing activities during the nine months ended September 30, 2022. These financing activities were mostly related to contingent consideration that we paid for acquisitions, in an aggregate amount of $1.4 million.
Capital resources and capital expenditures
Our total current assets amounted to $694.4 million as of September 30, 2022, of which $348.7 million consisted of cash, cash equivalents, short-term deposits and restricted cash. Total current liabilities amounted to $213.7 million. Most of our cash and cash equivalents and short-term deposits are held in banks in Israel and in the U.S.
Critical Accounting Estimates
Forward-Looking Statements and Factors That May Affect Future Results of Operations
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.
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the extent of our success at introducing new or improved products and solutions that gain market share;
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the extent of growth of the 3D printing market generally;
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changes in our overall strategy, including as related to any restructuring activities and our capital expenditures;
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the impact of shifts in prices or margins of the products that we sell or services we provide;
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the impact of competition and new technologies;
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impairments of goodwill or other intangible assets in respect of companies that we acquire;
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the extent of our success at efficiently and successfully integrating the operations of various companies that we have acquired or may acquire;
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the degree of our success at locating and acquiring additional value-enhancing, inorganic technology that furthers our business plan to lead in the realm of polymers;
- the adverse impact that recent global interruptions and delays involving freight carriers and other third parties have been and may continue to have on our supply chain and distribution network, and, consequently, our ability to successfully sell both our existing and newly-launched 3D printing products;
- the adverse effects that inflation, and actions taken to reduce inflation, such as increased interest rates, are having or may have on the macro-economic environment, and the degree of our resilience (and that of our customers and suppliers) to those effects, which may have significant consequences for our operations, financial position and cash flows;
- global market, political and economic conditions, and in the countries in which we operate in particular;
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government regulations and approvals;
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litigation and regulatory proceedings;
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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;
- potential cyber attacks against, or other breaches to, our information technologies systems;
• the extent of our success at maintaining our liquidity and financing our operations and capital needs;
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impact of tax regulations on our results of operations and financial conditions;
- the remaining duration and severity of the global COVID-19 pandemic; and
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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 2021 Annual Report, as supplemented herein, as well as in other portions of the 2021 Annual Report Readers are urged to carefully review and consider the various disclosures made throughout the Form 6-K, our 2021 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 2021 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 12-“Contingencies” in the notes to our unaudited condensed consolidated interim financial statements attached as Exhibit 99.1 to the Form 6-K.
RISK FACTORS