Stratasys Inc (ISRAEL) 2026 Q2 Earnings Call

Good morning, everyone, and thank you for joining us to discuss our 2026 second quarter financial results. On the call with us today is our CEO, Dr. Yoav Zeif, and CFO, Eitan Zamir. I would like to remind you that access to today's call, including the slide presentation, is available online at the web address provided in our press release. In addition, a replay of today's call, including access to the slide presentation, will also be available and can be accessed through the investor relations section of our website. Please note that some of the information provided during our discussion today will consist of forward-looking statements, including, without limitation, those regarding our expectations as to our future revenue, gross margin, operating expenses, taxes, and other future financial performance, and our expectations for our business outlook. All statements that speak to future performance, events, expectations, or results are forward-looking statements.

Actual results or trends could differ materially from our forecast. For risks that could cause actual results to be materially different from those described in forward-looking statements, please refer to the risk factors discussed or referenced in Stratasys' annual report on Form 20-F for the 2025 year. Please also refer to that annual report, along with our reports filed with or furnished to the SEC throughout 2026 for additional operational and financial details. Reports on Form 6-K that are furnished to the SEC on a quarterly basis and throughout the year provide updated current information regarding the company's operating results and material developments concerning our company. Stratasys assumes no obligation to update any forward-looking statements or information which speak as of their respective dates. As in previous quarters, today's call will include GAAP and non-GAAP financial measures.

The non-GAAP financial measures should be read in combination with our GAAP metrics to evaluate our performance. Non-GAAP to GAAP reconciliations are provided in tables in our slide presentation and today's press release. I will now turn the call over to our Chief Executive Officer, Dr. Yoav Zeif.

Yoav. Thank you, Yonah. Good morning, everyone, and thank you for joining us.

Our second quarter results reflect a record-setting level of consumables sales as we continue to effectively drive recurring revenue from materials that are specifically used for manufacturing end-use parts. This growth in consumables is a great indicator of the high utilization of our systems and speaks directly to our strategy to increase the manufacturing portion of our business. Total revenue grew 3.7% sequentially. Stratasys Direct had a strong quarter driven by aerospace and defense customers, reinforcing the trajectory of our production parts division. Our earnings results reflect continued focus on operational rigor and disciplined cost management. As we capitalize on the mega trends that are driving additive manufacturing adoption, aerospace and defense remains a clear proof point.

Mission-critical performance requirements and accelerating supply chain resiliency mandates are translating into durable structural demand for our platforms. These reflect a fundamental shift for high-demand manufacturers as they seek localized, flexible production-grade capabilities. Importantly, with both make and buy optionality, Stratasys is proving to be uniquely positioned to capture this potentially seismic shift. Independent industry estimates suggest the additive manufacturing opportunity could double by the end of the decade and double again within a few short years, reinforcing our conviction that we are still early in this transformation. We also took a significant step forward in strengthening that positioning with our pending acquisition of Markforged, which we expect to close later this year. Adding Markforged with its continuous carbon fiber technology, materials, and software platform will meaningfully augment our offering, particularly in aerospace, defense, and industrial production. Speaking of aerospace and defense, in the second quarter, we demonstrated strong momentum.

A&D is our largest business by far and a strong ongoing example of our success in manufacturing, growing 17% relative to the second quarter last year. We estimate that we are the leading player in polymer additive manufacturing for A&D. Second quarter results were partially driven by expanding adoption across the U.S. Air Force for depot-level sustainment and spare parts production. Ongoing multiple system investments in our workhorse F900 system certified by the Air Force for flight-worthy production parts are propelling this growth. These orders are not one time. Rather, they are increasing in volume for location across their sustainment enterprise to support established programs of record, turning into large ongoing programs. Once a part is qualified on our platforms, that relationship tends to be long-term, given the cost and complexity of re-qualifying another resource.

This durability is a meaningful reason that we view this new demand quotient as structural rather than cyclical. During the quarter, we were proud to have enhanced a strategic relationship with Quickparts, a Seattle-based international on-demand manufacturer, with its purchase of 12 Neo800+ systems, in addition to its existing six units. This is a multi-year, multimillion-dollar agreement across materials, software, and service. Importantly, the systems will be used for manufacturing production parts in key verticals such as aerospace, defense, advanced mobility, and energy. In addition to the systems going to Quickparts' Seattle Aerospace Center of Excellence in the U.S., this deal includes a geographical extension, with three of the units being placed across its facilities in Europe. Recently, Stratasys was awarded a two-year program totaling $7.8 million through the 2026 America Makes DIB Modernization Challenge.

America Makes is the leading public-private partnership for 3D printing and additive manufacturing technology, managed by the National Center for Defense Manufacturing and Machining. The program's focus is to advance next-generation in-situ monitoring for hardware and software capabilities for both our F900 and a future technology refresh solution with our F3300. This program indicates a long-term DOD strategy that integrates our production platforms. As the executive director of America Makes noted, this project will create a stronger foundation for expanding additive manufacturing across production, sustainment, and supply chain applications throughout the defense enterprise. It further positions Stratasys as the trusted source for qualified manufacturing, enabling a new business model for reliable production of scalable mission-critical components while supporting long-term parts and platform sustainment requirements across the defense industrial base.

Our Stratasys Direct Manufacturing business delivered 12.1% year-over-year growth in the second quarter of 2026, relative to the corresponding quarter in 2025. This was fueled primarily by increasing demand from defense technology companies for drone production, munitions manufacturing, and production applications across next-generation platforms. This emerging demand reinforces the growing role of additive manufacturing as a sustainable strategic enabler of defense industrial base modernization, resilient domestic supply chains, and scalable production. Turning to automotive. This quarter, FANUC, one of the world's leading industrial automation companies, adopted our industrial solutions into its supply chain. This reflects another broader trend starting to emerge across manufacturing, where automotive OEMs and their suppliers are aligning with common additive manufacturing platforms. That alignment means production tooling and replacement parts only have to be qualified once, and then they can be manufactured at any location around the globe.

This improves consistency of quality and reduces lead times across their manufacturing ecosystem. Of particular note, the FANUC engagement came at the request of a major automotive OEM customer who helped standardize common tools and parts between them. This is another exciting next step in the automotive industry's move toward additive manufacturing at scale. In another example of how our technology is penetrating the automotive production line, FAW Group, one of the largest Chinese auto OEMs, signed an agreement to purchase 12 F900 systems by year-end, with two shipped in the second quarter. On top of the five F900 and eight other Stratasys systems they already operate. This reflects one of our competitive advantages in high-requirement industrial applications relative to Chinese lower-end options locally. Notably, these systems are being used primarily for production of interior end-use parts such as armrests and panels.

This is a great example of recurring business that emerges once our customers experience the extreme value Stratasys creates on their production lines. Now, I will discuss Markforged in greater detail. This will be a $42.5 million cash purchase, once the usual regulatory steps are clear. Legacy Markforged generated approximately $70 million of revenue in 2025. We continue our thorough evaluation and review of the business as we focus on ensuring we optimize the combined offering. We expect to realize a rapid return on our investment through new revenue streams and unlocking meaningful synergies, which will result in a better margin and positive contribution to EBITDA within the first year after closing. We believe that building product capacity in target markets such as aerospace and defense, along with production-grade manufacturing more broadly, makes great sense.

Markforged continuous carbon fiber technology addresses a growing opportunity for certain stronger, lighter parts that can replace metal. Additionally, their software platform provides excellent simulation and remote print management. We are confident that the Markforged acquisition will enhance our growth in A&D. Beyond their technology, we will also be integrating their talent, partners, and reseller network, which opens up additional cross-sell opportunities. Put simply, Markforged will enable us to say yes to more new business faster, especially in aerospace, defense, and automotive. Finally, in June, we celebrated the grand opening of our America's Regional Corporate Headquarters, or ARCH, a 200,000 sq ft facility in Minnetonka, Minnesota. ARCH brings together engineering, innovative research and development, applications expertise, Stratasys Direct, and customer collaboration capabilities all under one roof. This larger, more advanced headquarters will support anticipated growing demand and reinforces our focus on production-scale additive manufacturing.