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Stratasys (NASDAQ:SSYS)

Annual Investor Conference Call

May 23, 2013 09:00 AM ET

Executives

Shane Glenn - VP, IR

David Reis - CEO

Jon Cobb - EVP, Marketing

Todd Grimm - Todd Grimm & Associates

Erez Simha - CFO

Scott Crump - Chairman

Ofer Shochet - EVP, Products

Analyst

Len Wanger - William Harris Investors

Brian Drab - William Blair

Holden Lewis - BB&T

Andrea James- Dougherty & Company

Arvind Shah - Ratna Global Foundation

Cristina Colon - Goldman Sachs

Shane Glenn

Good morning everybody. I am Shane Glenn, Vice President of Investor Relations at Stratasys. I would like to welcome all of you. Glad to see we have such a great turn out tonight. We have some extra seats here at the front, the first two or three rows here, if you can't find something in the back, few housekeeping items before we get started. You should all have electronic copies of the presentation as so many of you signed up on the website, those were distributed this morning. So the slides that you have here, you will have copies of that in your inbox, your email. There is a Wi-Fi code, it is on the net, it’s the NASDAQ guest site, and the user name is stratasys.ssys, and the password is ssys as well.

Just a quick review of the agenda; we kind of have this broken up into three parts this morning. First part of the day we are going to spend on the company overview, go through the company as well as some of our products and some of our technology. Then we are going to take a break. This is going to provide the opportunity for you to go out and see the technologies if you hadn’t had a chance to do that this morning. Senior management will be out there as well and be able to answer questions. In addition to our executive management team we have a lot of senior level people out here that know our technology very well, know how to sell the technology and if you have any questions they will be happy to help you out with your questions this morning at the breakout session.

So the first breakout session will be a little bit longer than a typical breakout session for an event like this but it gives you the opportunity once again to view the technologies. The next third of the day we are going to spend with a couple of independent presentations. One an industry keynote from Todd Graham, from Todd Graham and Associates who will give us his view on the industry. We also have an exciting application story. Microsoft is going to be here, Karsten Aagaard he will be here presenting, and talking about some of the exciting that they are doing with the technology.

After that we are going to do the financial review with Erez Simha, the CFO. We will take a quick break at noon, allow you to get the lunch, but come right back in and then we will come back with David Reis our CEO, who will provide kind of a strategic overview, our direction and sum up the summary of our recent results and then we will open it up to Q&A after that, and then we will try to get out of here by 1.15.

Let’s try and keep all the answers until the last, so we can stay on schedule, keep all the questions to the last section of the day and we will be happy to answer all your questions and of course we will also be available at the breakout. So with that we will go ahead and get started and I will now like to introduce David Reis, the CEO of Stratasys.

David Reis

Good morning everyone. As Shane introduced me my name is David Reis, I am the CEO of Stratasys. I will open this day with kind of an overview of Stratasys little bit about what are we doing, how we’re doing, what is opportunity, and Shane already took three minutes, I'll take them back.

So first of all Stratasys is a leader today in the world of 3D printing. We are very passionate believers in the value and power of 3D printing, and the change it can bring to the world. Basically what 3D printing is doing is transforming the way individual teams and organization work. We help designers change their ideas. We help manufacturers refine their designs. And we help organizations evolve the way they make things.

Now little bit about the company, Stratasys Ltd. is a result of mergers that took place five months ago between Objet Company out of the Israel and Stratasys Inc. out of Minnesota and we have a global workforce of 1,200 employees and about 40% in the U.S. 40% in Israel and the rest around the world. We have two headquarters, one is in the Rehovot which is a small town south of Tel Aviv and the other one is in Eden Prairie in Minnesota.

We operate out three regional offices around the world and I’ll talk a little bit about its later; Company has very strong IT position with 500 patents and patents pending applications. We have more than 8000 customers and what is very important that we provide to over our customers around the world a very strong unique complementary a product offering.

Just a quick reminder about our 2012 combined numbers those are performing numbers. We reached almost $360 million as a combined company with non-GAAP net profit of almost $60 million and from day one of both companies we shift almost 31,000 printers.

As I mentioned earlier, Stratasys Ltd. is a result of a merger between two companies Object and Stratasys so today we enjoy I think the most experience and the best spread a channel around the world. We operate out of 10 offices, our two corporate offices are one in Minneapolis where we developed FDM technology and manufactured our FDM printers.

And the other big offices is in Rehovot where we developed PolyJet technology and manufacturing most of our printers which are based on inject technology. In addition, we have a few sales, marketing and service offices around the world. in the U.S. we operate out of three locations one is in the east coast one is in Minnesota and we have sales and marketing office in the east coast in Billerica near Boston.

In Europe, we have our regional office based in Baden-Baden in Germany where we have almost 80 employees selling marketing and servicing in Europe. And in Asia we have relatively large operation we operate out of three offices. Our regional headquarter is in Hong Kong. We just moved to a very new and nice office in Hong Kong where we have about 30 employees there. We have an office in Shanghai with 16 employees and we have a subsidiary which is a joint venture with a Japanese company in Tokyo with about 35 employees.

All together we have a real worldwide infrastructure which supports today and will support our growth in the future including 260 resellers and I will talk about our huge effort of post-trainings in few minutes and 42 regional managers which are managing this very large distribution infrastructure. The combined company enjoys installed base of over 8000 customers as I mentioned earlier about 31,000 machines and I always say when you looking the list of the customers here and I’m sure you’re familiar with all the name but this is just a very small part of our customer base and what I think was unique about our customer base is that it spread in many-many industries and we are mentioning just a few of them here. Automotive aerospace, medical, government, education, dental, jewelry and many-many others and what is very important for the new combined companies, effects not a small percent of them, I estimate it to be between 10 and 20%use to the both technologies which is very interesting and I will talk about it in the future.

In this slide, I just want to cover a; I am not sure all of you would heard me before talking about the rational of the merger between Stratasys as an object and when we came together and started the negotiating just deal with Scott, sitting here our Chairman about one and a half years ago. We had some vision and dreams about how this company is going to shape up and rational had few elements in it.

The first one was the company was selling complimentary products. And going back to my previous slide and as I mentioned about 10-20% of our customers are using today both PolyJet and FDM equipments. And when we ask them, why are you using both technologies, the answer was; yes of course we need both technologies because we are using this technology for different stages into design and manufacturing process.

Typically the PolyJet equipment is more suitable to the early stages of the design and FDM is more suitable for the later stages of the design and I think just one of the powers of the merger because its creating a huge opportunity to cross sell install base, the other equipment and we have as I said about 10-20% of the customers which proved already that they need both pieces of equipments.

The other rational behind the merger was financial, we estimated and it's happening today in areas, we will talk about it later because we will enjoy (NYSE:A) synergies, we talked before the merger about $7-$8 million within 18 months and I think we are on the way to reach this target. We talked about a real advantage on tax enjoying the fact that the user is a relatively low tax country, you see it already in the numbers.

We talked about the combined channel and reach and I can you today that we took on ourselves a huge task of course training both sales marketing and service was this relatively large channel and we are doing very well on it. To date, we crossed trained about half of our channel which means it's about 80% of the potential revenue generators are cross trained today, we're selling the call at the end of Q1, it will take time to see the result of it because it’s a cycle of selling our machines, it sometimes short but could be also longer but I can report you today that it’s a very high percentage of this combined new channel out of those 112 partners were already cross sell and cross trained are starting to generate lease and opportunities for other piece of equipments.

And other things that was stated in our release of our Q1 results as we sold a large number of demo machines to our installed base and I was very happy to see it because there was a concern about the level of confidence of our channel and willing to invest money in learning other piece of equipments. I could tell you that out of this 112, a channel which are the larger channels, a vast majority I will bet over 98% of them both other equipment invested money, by the way this equipments was sold in minor discount so people almost paid a full price for it which from my perspective is a great vote of confidence on the ability to cross selling increaser a size of operations.

The other rational behind the merger was the fact that we are going to have a larger channel, a larger company which will allow us to move resources from concentrating on our historical market or historical source of revenue which was a cut market into verticals which we believe are going to be very dominant in our future growth and just to mention a few; I am talking about DDM directed the manufacturing, I am talking about the health care area, I am talking about education and we see it already.

The company is able today, to continue grow, with maybe less investment in the core market because we are larger and we have a better reach and move those funds into new applications, into new vertical markets which are going to fuel growth in the future.

Again I'm sure most of you are familiar with what we do but just to mention it, the company has today three main technologies, the FDM which is a Stratasys technology, PolyJets which came from objects and we have another subsidiary here in the East Coast which is called Solidscape which is a health technology which making possible to create wax model for investment casting, Solidscape is a leading company to the jewelry market today worldwide, and we see for it great opportunities in other investment casting areas.

Just again a quick reminder about why 3D printing, there are really two main areas in which we sell our products, one area is the design and engineering fields, in which we really allow people to be more creative, okay now always giving the example of all of us in the room, some of us in this room 15 or 20 years ago when we had to create a presentation on slides and you know we really hesitate to do any changes or any modification, and since we have printers we are much more liberate to create and have more creativity in our power point presentation, likewise in the 3-dimensional world. When you can do a quick change on the design, send it to print, go to lunch, come back, have the model, its encouraging creativity.

We're talking about shortening design cycle, I'm very happy that we have guests from Microsoft today that will talk about I hope shortening the life cycle in design, I think it's obvious. When you can get the prototypes faster, time to market is shortening, and it's not just a statement, if you go to our website, to the Stratasys website you can read dozens of case studies of real customers in the best companies in the world which are stating that if you are able to come to market in half the time, one quarter of the time, 80% of the time, before they were introduced to 3D printers. And this is a revolution; it's not something that should be taken for granted.

We're talking about eliminating design errors, I am sure all of you will agree that when we find these design errors in the design engineering process, late in the process, it costs much more to fix it. So by creating great prototypes, accurate prototypes, functional prototypes we are able to decrease the number of mistakes and decrease our costs.

Another area in which we are selling today and we believe is a great opportunity is direct digital manufacturing, is basically the ability to crate end use paths printed. And again here I want to put it in the right perspective. There is a lot of talk of digital, direct digital manufacturing and the ability of this industry to do a major revolution in the space of manufacturing. I agree with the statement, nevertheless I think it is limited today to production in short runs and in areas in the manufacturing world in which high customization is needed, and there's no other technologies that can fulfill this wish, like injection molding, you cannot really do efficiently short run injection molding. Okay, so 3D printing I think in the coming few years will get into direct digital manufacturing, it's going to be a great growth area for us, but it's going to be quote unquote limited to short runs and very high level customized products which again as percentage of the great manufacturing world which is many-many-many billions of dollars it might be a very small piece, but if you look at form Stratasys' standpoint or from my standpoint it’s a huge market.

I want just to mention, lot of people asking me why 3D printing today, I mean this industry is existing for 25 years, got started with Stratasys 25 years ago and suddenly in the last two or three years you open the newspaper every day and you read about 3D printing. It is as funny as finding my picture or movie on the underground from Hong Kong airport to the city talking about 3D printing, which is really absolutely ridiculous okay. So it's all over the place and people ask me why today and there are many reasons for it but I want to talk about one big element which I think is probably the most dominant.

What happened in the last few years that we see an increase or really a large increase in the availability of 3D content, okay, and it's coming from few sources. The first source is stated on this slide on the screen and is the fact that the CAD market is rapidly converting from 2D CAD to 3D CADs. There are all kind of numbers around, the last number I heard about is 1 million seats a year, which are being converted and upgraded from 2D to 3D. This is creating 3D content and 3D content wants to be printed; you know what to design in 3D and printing 2D doesn’t make any sense. So this is one source and is growing rapidly, numbers I think for 2011 were 5 million seats and is changing at a rate of 1 million seats a year, its creating a lot of new contents.

Another source or sources which are even may be more interesting are really out of our traditional world. If you look into the history of Object and Stratasys, we sold most of our products to the CAD markets. I believe that probably 95% of what we sold in the last 25 years went to the CAD market. but if you look at the world around us, in the last few years there are many new sources of 3D contents starting from 3D oral scanners for the dental world, a very inexpensive, sometime free 3D design software on the web, the people can download and use and just to mention one example Autodesk 123D, last number I heard, they had 150 million downloads, for a software that a lot of us can use even me. So, this content is looking for places to be printed and this will fuel the growth of our industry into the future.

So putting all this together, I want to have just one, and then you are talking opportunity of Stratasys and it’s really combining the rational of the merger with the few elements or changes that we are seeing in the market in the last few years.

So first of all, market potential. I mentioned contents, I did not mention but I will mention out the fact that with all this growth in 3D content, there were only 50,000 professional printers sold to date worldwide from day one and day one is (inaudible). It’s a very long number in any way you look at it and if you compare to the ratio between CAD seats and 2D worlds and plotters which are the output for 2D design, the ratio there is 1:4. Even if you think that we are going to get to ratio 1:20 or 1:30 you are talking about the additional hundreds or thousands of printers in the coming few years.

Stratasys has a very leverage module and when we are talking about leverage, I am not talking (inaudible) leverage, just talking about financial leverage and talking about scalable technologies, both FDN and inject are really scalable, I am not going to open it now but those technologies has great future and are very far from their end of life. We are talking about levering the channel, I mentioned it earlier, we have to date 260 channels worldwide which were cross selling, cross training and have the great potential to grow.

We are talking about the business which is selling hardware but later on selling consumables to the installed base and it’s a very leverage business and the reason we expected to grow and become ever and may be more profitable is the fact that those companies or the combined companies Stratasys there to be is all the time coming with new materials, more sophisticated and the materials and customers are willing and are actually paying more money for them what they have paid before.

We are talking about the company which I think is may be little bit different from other companies in our market today and I describe ourselves to be a very fast growing, typical high-tech company. We are focused on developing products; we are focused and talking with customers about applications and providing solutions. By the way, we have the biggest R&D budget in the industry. It’s substantially bigger than any one of our competitors. So we are really focused, we are talking about product, about applications and about growth.

And the last one is a, what is described as Stratasys outlook. I think I mentioned that it earlier the industry is in early stage of development so there is a great opportunity to grow. We project that in the future Stratasys Ltd. will grow at least 20% year-over-year.

Our first quarter by the way was 18% quarter-over-quarter and I want to put it in the right perspective. The company is going through a major merger these days. So maybe 80% in historical term sounds low, but I am asking you to point to other companies at this time moving to the past, going through a merger between two companies, one in Israel is 600 employees one in the U.S. with 600 employees on the worldwide basis and we are able to generate 80% gross quarter-over-quarter. I think it’s very impressive and I think that the result of the merger, as I said earlier, will come to life in the next quarters, nevertheless we were very successful in our first quarter together to achieve very-very good results.

My last slide, just talking a little bit, about the top management, the people which are leading Stratasys today; maybe I will start with Scott who is sitting with us today. Scott is the Chairman of our company. 25 years with the industry, probably the father of our industry. And there is one thing I want to say about Scott, you can read his bio here. One of the things that makes me extremely happy is that Scott took on himself and I don’t think it’s trivial to lead innovation in Stratasys. He has a dual title. He is both the Chairman and the Chief Innovation Officer of Stratasys. And Scott is running with the company a leading, very exciting project for really future products, and is really active in our day-to-day operation.

I want to mention also Elchanan Jaglom who is the Chairman of Object, in anticipation of a very challenging merger. We created in our company a subgroup of the board which is working with me very closely to make sure I can run as fast as I can and have the board with me. Sometimes people think they’re running too fast and I don’t pay attention; thinking that the soldiers are behind. So we created a subgroup of the board which Elchanan is the Chairman of our Executive Committee which is working with the management on daily basis to make sure that we are running fast enough and we are able to take decision fast, especially in the merger environment that we are in.

Erez, our CFO, I will let him introduce himself when he would join us. So thank you so much. This is my short opening and I will come back at the end trying to summarize and highlight our strategy going forward. And of course I will be part of the Q&A session later today. Thank you very much for joining us.

Shane Glenn

Thanks David, next introduction Jon Cobb, our Executive Vice President of Marketing; he is going to do a product and marketing overview. Jon?

Jon Cobb

Thanks Shane. It’s a pleasure to be here. My name is Jon Cobb. As Shane said, Executive Vice President of Marketing at Stratasys, I have had the pleasure of being in this industry, working with Scott for 18 years. So in the 18 years that I have been here, it’s amazing what has happened over the last several months, a really exciting time for the company, for me as well. What I want to talk about today is really, up here, a little bit about the brand awareness, talk about some of the things that are happening in the industry itself and how they are affecting Stratasys.

Want to talk a little bit about their portfolio. We have a large portfolio and these two companies were merged together. We put it together in a, I think a very simple manner that allows our customers, their prospects, to understand it. I want to talk then about a few application stories, give you a little flavor. David talked about it before. We have many-many customers. I have got a couple of videos here that some of the customers talk about what they’re doing, how it is benefitting their business itself. And then really how this industry is making a difference.

One thing about it is being in charge of marketing at this company, and I don’t say this, I’ve been looking to get paid less, but the amount of information that’s going on today regarding 3D printing is absolutely amazing. You are looking all these different mainstream type of magazines that are talking about 3D printing everything from the concepts the ideas to helping a heart surgeon and in Tokyo to do a number of things from a manufacturing standpoint.

Just in the Minneapolis paper alone in the last month there were six featured articles in our little paper about 3D printing and there weren't little two or three page paragraphs I mean these are substantial half of a page articles about 3D printing it’s absolutely everywhere. and I think the reason for this is because if you look at what 3D printing can bring that the benefits are absolutely incredible.

You look at things from the freedom to, create the freedom of design, the communication, I think if you look at kind of universal language the idea of a part that you can hold in your hand, I’m not an engineer but I can guarantee I can understand exactly what this part is doing, if I saw this part just on a two dimensional drawing it takes me quite a bit longer to understand what it’s doing but here I can work with it, I can flex it it’s a tremendous communication tool and of course all the different applications and all the different discussions about the future as far as looking at how 3D printing can be used in the manufacturing area.

It’s been described as the next industrial revolution. I don’t know if it’s going to be the next industrial revolution I’m not up here to say that it is or it isn’t but I’ll comment on that a little bit towards the end of the presentation.

One of the nice things about all this different promotion advertising is we benefit, we being Stratasys and what I have here is something that from an advertising agency looking at is a number of impressions. so this would be looking at a wide audience that would actually start to view and understand Stratasys and if you look at it the graph here shows that in 2011 and 2012, our gross impressions were actually relatively flat but if you take a look at what’s happened this year and project what we’ve had so far in the first four months what you see is a 10X amount of gross impressions that are going on.

And that’s impressive but I think really what’s impressive about it is those gross impressions not only lead to interest but it also if you take down the sales pipeline at least opportunities at least the more sales it really gets out to what David was talking about the huge amount of content that’s out here today drives the interest and hopefully that of course drives interest in the sales as well. If you look at it I’ll talk a little bit about the portfolio when the two companies came together but we end up with right now 27 products 3 technologies over a 135 different materials that we can offer it’s a wide range of products that we offer our customers.

What we have done is we taken that wide range of products and we divided those into really the way people design today and the way people design today is started off with an idea you move actually from that idea than into a design and of course that moves into production so if you or anybody in the design and development type of community you really use this particular process, so what we’ve done is we taken this particular process and we’ve embedded various machines in there that allow the customers then to really focus on what is the major thing that they want to accomplish with their purchase.

And I say the word major because when we do the work with our customers and we survey the customers they typically buy it for one purpose but if you look it they’ll be using the printer, let’s say they brought it for design, they maybe use it for design around 70% or 80% of the time but they’ll also use it to generate ideas. They’ll also will start to experiment utilizing it in production as well. so just because the product is focused on a certain idea the customers then take it and start to use it in ways that they find interesting or appealing within their company.

In addition to the spectrum of design we’ve also then introduced a wide variety of products and programs that really start to follow vertical markets as well. The vertical markets that we are focusing on would be the aerospace, the automotive, the dental, and the education and I’ll to get that in just a second. You’ll see that we’re introducing new products to fill those vertical markets within the last year.

So if you look at this suite of products what we really start off with is the idea and then moving all the way to production. If you look at the beginning portion of this, the idea really if you think about it at the end of the day, the part that you are producing no matter what business you are in is going to be a three dimensional part.

So, the idea behind the idea series is to start the whole process utilizing a 3D print. So, often times ideas are on the back of napkins, that's how things start. But then quickly advanced to a 3D print, utilizing the idea series. this is really analogist to what happened in the two dimensional printing type of business, where it really moved to where it was a print room was at one point in time, then over a period of time, you ended up where each designer would share device or have a device on their own desk.

That's all we envision with the idea series, then as you move to the design series, that's really where the activity has taken place over the past 20 years in the 3D printing space. This is where people take an idea, they solidify that idea, they communicate that idea throughout their organization maybe into their suppliers, maybe even to test with their customers. So you really start to bring the idea to live and then the real; I think nirvana or the goal for 3D printing is this whole idea production and we say production often times people think about the idea of end use parts and that's a big piece of it but we’re seeing a lot of activity and we will talk about it here in a few minute is the idea of jigs and fixtures, so utilizing a production tool in the production area.

So those are also end use parts so when people talk about end use parts, the exciting area is in fact after parts that you and I will interphase with but what's happening today is the parts that we are inter-phasing with today, you and I, they are actually being manufactured, utilizing jigs and fixtures that our 3D print and that's going on in a very-very high rate of adoption at this point in time.

Let's take a look at the products, as I mentioned over 27 products. What's really interesting about the slide and I am not going to go into each of these things in detail, I will go through a little detail each one of these series. But look at the slide, in the last 12 months, we have introduced four brand new products and it shows that here in this particular area and if you look at the introduction of the products, you would see that there is an introduction in each one of the series that we are talking about, the Mojo machine is something that we'll have the end product that was introduced about a year ago, the Objet 1000 introduced in November, December of last year and then within the last several months, the 3Z Pro and also the Oracle 30.

Now the oracle really gets into one of these vertical markets that I talked to you about a little bit earlier which is the dental type of market place so as I mentioned before, we're introducing products that follow that design process, you can see here but we also have products then that really start to have filled the vertical promise as well.

If you look at a little bit details here on the idea series, Mojo is our recent introduction the whole point behind this product line resides on the desk, allows the designers to do very-very quick and convenient iterations. One of the key benefits of the FDM product line has always been something we call soluble supports. And it's been really critical in this idea series. typically you want something that is very simple to use, easy to operate, if I am an engineer or I am a manager that's managing an engineering group, I don’t want them cleaning parts, I don’t want them doing clean-up work, so the nice piece behind us is that in addition to the printer, you also have a very nice way to clean the parts and real quickly then put the part in the engineer's hand where they can actually go out and make the changes. We have two additional products, the U Print products, one that is a monochrome device and then also one that provides color.

A quick story behind customer who is using the idea series at this point and I think it really goes to the point of the idea series, a company that makes a sweetener type of products was looking to make a spoonable type of device.

And what they wanted to do was test out the look and feel to make sure that they had a product that really came out strong in the market place. So what they did was they took 10 concepts. in the past they would have actually spend about $10,000, above 30 days to introduce these concepts using CNC or injection multi process but they were able to do this very-very quickly, $270, 48 hours they produced 10 concepts, they took those concepts out, allowed customers or prospects to use those concepts, took their feedback and developed the one that you are seeing here. It’s something that they wouldn’t have been able to do in the past because of the cost and the time, but you look at the fact that they were able to get to marketplace one month, two months earlier on a consumer product that sells millions and millions of products, it’s a huge deal to a company like this and really allowed it -- wouldn’t this been something that happened had they not been introduced to 3D printing.

The Design Series as I mentioned before is really the heart of the process that’s going on today and here we have the PolyJet products which we look at as far as a precision and then from a performance standpoint we have the most popular product in the professional series that has been introduced which would be the dimension product. So here what you are really doing is taking those concepts and really starting to bring those concepts to life and as David was talking about a little bit earlier this is really the one of the areas where the PolyJet technology really excels and the way that it excels, I’ll show you here on the next slide is when you start to get into the design process really the important thing is start to move a product into really kind of a life like situation and if you use the Cortex technology which is the PolyJet, really a huge innovation in the marketplace what you are able to do is to take a model in the single build you are actually able to really depict usage of a product and here is a really good example, there is a bunch of other ones that are out here as well. But in one build you have the durability of this gear shift that you have here but in the single build you also have the flexibility that you would actually want from this particular product.

So as you are going out and starting to look at how can I make this prototype, how can I actually visualize how this is going to work, what this actually does is gives you that capability. There is no other technology that can do this. So we talked about the Idea Series being something that’s on a desktop for the designer, now they want to kick it up a notch. They really want to interact with this; they want to see how this model performs, the PolyJet material, the Connex can actually do that.

This is one part. We have a number of parts out there so I know we have a break here coming up, make sure you interact with us, because this is truly an amazing product and as I have mentioned before I started out at Stratasys Inc. and this is one of the things that we are really envious of all the years. This is truly amazing to get this type of thing. And it’s not just one there is a whole range of durometers that you can get to look at the different rubberized materials and also a whole range of hard materials that you can get as well. So I am showing you one example here but there is a couple of really good examples out there. So I encourage you to take a look at it, it’s pretty amazing. But there have really then allows people to move from that concept we talked about a little bit earlier into then the design process and just if you can imagine going to a marketing group or customer and showing them here is the product that you are going to get and they can actually use it, if it’s functional it’s a really, really powerful communication tool.

So what I want to do is show a quick video from product cycles and it’s really kind of interesting they talk about one of the competitors that they looked at, but I think the other thing they talked about is tradition and one of the things that 3D printing is trying to do is starting to take ideas that engineers, designers had and basically turn those on their head basically and this gentlemen from TREC talks about that in this video.

(Audio-Video Presentation)

3D printing in this particular case talking about what they used to from a C&C standpoint, talking about four weeks spatially versus one day and you start to stack all the different components, (inaudible), a bicycle or anything else and you start to look at each one of those different components, a difference between a day versus a month, you stack those on top of each other (inaudible), products out in the marketplace and start selling six months sooner, you beat your competition and you start making profits from it, so really one of the huge advantages of (inaudible).

so finally the final series here is the production series, we call this production without the line and truly it is if you look at it, you go to a facility that we have which is Redeye, which is a services, I'll talk about it in a second, but in that facility we have about a 130 different machines and one day it can be producing bike parts, the next day it will be producing a toy. It doesn't make any difference there is no tooling, there is no set up costs. You just send down file and it starts to print, that really is the factory of the future direct digital manufacturing.

In this particular area we have the Fortis product line, we have four different products in there and the real unique feature about this is the capability that you're using real thermo plastics, the bulk of the FDM process would be ABS material, as you start to move into the Fortis area, you start to get into exotic material. So you get ABS, polycarbonate ABS, and if you look at those two materials, polycarbonate and ABS that's the bulk of all the materials that we interact with today, the inside of your car, the PC that you have, your phone, all those are made out of that material, so we're able to produce real and life materials utilizing this process, now in addition to that at about a year and a half ago, we introduced a material called altem and altem is something that's been approved by the FAA to be used in airplanes. so all of a sudden now 3D printing has opened up and actually if you're on a Delta plane there is a fact, one part on an MD80 at this point in time that you're flying with every single day when you get on a MD80 or an MD88 so, it's happening today, it's happening in small private jets in a much greater way where they want to take the interior of a plane and customize it for our various customer that’s happening day in day out.

So, it’s real today, it’s just the tip of the iceberg, when I go back and look at five years ago I looks at the data from Stratasys and we had may be 2% or 3% of our customers who are making end-used parts. Again, jigs and fixtures also end-used parts when I say this, today about 15%. So there has been a massive growth within the last five or six years, this whole idea of making end-used parts utilizing 3D printing but we are just at the tip of the iceberg. There are so many things that can change. I want to share with you a video, about a 60 year old company that’s in the injection molding business and the discussion that they have talking about this particular application and how it’s going to transform and is transforming to business.

(Audio-Video Presentation)

The company has been in business for 61 years he talked about this and this video happens to about 18 months old, roughly. He is talking about having more 3D printers than he does injecting molding machines. He mentioned the fact that he had 28, the guy has been a man of his word, his (inaudible) video has been produced. He has purchased four additional machines. So he is on a path to get there and so when he is taking about the future, talk about all the things to get happen in 3D printing. If you starts to looking at an organization like this, this is a long term organization that’s really starting to see the benefit of 3D printing and in that factory, the man [ph] talked about all the different application. So, don’t just think of a single type of application, there is applications that span the entire manufacturing process in addition to the actual end-used parts which gets so much attention, you can see that someone like that is using it to produce end-used parts.

As I mentioned before, one of the other areas we are focusing on is the vertical area. This product was introduced three months ago and it’s really at the forefront of our vertical strategy. This particular application, this particular machine really focuses on a unique customer, the dental type of customer and so as we go forward you will start to see a number of things from the organization that really start to focus on these vertical markets. This is the first introduction, we have been involved in education both companies for a very-very long period of time, we take products that sounds like a Mojo or a uPrint or one of the (inaudible) products, we customize those for the education marketplace with materials with programs, with curriculum and we start to move out of the marketplace. so in addition to machines that we are showing here for the dental there is a number of things that we are also doing that you can take an existing machine and put some programs behind it that gets it out into vertical so it’s a key area moving forward.

One thing about 3D printing everybody gets focused on the equipment but if you look at it 3D printing is all about the part, okay. And all about parts is materials and as I mentioned at the beginning of my presentation we have a lot of materials, have over 135 different materials and this chart just kind of goes to show a couple of things we move into thermal plastics which is something you are going to get from the FDM technology I talked about the durability, the functionality and the high performance that you get from the ABS all the way to that ELTA material you start to get in the photo polymers and here you have the capability utilizing the Connex technology that I talked to you about a little bit earlier have actually digitally creating materials. So thinking about inkjet heads coming together multiple jets going on and you are actually mixing material parts to get some things that I showed right up here you can get rigid you can get flexible we have medical certification and you get the wide variety of composites so tremendous opportunity today and going forward as we start to create new materials.

The final technology is wax and that’s from the material that we have on the wax printers here you end up with products that is really designed for the jewelry and dental marketplace so again an end use part you are making masters and from those masters you are casting that and presenting the parts. So Solidscape gives us that capability and I showed you the new product that they just introduced about three months ago.

So if you look at it the whole idea behind 3D printing is making a difference I talked to you a lot here about the different products that we have, I talked to you about the fact that products not only include the hardware which is whatever the focus is on but remember at the end of the day people want a part and that’s what we sell.

So if somebody is not interested in purchasing a machine right away we do have a services business, it’s called RedEye and within the RedEye organization which is out in Eden Prairie we have 120 different machines. Every one of the technologies, every one of the materials that I have talked to you about here today is available. so in addition to selling the products, in addition to selling the materials to end use customers if somebody is interested in a part we actually have that capability as well in the RedEye area. so if you are looking at experimenting something you want to learn more about this you can learn about it by talking to one of our sales people but you can also learn from going to RedEye and getting a part made to understand how it’s going to affect your organization. So we try to go out and touch the market in a wide variety of ways.

We have a global sales network as we talked about before they have been cross trained about 80% of them have been cross trained from a selling standpoint we continue to work on that. we are extremely dedicated to the sales channel both companies if you look at the history of both companies it has always relied on a strong network of sales people if you talk about the difference between our company and other companies that are in this industry one of the key difference is, is this channel that we have it’s a very strong channel 260 people it doesn’t get that way just by adding people there is a lot of investment that has to go into that we have concluded round two of the cost training in each of the cost trainings we devote four days of training each one of these resellers so about the technology about the products, about application stories there is a high investment in there and from that investment we think we get a high degree of loyalty from these resellers because they are not only selling our product they are selling software products as well so they are the heart of our sales.

And as we move forward we start to get into more vertical type of resellers so resellers that are familiar selling into a DDM application into a dental application into school type of application. So this channel takes us into all these different marketplaces as well. So I want to close with one slide and I opened up my presentation talking about well is this the next industrial revolution, and I am not up here to say that it is or it isn’t, but I do well have a quote from one of our larger fans and I want to give you his opinion of if it is or isn’t.

(Inaudible) actually a cap on that particular one which didn’t happen too often during that presentation. So there were some bipartisan, so 3D printing, exciting field obviously at the highest levels within this country, this type of speech though, start at the same and maybe even more move in China, in areas of Western Europe to do the same thing. So the whole idea of 3D printing and design and manufacturing is something that I mentioned at the beginning, it’s really just the tip of the iceberg. And Stratasys we think we are there to lead this revolution. Thanks a lot.

Shane Glenn

Thanks Jon (inaudible) doesn’t look too excited about 3D printing, I am sure. All right, we are going to take break, extended break now for about 30 minutes. This is going to give you the opportunity to head back into the drum area here and check out the systems and the applications that we just talked about, applications that really address everything that we talked about today. I would specifically like to highlight some things out there related to the fabrication tools and gigs and fix to the applications that Jon mentioned in his presentation. Please feel free to ask about those. There is going to be a lot of really smart people out there who could help you and answer questions about the technology and we will come back here at 10.30 and start up again with our next session. So thank you.

Okay everybody like to take a seat we will get going. Our next speaker is -- our section let’s talk a little bit about the next section (audio gap) as well as a specific user application for Microsoft and then we will finish up with Erez Simha is going to give the financial review. But we are first going to start with Todd Grimm from Todd Grimm & Associates Todd is a 23 year veteran of the additive manufacturing and 3D printing industry. From his work as a consultant writer author and speaker editor he was recently named as one of the TCT Magazine’s 20 most influential the additive manufacturing industry.

As I mentioned Todd is President of T. A. Grimm & Associates and, an Additive Manufacturing consulting and communications company, he is editor for ENGINEERING.com, and a columnist for The TCT Magazine. He is the author of the User’s Guide to Rapid Prototyping. Todd currently serves on the board of the Additive Manufacturing Users Group as its AM industry advisor and as Service Chairman of the Society of Manufacturing Engineer’s Community for Additive Manufacturing. I think one of the things that I asked Todd today was to come in and just provide his honest opinion about the industry, where it’s headed and some of the opportunities that he sees developing in the future.

And with that I will turn it over to Todd.

Todd Grimm

Thank you Shane. Well, introduction makes me sound good. I wish I wrote that myself, I did. I want it noted if this is coming from an insider’s point of view from a technological or technology and user and application standpoint. If I really don’t play the role of analyst to come up with the predictions and numbers for you, so this is observing it from the inside outward. I also want to note that I am here of my own dime. I am not a paid spokesperson. And when we started talking about me doing this, I was asked to submit some notes on what I would like to cover. Those notes were reviewed, last with a couple of suggestions that I could take or leave. So this is all me.

Now I am going to approach this conversation based on the dozens of financially oriented conversations I have had in the last six months, either more over the last year which typically focused on is the opportunity real, and that opportunity quickly drives down to manufacturing applications in the consumer applications, the consumer market; from that then the financial world wants to know what is the growth opportunity and then the conversation usually concludes with how well are the publically traded companies positioned.

So I am going to address those today, and certainly in the publically trading companies, I am going to address Stratasys, our host. Now I am not going to make you wait to the end of this presentation to have all my conclusions observations and opinions. By the way this is opinion, nothing is fact. I am going to start by cutting into the chase. I’ve looked apparent, but that was my presentation so Stratasys live. Cutting to the chase, I do not believe that we will see near term hockey stick growth.

This is exponential take up and we see a right to the roof and on to the stars. I believe we are going to have a continued steady state ramp. Strong double digit growth, attractive growth, carefully selected this image if you know this has rather straight line growth but there is a smile in the face of that businessman and I believe that if your expectations are correct, you will also be smiling. If you expect that hockey stick tomorrow, next month, in the next six months, you'll probably be a little less than satisfied.

Now regarding applications, my conclusion is in manufacturing, is we are not going to see the revolution, it’s not going to be the disruptive force overnight, it just sweeps across the globe, the world and all industries instead we are going to remain in more of a niche solution. Isolated pockets where we excel, we capture, we conquer and we offer benefit and value. But as was mentioned by David earlier relatively speaking to where we are coming from, these pockets are extremely attractive.

Now we will continue with midterm expansion rather than just taking off into the stars. Regarding the consumer marketplace I do not believe, I’m in the camp that absolutely rejects the idea that every one of us is going to have a 3D printer in their home anytime serving to make everything that we could possibly want as a consumer or to repair anything that we have broken. I do not believe that will happen. It could happen sometime in our history, but it would be well-well out there.

However it’s an attractive market, one we have to pay attention to. But I think the true dynamic, there is going to be services. Growth in consumer oriented services first, and they will serve as the bridge to what the appetite of the consumer, to convincing that they need a 3D printer. I also believe in that market, that you are not going to see a war waged at the $100 or $200 or $500 level. I believe those will continue to be somewhat capable output devices, but the real war is going to be battled in the near term at a new price point of $5,000.

The other thing I like to bring up in all my conversations with the financial world is, please do not forget design. There is a tremendous amount of growth still available in concept models, prototypes patterns, that whole design related functionality, that is attractive growth and it’s also necessary, it will provide this industry the financial bridge to get to that future when we start having the early majority in a big way adopting the technologies for production applications.

And finally my conclusions on Stratasys, well positioned. I have known this organization for years, monitored it for many years, I am very pleased with this technology portfolio, its IP and also its business approach and the people that running.

Now let me spend a few minutes to support those points. and I’m going to start with two models and one set of observations. The first model is from a company called Gardner formerly Gardner Consulting and it’s called the hype cycle and anyone here familiar with it if you don’t raise your hand or can’t raise your hand you need to take a look at this because it explains a lot of the world it helps us to explain why we kind of feel torn.

The Economist and Forbes are promising major sweeping change and its coming tomorrow and your world is bright but something in our gut says, it doesn’t feel quite right, there is got to be more to the story, this model explains it. This model was developed over 20 years of observation of new technologies by Gardner. What it does as technology is born in somewhere long line out technologies born conversations built, you tell two friends and they tell two friends and this spreads and spreads and spreads then the media fix up on it and they tell the story more people have the conversation but after story gets repeated it gets embellished that story and that promise of the new technology gross to a point of the peak of inflated expectations that is the key element of the hype cycle.

Once you reach that peak of it and inflated expectation reality sets in and people feel it and sort of they’re good and it drops down into the trough of disillusioning bottoms out it’s not a bad thing according to Gardener it’s a necessary thing because at that bottoming out that’s when real work takes place looking at realistic goals realistic expectations and working towards those and that’s where we get into a point of maturity.

Now, I’m going to take a look at three applications and place them on the hype cycle. I firmly believe this orb is the 3D printing for consumers application by the way added to manufacturing synonymous with 3D printing for most conversations. There are expectations to that but I use them interchangeably. Use 3D printing here because it’s the one you see in the headlines. 3D printing for the consumer marketplace is dangerously close to the peak of the hype cycle. I give it another 12 months before the bubble of conversation in hype burst and it drops right down to the bottom of the trough of the disillusioning that means things are going to change.

Now that’s partly because we’re being promised things like anything your mind can conceive you can build those one of these $1,000 3D printers and guess what absolute fallacy unless you’re willing to accept really if the upper quality. you can physically make everything but whether it would be usable and desirable by you that’s the exception now it’s a great marketing tagline and the headline want to report that but people are learning or discovering now and will discover that’s not true.

The other thing about it is we’re going to run out of the storyline, the news cycle is going to end, how long can Forbes and the Economist and Insider Business Daily be interested in reporting 3D printing, 3D printing, 3D printing, look at all the wonderful things we’re doing but going to tire up the story what happens is the conversation die, trough of disillusionment and it’s going appear that this industry is going into a low, it has not, but it will appear that way.

The other thing that 3D printing for the consumer market has done is given us a desperately needed awareness on the industrial applications of prototyping and manufacturing. it’s created actually an artificial secondary hype cycle. For prototyping using additive manufacturing. we went through all hype cycle in the early to mid-1990s that long ago, so we are well beyond the trough of disillusionment, we’re well into this maturity phase where we’re working towards realistic goals expectations and deliverables. The other good news is manufacturing using additive manufacturing or 3D printing technology also beyond the trough of disillusionment.

We went through the hype cycle about five maybe six years ago. Now the reason we have a secondary hype cycle is many people carrying the conversations of 3D printing have this weird perception that it all was born three years ago. and look how much progress we’ve made in three years therefore look how much progress we’re going to make another year and oh by the way we look and there is industrial equipment out there. That industrial equipment has been out longer, is more expensive it got to be more capable so they got to be even closer to fulfilling this dream that we’re promising you. And those conclusions are built on fallacy; it’s taken 25 years of incremental growth to get us to this point.

So hopefully that will explain this dynamic. It doesn’t quite feel right. The other model I use comes from Geoffrey Moore is about Crossing the Chasm. this is a simply technology adoption lifecycle curve broken up into four segments, innovators or early adaptors, the early majority, the late majority, and the laggards 16% is a normal distribution, so 16%, 33%, 33% and 16%. What Jeffery Moore adds is that little trough, between innovator and early adopters and that is his chasm. It's his premise and I firmly believe in this, that the transition from innovator to early adopter is very-very difficult. Because the early adopter does not trust the word of the innovator, they will not take it as a testimonial or referral that something stable and workable. We got to have that alarm bell that goes off, don’t we? For those that aren't, well let's say in any application, we're not an innovator, somebody walks up with the first iPhone; says look at this, look at this, look what it can do, you got to have one, you're like, you are one of those guys or one of those women; I am going to wait till it matures.

It’s a very difficult chasm to cross. Well I believe that the 3D printing for a consumer market place is positioned right before the chasm, we have not crossed it. It's still the innovative, innovator, early adopter personalities and some of the pent-up demand. There are a lot of people with creative ideas and they are looking for a release. But that's not the average person, that's not the average Jane or John Doe.

So, we still have to cross that chasm. Prototyping for industrial applications though are well into their early majority but please note we have not crossed it, we are not in the late majority. And manufacturing across the chasm within the early-early majority, this is why I say that we're not going to see hockey stick growth and we're not going to see a revolution anytime soon. We’ve got these trends to make our way through that it happened on every other new innovative technology.

The other said are other base line of information that I use are my observations, support the steady state growth context. Additive manufacturing especially for production is not a drop end solution, additive manufacturing inwards almost everything that someone believes to be true. A becomes Z, Z becomes A, black becomes white, white becomes black, the whole value proposition is up ended and unless an organization is ready to change, their interpretation of what is needed for a part, the specification, how to produce it in what quantities, the business model itself, we make a very poor substitute, if someone is looking for better past achiever in their currently injection molding or rotational molding, compression molding, (degassing) I don’t care what process.

If they want incremental gains and are willing to change the other success of converting are small. We have artificial constraints build upon 20,30,40,50 years of experience with technologies that are be implied to additive manufacturing which turns everything on its head so there is a mismatch. So we succeed and when we grow or when we find these organizations and obviously this cannot happen in a revolutionary sweeping change, overnight situation.

It happens when one of two conditions exists, one the clients or the company or the individual or the department is willing to start with a clean slate. No expectations, no requirement, clean sheet of paper, what do we need, what can we expect, what identifies success and then look and see if additive manufacturing matches up.

The second one is the situations where the current offerings are not the best. There is weakness in the solution, we are getting by, we are using it but its penalizing us in some way in time or cost or quality and additive manufacturing can set them free. But the key message here is, there is fundamental changes required for this technology to take off, I am talking production, this happened back in the 90s for something as simple as concept models. We fought a hard battle to change what people expected out of a concept model and it is industrial design market place. They would not accept our output because it didn’t match with what they had held as a constraint.

Now let me move on to the segments, so for design, as I said, I'll bring all my financially oriented conversations back to this point so people don’t forget. We are in the early majority but we have a lot of growth left. Due to a simple little survey, it is not statistically sound, for engineering.com. 60% of the engineers who responded said they do not use additive manufacturing or 3D printing, I even used both terms to get the whole scope and the question wasn’t do you own and operate one. It was, do you use? 60% said no.

So, we still have a significant market to capture which is going to give a significant growth. The other two things and these bullet points here is, there is even more growth that you may perceive. When you adopt and was it David that mentioned it, when you adopt additive manufacturing, one thing we find is you end up prototyping more, making more concept models, more purchase of volume increases and also with additive manufacturing, it is so common it’s the majority of opportunities so one buys it for X, as long as they keep their eyes open may end up using it more for Y and it grows the application set, so there's more consumption. And this all drives home to this last point; we have an atypical competitive model. There are very few technologies that are head-to-head direct competitors, you could choose one or the other and be happy. What this means is a well-stocked operation usually has two, you got to trust my math there, two, three, four, five or more technology platforms in the same operation, to satisfy all the demands of their organization.

That means that for Stratasys is already mentioned here, we have an FDM machine sitting in the lab, there is a heck of an opportunity to buy a PolyJet machine. There's also an opportunity to buy Solidscape machine, or one from the competitors. It also means that if somebody's already doing additive manufacturing and they own the competitor stuff there's still plenty of opportunity for company like Stratasys to sell into that.

The other thing about that, usually they have more than of each platform to handle the capacity needs, and it's still not enough when they start using the technology. So, we have 60% left and the 40% we have still has huge good growth rate there. So do not discount this segment, as someone who's poorly positioned in design prototyping, they may not have that financial bridge that takes them to manufacturing, which is going to take a while.

It's still a niche, or still have niche adoption I should say, it’s slivers, it’s pockets, it's where the value proposition makes sense and people are open minded enough to take it, however those slivers are still very attractive relative to in the additive manufacturing world, they are significant and they're big and when we capture one sliver we're going to expand it to another neighboring sliver and keep expanding, and expanding and expanding.

So we will see growth out of this niches, it’s going to be attractive growth, it’s just not going to be a sweeping change that takes over all industries all processes and all products, because of the hype in (chasm) model that explains, because of the technical, we have technical barriers, we can't do things like many of the production systems out there currently. We've made a lot of progress but we still have these barriers, but those barriers exist because of those constraints of I expect what I've always gotten and I want that plus something else from additive manufacturing.

Change is required as I've always mentioned, the key here is that different value proposition which relates to the change. I think if a company has 4 elements, highly likely they're going to succeed with additive manufacturing for anything, prototyping a war production, particularly production. And these elements as you'll see are very different; this is part of the inversion. We excel for low volume production, very few processes in manufacturing excel at low volume production, and I mean very few parts produced per year, per month or per day.

We sell that in combination with high complexity. The two aren’t mutually exclusive, there is no other technology I can think of that can have that capability to gobble up complex really challenging stuff and do it low volume. The third leg is flexibility, we have the utmost flexibility because you don't have any (funk) cost, you don't have any commitment, so you can change the design as you wish, you can change your production schedule with every single batch, you can change, you can change, you can change as needed. And the fourth element is efficiency.

Now the one exception I would take to, not exception, I'm going to add a caveat to what David said, I'm not a big believer of buying into the technology because of time to market reduction because I believe that it is incapable of delivering on that promise unless it is truly the critical gating factor.

Now, if additive manufacturing is the longest lead time and you can additively manufacture all your prototypes or all your production pieces and it's the gating factor. Yeah you can reduce it. What if it's not? If the pc boards take a little bit longer you still need die cast parts can take a little bit longer. There’s no reduction. But that's not a negative, because the key thing is efficiency. We can do more in the same amount of time so people produce a better product.

That efficiency, I think is the real leg that we got to look at with additive manufacturing. And efficiency means fewer steps and easier, as an individual the effort that we have to put forth easier for them, leading to more, hopefully more speed, more throughput, but that's a real bottom line premise of additive manufacturing. And for us to succeed, if someone enters in looking for low volume, high complexity, high flexibility and I want an efficient process you've got a winner.

No one else can do that with any other technology, that's the kind of change that we need. And it can go with the production pie. If you look at that combination, it rarely exists except for in a highly customized products but I believe that actually increase the amount of manufacturing is done, by giving birth to new products that were previously practical.

I have got an idea, we figured out, we can only sell 10,000 units per year but it’s going to cost us $2.2 million to gear up and I can’t make any money on it, forget the idea and shell it. I think we are going to start to see new products and new business models, new opportunities leveraging those four pillars that actually create and inflates the manufacturing pie.

On manufacturing, I use President Obama in the State of Union address for slightly different purpose than Jon Cobb did. As he showed in the video, President Obama named the National Additive Manufacturing Innovation Institute as the core going and we are going to take manufacturing back. And many of my colleagues, peers and others I have conversations will say oh Todd you are saying there is going to be no revolution but look there is NAMII, that’s the acronym for National Additive Manufacturing Innovation Institute, look there is NAMII, I said exactly, that proves my point, and they are like no, he is the best.

The reason that proves my point is that you have to understand the charter of NAMII, it is to develop the processes, the information, the recipe if you will and the supporting technologies and then hand that over to the small, mid-size or large corporation so they don’t have to go through the pain and efforts of trying to figure out how to adopt and implement additive manufacturing in the production environment.

Right there, we don’t have the ability to replace and drop-in solution, NAMII is going to solve that for us and when it does, that makes it much more likely.

And finally, I need to tell you this but growth is going to be impossible to measure because you all know we're on the true segment and we are going places; when the storyline that you read, no longer leads with 3D printing gives a little girl the ability to hug her mom.

3D printing helps to make the most fuel efficient car. Very shortly it’s going to be most fuel efficient car is delivered and developed and then a little byline down below enabled by 3D printing. Little Emma can hug her mom that story enabled by 3D printing. So it’s going to turn, you are not going to hear the stories anymore because we're more mature 3D printing won’t be the focus of the story, it will be application and the outcome.

And finally what’s going to happen? This is my analogy here. We are going to be just another river rock, lost amongst the others because we are not going to be named, where we are going to succeed most or in the boring applications that don’t make the news. Jon Cobb jigs and fixtures, it is one sweet application where it’s hard to not be able to justify but who is going to report in jigs and fixtures. B2B applications, the widgets, the brackets, the things that hold other things together, or where we will succeed, it’s never going to make a headline, so it’s going to be tough to measure.

Moving on to consumers, as I said I believe with the innovators. Innovative personality (clubs) the pent up demands but I think that it is not characterized most of us, we are not going home with an idea in our head that we need to have at least. We have got other things on our agenda. So I don’t see people running on and buying these. I don’t see the industry or that segment going way and I see growth that I just don’t see it taking off overnight, we have got a lot of time that will have to pass for that to happen.

People say, hey Todd I hear what you are saying. But I don’t agree. Look at Staples; they are offering services now out of Europe, 3D printing services. And by the way they just announced that they are going to have the 3D printer on the shelves, at the retail stores. Todd, that’s evidence that this revolution is happening. The retail shops here one in New York City, there is one in Denver. The popup shops in Hong Kong and all around the world, Todd just evidenced the revolution is here and I am like no it’s not.

That is evidence of companies who have enough resources or enough risk taking in their blood to ride this tide, to see where it takes them. I guarantee you Staples, is not saying this is going to be what saves our business. What they are saying is PC sales are down, printer sales are down, we got shelf base, we need to rejuvenate this place, Amazon isn’t doing it yet, let’s give a shot. If it doesn’t work, we move no, no big deal, so it’s not evidenced. It shows our future and I think we will get to that future just not tomorrow.

My expected progression; capture the innovators, move to services like shape ways or consumer-oriented companies selling parts that will with the appetite that will prove the value of 3D printing and additive manufacturing and also allow the consumer to gauge how many they consume and then make an educated decision do I want to spend $500 or $1,000 on a 3D printer, so I have enough need or keep using services, and that’s sometime in the future. That will then transition to us getting into the early majority or it does become more likely that you, you, you and I would own one for our own consumption.

Regarding the price points, tinker tour is a little play on where tinkering as an hobby, and I am willing tinker. I even don’t really consider these toys that are a little too harsh but I see two price points evolving. I do not see the $100 3D printer happening and I would see maybe the $500 to $1,000 range being out there trying to attract you on price point but I don’t see them being really capable. What I do see is what’s out there now moving towards the $5,000 price point that’s why I see the new battle ground happening a pro-consumer market.

And my rationale on that is the 80 or so companies that have swung up barring the IP of Stratasys have done just that someone else has done the R&D there is a university in Europe that then had the RepRap project which took that IP packaged it up, came up with a build of materials and software that you could download and make yourself and all these companies have done is that, look free IP, dig in take it I put my spend on it I source the parts I sell you a kit or I sell you a machine I am in business and I am riding the wave where the real businesses go.

There are engineering types or budding entrepreneurs, who have yet to put the infrastructure the architecture the support mechanisms have yet to put in the design and manufacturing engineering to make a product that’s the same every time it comes off the line and that takes money. So taking it to the next level will take money and the attractiveness of the industrial segment, the professional segment is going to be too hard to ignore because of some flattening in the consumer market.

That’s the dynamic that I expect. Which takes me to Stratasys again reiterating my opening point well positioned in a lot of ways with the addition of, with the merger with Objet to have the PolyJet technology having solid contour printing or smooth curvature printing, I always mess that one up. Fused Deposition Modeling and PolyJet they have got excellent portfolio of products covering a very wide range of applications backed by a lot of IP.

That’s all well and good. But as you and I know having great technology does not ensure success, real story of the video recorders or VHS went out of our Betamax which people do Betamax is more superior that was a marketing gain. So it comes down to business and that is the most important element. One thing you may not be aware of is that in this world of innovative new technology, Stratasys has a reputation at is PolyJet and what products they put out are solid.

That they are going to work and you are not going to be fighting first generation issue and be unhappy they are putting out good products their very first day that reputation is throughout the industry as soon as you pick up the phone for a referral from somebody you are going to hear that and by no means in high technology you are going to hear that from every company. So I count that as a big asset I also approve of and not that you need my approval the strategy and style I am a very conservative person so I warm up to the companies that go more focused strategic as say that is what we want to own let us go after that versus going after the whole gamete and seeing what is fixed.

I also warm up to people who are more down to earth realistic in their statements versus the flamboyant I am going to promise you the world. The former is Stratasys; and I have seen that by working with them I have around the industry since 1990 working with them in some capacity on and off for about the last 12 years and also getting to know the management. But obviously it’s not without some challenges I put opportunity here to use the politically correct term instead of threats or otherwise it will need to keep moving forward.

With its current technology platform it has to keep advancing now and especially with FDM with the consumer systems out there that borrowed its IP things will happen now. It’s going to keep pushing things forward if Stratasys were to stand still it would be potentially in trouble. New technologies; I really don’t believe that there is much of a barrier to something new that you and I have never heard of or thought of popping up tomorrow next year or the year after that.

A brand new way to do additive manufacturing that no one has ever conceived off so that would pose an opportunity for them to continue to grow either to be that brand new company or position their organization well enough to be able to hold back that tide and new price points as I indicated with the consumer market something like Mojo having a price point to pressure of getting down to 5000 and see that happy relatively short order. The one, in regarding new technology, I see the one gap, I’ve seen the product portfolio is direct metals.

I would highly recommend if Stratasys consider direct metals, however it’s not too late to get in the game. That is still a very-very immature market segment. That’s loaded with issues and challenges, very expensive equipment, very hard to run, take someone who is dedicated to it. So there is plenty of room for Stratasys or its competitors to get in the direct metal game, and possibly do it in a different way.

So with that I believe Stratasys is well positioned to capitalize on this strong double digit growth, a more steady state is going to occur in the near term as our industry moves forward. So hopefully, I come across with a bit of enthusiasm about this industry, because I am a believer which is I like to bring things down to a level that I believe as my opinion as a little bit more on the realistic side. With that I was hoping to have a few minutes for questions, I do not. So I will be here till the balance of the day, should you have any questions you would like to ask with me, happy to fill them and do my best to answer them. So thank you very much for your time.

[Presentation]

As Todd mentioned you know it’s with other focus on manufacturing. It’s often easy to lose side of the big opportunity. We still have and design and we’re very fortunate today they have Karsten Aagaard’s model maker here. And you guys basically built this stuff from scratch.

It was bare hands. Sometimes it’s really triggers. And you go from just prototype to prototype, to prototype it’s a natural sight.

(Inaudible) As Todd mentioned, with all the focus on manufacturing, we though it’s easy to lose sight of the big opportunity we still have in design. And we are very forced here today they have Karsten Aagaard here with us today to talk about some of things that he has been doing with Microsoft, I asked him this morning, I said, can you give me the products that you’ve been working on at Microsoft so I can make sure to communicate that will introduce you and he just said all of them so he is a very intermittently involved with our technology, he understands it, he understands you know the value and so we’re very fortunate to have him today and I’ll introduce him and have him come and present, thanks.

That was pretty much it. I don’t really need to say anything more. For a while Microsoft was doing a lot of tours, demos, we’re showing that, Microsoft is an innovative company, there was a lot of speculation out there that Microsoft just buy the product through their name on it and sells it.

We didn’t like it so invited people to come in see what we do what we innovate the research centers anything that we’re working that isn’t necessarily hit the market just tinkering lot of tinkering with technologies and everything so we did about 30 tours with present things with year over the year. I actually didn’t know that was Joshua Topolsky so made it more comfortably to talk because I don’t who he was and I found out who he was later and his very big review, tech review guy, so that were doubt okay.

Kind of just very briefly for me my background my life is making stuff. I just make stuff and I have the fortunate opportunity to get paid for it and I started out in hobby store RC cars that early 80s mid 80s RC cars everything was just exploding in that technology and I got into making parts for people so that come in their car or broken and go out to make this part for you.

I go home I had a little machine shop in bedroom I had made the little part of aluminum I bring it back and they’d be happy. And so that’s how we kind of got into making things for people. I had the fortunate opportunity to get hired into a toy making inventor in Chicago called Option Models. They taught me how to build prototypes and everything from scrap.

We had manually programmed CNC and no computers everything was done by hands. So I learned how to do everything by hand if you took all this equipment away from me, it can probably still get you parts. So there is always some way to make something this just helps us to get there faster. A lot from there I went to Motorola so I got to work in there model shop and we have built their model shop.

There was a lot of outsourcing and one of the directors the ID directors decided he wants that in his facility. He wants to see he goes to these shops and he sees the school stuff happening and people cutting parts and making prototypes and everything. He wanted that so he gave two guys a room so make this prototype center.

I was the third guy hired and we just built the prototype center from there and it’s pretty big right now right now and just any innovation that we could get and we put in there and build the prototypes, from there I want Tennessee to build custom homes; I don’t know if you noticed on that big table of parts, there was a little house there, I build blue print in solid works and we build the house and when I came to Microsoft, I took the 3D printer and I built that house so I cut in half so you can actually see the rooms, everything is there, the walls, the bricks everything, I have in there so that was kind of neat to do.

The, I guess the last line before I go on is why do we have an interest in 3D printing, its speed; we can make prototype parts, designers can make the parts, engineers can make the parts, they can all interact together, this is one of the really early iterations like the surface. Surface unit is you can't make this and while actually it's very low, the height; you can't make that in two hours, in one hour with any technology I don’t believe, with all the wall thicknesses, with the boxes, with everything that is needed to put components into.

You can put all your parts in here and you can literally fire it up and test it, do whatever you got to do with it. If you need to move a box, or if you need to move any component in here, there is like the camera hold there, you can move it, re print it, 45 minutes later, probably I miss anyone of you did a high speed, you get a part again.

And that is what we are into. We came at iteration over iteration over iteration; we have; that the room you saw that; 3D printer; the innovation is basically, that one here is 3D print, this is the arc mouse the one that bents, the arc touch mouse and all of the components were engineered in real time with the real sites, that's a wonder one versus real time is that the mouse articulate and advance.

We really had a hard time figuring how to do that so we went through so many concepts, so many different little engineering applications, things like that and just build them, over and over and over again. You can build them in an hour, you can put them together, you could see how they work, if they don’t work, change it, build them again, that's how we do it, like the real time designing on the fly.

We also use the 3D printer, to print ID size volumes studies. They don’t know how big amount should be, in the past, we go a little bit still is the designers will go down into our shop. We set up a little space for them and they start carving from and they all carve until it fits their hand, they will carve till it sees what they want. From that point on, they will run around and they will say, fill the molds if you like it, this is the right size and you will say yes, cut this here, cut that here, make it bigger, whatever.

They will go back down and they will make the change the form, once the form is made then we will cast it and you were saying into a RDB Rubber, then we will make more part to make them go from there. With 3D printing, we're able to take their carve parts, scan it, put it in the computer and then from that point on you now have their little very settler economics that they have captured in that form is now in the computer. And we cannot print that mouse in hours they can make tiny twigs, printed again, tiny twigs printed again. So, once it goes from the form to the cat, the 3D printing, it then gets handed off to the engineers and the engineers then hurl it off for all the buyers, they will be like trying to print it.

And it just continually, all the iterations gets a print, gets a print, gets a print, so without that, you have to go as far as you can thinking you are doing the right job, you're on the right decision and then you create a tool like the previous ones that, yes, if you take a week to make a part and you come back and its wrong, you've got a week and another how much of money you are going to spend.

So there's a lot of people to make subtle changes, subtle iterations at a time and then make sure it's right every single time. Ultimately, you end up making the product faster because you're not guessing to a certain, certain length guess of I've got to back up do it again, but another, I think off the tangent on here with the 3D print we can make a whole bunch of mice and you paint them, so now we can finish them, paint them.

We've done photo models where the actual product is on the packaging on the packaging, which is done on the left there, that is a model; it's not the real one, because while the box is being created the real ones are being manufactured. So we make models, put them on the boxes and we've done a lot of photo models with 3D printing, you can sand it, you can drill it, you can glue it, it is, the material is just like anything and it takes paint really well, you can dye it, we've done that.

The research group loves the 3D printer because they don't have to worry about how they make a fixture, how do they make a part, they can worry about how do they make their technology. So I think the advantage here, all of these are 3D printed and there's some paint on it, the (dorm) of their diffuser is clear material that's been frosted, deep blast frosted, it does what they need it to do, the one down on the right is the touch mouse and they put their sensors, they just wrap their sensors over the PolyJet and also the components in there, just put the control, the PC boards down, like this one here is, it's printed, PC boards are made, they come in, drop them in there, there's even battery terminals in there, you throw the batteries in there and you test it, right of the bat.

Any tweaks can be moved within hours you're back to trying another version. That's where, to us the object just really made sense because of the accuracy, the absolute tolerances that it can hold is within the tolerances of what you manufacture for the mouse, the keyboards, and everything like and right out of the box other than a bit of cleaning, and the post, post cleaning is a big deal, I did SLA for many years and the cleaning is a big deal you have to have a dedicated place to get all the un-curative proxy off, the alcohol based baths and all that stuff, this stuff is clean we have a water jet cabinet, you go in there you just blast it off the water, high pressure water and it's good to go, dry it off.

So with the surface we made I don't know how many, this article saying about 300 prototypes, I don't know if that number's right or not but we made a lot, I would say we made more than 300. The very first prototypes we were doing is shape studies, how does this look, how does it feel, we core them out, you can put weights in there, it's just the versatility of having the machine up front in the design phase, when you don't know what you want then you just build something, you just build it and then once you know that an hour later you're going to have something that you can look at, and once you get to that point then the sky's the limit, then you just keep going.

I notice a lit, a lot of engineers I work with, when they have a technology or concept they have to make it's really hard for them to get started. One of my niches here is I give them something I give them a bread board, I give them something to work out. And with PolyJet we can just (kludge) something up in the CAD, and then it's just you grow it and then they grow from there, okay got it now and they can see it. There are PolyJet parts, we ran around the buildings with boxes, everything was very secret, I actually drilled holes in out machine and I had to lock them, so they're all key locked, the windows are covered.

When we had tour, nobody could see it, they could hear them running, but then I can't show you what's in there, so that kind of added to the mystery, they kind of liked that. There's a machine there they're not allowed to open and here the surface inside being made, so that was really good for us to keep it on the down low.

On the form, form factor, form study is huge for us. If the user research people can get it in their hands, they can get it in front of people and they can get it to test. And without waiting for pre-production parts, without waiting for CNC parts, things like that they take weeks to make, we can print them something. A lot of times you will have a product that you only have four of it, if you have CNC, you might have a budget to make it four of something or one of something but then there is like 20 people that need it. Oh can I borrow this for 20 minutes, can I bring this right back? With PolyJet, we are like oh we just need, can I have one, okay basically (grow) you a one, and they can take that run off with it and that’s theirs.

So the user research part of this is invaluable in itself. (Inaudible) she is the user research person and she does the lot of studies with the keyboards and everything. So we would even PolyJet the different keyboards and different key layouts. So within, because they are so thin, that’s the thing (the height) dictates the time mostly of how long it takes. And with thin parts, it’s fast. The print head goes from one side the other at a given time, no matter what geometry is within that parameter, it’s going to print the same time. It’s (the height) that will give you whether it’s 45 minutes or 20 hours. So we can printout keyboards and layouts and things like that in literally half an hour, I can have her keyboard and she can runoff with it.

And then Ralph is our ID director, creative director. He is one that drives everything ID with us, with the surface and the hardware and mice and keyboard. He is pivotal in making sure that all of the design is right, everything is accurate. If something isn’t right, if there is a discrepancy between the engineers and the design, if the designers want to change a curve on a part, the engineers don’t want to change it. What does that look like? Well, ID guys, it looks like this, they just draw in the air and you are suppose the understand that.

So engineers don’t understand that, so then we can make a PolyJet part and they can see it, oh it affects the geometry, we have to move these components and stuff like that, then they see it. You would bring their vision to reality and they can see anything they want, engineers can’t. So this is the bridge to proving that they can get what they want. And then the engineers can then sometimes push back and say no if you change this then all of these components have to move. Here is cost to do that. Do you want it or not? So the relationship between ID and engineering and all that is I think it gets better because people can see things quicker. There is not so much speculation that they can’t decide on a decision until they actually see it.

Stacks; that’s just the surface, I mean there is mice and keyboards, there is Xbox, there is everything and there is Stacks. Those three machines that you saw, pretty much pump out everything that we do and by doing that, everyone thinks that the PolyJet, you want it in your house, (everyone) of course you want it in your house. It takes an operator; it takes somebody of some sort of skill to run these things just queuing up the jobs. If you had one part, you put it in there and then you grow it, it grows great. That’s awesome.

If you have 50 jobs and one is a gigantic council and one is a tiny little component to a mouse, you don’t want to grow council before you grow the little component because that guy will be mad and this takes 20 hours. You have to coordinate and I think a lot of, I don’t know what people talk about that they hears, the coordination of job bills is having the people that know how to put stuff in there. This will grow fast. If you grew it like this, you could grew it in 45 minutes, if you grew at standing up, 8 hours, 10 hours, may be 20 hours. That’s a big difference. If you have to put the cost into it, it’s a big deal if you are wasting 20 hours on something that could have been grown in 45 minutes.

So having the right guys to queue all this stuff up so 8 o’clock in the morning, parts are out, they are clean, they are going to the meeting, they have everything they did. This is, I forgot to bring this guy, people love these things. I have these; the hinges that go into the surface and they are very intricate, I have it in my pocket here. The hinges are, it's almost watch size. It’s a little bigger than watch quality stuff but it is about like making a watch and things like that, magnitude. And in order to get these things made and see how they work is we will do three ups four up size of the parts.

And you can see it and in the video you saw mouse wheel now in the mouse wheel we did because there was an optic end spokes in there and what was happening was that the optics weren’t aligning with the wheel turn. So we build a four up one and then the engineer could see immediately that his spokes were off centered or they weren’t aligned to what he had, where he had put his optical sensor. So by having it up that large he was able to see it before they have to do an iteration and tooling and then shoot some tools look at it or it’s not right and they just guess that is really hard to find that problem.

With the hinges you can blow them up, put them together, watch them work. We did amount of clear for the show because you could actually see the inside and how it works and the de-tenting and all of that, people they just love that stuff. And so anytime we are working with very small parts I tell the engineers, I would say start big, just stay three four times up, and then once you have figured out the movements and whatever you need on the mechanics of it then we will go small, then go back down.

And so that is another big part of the; we do packaging, a lot of the packaging in the boxes, the (vacu form) trays everything like also with 3D print. Because of its ability to print thin, I don’t know if you can, this is the actual size; it’s about 0.8 less than one millimeter. Not very structurally sound, but it gets the point across. And we can actually put things together in the correct stack up by doing this, we can make glister pass, we can test, so now the packaging people can get a package made and couple of hours later here is their package.

So they can do fitting and layouts and all that stuff. We do all that as well. I mentioned in the video that yes this stuff does form overtime, there is no memory to it, which in most cases is bad but in some cases is really good because we use that to our advantage. So if we want to bend a part, we can actually heat this up, hold it in place, let it cool down and it will stay there.

So we can manipulate this stuff in different ways as well. Let me get, so with the packaging, we actually built that guy he is about this tall. I broke them down into a bunch of pieces. And we built him because they needed to make packaging and they were still sculpting this thing and they had to make, get it ready for tooling and everything. So nobody had a model that they could use to create the packaging and the company that was doing the packaging wasn’t really good in the CAD world where they could make it all in CAD. There were a lot of hands on people that they just took the part they needed to make a, like a Styrofoam case, they do that, but do it with the physical part and then just try to sculpt around it.

They didn’t have this guy at the time so what we did is we printed up a full sized model of it. There was about a 40 hour build with this guy. Now the detail is incredible on this thing.

And then we also were able to take and just do straight down shots. The cool part with the PolyJet was with the build material and it builds any under, down facing surface and it feels that in it basically gave them in a sense of seeing a straight shot. So if the guy’s elbow is sticking out the support material came straight down, so then they could look at it and say the Styrofoam should go right like this. It almost gives you silver white edge of the part and you can see it. So there are kind of some freebies that you get when you see support material and things on new part, also build a bunch of key chain, guys, for this thing.

I don’t know my time; I think I am doing alright. So that’s basically, now you know why we use it. It almost makes sense not to use it for us, the speed that we can turn stuff around is that the different things that we do with this.

I don’t think there is a part of Microsoft that makes something tangible, that doesn’t use this. They find us and there could be a little group somewhere and they need to have something made and they will find the model shop. They will figure out where we are and we can help them out. So, yes, just freaking fast, I mean I don’t know what else to say. You just build it up, this, I want it tomorrow, I want it at 8 o’clock in the morning. We get first at 9 o’clock at night. That’s another thing that we do, I don’t know if you guys have touched the base on it. It’s that we can remote login to our machines.

So I ran the machines myself for four years and at night I would go home and get off the bed and go back on the computer, load the night build. So that would go till from like 9, sometimes till 2 in the morning. I login the machine from my computer and fire it off. The problem, I had to disconnect, I had with there was that the actual PolyJet machine was on its own computer, so I could log into with the main server, I could start but the machine had to be online. And some nights, a little hick up the machine goes offline; I got to drive in. I got to push the red button to make it green, and it was like, so two hours later it’s going.

We figured out a way of wrapping that, so we are able to hit the machine, both computers turn on the machine from remote so I could literally could be anywhere now, we can turn on them machine and then get it started. So if you are a dedicated user, if you are not sitting right at the machine, you could be out somewhere and you could fire that thing off. And as long as the machine is ready, clean and ready to go, we can start it from anywhere, and then monitor it too which is amazing.

We have guys coming in, who will change the build out. And we have a, one cater is in school and he is part time and he is just keeping this thing running. He will go to school. He will know when the part is done, gets done with his class, comes in, changes the build and then sometimes he is gone again. So that’s what we do.

So I felt compelled to come out here. The technology is basically, it is that good. It’s like, like Todd I am not, they didn’t pay me to come out here. I am here because we use the technology. I believe in it. And there are other technologies. I have done SLA for many years. The FDM serves, I think a larger scale parts. The tolerance is, the (merger) of the two is amazing because where we didn’t use FDM because the parts needed to be more accurate. So now basically we can use FDM for the larger parts. We can use the PolyJet for the smaller and more accurate parts.

And I think together, with the (fixturing) and all that stuff, that again is pretty critical for us to; I think every aspect of this, I could talk the stories behind all of it.

And the advantage of us to having it is just endless. It’s the opportunities that change from a CNC part to a PolyJet part. It opens up people’s world. I have had research guys doing research with the laser and optical laser on the mouse and they get these little very intricate parts made where the laser has to go in at specific angles and all that. And we spent $2000 having a part machined and the angle of the holes and all that, and that has to be just right. So we get that back and he will make a mistake on the CAD. Oh I put the hole in the wrong spot, I didn’t see that.

Okay, well then he’s on our machines and he’s trying to rim out these holes and he ruins his $2000 part. So I said why don’t we try the PolyJet machine, why don’t we just try it? Oh no, no it’s not accurate and like I’ll make your part will go and just use this as a placeholder. So he did that and his world is opened up. He was able to not only make parts in a couple of minutes, he was able to rim to holes out to his specification for his laser and then he could tweak it as well. So he was allowed with PolyJet it was nimble enough that he could go in there and just move the laser around as it needed. With the aluminum that was set done, you have to drill the entirely new hole.

With PolyJet he was able to be more flexible. So things like that, people who are so adamant about machining, I say, okay I’ll send out for machining but in the meantime here the PolyJet to play with. And then before the end of the day they call up me and they’ll say cancel the machine, I don’t need to the machine part I’m using the PolyJet part, I’m done. So from that part on they just keep using it and the imagination is just once people understand how to use to it they just keep growing with ideas and they just keep doing more and more with it.

So with that I do believe it will be in the homes I think like my daughter colors and then she makes the paper printout and she shows me what she did. I really believe I don’t know when but I do believe that a kid will be able to do make a toy or part like that, like a coloring like a crane level and that would be able to print it out and show, you know, mom and dad look what I did today and it’s all 3D, I think that to me is pretty cool and I can see that happening pretty soon but for us this is what makes us go fast this is what keeps us in real time. So thank you for having me here and I’ll around all day too for questions and whatever I have some sample parts of things if like back there but this is just kind of basics of what we do in here kind of quality and size tolerance and things like that, that we do, so thank you.

Shane Glenn

I think if Yahoo’s approach can and their PR approach can be too promise not to screw up the Tumblr acquisition, I think our PR approach could be buy 3D printers freaking fast. So before we head to lunch we’re going to call up our CFO, Erez Simha, he will give you the financial overview, Erez?

Erez Simha

Thank you, Shane. Good morning everyone. My name is Erez Simha, I’ve started as COO for Israel and the CFO for entire group. I was sitting here during the (rest) three and half hours, just before I step up, I think it’s really, really frustrating to present final presentation after those presentations. I think that you saw movies, pictures, animation, Barack Obama. I have slide and numbers which is final part of the today’s presentation. I’ll take you through 2012 numbers, Q1 2013, 2013 guidance that we provided with the market and the long term model that we presented at the beginning of it.

I wanted to start with three comments very important comments. The first one all the numbers that you received here today are non-GAAP. Some of them are combined for non-GAAP except I takeout the balancing numbers, all them are non-GAAP numbers. The growth numbers that you will see are all organic numbers. We have an amazing growth story here. It’s all organic numbers. I will refer them and say again during the slide of the presentation, but again non-GAAP and organic numbers.

I want to talk a little bit about the merger and the impact on the financial statement. David talked a little bit about the merger and I think that once you analyze and review 2012 and 2013 numbers, you should understand the significant input that we have as a result of the money. We closed the transaction or we signed the transaction in that ways, 2012 and we closed the transaction at the beginning of December 2012. We had like seven months to prepare ourselves for day one plans; day 100 plans and relatively long and complicated integration plans. As soon as we arrived in its day one, in good shape, almost no hiccups.

As of day one, we have one chairman at the board, we have one chairman of the executive committee, one CEO and a management which is a mix of Stratasys Inc. and object end user to headquarters. Day 100 was also without any significant hiccups; both okay. But the plan that we put in place and both consolidation of the back office, IT,HR, Finance which is almost done, and consolidation of the customers second position, marketing sales and customer support.

We do it while we want to keep all of our employees with us and to make and create our customers, (MPL) compared to the relation before the merger and to keep our journal trained or cross trained, and be able to cross sell in the future and generate the logic that David talked about it for the moment.

So once you analyze Q1 2013, when you look at 2012, number of them, they can follow up to 2012. And 2013 Q2 and H2, you need to remember that we have the date of (inaudible) and we have a (still) integration which requires massive attention of the management, a lot of focus and a lot of work in the field and between the two headquarters.

I choose to follow up with a slide. I hope you understand the business model of Stratasys. We are capital equipment company; we sell hardware and we enjoy recurring revenue of consumables, timeout and consumables and service. The high margin consumables and service are more related to our customers in (Slovak) and the instillations of our customers at our customers have.

We have the largest in servicing the industry. (Census) according to 2011, 52% of the printers installed in the field belong to Stratasys. The next one has 11%. So a very large fortune of this installed base belongs to Stratasys. When you look at the financial statement, you don’t really see the economic value of sales of new printers. You see how that feels and you will see recurring revenue which is the result of (inaudible) hardware sales. But you don’t see the next revenue stream that should come and scrutinize in very, very easy to measure when you look quarter in the years ahead.

It gives us kind of a safety layer if you want of recurring revenue with high level of accuracy so that you can focus ahead and plan out to the (inaudible). So it’s a piece of model that is a combination of new sales and installed base revenue generation. 2012, we finished the year with $359 million revenue, 30% growth compared to 2011. We sold 4,551 units, 30% more compared to 2011.

We sold many more high end control that brought us to a higher gross margin in 2012; the gross margin expenses to 58% as you can see here.

The productivity and the efficiency of our employees, when you measure it, in revenues ahead went up by 7%. Operating margin went up to 20.7% and here so that you need to understand the magnitude of R&D investments that we do, each quarter, each year we invest 10% of our top line in R&D. I think unmatched benefits, really, really high numbers that will help us to keep the leadership, the technology of the leadership in future takes time to design, takes time to develop, takes time to introduce new product to the market, and this investment which is really, really high and impact our gross operating margin, we're still unmatched in the industry. But I think that as a strategy we focused to be more on the technology side and leading the industry on the technology side.

Tax rate of 20% and with tax effects in Q1, the future is more clearer and net income of almost $60 million, 60% more compared to 2011 and if you take stake back and look at the numbers we have top line grew by 30%, better gross margin, net income just grew by 60%.

So we’re utilizing our operating levels David didn't want to talk about it before but the finance operating level is, if you all understand what is it and you see it's very clear. We finished the year with a backlog of $28.6 million, relative (inaudible), relatively high backlog that gave us kind of a backwind when we entered 2013. Q1, we sold 101,068 units, 5% more compared to Q1 2011. And again here, there is some phenomenon in Q1, 2011, but if you take it out of our contract that we had with HP that was terminated at the end of 2012, if you take this number out, there's unit growth here of 30 %.

Revenue grew by 80% and also against here as a result of the measure, we had to change some of the accounting treatment of warranty revenue. If you really compare there's revenue of 100 million here, compared to Q1 2011. Those 2 million that we're missing will be recognized here in the next quarter through customer support revenue.

Gross margin went up again 59%. Operating margin; again, expansion in the operating margin. Effective tax rate which is extremely low here in Q1 and has one time impact of kind of some R&D credit we could not utilize in 2012 and we did utilize in Q1 2013. I think that looking forward, Q2, Q3, Q4, effective tax rate should go up a little bit and again take a step back, 80% top line, high gross margins, high operating margins, 40% more net income, compared to Q1 2011, again we are utilizing our operating (methods).

This is a picture of the revenue in Q1. We do not provide a breakdown between hardware, we do not provide the exact number, but you can see that hardware grew by 15% and we grew in high end product and in low end product. Consumable grew by 80%, customer support 25% and again customer support and consumable are more related to the integration of our customers and the size of the holdings that we have nothing to do with (inaudible). RedEye, which grew by 42%, and also here we see more advanced application as we acquired advanced performance of the RedEye machines carry higher (ERP).

Same information, you heard a lot of information from me, 2012 not only for Q1, 33% growth in system revenue, 26% in consumables. Again, this is a true growth story. Everything I remind you, everything is organic growth.

50% of our revenues are generated in the U.S., 30% in Europe, 20% in the APJ Asia Pacific Japan. Both North America and Pacific are growing faster than Europe. This is very much in line with the macroeconomic situation that we all see in Europe. Still Europe is growing and is growing according to our plan. North America and Pacific are growing faster in line.

As of the beginning of the year, we have local independent organization in each one of the territory. David mentioned a little bit in his presentation, but we have today in each one of the region and also in the smaller one that is a newly born in Latin America, we have general manger and VP sales and VP customer support. We have CFO, we have HR, we have IT. So each one of this region has its own capability to deal with the customers in his region. So, we are working, we got one or two hands North America and Israel that are moving equipment into the region and the region take the equipment from there and they will (build it).

Balance sheet; and also here although we are growing really fast, really fast, (days old 67 days) inventory return 2.5 times, cash 142 million under bank. So although we are growing, the operation is really, really under control. And we are growing really, really fast. All the balancing parameters that are related to the operation and performance of the company are strong.

These are the guidance that we get to the market at the beginning of the year and again organic growth only, we said that we will finish the year with 430 million to $445 million of total revenue compared to 359 million in 2012, 20% to 24% growth in 2013. EPS of 180 to 195 and again 25% to 36% growth compared to 2012, keeping in mind really, really busy, the organization is really, really busy with the integration.

The long term model that we introduced to the market upon merging and we said that we want to grow top line, north of 20%, 20% annual. Effective tax rate between 15% to 20%, Q1 was really unusual; I think that mid-range in 2013 will make more sense. 20% to 25% operating margins in Q1 was 20% to 25% and net income of 16% to 21% where Q1 was around 18% again. There is a lot of upside on the margin for us to grow to achieve the higher (balance of) range that we put in place when you put in place again, we had in front of us an organic picture.

It is the last slide of the presentation and if I need to take something out of this presentation it’s capital equipment business model of recurring revenue and (inaudible) business model with high margins, it’s a growth (story) we are growing 20% to 30%, 20% to 24% a year organically which is true growth story, relatively high investment in R&D to support leadership in future years and develop technology material and how the, and the loudest installed base in the industry that generates a lot of recurring revenue, high (margins) revenue for the company. Okay thank you very much.

Shane Glenn

Okay thanks Erez. Alright, right now we are going to take a quick break. We have lunch provided that will be in the attic factory by the dorm area. Try to make it back and we will start up again in about 15 minutes with a quick summary from David and then we will open it up to Q&A so try to make it back here in just about 15 minutes thank you.

I’ll turn back over to David for summary and then we’ll head into Q&A following his remarks.

David Reis

I will spend a few minutes talking, just giving another kind of quick summary of Q1. and then we’ll try one slide summarize for you Stratasys' strategy going forward and describe the simple and quite straight forward and I’ll try and make sure you understand and shared it with me. So first of all regarding the results; so Erez talked about the fact that we had good first quarter. Again I cannot understate the complexity of the mergers that we are going through. Erez said nicely that we reached day 1 and day 100 very successfully, very organized, very planned and we had hardly any hiccups, but it is a complex event.

I am telling you the reason is company; it’s not more complex than a merger in the business world. So we are doing well and but you need to keep it in mind and in the light of it I think the results are good.

Continuing the sales and the marketing in service configuration, again the major efforts in, I think Jon Cobb said that we went through the second, or we started, we are in the process of doing the second round of trading, again four days of at least one or two people from our company with a channel, just calculate the number of working days that you are spending by bringing this channel up to date. It took place in Q1 and it will continue throughout the year. Like yourself, we see the excitement and the coverage that the industry is getting. Jon mentioned, I think Jon mentioned the huge effort that we put into creating awareness through Stratasys Ltd in early Q1, advertising in Wall Street Journal of Financial Times, Economist, Fortune, Forbes, maybe others.

We did it in order to build the name or to make Stratasys Ltd better recognized. But there is also a kind of hidden agenda and place it, we are trying to push it to change a little bit the way we sell our products. In the last 25 years we are typically pushing our products to the market. The idea of approaching C-level executives, CEOs, CTOs, CMOs, and other Cs was to try and maybe tilt, there isn’t the way people are buying from us, from a push to pull model. And I think they are going to see this change over the coming years, we started it in Q1.

We are continuing investing in R&D. Erez mentioned it, I mentioned it, $40 million budget for R&D. Over 200 engineers, technicians working every day in developing new products on both sides of the ocean, both in Israel and in Minnesota. I just wanted to emphasize one very important thing. Erez talked about our business model. We are selling hardware and they are just selling consumables. We have the very large team of people which is dealing with chemistry. And from our perspective and I want to share it with you, materials are as important, or even more important than hardware.

A great material will sell more machines than an additional printer; so investing a lot of energy in it. I think we are doing very well. I think we have a great team. And just to summarize Q1, like Erez said, I am optimistic about the year. We started with the right foot, and I think we will continue. Nevertheless I am mentioning, we are in the merger. It’s a complex merger. So expected sales would accelerate towards the end of the year.

Now this is in one slide, the company strategy. I said earlier that part of the rationale, one of the reasons for the merger was that we strongly believed that for our core markets and Jon spoke about it, the design engineering cut market. We are going to be, where we will continue being successful there as a combined company, maybe with investing less effort into it. So the derivative strategy out of it, he is saying that there is larger strategy dealt to be as their capacity and attention to expand into vertical markets.

And we mentioned today few of them, we talked about their reputation in manufacturing, we talked about medical, we talked about dental. Each one of them has great potential for us and the strategy will be to expand into this market. It does not mean by definition, new hardware. It has to do more with channel sales, marketing, and maybe more materials. To lesser extent, customized hardware, choose one element in the strategy.

The part of our strategy is that we’re driving our printers starting from the module and they’re going to be in the future with lower price points, more office friendly, more user friendly, more suitable for designer, engineers desktop. We’re talking about distributed printing, I think it was mentioned by, I don’t remember who today, that we’re going to continue selling large machines fast machines with more complex applications for rapid prototyping centers, engineering centers. But we believe that in the future like in the printing world people will have printers on their tables and they would have been taken decisions whether to print it now and fast or does more complex job in the center.

So we’re preparing us so to this stage and we’re part of the strategy is to advance and to offer printers which are less expensive as I said user friendly in office suitable. I talked about introducing new products, again, team of 200 engineers, a lot of people dealing with chemistry. We have plans which are ranging from three to five to seven years in R&D, so you should expect some Stratasys Ltd to continue come up to the market with new product more innovative product in the high end in the low end and in the verticals.

Another element in the strategy is to use our channel to increase penetration as much as we think we’re big in selling quite a lot there is very big part of potential customer base which either knows world of technology or didn’t experience yet another technology. Part of the strategy is to try and utilize our much larger channel today to increase our reach and penetration. And not just by close training. What I told to channel and I’m sharing now with you is that my wish is that you know two three years down the road company will growth according our plans and it will be with the current channel.

This requires enabling the channel, teaching the channel to growth with us. So part of the strategy has to do with channel development and we’re investing a lot of energy and thought how to bring the channel to speed to make sure that can grow with us and deliver to us the numbers that we’re planning to achieve. And maybe the last element of the strategy is to; we recognize the fact that in order to continue being the leading of this industry, we cannot do everything on our own. We master in few technologies but part of our strategies to grow in organic and our plan is to grow in organic in the coming years. I think it was mid last year just before we close we realized that in organic we’ll become substantial part of our business.

We established a strategic training in M&A group which was not existing I think in July last year. It has 11 members today which were scanning, looking for opportunities and you should expect Stratasys to see acquisitions in the future. So I think this is summarizing the Company’s strategy for the short and medium and long term. And I will take this opportunity to thank you again for joining us. I was (told) somewhere in the back right with Burse and nice present from us so make sure before you leave you grab one of those as memory from this day, have (red bull), it’s a business card holder. So it’s on the way out and then I think now we’re switching to the Q&A right. Okay, any question just on this section before we go to Q&A.

Shane Glenn

Let’s hold on just a second. We’ve got mics that will need to use because of the webcast. We’ll bring those forward to make that if anyone has a question we’ll bring the tiers up and make sure that you and Erez and Scott are all prepared for the Q&A. I just wanted to a take one real quick second and really put my things out to the marketing team that was able to put everything that you see back here in this backroom together a lot of digital content, all of the digital that you see here. Kim Killoran, I don’t know if she is in here or not but she organized everything that you see back there at the back and I just like to give her a hand and if you could just help me and we really are; really appreciate the support that you've provided for us so give us a minute and we will open it up for Q&A.

Question-And-Answer-Session

Unidentified Analyst

(Inaudible) of Green Capital; there was a comment that was made around the expectation of revenue growth to accelerate towards the end of the year as you got further through the acquisition, sorry, for the integration rather of object. Just wondering if there is a comment on the mechanism that you would expect to be the enablers of that revenue growth, acceleration and how many that followed, that mechanism follows into the future? Thanks.

David Reis

Again the sources of growth, I mentioned earlier, company will come with a new product, additional product, it would extending our channel, we are going into wires of verticals, expanding our marketing end force. We are able because of the position of the company, the strong position of the cost market to spend less money in growing the cut market and use this marketing money to go into other verticals. So those four reasons should accelerate and will accelerate sales as the year will progress and as our integration efforts will be reduced.

And of course the great opportunity, I mentioned this morning about cross selling the complimentary product into the complimentary installed base.

Unidentified Analyst

My question for (inaudible) would be in mine; I was just curious, facing your experiencing with the products, have you had some interaction with the company in terms of the things that you would like to see or provide feedback maybe some functionality or other things that will help you?

Scott Crump

Yes I think like feedback for the company is pretty important and we do that with all the equipment that we have. There are things that we would do a lot and we would like to see in the machines they are always open to understanding that different materials, properties and all that will stay will out a lot and when they do give the material out, they will let us know and then we can try on and see if they can work out.

There is also like interaction of the interface, there is always updates that we would like to see. When you get in a certain habit of working, you would like to see the price is seamless and if there is always an extra step that you have to take then yes you want to report back and say why, the interface was like this or has this. So I think there as much as they can or I always try to innovate on that but we do provide feedback a lot. We do service maintenance when they come in and the machines act certain way, to let them know so that they can build on that and learn from it.

There is a lot of unknown's in everything so to discover that they didn’t know about, like hey if I do this, your machine will do this and they don’t know about that. It's hard to cover all the bases so then we do have that open dialogues that we let them down.

David Reis

By the way, if I can add we have a very organized process, annual process of the serving our installed base and customers worldwide. Because the last one was just concluding in January, we had a 3000 response from our IV worldwide. Questions from how had the IV with the service offering with our hold up, first we would like to see change in the; we’re doing it on the strategies and objective side for four, five years straight. So we have a little day time; the R&D spent is been adapted to customers at risk.

Unidentified Analyst

Steve (inaudible) Scott maybe a question for you if I could; a lot of the systems that have come on the market in last couple of years particularly on the lower end have been open, open architecture and I wonder how you think about that, you just kind of going forward is that something that you guys examine or maybe your thoughts of general about of that going forward.

Ofer Shochet

I think it’s really an exciting period of time. I think actually that is one of the reasons why there is an accelerated awareness that that’s a lot of media focus. So, on one hand I think that the open, actually open source and an open architecture is I think brought in that category a lot of awareness and then I think on the flip side, we’re definitely trapping in and keeping an eye on it and I think, David do you want to add to that.

David Reis

I think the open architecture advance progress in one part of the markets where low end machines. You see companies in this section today as sent to close or open architecture and to be with it more kind of proprietary and it bit create in this segments of the market. I think the major dilemma with, in respect to business model is the combination with very low end and hardware was very expensive consumables which I’m not sure how it’s going to work going forward.

So, I think that’s for one hand if you advance, it’s advanced, you know since you’re using interface for ease of use; or rather than creating kind of a (dilemma) about the business and model. So, I think companies with that (dependency) to become an independent proprietary, you know (create) a workable environment. So, there was a positive and negative steps.

Unidentified Analyst

I have two questions, if I may. One, R&D, you got the 10% of the budget with the three different technologies. Are there going to be any synergies or that preferred materials development for example or you pretty much having to allocate some amount to the three different technologies and then I have a follow up.

Unidentified Company Representative

(Inaudible)

Unidentified Company Representative

Over time, not this year, over time we’ll add to that probably brining more of that but we interfacing more of clarity from a software utilization but immediately we saw that huge benefits really profit customer sale marketing integrating the service area and I think what increase so far that that was a good decision.

Unidentified Analyst

I think M&A I hadn’t really heard about much a talk. There has been a lot of talk about the offset merger that saw as this and now we’re hearing 11 person team scanning a question of you got a lot of integration behind you. But so much of work you have to do, you talking about another year ahead of you. How quickly (might) you think about (offering) company and is there a particular area you’re looking to fill would it be protocols, would it be 9metals) or is there something else that you’re specifically looking for?

Unidentified Company Representative

It’s nothing as timing issue, it’s a matter of finding you know the right thing and despite being internally and the combine company strategy which we in the force of giving out. So, we’re of course doing it, I don’t want to (commit) again as I said earlier, we realize it we’re here to the market and we can’t do everything on our own. We cannot master all the technologies and better from searching our own. So M&A is part of the strategy.

Unidentified Analyst

This question is I think primarily for Scott but I think also David. You mention in one of the slides in these questions around IP, you mentioned 550 patterns. And so first part of the question is how many of these patents have expired and is that an issue going forward? And then secondly are there some cross licensing agreements between combination Stratasys and Objet and other players in the industry, could you talk about that, thanks.

David Reis

The game that we are in right now is all about execution, selling, marketing, servicing, getting repeat, getting lot more consumables out. So having said that I think patents are important but I don’t think there are sort of dominant where they were let’s say 10 years ago. As you said we have about over 550 patents worldwide and I guess one of those, or one or two of those have expired but as you get into these different vertical applications, you need more features, you need more benefits for the customers. And I think we have done a good job over, certainly the last 10 years and like in the last 18 months have accelerated the patent applications. In fact to the point where about half of the size, 150 are actually and the patent pending or patent application phase.

So, I think it’s about executing in sales and marketing and at the same time I think as we get more serious about the use of, actually both PolyJet as well as FDM, you will start to see a lot of these claims. So if you have 550 patents, you have, I don’t know how many thousands of claims to those. I don’t have any…

Jon Cobb

May be I can add to it and kind of a different prospective. We have 550 patent pending applications and I think the last thing that is happened in the market, it push us maybe to be more aggressive as what we were before to make sure that our patents are being get respected.

Now the timing question here when you do hit with a hammer, but definitely our patent portfolio is more strong than from what it might we perceive today with some players in the market. That’s one thing. And the other thing, to answer your other question we do have the cross license agreement, one with one of the other players in the market which was created about six to seven years ago and same patents which were owned by Objet.

Len Wanger - William Harris Investors

Len Wanger with William Harris Investors. Two questions, one just from a housekeeping point of view. I appreciate the guidance you have. Can you give us an indication of what we can expect for 2013 on CapEx on capitalized software?

Erez Simha

Yes, we said that CapEx would be $35 million to $45 million, EBITDA around $13 million and capital in R&D not released at the moment.

Len Wanger - William Harris Investors

Second one, there are couple of companies that have started selling consumables for FDM machines, Dimension and Fortus commercially. I am wondering what effect you have seen from that and then what tools you have available to try to curtail that?

Erez Simha

That is a joke. Somebody asked me this question today, I spent the last maybe 16 or 17 years in the printing industry and before I started I had long or curly, long hair and this was left after fighting cloners and ink competition in the last 15 years, in the 3D printing world yes.

Now going back to your question, we do have some competition on the FDM side. To the best of my knowledge, we have zero competition on the PolyJet side. This is first. Second the issue of preserving the consumable revenue stream is a major issue. It’s a strategy. It’s not something that is happening in on their way and by on its own.

Realizing this, we established about two years ago, now we have it in the combined company, the business which is specializing in selling consumables. Historically this is kind of underway and we took it for granted, we treated to this business and when we treated the business, my experience showing and I know we have few people here that work with HP and other printing companies, the difference between let’s call it the poise in demand in respect to persevering this revenue source has to do with the strategy and some people are doing it very well and some people are doing horrible work in there.

Now in order to be successful, I think there four or five fundamental actions that the company has to take in order to be a winner and we are taking them. Number one is to be ahead of anyone else and better than anyone else in providing the best consumables materials in the market. If you don’t have the best materials you can forget about it and I said earlier we have a very large, very talented chemistry R&D team which is working day night to have the best material, hat is number one.

Number two, they need to be priced correctly okay. Number three, we need tie consumable sales into warrantees, into the overall customer relation experience with you. Now if you do it right even in a competitive environment you will be able to keep most of this ready. If you do it wrong you can lose all of it okay.

So what I can say is that first of all so far so good. We have only little competition I think we have consumables which are better than our competitors and we take it extremely seriously. So going forward I am optimistic that we are going to be able to keep most or all of this business but it is a serious issue and we take it extremely seriously. Okay.

Unidentified Analyst

David in your opening presentation you talked about the 10% to 20% overlap between the two technologies which I guess is the opportunity that you see and surprisingly low percentage. Where do you see that going say by the end of this year and into next year, given the cross selling efforts that you have underway in the channel?

David Reis

The big casino (ph) in strategy is gambling about this question okay. I don’t know. I'll tell you what I know today. I know today as I said earlier that some of our best customers are on the world and I can mention names here, talk about BMW if you will then Johnson & Johnson and many others elected voluntarily to buy both technologies okay and again when you ask them why did you buy this there is a very good answer because in order to fulfill the needs of photo pricing and the manufacturing of products, you need more than one technology.

Another thing I can share with you is that most of the resellers are going through cross training of sales and marketing, are generating leads and opportunities fulfilling the other equipment boost for new customers and for their own installed base.

How far it's going to go, I do not have an answer, we need to wait and see, but definitely one of the reasons we merged is because we believe there is a great opportunity to cross sell. So I want to be cautious I can’t, I don’t want to quote a percentage. It is really a complex question and I'm not sure about the answer.

Unidentified Analyst

Okay and I have just that one follow up question with respect to the Q1, Erez can you give us an, if we breakout the HP business, the units were up 30%. If we excluded the demo sales what, give us a sense of what the unit growth has been like?

Erez Simha

We didn’t provide the number of units that were up but to give you. You have to look at the number of what was the (inaudible), the number of units, the total number of units. That wasn’t good. So we do believe that if we weren’t selling demo, we would sell other units. So the demo is for there (inaudible) demos in the field. It's complicated, at least as complicated as regular self. We showed a demo to (inaudible) we saw money. We have no back-to-back customers and we don’t really know how many units went from those resellers out to their markets. The gross amount of demos is $6 million. Theoretically it could be that all those $6 million replacements to current demo units have the full (inaudible).

David Reis

Certain percent of the retailers also sold all demo equipment in order to finance new demo equipment. So those sales to the end customers we need not see but theoretically you should count in as units that we sold by outlook. So the number is obviously lower than the number we quoted but we don’t project that number.

Scott Crump

In the end it’s all about our strategy of doing the cross training and then following that with cross selling. The way they accelerate the cost selling worldwide is to have the reseller have control of sample parts and benchmark, going to have to do the benchmark. So the slowest way is not to get the systems in the field. So, I guess you guys have to look at the quarter. We're looking at it mid-term and long-term as well and in that process the proven way that actually both Polyjet and Stratasys with FDM has very successful is we get targeted demo units in the field to account reseller, embrace doing the actual benchmark as well as the sample parts to accelerate the sales rather than trying to go back to corporate which slows down that process. I feel it’s working very well.

Unidentified Analyst

(inaudible) Two questions. First question is for David or Scott. What do you think for China in terms of market opportunity? What stake China is today and potential competitions down the road? And furthermore, how much presence do you have in China at the movement?

Scott Crump

I’ll just answer the easy part of the question, the second part. We took a decision six, seven years ago to be local in China. I view China as great potential market. I believe that if you want to sell in the markets, you need to be there, you need to talk the language, you need to know the culture. So, we open office in Shanghai probably six to seven years ago and we have today a very nice regional office with I think 15 employees in Shanghai which is managing, and it's an indirect channel, managing a channel with, I don’t recall the number of resellers but those resellers are covering all China. So, we are local there and I think going forward by the way it should be our strategy for other places where we are doing it. We need to local if we need to grow and grow fast.

You question regarding competition, in China it is great opportunity for us to sell. Nevertheless there is also competition coming out of China and we are worried about it like anyone else about the competition from China. But nevertheless I think that, again, as long as we are better, faster, more creative and ahead of the gain, we can compete also with Chinese manufacture products. So again, I’m concerned about it but I’m not too worried about it.

Unidentified Analyst

Second question is for Erez. In services there is plenty of opportunity for gross margin expansion. What will be the major drivers and what will the trajectory of margin expansion look like?

Erez Simha

You mean 2015?

Unidentified Analyst

Yes.

Erez Simha

Gross margin is the market result at the end of the day, how many consumables and how do we sell, what’s the mix between the different products, what’s their mix between direct or indirect and the regions they are sold, if you want to expand gross margin. It can come a new material, clearly higher pace, and being more value deal to the customer. Higher end product is clearly higher end and a gross margin and of course services. We should be improving our gross margin in terms compared to Q4 and Q1.

Brian Drab - William Blair

Brian Drab from William Blair again. I was wondering if I could ask Todd a question. Sorry to put you on the spot. This is an easy one I think for you. You made the comment that, you know I get a lot of from my clients around metal added to fab and you made just a brief comment saying that there is a lot of work yet to do, it’s not as easy as something it is to make a part out of metal and what are some of the difficulties there? Is it speed, is it volumes and materials, strength?

Todd Grimm

Those are all considerations and if we going into production environment, what you just listed is the short list of what we keep something from going in the sky or going in the car or into production. But what I’m really talking about is it’s more of understanding the dynamics and the science of what’s going on in the machine and predicting how it’s going to behave, so that you can control it before it negatively controls apart.

You just want to get your mind around in stresses. When you are imparting the energy into the metal powder, they heat it to cause it to approach near melting. Stresses build up real, real, real bad and if not controlled a part which should be flat will look like a Pringles potato chip coming out of the machine and the stresses are so significant that most of the technology will use about a half inch tool steel base to which the part is attached with a support structure and they just bury that in to hold it down. I've heard reports where a half inch metal plate has actually been warped by the stresses of the part.

So that’s just one indication that it is about understanding that dynamic, that thermodynamic and mechanical dynamic in the system, understanding geometry of the part, how those two will marry and second guessing the same, and that’s just the start of the hands on experience you have to have. So it hasn’t been programmed into software to compensate. It’s still up to the human being's second guess.

Holden Lewis - BB&T

Holden Lewis of BB&T. You commented that about 85% of your revenue now is sort of prototyping design, about 15% is coming from the DDM which I think is mostly fixtures, jigs but not much final product. I guess two questions. First is when you think about the long term opportunity; is your current makeup kind of the inverse what’s been actually happening. In other words is the manufacturing opportunity actually much bigger ultimately in the prototyping or because you’re not in metals, is this always going to be a heavier prototyping design kind of model?

And then secondly, when do you sort of think, you’re now seeing the fixtures and jigging becoming a bigger part of the mix. So obviously there is some momentum building there. When do you think the momentum will begin to sort of reflect itself in your mix in terms of the final parts?

David Reis

The tooling fixture gauge market in the U.S. is over $4 billion, and that is with the technologies that we have today, that’s the easiest set of applications to rafter. Jeff Degrange's team at Stratasys has been focused on those for over 5 years, and we are now getting to the point where we are getting traction, we are getting some multiple sales of systems, significant consumable utilization within that category.

However, long term we see really like both the fixtures, assembly tools, as well as the parts that go into the end used parts being a significant part of that business. But the end used parts take more time. In many cases you have to have material specifications, that arm is split let’s say for the fixtures and assembly tool area, and it’s a progression and evolution as we grow.

So I think your depiction of the business being primarily fixtures and assembly tools, but we are also, as you stated, expanding into the end used parts. End used parts is an absolutely huge opportunity but it also takes a lot more innovation and a lot more standards, not only for the company but for the whole industry for that to really take off.

Ofer Shochet

Just again, you can sense that all of us are extremely and I think everybody is extremely aware of the possibility is there and the vision of producing of end used parts in short run high customized. It’s really a huge opportunity but I want to go backward to what Todd said and what Jon Cobb said.

Where we are today is a huge opportunity. To the point and to this extent I am sharing Todd's view of, I think it will take time until have a printer in every house, but I think that we are going to have very fast, a printer in every school, high school, college, every department, in every university around the world.

We are not giving one tenth of the way there. We are going to have a printer on every two, three, four, five engineers or designers around the world within the next 10 years. This is on then a huge opportunity. We are not even close to it.

Now because today people are less excited about it because and it's on Todd's Caravan, I don’t remember the name in English of the point of the curve. So all of us talking about direct vision manufacturing which again is another huge opportunity but I agree with Scott, it’s more complex, it requires more work it requires more R&D. It will take time until, a lot of part in a lot of airplanes are going to be printed. It requires specification. It requires level of reliability and with ability that it will take us time to reach there. So it’s huge opportunity but what we see around us today is also a huge opportunity.

Andrea James- Dougherty

Andrea James from Dougherty. So I know you guys didn’t talk about competition but can you talk a little bit about just market share and how you see it breakdown by maybe verticals and I know you have these three levels of idea design and production and how you think about market share in each of three segments, and your market share?

David Reis

I think the last data, I think Erez mentioned, service data, talked about around 50% of the professional market at the end of 2011 and I don’t have the numbers for 2012 but we are definitely the substantial players in the professional market and we don’t play to gain the very low end part of the market. The moderate position, the way I describe it is the higher end of the lower end, it’s just something that we're missing. So we you’re not playing the major side of it which is growing nicely. I mean people are selling lot of printers there and again I have some concern about this segment. I think the Stratasys should and will become a player there. We have both the technologies and means to do it and it's a timing issue and strategy issue okay. So your question, I think we are the largest player there when you give market share. I don’t have the numbers for 2012.

Unidentified Analyst

I just wanted to ask one question. David as you were talking about the market opportunity. I’m always trying to figure out what’s the right numerator and what’s the right denominator when you figuring and how many systems have been sold and what’s the potential market. The numerator is easier. I think you know 50,000 or 60,000 professional systems that have been sold and I’ve talked to Shane about you know how many of those might be in service and I think the right number, it sounds like it maybe 35,000 or 40,000 might be in service?

The denominator is trickier. You talked about the 5 million CAD seats today. I'm just wondering if you could talk about that a little bit more in term of 5 million CAD seats, how many maybe in academia. I’m not a software analyst so I don’t have all these numbers, how many are in architecture and then also I don’t how many people that use CAD actually end up making prototypes and there is lot of different applications for CAD too. So how many of the 5 million that you really believe are potential users of the equipment?

David Reis

Maybe I start from the end of my answer and then the answer is that you know the number is all over the place. But what usually I’m saying when I'm being asked this question is whatever and I’ll get to the number, I’ll try to give you an idea okay. I’m not going to (inaudible).

Whatever the number is and whatever the estimate or ratio you’re going to pick up, what I can say that it’s in one magnitude to bigger then what we did in today. Okay now I’m going to get to the numbers. So it really doesn’t matter and I will convince you that its $400,000 or $1.2 million. We’re talking about 35,000 printers today in the professional market. So I don’t know what’s the exact number is. So if you look at it from the direction of CAD seats, one analogy to it could be look on how many clutters which has output for 2D design cuts offer were sold in the last 20 years and you’re talking about hundreds of thousands of printers sold by Cannon and by HP and I don’t know the exact number but it's the very high number. You go to any designer studio, simply you’re going to see a floater on the right side, maybe with some dust but its there.

So, the other numbers that I'm quite sure about is the rate of conversion between 2D and 3D. So the number of thing that we use in 2D, 3D design software is growing dramatically. So, pick up a number. I remember Scott quoting five, six years ago, talking about potential 500,000 printers. It was in M-CAD only. This is 10X of what was sold until today, okay. You are hearing some people talking about the million printers or 2 billion printers, whatever the number, it’s a multitude bigger, okay.

Now this is not accounting. When Scott did this calculation five years ago, he did not know that 1, 2, 3D software is going to exist. He did not hear about other packages and other ways to scan product into printing. This stuff was not existing. When I think the first time you mentioned 500,000 printers was seven years ago, six or seven years ago. So again the numbers are big and I think what is important is dramatically bigger than what you are doing today.

Now in order to get there, things have to happen, we need to have better marketing, we need to reach more customers. We need to have local presence around the world that can give service and support. We need to make the printers easier to use, less expensive, more office friendly. There is a lot to it okay but from point of view (ph) potential the number is being.

Unidentified Analyst

David you talked in your presentation a little bit about your channel strategy being the one to encourage your existing channel to grow along with you without expanding that and it seems to me that it's still reasonably small. Can you sort of put some color around why you choose to go in that direction?

David Reis

First of all, I didn’t say its forever. For the foreseeable future, it was one of the exception. I will talk about it in a second; we believe that the current channel; you have to remember this channel a year ago, six months ago was selling a smaller portfolio product. To certain extent, it was competing, okay. Two things happened; first of all there is at least between strategists and (inaudible) no competition today, I hope, right? So when our sales force, the sales people of the channel are approaching customers, they are coming with an offering which I think is going to be easier to choose from.

We think and we already see the beginning of the channel becoming more efficient. So cycles are getting shorter. The rate of success of selling is getting higher and therefore my message to the channel and the semesters I am conveying here is I think that this channel can gross for foreseeing future.

Now there is exception. We are talking a lot about verticals and in order to sell to dental arm, you need to talk the dental language and somebody which is selling to the income market, he knows how to go to the dentist, to get a filling, he doesn’t know how to sell to those guys. So we need to develop some additional channels parallel to our core channels to deal with those verticals.

So here I am not saying as we are getting to this stagnative. We are going to add more channels. We are developing a better channel. We have a dedicated jewelry channel. We will develop in the future maybe dedicate the DDN channels, okay. But for the core markets which is going to feed in, talk about going to feed and make it possible to growing all those verticals in the near future, I think what we have today when it's up and running fully trained is sufficient for the coming few years.

Arvind Shah - Ratna Global Foundation

Arvind Shah from Ratna Global Foundation. The 3D printing is in the same stage that computing industry was in 70s. At that time there were many player, IBM, UNISEC, BOROS, digital equipment. IBM never made the best market, there are good marketing strategy. The other company had better products over there and naturally the IBM appeared directly to sea level, high level decision making. So what is your strategy to your strong marketing and approach the high level sea level decision makers? As you mentioned in your strategy, you want to do that?

David Reis

So first of all, I think the new company has the luxury or has the luxury today to change a little bit its marketing approach. Again, I think there was strong rational when we discuss with Scott prices of merger, why to merge. Part of it had to do with the fact that a bigger company can act like a big company which was not the case for little Objet or little Stratasys. Now, together we are not a gigantic company. We are at least the double the size.

Now, when you double the size, it allows you to do things the same the small company cannot do. One of them I mentioned earlier is ability to try and gradually (inaudible) in one day, shift the buying patterns of our customers. In order to do this, we need to get the ears of sea level executives.

So again, we have a full strategy around it. I can mention one element of it which is in the works for about two years and if successful and it will become I think very successful in the coming few years and it is becoming more meaningful when you combine the two companies together is what we call the global account program.

The global account program is saying that you need to treat global customers on global basis with local touch. So, Microsoft is a good example. I think it took us (inaudible) sign the contract, it took us two years to negotiate. I think it’s (inaudible). I don’t remember, we tried. This was tough. But the idea is that the Microsoft, when they want to buy such equipment, there is a corporate vision of 3D printing and they want it implemented worldwide.

So if a corporate signs an agreement with a company, a little company like Stratasys which defines the relationship worldwide and then some research center of Microsoft in Taiwan or in China basically buys under this umbrella. Now it’s a very complex program because it requires us to sell globally, make sure that the channel locally is happy because you don’t want to harm the channel, because they have done a good work with you.

As I said this is just one example to a program that we haven’t faced for about two years becoming more and more significant which would allow us to gradually act like it allows your company. So in the process, but again without changing the way we market, it will take some time.

Cristina Colon - Goldman Sachs

Cristina Colon, Goldman Sachs. I wanted to ask about your strategy going forward since it’s going to start becoming more focused on a vertical by vertical basis and I was wondering if we could hear a little more about how your solutions or software may become more tailored to address some of those verticals in addition to also expanding those channels relationships to reach them.

David Reis

I think the vertical strategy, again many angles to it. It has to do with dedicated hardware, which in our case I don’t think that for be most possibly require dramatic change from our core offering. In order to offer something to dental, it’s not dramatically different than what you are offering other companies.

Now, it might be from the consumable part of it and it differ many times a lot when the work flow. So, if I want to offer somebody to a dental lab, I need to become part of their production process. So I need to hook into dental scanners, dental software, other dental stuff.

So, the element of hardware which again that’s going to be significant, might be a lot of the chemistry and material side of it and a lot around the workflow. So I want to become part of a production facility, I need to hook into their system, to the workflow which is via pieces and I need to be part of it. So, this is one element of it.

On the several marketing side of it, again going back to the rational of the merger with Stratasys, the way we view it is that again in order to sell, in the beginning you can sell from remote and fly one day to Japan sell two printers, come back to the U.S. You cannot extend this way you need to be local. And the way we are approaching it, the way we describe it, we call it overlay system.

Basically what you are saying, we have today 9 or 10 regional offices and when we say let’s go ask a dental in a professional way, we are creating what we call in overlay structure on our local office which specialize in dental. So I don’t need to duplicate the officers, I don’t need to add the finance people, marketing people.

So if you are looking at, for example European office today, the Director of Dental in Europe which is being supported by the Dental Corporate Group. Now as this is going, it is getting more and more people and it’s relying on our local current infrastructure. We have a dental guy in Hong Kong, we have a dental guy today in Shanghai and in the future we get to one in Tokyo. Likewise we are going to duplicate with other verticals which we are going to try to penetrate.

The next one is going to be local variant (ph) people in each one of subsidiaries and this is a go-to-market strategy and we are going to grow it on the infrastructure that we already have. It’s efficient because you bring the people faster the market rather than you are going to duplicate the operations.

Shane Glenn

We have time for one more question.

Cristina Colon - Goldman Sachs

Just another one, so buying a Fortune 500 Company, your commentary about the global account program got me to think about this. I might say by me buying some of your products, that gives me a strategic advantage over my competitor and. It was great to hear Microsoft to come here and give a used case. Are you able to leverage new used cases that are coming out by your customers and, I imagine that there are some element of them, they want to keep a secret how they are using these things and the different users that are coming out.

David Reis

We are doing it a lot, I agree with you. Sometimes, there are major continued (inaudible) issues, but it’s not all the time all over the place. Not everything is confidential. So in some time, it will be retrospect but if you go to our website, probably 100 case studies of some of the major companies which testify about their success using our equipment like Microsoft and I am sure nobody in Microsoft are willing to share the plans for the shape computer before it was out but after its out, this is also moving out.

Jon Cobb

May be the clear cell phone mill (ph).

David Reis

So we are doing it all the way and we are trying to leverage it and then you can see it our website and it’s probably one of our main selling tools to show what the other guys are doing. It’s nothing more promising and showing your competitors. You will see them.

Unidentified Company Representative

David, Scott and Erez, thank you very much. Thanks everybody for coming out and spending most of your day here, we really appreciate it. And don’t forget to stop outside the room here at the conference center and pick up couple of parts. So thank you very much.

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