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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly Report under Section 13 or 15(d) of the Securities Exchange
Act of 1934.
For the quarterly period ended March 31, 2001
OR
[ ] Transition Report under Section 13 or 15(d) of the Securities Exchange
Act of 1934.
For the transition period from ______________ to_________________
Commission file number 1-13400
STRATASYS, INC.
(Exact Name of Registrant as Specified in Its Charter)
Delaware 36-3658792
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)
14950 Martin Drive, Eden Prairie, Minnesota 55344
(Address of Principal Executive Offices) (Zip Code)
(952) 937-3000
(Registrant's Telephone Number, Including Area Code)
Not Applicable
(Former Name, Former Address and Former Fiscal Year, if Changed
Since Last Report)
Check whether the registrant: (1) filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for past 90 days. Yes X No
As of May 10, 2001, the Registrant had 5,473,994 shares of Common Stock,
$.01 par value, outstanding.
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STRATASYS, INC.
Index
Page
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Part I. Financial Information
Item 1. Financial Statements .......................................... 1
Balance Sheets as of March 31, 2001 and December 31, 2000...... 1
Consolidated Statements of Income and Comprehensive Income for
the three months ended March 31, 2001 and 2000.................. 2
Consolidated Statements of Cash Flows for the three months ended
March 31, 2001and 2000......................................... 3
Notes to Financial Statements.................................. 4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.......................... 5
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K............................... 9
Signatures................................................................. 10
(i)
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Item 1. Financial Statements
STRATASYS, INC.
CONSOLIDATED BALANCE SHEETS
----------------------------------------------------------------------------------------------------------
March 31, December 31,
2001 2000
(unaudited)
----------------------------------------------------------------------------------------------------------
ASSETS
Current assets
Cash and cash equivalents $ 8,927,628 $ 6,737,306
Accounts receivable, less allowance for returns and
doubtful accounts of $544,376 in 2001 and $458,359 in 2000 8,982,926 11,496,515
Inventories 9,094,332 9,102,818
Prepaid expenses 578,815 673,230
Deferred income taxes 167,213 229,000
------------ ------------
Total current assets 27,750,914 28,238,869
------------ ------------
Property and equipment, net 2,802,265 2,905,620
------------ ------------
Other assets
Intangible assets, net 3,511,791 3,521,561
Deferred income taxes 2,687,000 2,687,000
Other 271,918 228,681
------------ ------------
6,470,709 6,437,242
------------ ------------
$ 37,023,888 $ 37,581,731
============ =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Obligations under capitalized leases, current portion $ 166,783 $ 187,692
Accounts payable and other current liabilities 2,472,585 3,719,309
Unearned maintenance revenue 4,879,705 4,318,335
------------ ------------
Total current liabilities 7,519,073 8,225,336
------------ ------------
Obligations under capitalized leases, less current portion 97,955 130,320
------------ ------------
Stockholders' Equity
Common Stock, $.01 par value, authorized 15,000,000
shares, issued 6,125,994 shares
in 2001 and 2000 61,260 61,260
Capital in excess of par value 32,907,547 32,907,547
Accumulated deficit (517,761) (715,579)
Accumulated other comprehensive loss (65,809) (48,776)
Less cost of treasury stock, 652,000 shares in 2001
and 2000 (2,978,377) (2,978,377)
------------ ------------
Total Stockholders' Equity 29,406,860 29,226,075
------------ ------------
$ 37,023,888 $ 37,581,731
============ ============
See notes to financial statements.
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STRATASYS, INC.
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
--------------------------------------------------------------------------------
Three Months Ended March 31,
2001 2000
(unaudited) (unaudited)
--------------------------------------------------------------------------------
Sales $ 8,687,689 $ 9,298,007
Cost of goods sold 3,589,213 3,392,292
----------- -----------
Gross profit 5,098,476 5,905,715
Costs and expenses
Research and development 1,214,216 1,541,209
Selling, general and administrative 3,548,463 3,928,041
----------- -----------
4,762,679 5,469,250
----------- -----------
Operating income 335,797 436,465
----------- -----------
Other income (expense)
Interest income 112,617 117,265
Interest and other expense (184,650) (16,925)
----------- -----------
(72,033) 100,340
----------- -----------
Income before income taxes 263,764 536,805
Income taxes 65,946 161,041
----------- -----------
Net income $ 197,818 $ 375,764
=========== ===========
Earnings per common share
Basic $ 0.04 $ 0.07
=========== ===========
Diluted $ 0.04 $ 0.06
=========== ===========
Weighted average number of common
shares outstanding
Basic 5,473,994 5,564,504
=========== ===========
Diluted 5,473,994 5,931,973
=========== ===========
COMPREHENSIVE INCOME
Net income $ 197,818 $ 375,764
Other comprehensive loss
Foreign currency translation adjustment (17,033) (27,013)
----------- -----------
Comprehensive income $ 180,785 $ 348,751
=========== ===========
See notes to financial statements.
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STRATASYS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------------------------------------------------------------------------
Three Months Ended March 31,
2001 2000
(unaudited) (unaudited)
-------------------------------------------------------------------------------------------------------
Cash flows from operating activities
Net income $ 197,818 $ 375,764
Adjustments to reconcile net income to net
cash used in operating activities:
Deferred taxes 61,787 156,197
Depreciation 353,223 305,153
Amortization 143,430 90,143
Increase (decrease) in cash attributable to
changes in assets and liabilities
Accounts receivable 2,513,589 1,497,282
Inventories 8,486 (652,740)
Prepaid expenses 94,415 (93,781)
Other assets (43,237) (44,868)
Accounts payable and other current liabilities (1,246,724) (383,687)
Unearned maintenance revenue 561,370 235,268
----------- -----------
Net cash provided by operating activities 2,644,157 1,484,731
----------- -----------
Cash flows from investing activities
Purchases of marketable securities, net (535,635)
Acquisition of machinery and equipment (249,868) (111,976)
Payments for intangible assets (133,660) (186,074)
----------- -----------
Net cash used in investing activities (383,528) (833,685)
----------- -----------
Cash flows from financing activities
Repayments of obligations under capitalized leases (53,274) (64,422)
Net proceeds from the sale of common stock 38,042
----------- -----------
Net cash used in financing activities (53,274) (26,380)
----------- -----------
Effect of exchange rate changes on cash (17,033) 12,589
----------- -----------
Net increase in cash 2,190,322 637,255
Cash and cash equivalents, beginning of period 6,737,306 2,532,359
----------- -----------
Cash and cash equivalents, end of period $ 8,927,628 $ 3,169,614
=========== ===========
See notes to financial statements.
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NOTES TO FINANCIAL STATEMENTS
Note 1 -- Basis of Presentation
The financial information herein is unaudited; however, such information
reflects all adjustments (consisting of normal, recurring adjustments) which
are, in the opinion of management, necessary for a fair statement of results for
the interim period. The results of operations for the three months ended March
31, 2001, are not necessarily indicative of the results to be expected for the
full year. Certain financial information and footnote disclosure normally
included in financial statements prepared in accordance with accounting
principles generally accepted in the United States have been condensed or
omitted. The reader is referred to the audited financial statements and notes
thereto for the year ended December 31, 2000, filed as part of the Company's
Annual Report on Form 10-K for such year.
Note 2 -- Inventory
Inventories consisted of the following at March 31 and December 31,
respectively:
2001 2000
Finished Goods $4,635,170 $3,597,770
Work in process 55,646
Raw materials 4,403,516 5,505,048
---------- ----------
Totals $9,094,332 $9,102,818
========== ==========
Note 3 -- Material Commitments
The Company has signed material commitments with several vendors for fixed
delivery of selected inventory expected to be supplied in the ensuing
twelve-month period. These commitments amount to approximately $2,400,000, some
of which contain non-cancellation clauses.
Note 4 -- Income per common share
The difference between the number of shares used to compute basic income
per share and diluted income per share relates to additional shares to be issued
upon the assumed exercise of stock options and warrants, net of shares
hypothetically repurchased at the average market price with the proceeds of
exercise. For the three months ended March 31, 2001 and 2000, these amounted to
0 and 367,469, respectively.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
General
We develop, manufacture, and market a family of rapid prototyping devices
that enable engineers and designers to create physical models, tooling and
prototypes out of plastic and other materials directly from a computer aided
design ("CAD") workstation. Historically, our growth has come from sales to a
number of industries, including automotive, consumer products, electronics,
medical, and aerospace. Universities, other educational institutions, and
service bureaus have also been significant markets for us. Our current and
future growth is largely dependent upon our ability to penetrate new markets,
and develop and market new rapid prototyping devices and applications that meet
the needs of our current and prospective customers. New product developments
will focus on various rapid prototyping devices, modeling materials, and
software enhancements. We anticipate that in 2001 our primary business strategy
will focus on expanding international and domestic sales of our existing family
of rapid prototyping devices, while maintaining on-going development and
introduction of new rapid prototyping equipment, modeling materials, and
software.
In May 2001 we introduced the FDM Titan(TM). Titan offers the capability
to produce prototypes in polycarbonate (PC) material, which offers superior
characteristics of heat and chemical resistance and durability for functional
testing. We expect to begin commercial shipments of the FDM Titan in the third
quarter of 2001. We also announced that we expect to introduce additional high
performance materials such as polyphenylsulfone (PPSF) in the future. The Titan
is the third new product that we have introduced in the past year, following the
May 2000 introduction of Prodigy(TM) and the November 2000 introduction of the
FDM Maxum(TM) that featured WaterWorks(TM).
In 2000, for the first time since 1990, net revenue derived from our rapid
prototyping devices, modeling materials, and maintenance did not increase over
the prior year. However, our 297 gross unit shipments in 2000 were the highest
in our history, and we believe we were second in the rapid prototyping industry
in terms of units shipped. Our gross profit declined to 61.6% of sales in 2000
from 65.6% in 1999, despite shipping more units. Our gross profit can be
significantly impacted by shifts in our product mix and sales volume. In 2000 we
continued our high level of spending on research and development ("R&D") for
both new products and sustaining engineering. R&D expenditures amounted to
$6,366,800 in 2000, and as a percentage of sales amounted to 17.9% of revenue.
Selling, General and Administrative ("SG&A") expenses increased to 42.5% from
41.5% of revenue in 1999. As a result of declining sales and profitability, we
reduced our headcount of employees and contractors by approximately 8% in
January 2001. This reduction in our workforce should result in reduced operating
expenses of approximately $2 million in 2001 that should be realized somewhat
evenly throughout the year. However, we expect our total operating expenses to
vary throughout the year based on project completions and other anticipated
obligations, so quarterly operating expenses can be expected to vary throughout
2001. While we believe that profitability will improve in 2001 as compared with
2000 as a result of continued operating expense control, we can give no
assurance that we will realize these results.
We believe that the rapid prototyping industry is growing at approximately
5-10% per year, and that 3D printers and office modelers account for more than
30% of the total units of rapid prototyping systems shipped. We believe that
there is a long-term trend toward lower priced rapid prototyping systems capable
of producing functional prototypes, and that a sizable market exists for concept
or visualization 3D printers. This pricing trend should lead to growth in the
more traditional functional prototyping marketplace as companies continue to
address in-house rapid prototyping and concept-modeling needs. Certain market
segments in the industry have not demonstrated significant pricing sensitivity.
These segments are more interested in modeling envelope size, modeling material,
throughput, part quality, part durability, and rapid tooling, which should allow
growth to continue for higher priced rapid prototyping systems addressing these
needs.
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RESULTS OF OPERATIONS
QUARTER ENDED MARCH 31, 2001 COMPARED WITH QUARTER ENDED MARCH 31, 2000
The following table sets forth certain statement of operations data as a
percentage of net sales for the periods indicated. All items are included in or
derived from our statement of operations.
For the quarters ended March 31,
2001 2000
Net sales 100.0% 100.0%
Cost of sales 41.3% 36.5%
Gross margin 58.7% 63.5%
Selling, general, and administrative expenses 40.8% 42.2%
Research & development expense 14.0% 16.6%
Operating income 3.9% 4.7%
Other income (expense) (.8%) 1.1%
Income before taxes 3.0% 5.8%
Income taxes .8% 1.7%
Net income 2.3% 4.0%
NET SALES
Net sales for the quarter ended March 31, 2001 were $8,687,689, compared
with net sales of $9,298,007 for the quarter ended March 31, 2000. This
represents a decrease of $610,318, or 6.6%. Sales of our Benchtop systems were
particularly strong in the quarter, and constituted our strongest product line.
Prodigy system sales also contributed significantly to our results. Consumable
and maintenance revenues also increased in the three months ended March 31, 2001
as compared with the same 2000 period. Maintenance and materials revenues were
enhanced by the larger installed base of systems, customer satisfaction with
ABS, WaterWorks, and other material selections, and continued emphasis on the
sale of maintenance contracts.
Our gross shipments of systems amounted to 66 systems in the quarter
compared with 76 systems in same quarter of 2000. System sales included gross
shipments of all systems, including trade-in and upgrade systems. The average
selling price of our systems declined in the quarter ended March 31, 2001, as
compared with same 2000 period, which was significantly influenced by product
mix shifts. Product mix can dramatically affect the average selling price in any
period. While our first quarter backlog declined sequentially from that of the
fourth quarter of 2000, it was significantly larger than the backlog of the
comparable quarter in 2000.
Domestic sales accounted for approximately 54% of total revenue in the
first quarter of 2001, which declined from the approximately 60% recorded in the
first quarter of 2000. In the United States, the central region recorded the
highest revenue. Europe accounted for approximately 23% of total revenue in
2001, a significant improvement from 14% of revenue recorded in 2000. Our
combined Asia-Pacific region, which comprises Japan, China, the Far East and
India, accounted for approximately 21% of total revenue, down from the 25%
attained in 2000. We believe that 2001 sales into our Asia Pacific region will
improve and that the European region will remain strong. No assurances, however,
can be given that future sales and profitability will not be adversely impacted
by the economic conditions of these regions.
GROSS PROFIT
Gross profit decreased to $5,098,476, or 58.7% of sales, in the quarter
ended March 31, 2001, compared with $5,905,715, or 63.5% of sales, in the
quarter ended March 31, 2000. This represents a deterioration of $807,239, or
13.7%. Gross profit decreased due to a shift in our product mix to lower-priced
systems, increased overhead expenses, and write-offs of approximately $130,000
of inventory for scrap.
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OPERATING EXPENSES
SG&A expenses decreased to $3,548,463 for the quarter ended March 31, 2001,
from $3,928,041 for the quarter ended March 31, 2000. This represents a decrease
of $379,578, or 9.7%. A significant proportion of the January 2001 headcount
reductions impacted the selling and marketing overhead expenses, including
salary and benefit expenses. Variable expenses such as travel and commissions
were also down in the period ended March 31, 2001, as compared with the period
ended March 31, 2000.
R&D expenses declined to $1,214,216 for the quarter ended March 31, 2001
from $1,541,209 for the quarter ended March 31, 2000. The decrease in 2001 from
the results recorded in the 2000 period amounted to $326,993, or 21.2%. R&D
expenses were also impacted by our January 2001 downsizing, which resulted in a
large reduction to R&D salary and benefit expenses in the period ended March 31,
2001, as compared with the same 2000 period.
Our operating income for the quarter ended March 31, 2001 amounted to
$335,797, or 3.9% of sales, compared with operating income of $436,465, or 4.7%
of sales, for the year ended March 31, 2000. This represents a decrease of
$100,668, or 23.1%.
OTHER INCOME (EXPENSE)
Other income and expense netted to $(72,033) in the period ended March 31,
2001 compared with $100,340 in 2000. Interest income declined slightly to
$112,617 in quarter ended March 31, 2001, as compared with the same 2000 period.
Interest expense declined to approximately $11,000 in the current period from
approximately $17,000 in the period ended March 31, 2000, primarily reflecting
the lower average balances of our outstanding capitalized leases. Approximately
$175,000 of expense was incurred as a result of foreign currency transactions.
NET INCOME
For the reasons cited above, net income for the quarter ended March 31,
2001 amounted to $197,818, or 2.3% of sales, compared with net income of
$375,764, or 4.0% of sales, in the same 2000 period. This resulted in income per
diluted common share of $.04 for the period ended March 31, 2001, as compared
with income per diluted common share of $.06 for the period ended March 31,
2000.
LIQUIDITY AND CAPITAL RESOURCES
Operating activities for the period ended March 31, 2001, provided cash of
$2,644,157, primarily reflecting our net income of $197,818, a decrease to
accounts receivable of $2,513,589, and an increase to unearned maintenance
revenues of $561,370. Cash collections on our accounts receivable were
particularly strong in the first quarter of 2001, and unearned maintenance
revenues increased as a result of renewed selling emphasis and larger installed
base of customers. Payments of our accounts payable and other current
liabilities used cash of $1,246,724 in the first quarter of 2001. Operating
activities for the period ended March 31, 2000, provided cash of $1,484,731,
primarily reflecting our net income of $375,764, and a decrease to our accounts
receivable of $1,497,282. Increases to our inventories and decreases to our
current liabilities used cash of $652,740 and $383,687, respectively, in the
same 2000 period. Our investing activities used cash of $383,528 in the first
quarter of 2001, primarily reflecting the acquisition of machinery and equipment
and for payments of intangible assets of $249,868 and $133,660, respectively. In
the first quarter of 2000, we used $833,685 of cash in our investing activities,
including $535,635 of the purchase of marketable securities and $186,074 for the
purchase of intangible assets. Financing activities used $53,274 of cash for
payments of obligations under capital leases in the first quarter of 2001. In
the first quarter of 2000, financing activities used cash of $26,380 for
payments of obligations under capital leases, which was offset by $38,042
derived from the proceeds from the sale of our common stock. The net increase in
cash, for the reasons cited above, amounted to $2,190,322 in 2001 compared with
a net increase in cash of $637,255 for the same period in 2000. Our ending cash
and cash equivalents balances as of March 31, 2001 and 2000 were $8,927,628 and
$3,169,614, respectively.
At March 31, 2001, our cash, cash equivalents balances totaled $8,927,628.
This cash will be used for working capital purposes, for the purchase and
improvement of our manufacturing facility, for new product development, for
acquisition of production equipment and tooling, for computers, for increased
selling and marketing activities, and
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for R&D. Additionally, we may continue our common stock buyback program,
although we did not purchase any of our common stock in the quarter ended March
31, 2001. While we believe that the primary source of liquidity in 2001 will be
derived from current cash balances and cash flows from operations, we have
opened a line of credit for the lesser of $4,000,000 or a defined borrowing
base. To date, we have not borrowed against this credit facility.
As of March 31, 2001, we had gross accounts receivable of $9,527,302, less
an allowance of $544,376 for returns and doubtful accounts. Historically, our
bad debt expense has been minimal. However, at March 31, 2001, large balances
were concentrated with certain international distributors. Default by one or
more of these distributors would result in a significant charge against our
current reported earnings. While we can give no assurances, we believe that
most, if not all, of the accounts receivable balances will ultimately be
collected.
Our total current assets amounted to $27,750,914 at March 31, 2001, the
majority of which consisted of cash, cash equivalents, inventories and accounts
receivable. Total current liabilities amounted to $7,519,073. Our debt is
minimal, consisting primarily of principal payments due under capital leases of
$264,738. We estimate that we will spend approximately $1,200,000 in 2001 for
facility improvements, production and R&D equipment, computers and integrated
software, and tooling. In addition, the initial payment for the purchase of our
current manufacturing facility, which is scheduled to close at the end of May
2001, should amount to approximately $750,000. As of March 31, 2001, material
commitments for inventory purchases from selected vendors for the ensuing
twelve-month period ending March 31, 2002 should amount to approximately
$2,400,000. We intend to finance these purchases from existing funds or from
cash flows from operations.
Inflation
We believe that inflation has not had a material effect on our operations
or on our financial condition during the three most recent fiscal years.
FOREIGN CURRENCY TRANSACTIONS
Throughout most of 2000, substantially all of our recognized revenues were
invoiced in United States dollars. Therefore, our exposure to foreign currency
exchange rates was immaterial. Commencing in October 2000, we began invoicing
revenues in foreign currencies, primarily in euros. Therefore, our operating
results could be subject to fluctuations based upon changes in the exchange
rates of these currencies in relation to the United States dollar. To date, we
have not used financial hedging techniques to minimize the effects of these
fluctuations. However, we will continue to monitor our exposure to currency
fluctuations and, when appropriate, may use financial hedging techniques in the
future. Instruments to hedge our risks may include foreign currency forward,
swap, and option contracts. These instruments will be used to selectively manage
risk but there can be no assurances that we will be fully protected against
material foreign currency fluctuations. Translation exposure to our balance
sheet with respect to foreign operations is not hedged. Most of our revenue is
still expected to be derived from areas where the transactions are negotiated,
invoiced, and paid in US dollars. Fluctuations in the currency exchange rates in
these other countries may therefore reduce the demand for our products by
increasing the price of our products in the currency of countries in which the
local currency has declined in value.
FORWARD-LOOKING STATEMENTS AND FACTORS THAT MAY AFFECT FUTURE RESULTS OF
OPERATIONS
All statements herein that are not historical facts or that include such
words as expect, anticipate, project, estimates or believes or other similar
words are forward-looking statements deemed by us to be covered by and to
qualify for the safe harbor protection covered by the safe harbor protection
provided by the Private Securities Litigation Reform Act of 1995 (the "1995
Act"). Investors and prospective investors in our Company should understand that
several factors govern whether any forward-looking statement herein will be or
can be achieved. Any one of these factors could cause actual results to differ
materially from those projected herein. These forward-looking statements include
the expected increases in net sales of rapid prototyping systems and services,
our ability to maintain our gross margins on these sales, and our plans and
objectives to introduce new products, control expenses, and improve
profitability. The forward-looking statements included herein are based on
current
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expectations that involve a number of risks and uncertainties. These
forward-looking statements are based on assumptions, among others, that we (1)
will be able to continue to introduce new rapid prototyping systems acceptable
to the market and improve existing technology and software in our current
product offerings, (2) will be able to maintain our gross margins on our present
products, (3) will be able to control our operating expenses, and (4) will be
able to retain and recruit employees with the necessary skills to produce,
develop, market, and sell our products. Assumptions relating to the foregoing
involve judgments with respect to, among other things, future economic,
competitive, market and technology conditions and future business decisions, all
of which are difficult or impossible to predict accurately and many of which are
beyond our control. Although we believe that the assumptions underlying the
forward-looking statements contained herein are reasonable, any of those
assumptions could prove inaccurate, and therefore there is and can be no
assurance that the results contemplated in any such forward-looking statement
will be realized. The impact of actual experience and business developments may
cause us to alter our marketing plans, our capital expenditure budgets, or our
engineering, selling or other budgets, which may in turn affect our results of
operations or the success of our new product development and introduction. Due
to the factors noted above and elsewhere in the Management's Discussion and
Analysis of Financial Condition and Results of Operations, our future earnings
and stock price may be subject to significant volatility, particularly on a
quarterly basis. Additionally, we may not learn of revenue or earnings
shortfalls until late in a fiscal quarter, since we frequently receive the
majority of our orders very late in a quarter. This could result in an immediate
and adverse effect on the trading price of our common stock. Past financial
performance should not be considered a reliable indicator of future performance,
and investors should not use historical trends to anticipate results or trends
in future periods.
PART II
OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(b) Reports on Form 8-K.
None
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Date: May 14, 2001 STRATASYS, INC.
By: /s/ Thomas W. Stenoien
-----------------------------------
Thomas W. Stenoien
Chief Financial Officer
(Principal Financial Officer)
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