UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM
(Mark One)
| | REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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| | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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| For the fiscal year ended |
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| | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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| | SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Date of event requiring this shell company report ........................................
Commission file number:
(Exact name of Registrant as specified in its charter)
Not Applicable
(Translation of Registrant’s name into English)
(Jurisdiction of incorporation or Organization)
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| c/o Stratasys, Inc.
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(Address of Principal Executive Offices)
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E-mail: 7665 Commerce Way Eden Prairie, Minnesota 55344 (Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person) |
Securities registered or to be registered pursuant to Section 12(b) of the Act.
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
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Securities registered or to be registered pursuant to Section 12(g) of the Act.
None
(Title of Class)
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.
None
(Title of Class)
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report:
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. Yes ☐
Indicate by check mark whether the registrant (1) has 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 the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232,405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or an emerging growth company. See definition of “accelerated filer,” “large accelerated filer” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
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| | Accelerated filer ☐ |
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| Non-accelerated filer ☐ | Emerging Growth Company |
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
| | International Financial Reporting Standards as issued by the International Accounting Standards Board ☐ | Other ☐ |
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow. Item 17 ☐ Item 18 ☐
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No
TABLE OF CONTENTS
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain information included or incorporated by reference in this annual report may be deemed to be “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements are often characterized by the use of forward-looking terminology such as “may,” “will,” “expect,” “anticipate,” “estimate,” “continue,” “believe,” “should,” “intend,” “project” or other similar words, but are not the only way these statements are identified.
These forward-looking statements may include, but are not limited to, statements relating to our objectives, plans and strategies, statements that contain projections of results of operations or of financial condition and all statements (other than statements of historical facts) that address activities, events or developments that we intend, expect, project, believe or anticipate will or may occur in the future.
Forward-looking statements are not guarantees of future performance and are subject to risks and uncertainties. We have based these forward-looking statements on assumptions and assessments made by our management in light of their experience and their perception of historical trends, current conditions, expected future developments and other factors they believe to be appropriate.
Important factors that could cause actual results, developments and business decisions to differ materially from those anticipated in these forward-looking statements include, among other things:
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the extent of our success at introducing new or improved products and solutions that gain market share;
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the extent of growth of the 3D printing market generally;
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the global macro-economic environment, including headwinds caused by inflation, rising interest rates, unfavorable currency exchange rates and potential recessionary conditions;
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changes in our overall strategy, including as related to any restructuring activities and our capital expenditures;
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the impact of shifts in prices or margins of the products that we sell or services we provide, including due to a shift towards lower margin products or services;
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the impact of competition and new technologies;
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impairments of goodwill or other intangible assets in respect of companies that we acquire;
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the extent of our success at efficiently and successfully integrating the operations of various companies that we have acquired or may acquire;
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global market, political and economic conditions, and in the countries in which we operate in particular;
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government regulations and approvals;
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litigation and regulatory proceedings;
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infringement of our intellectual property rights by others (including for replication and sale of consumables for use in our systems), or infringement of others’ intellectual property rights by us;
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the extent of our success at maintaining our liquidity and financing our operations and capital needs;
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impact of tax regulations on our results of operations and financial condition; and
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any additional factors referred to in Item 3.D “Key Information - Risk Factors”, Item 4 “Information on the Company”, and Item 5 “Operating and Financial Review and Prospects”, as well as in other parts of this Annual report.
Readers are urged to carefully review and consider the various disclosures made throughout this annual report, which are designed to advise interested parties of the risks and factors that may affect our business, financial condition, results of operations and prospects.
Any forward-looking statements in this annual report are made as of the date hereof, and we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.
USE OF TRADE NAMES
CERTAIN TERMS AND CONVENTIONS
In this annual report, unless the context otherwise requires:
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references to “Stratasys,” “our company,” “the Company,” “the consolidated company,” “the registrant,” “we,” “us,” and “our” refer to Stratasys Ltd. (formerly known as Objet Ltd.), and its consolidated subsidiaries;
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references to “Objet” generally refer to Objet Ltd. and its consolidated subsidiaries prior to the effective time of the Stratasys, Inc.- Objet Ltd. merger on December 1, 2012. We may also use “Objet” to refer to the line of products previously sold by Objet Ltd. and the related current, ongoing operations that have continued following the Stratasys, Inc.-Objet Ltd. merger.
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references to “Stratasys, Inc.” generally refer to Stratasys, Inc., a Delaware corporation, and its consolidated subsidiaries prior to the effective time of the Stratasys, Inc.-Objet Ltd. merger, but sometimes (as the context requires) refer to the current, ongoing operations of our Stratasys, Inc. subsidiary;
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references to “ordinary shares”, “our shares” and similar expressions refer to our Ordinary Shares, par value NIS 0.01 per share;
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references to “dollars”, “U.S. dollars”, “U.S. $” and “$” are to United States Dollars;
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references to “shekels” and “NIS” are to New Israeli Shekels, the Israeli currency;
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references to the “articles” or “amended articles” are to our Amended and Restated Articles of Association, which became effective upon the closing of the Stratasys, Inc.- Objet Ltd. merger, as subsequently amended;
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references to the “Companies Law” are to the Israeli Companies Law, 5759-1999, as amended;
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references to the “Securities Act” are to the Securities Act of 1933, as amended;
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references to the “Exchange Act” are to the Securities Exchange Act of 1934, as amended;
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references to “Nasdaq” are to the Nasdaq Stock Market; and
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references to the “SEC” are to the United States Securities and Exchange Commission.
PART I
ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS.
Not applicable.
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE.
Not applicable.
ITEM 3. KEY INFORMATION.
A. [Reserved]
B. Capitalization and Indebtedness.
Not applicable.
C. Reasons for the Offer and Use of Proceeds.
Not applicable.
D. Risk Factors.
Risks related to our business and financial condition
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We may not succeed at
introducing new or improved products and solutions that gain market share.
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Our annual and quarterly operating results and
financial condition may fluctuate.
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Demand for our products and
services may not grow as we expect.
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The 3D printing market
generally may not grow as we expect.
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Global macro-economic
trends such as inflation, rising interest rates and potential recessionary
conditions, may have material adverse consequences for our operations,
financial position, cash flows, and those of our customers and suppliers. |
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Declines in the prices
of our products and services, or in
our volume of sales, together with
our relatively inflexible cost structure, may adversely affect our
financial results.
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To the extent that other companies are successful
in developing or marketing consumables for use in our systems, our revenues and
profits would likely be adversely affected.
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If our product mix shifts too
far into lower margin products or our revenues mix shifts significantly towards
our additive manufacturing (“AM”) services business, our
profitability could be reduced.
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Competition and new
technologies may cut into our market share.
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Impairments of goodwill or
other intangible assets in respect of companies that we acquire would adversely
impact our results of operations for the periods in which they occur.
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Our failure to successfully
consummate acquisitions of, or investments in, new business,
technologies, products or services, to integrate them into our existing
company, or to realize from them expected performance, may adversely affect our
financial results.
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Our operations could suffer
if we are unable to attract and retain key management, directors or other key
employees.
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Global interruptions and delays involving freight carriers and other third parties may interfere with our supply chain and distribution network and frustrate our ability to sell our existing and new products.
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If we do not maximize our
recurring stream of revenues from the sale of consumables and service
contracts, our operating results may be adversely affected.
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Global market, political
and economic conditions, and in the countries in which we operate in
particular, could adversely impact our operating results.
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Significant disruptions of
our information technology systems, including management information systems for inventory management and distribution, or breaches of our data security could
adversely affect our business.
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We own a number of our
manufacturing and office facilities, which may limit our ability to move
those operations.
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Infringement of our
intellectual property rights by others (including for replication and sale of
consumables for use in our systems), or infringement of others’ intellectual
property rights by us, could lead to litigation, could necessitate a redesign
of our products to avoid use of certain technology, and may have an adverse
impact on our financial results.
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If we are unable to obtain
patent protection for our products or otherwise protect our intellectual
property rights, our business could suffer.
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As our patents expire,
additional competitors using our technology could enter the market, which
could offer competitive printers and consumables, require us to reduce
our prices for our products and result in lost sales.
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Risks related to operations in Israel
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Exchange rate fluctuations
between the U.S. dollar and the New Israeli Shekel (in particular), the Euro,
the Yen and other non-U.S. currencies may negatively affect the earnings
of our operations.
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We are currently eligible for
Israeli government tax benefits in respect of our Israeli operations. If
we do not meet several conditions for receipt of those benefits, or if the
Israeli government otherwise decides to eliminate those benefits, they
may be terminated or reduced.
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The market price of our
ordinary shares may be subject to fluctuation, regardless of our operating
results and financial condition. As a result, our shareholders could
incur substantial losses.
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We do not anticipate paying
any cash dividends in the foreseeable future.
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We may not be able to introduce new 3D printers, high-performance systems and consumables acceptable to customers or to improve the technology, software or consumables used in our current systems in response to changing technology and end-user needs.
Our operating results and financial condition may fluctuate.
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the degree of market acceptance of our products and services, particularly in the fast-growing sector of mass production parts;
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the mix of products and services that we sell during any period;
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the geographic distribution of our sales;
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our responses to price competition;
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long sales cycles;
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unforeseen liabilities or difficulties in integrating our acquisitions or newly acquired businesses;
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changes in the amount that we spend to develop, acquire or license new products, consumables, technologies or businesses;
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changes in the amounts that we spend to promote our products and services;
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changes in the cost of satisfying our warranty obligations and servicing our installed base of systems;
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delays between our expenditures to develop and market new or enhanced systems and consumables and the generation of sales from those products;
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delays in orders of our products from period to period due to outside factors, such as U.S. government shutdowns, which may delay orders by U.S. government agencies or other end-users whose business activities are heavily dependent on U.S. government agency contracts;
- global interruptions and delays involving freight carriers and other third parties, which may interfere with our supply chain and distribution network and frustrate our ability to sell our existing and new products;
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development of new competitive products and services by others;
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difficulty in predicting sales patterns and reorder rates that may result from multi-tier distribution strategy associated with new product categories such as entry level desktop 3D printers;
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impairment charges that we may be required to record in respect of our goodwill and/or other long-lived assets;
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potential cyber attacks against, or other breaches to, our information technologies systems;
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litigation or threats of litigation, including intellectual property claims by third parties;
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changes in accounting rules and tax laws;
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tax benefit that we may record due to partial or full release of valuation allowances against our deferred tax assets;
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general economic and industry conditions that affect end-user demand and end-user levels of product design and manufacturing; and
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changes in dollar-shekel and dollar-Euro exchange rates that affect the value of our net assets, revenues and expenditures from and/or relating to our activities carried out in those currencies;
Due to all of the foregoing factors, and the other risks discussed in this annual report, you should not rely on quarter-over-quarter and year-over-year comparisons of our operating results as an indicator of our future performance.
If demand for our products and services, or in the 3D printing market generally, does not grow as expected, our revenues may stagnate or decline and our profitability may be adversely affected.
Declines in the prices of our products and services, or in our volume of sales, together with our relatively inflexible cost structure and increased costs of producing and selling our products, may adversely affect our financial results.
Our business is subject to price competition. Such price competition may adversely affect our ability to maintain the same degree of profitability, especially during periods of decreased demand. Decreased demand also adversely impacts the volume of our systems sales. If our business is not able to offset price reductions resulting from these pressures, or decreased volume of sales due to contractions in the market, by improved operating efficiencies and reduced expenditures, then our operating results will be adversely affected.
Certain of our operating costs are fixed and cannot readily be reduced, which diminishes the positive impact of our reorganization programs on our operating results. To the extent the market for our products slows, or the 3D printing market contracts, we may be faced with excess manufacturing capacity and excess related costs that cannot readily be reduced, which will adversely impact our results of operations. The impact of rising inflation on the cost of producing and selling our products has also made it more difficult for us to maintain our profit margins and thereby also adversely impacting our results of operations.
To the extent that other companies are successful in developing or marketing consumables for use in our systems, our revenues and profits would likely be adversely affected.
We sell a substantial portion of the consumables used in our systems. We attempt to protect against replication of our proprietary consumables through patents and trade secrets and provide that warranties on those systems may be invalid if customers use non-genuine consumables. Other companies have developed and sold, and may continue to develop and sell, consumables that are used with our systems, which may reduce our consumables sales and impair our overall revenues and profitability.
If our product mix shifts too far into lower margin products or our revenues mix shifts significantly towards our AM services business, our profitability could be reduced.
Sales of certain of our existing products have higher margins than others. For instance, some of our high-end systems and related consumables yield a greater gross margin than our entry-level systems. Sales of our entry-level systems may displace sales of our other systems. If sales of our entry-level systems have the effect of reducing sales of our higher margin products, or if for any other reason, our product mix shifts too far into lower margin products, and we are not able to sufficiently reduce the engineering, production and other costs associated with those products or substantially increase the sales of those products, our profitability could be reduced. A similar negative impact on our gross margins could result due to a significant shift towards revenues generated by our AM parts service business, Stratasys Direct Manufacturing, which are characterized by lower margins relative to our products.
The markets in which we participate are competitive. Our failure to compete successfully could cause our revenues and the demand for our products to decline.
Some of our current and potential competitors have longer operating histories and more extensive name recognition than we have and may also have greater financial, marketing, manufacturing, distribution and other resources than we have. Current and future competitors may be able to respond more quickly to new or emerging technologies and changes in end-user demands and to devote greater resources to the development, promotion and sale of their products than we can. Our current and potential competitors may develop and market new technologies that render our existing or future products obsolete, unmarketable or less competitive (whether from a price perspective or otherwise). We cannot assure that we will be able to maintain or enhance our current competitive position or continue to compete successfully against current and future sources of competition.
If additional goodwill or other intangible assets that we have recorded become impaired, we could have to take future charges against earnings
Under accounting principles generally accepted in the United States of America, or GAAP, we are required to review goodwill for impairment annually and whenever events or changes in circumstances indicate that the carrying amount of goodwill may not be recoverable.
Our success depends upon the continued service and performance of our senior management and other key personnel. Our executive team is critical to the management of our business and operations, as well as to the development of our strategy. The loss of the services of any members of our senior executive team could delay or prevent the successful implementation of our strategy, or our commercialization of new applications for our systems or other products, or could otherwise adversely affect our ability to manage our company effectively and carry out our business plan. During 2022 we experienced some personnel changes in our management team, including the promotion of individuals internally (including our chief financial officer, Eitan Zamir) and the hiring of others from outside of our company. There is no assurance that if we need to fill additional management positions in the future, that we will be able to rapidly do so, without any adverse impact on our operations.
In light of the foregoing, there can be no assurance that qualified employees will remain in our employ or that we will be able to attract and retain qualified personnel in the future. Failure to retain or attract qualified personnel could have a material adverse effect on our business, financial condition and results of operations.
Defects in new products or in enhancements to our existing products could give rise to product returns or product liability, warranty or other claims that could result in material expenses, diversion of management time and attention, and damage to our reputation.
Our products are complex and may contain defects or experience failures or unsatisfactory performance due to any number of issues in design, fabrication, packaging, materials, and/or use within a system. These defects or errors could result in significant warranty, support and repair or replacement costs, cause us to lose market share and divert the attention of our engineering personnel from our product development efforts to find and correct the issue.
This risk of product liability claims may also be greater due to the use of certain hazardous chemicals used in the manufacture of certain of our products. Those hazardous chemicals fall within three different categories (with several of the chemicals falling within multiple categories): irritants, harmful chemicals and chemicals dangerous for the environment. In addition, we may be subject to claims that our 3D printers have been, or may be, used to create parts that are not in compliance with legal requirements or that intellectual property posted by third parties on our GrabCAD website infringes the intellectual property rights of others.
Any claim brought against us, regardless of its merit, could result in material expense, diversion of management time and attention, and damage to our reputation, and could cause us to fail to retain existing end-users or to attract new end-users. Although we maintain product liability insurance, such insurance is subject to significant deductibles and there is no guarantee that such insurance will be available or adequate to protect against all such claims, or we may elect to self-insure with respect to certain matters. Costs or payments made in connection with warranty and product liability claims and product recalls or other claims could materially affect our financial condition and results of operations.
If our relationships with suppliers for our products and services, especially with single source suppliers of components of our products, were to terminate or our manufacturing arrangements were to be disrupted, our business could be interrupted.
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potential shortages of some key components;
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product performance shortfalls, if traceable to particular product components, since the supplier of the faulty component cannot readily be replaced;
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discontinuation of a product or certain materials on which we rely;
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potential insolvency of these vendors; and
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reduced control over delivery schedules, manufacturing capabilities, quality and costs.
In addition, we require any new supplier to become “qualified” pursuant to our internal procedures. The qualification process involves evaluations of varying durations, which may cause production delays if we were required to qualify a new supplier unexpectedly. We generally assemble our systems and parts based on our internal forecasts and the availability of raw materials, assemblies, components and finished goods that are supplied to us by third parties, which are subject to various lead times. If certain suppliers were to decide to discontinue production of an assembly, component or raw material that we use, the unanticipated change in the availability of supplies, or unanticipated supply limitations, could cause delays in, or loss of, sales, increased production or related costs and consequently reduced margins, and damage to our reputation. If we were unable to find a suitable supplier for a particular component, material or compound, we could be required to modify our existing products or the end-parts that we offer to accommodate substitute components, material or compounds. While we have introduced periodic risk analysis internally concerning our sourcing (particularly concerning raw materials), which has increased the levels of our inventories, there is no guarantee that will sufficiently protect us if we suddenly lose access to supplies unexpectedly.
Discontinuation of operations at our manufacturing sites could prevent us from timely filling customer orders and could lead to unforeseen costs for us.
A loss of, or reduction in revenues from, a significant number of our resellers and our independent sales agents would impair our ability to sell our products and services and could reduce our revenues and adversely impact our operating results.
We rely heavily on our network of resellers and independent sales agents to sell and (in the case of resellers) to service our products for end-users in their respective geographic regions. These resellers and sales agents may not be as effective in selling our products or servicing our end-users as we are. Further, if our relationships with a significant number of these resellers and sales agents were to be terminated or if a significant number of these resellers and sales agents would otherwise fail or refuse to sell our products, we may not be able to find replacements that are as qualified or as successful in a timely manner, if at all. If these resellers and independent sales agents do not perform as anticipated or if we are unable to find qualified and successful replacements, our sales will suffer, which would have an adverse effect on our revenues and operating results. Additionally, a default by one or more resellers that have a significant receivables balance could have an adverse financial impact on our financial results.
Our business model is predicated in part on building an end-user base that will generate a recurring stream of revenues through the sale of our consumables and service contracts. If that recurring stream of revenues does not develop as expected, or if our business model changes as the industry evolves, our operating results may be adversely affected.
Our business model is dependent in part on our ability to maintain and increase sales of our proprietary consumables and service contracts as they generate recurring revenues. Existing and future end-users of our systems may not purchase our consumables or related service contracts at the same rate at which end-users currently purchase those consumables and services. In addition, our entry-level systems generally use a lower volume of consumables relative to our higher end systems. If our current and future end-users purchase a lower volume of our consumables or service contracts, or if our entry level systems represent an increasing percentage of our future installed base mix uses less consumables than our current installed base, our recurring revenue stream relative to our total revenues would be reduced, and our operating results would be adversely affected.
Global economic, political and social conditions may adversely impact our sales.
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threats of massive cyber attacks that could cause severe economic damage;
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extended U.S. federal government shutdowns (resulting from the failure to pass budget appropriations or adopt continuing funding resolutions) may delay orders of our products by U.S. government agencies or other end-users whose business activities are heavily dependent on U.S. government agency contracts;
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end-user demand for products and manufacturing activity levels may be reduced;
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distributors and end-users may be unable to obtain credit financing to finance purchases of our products;
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suppliers may be unable to obtain credit financing to finance purchases of sub-assemblies used to build components of products or purchases of raw materials to produce consumables;
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end-users or distributors may face financial difficulties or may become insolvent, which could lead to our inability to obtain payment for our products; and
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key suppliers of raw materials, finished products or components used in our products and consumables may face financial difficulties or may become insolvent, which could lead to disruption in the supply of systems, consumables or spare parts to our end-users.
Our existing and planned international operations currently expose us and will continue to expose us to additional market and operational risks, and failure to manage these risks may adversely affect our business and operating results.
We expect to derive a substantial percentage of our sales from international markets. We derived 36.2% of our revenues in 2022 from countries outside the Americas. Accordingly, we face significant operational risks from doing business internationally, including:
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fluctuations in foreign currency exchange rates;
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potentially longer sales and payment cycles;
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potentially greater difficulties in collecting accounts receivable;
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potentially adverse tax consequences;
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reduced protection of intellectual property rights in certain countries, particularly in Asia and South America;
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difficulties in staffing and managing foreign operations;
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laws and business practices favoring local competition;
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costs and difficulties of customizing products for foreign countries;
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compliance with a wide variety of complex foreign laws, treaties and regulations;
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tariffs, trade barriers and other regulatory or contractual limitations on our ability to sell or develop our products in certain foreign markets; and
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being subject to the laws, regulations and the court systems of many jurisdictions.
Our failure to manage the market and operational risks associated with our international operations effectively could limit the future growth of our business and adversely affect our operating results.
Significant disruptions of our information technology systems or breaches of our data security could adversely affect our business.
A significant invasion, interruption, destruction or breakdown of our information technology, or IT, systems and/or infrastructure by persons with authorized or unauthorized access could negatively impact our business and operations. We could also experience business interruption, information theft and/or reputational damage from cyber attacks, which may compromise our systems and lead to data leakage either internally or at our third party providers. Both data that has been inputted into our main IT platform, which covers records of transactions, financial data and other data reflected in our results of operations, as well as data related to our proprietary rights (such as research and development, and other intellectual property- related data), are subject to material cyber security risks. Our IT systems have been, and are expected to continue to be, the target of malware and other cyber attacks. To date, we are not aware that we have experienced any loss of, or disruption to, material information as a result of any such malware or cyber attack.
We are subject to environmental laws and export control laws due to the import and export of our products, as well as environmental, health, safety and medical device laws and regulations related to our operations and the use of our systems and materials, including requirements imposed due to use of our products by our customers, which could subject us to compliance costs and/or potential liability in the event of non-compliance.
The export of our products internationally subjects us to environmental laws and regulations concerning the import and export of chemicals and hazardous substances such as the United States Toxic Substances Control Act, or TSCA, and the Registration, Evaluation, Authorization and Restriction of Chemical Substances, or REACH. These laws and regulations require the testing and registration of some chemicals that we ship along with, or that form a part of, our systems and other products. If we fail to comply with these or similar laws and regulations, we may be required to make significant expenditures to reformulate the chemicals that we use in our products and materials or incur costs to register such chemicals to gain and/or regain compliance. Additionally, we could be subject to significant fines or other civil and criminal penalties should we not achieve such compliance.
The export of our products is also subject to several export regulations, including but not limited to the United States. Export Administration Regulations, the United States International Traffic in Arms Regulations, the United States Arms Export Control Act and regulations and orders administered by the United States Treasury Department’s Office of Foreign Assets Control (which we refer to collectively as Export/Import Laws). Our products are governed by civil controls, but failure to comply with these Export/Import Laws may potentially lead to the imposition of greater restrictions on our ability to export those products and penalties if we fail to comply with our restrictions.
We are furthermore subject to extensive environmental, health and safety laws, regulations and permitting requirements in multiple jurisdictions due to our use of chemicals and production of waste materials as part of our operations and in connection with the operation of our systems by our customers. In certain cases, the required compliance with health or safety regulations is imposed by our customers themselves. These laws, regulations and requirements (which include the Directive on Waste Electrical and Electronic Equipment of the European Union (EU) and the EU Directive on Restriction of Use of Certain Hazardous Substances) govern, among other things, the generation, use, storage, registration, handling and disposal of chemicals and waste materials, the presence of specified substances in electrical products, the emission and discharge of hazardous materials into the ground, air or water, the cleanup of contaminated sites, including any contamination that results from spills due to our failure to properly dispose of chemicals and other waste materials and the health and safety of our employees. Under these laws, regulations and requirements, we could also be subject to liability for improper disposal of chemicals and waste materials, including those resulting from the use of our systems and accompanying materials by end-users. These or future laws and regulations could potentially require the expenditure of significant amounts for compliance and/or remediation. If our operations fail to comply with such laws or regulations, we may be subject to fines and other civil, administrative or criminal sanctions, including the revocation of permits and licenses necessary to continue our business activities. In addition, we may be required to pay damages or civil judgments in respect of third-party claims, including those relating to personal injury (including exposure to hazardous substances that we generate, use, store, handle, transport, manufacture or dispose of), property damage or contribution claims. Some environmental laws allow for strict, joint and several liabilities for remediation costs, regardless of fault. We may be identified as a potentially responsible party under such laws. Effective as of February 2023, we are also subject to medical device regulations, such as the U.S. FDA Code of Federal Regulations, as a result of our launch of our first certified medical device with TrueDent resin in the United States. If we fail to comply with any such regulations or are subject to related liability, such developments could have a material adverse effect on our business, financial condition and results of operations.
As a public company with significant operations in several countries, we are subject to regulation and must comply with reporting, privacy and other requirements in a number of jurisdictions and, to the extent that regulatory authorities assert that we are not in compliance, we could be subject to sanctions which, if material, could materially and adversely affect our business.
As a public company with significant operations in Israel, the United States, Europe and many other countries, we are subject to regulation and must comply with reporting and other requirements in a number of jurisdictions. In particular, we are subject to the rules and regulations of the SEC and FINRA, which may elect from time to time to review or investigate our operations, various aspects of our financial statements, our disclosure practices and other matters. As such reviews progress, the regulating agencies may determine that we are and have been in compliance with applicable rules, or they may determine to pursue enforcement actions or other sanctions against us for alleged noncompliance.
New privacy laws are also beginning to impose on our company increased compliance costs. Our California operations are now subject to the California Consumer Privacy Act, or CCPA, a statute that went into effect on January 1, 2020. The CCPA imposes enhanced disclosure requirements for us vis-à-vis our interactions with customers that are residents of California, such as comprehensive privacy notices for consumers when we or our agents collect their personal information. We may be further required to ensure third party compliance, as under the CCPA we could be liable if third parties that collect, process or retain personal information on our behalf violate the CCPA’s privacy requirements. The sanctions for non-compliance could include fines and/or civil lawsuits.
In addition to the imposition of U.S.-based regulations on our operations, our European activities are subject to the European Union General Data Protection Regulation, or GDPR, which has created additional compliance requirements for us. GDPR broadens the scope of personal privacy laws to protect the rights of European Union citizens and requires organizations to report on data breaches within 72 hours and be bound by stringent rules for obtaining the consent of individuals on how their data can be used. GDPR became enforceable on May 25, 2018, and non-compliance exposes entities such as our company to significant fines or other regulatory claims. While we have invested in, and intend to continue to invest in, reasonably necessary resources to comply with these new privacy standards (both in Europe and in California), to the extent that we fail to adequately comply, that failure could have an adverse effect on our business, financial conditions, results of operations and cash flows.
Failure to comply with the U.S. Foreign Corrupt Practices Act or other applicable anti-corruption legislation could result in fines, criminal penalties and an adverse effect on our business.
We operate in a number of countries throughout the world, including countries known to have a reputation for corruption. We are committed to doing business in accordance with applicable anti-corruption laws. We are subject, however, to the risk that our affiliated entities or our and our affiliates’ respective officers, directors, employees and agents (including distributors of our products) may take action determined to be in violation of such anti-corruption laws, including the U.S. Foreign Corrupt Practices Act of 1977 and the U.K. Bribery Act of 2010, as well as trade sanctions administered by the Office of Foreign Assets Control and the U.S. Department of Commerce. Any violation by any of these persons could result in substantial fines, sanctions, civil and/or criminal penalties, or curtailment of operations in certain jurisdictions, and might adversely affect our results of operations. In addition, actual or alleged violations could damage our reputation and ability to do business.
We own a number of our manufacturing and office facilities, which may limit our ability to move those operations. If we were to move some or all of those operations, we could incur unforeseen charges.
We own buildings in Eden Prairie, Minnesota, which we use to conduct our FDM manufacturing and assembly operations, as well as our office facility in Rehovot, Israel and manufacturing facility in Kiryat Gat, Israel. Ownership of these buildings and facilities may adversely affect our ability to move some or all of those operations to other locations that may be more favorable. If we were to move any of those operations to other locations, we may have difficulty selling or leasing the property that we vacate. This risk also applies to the facilities that we lease under non-cancellable lease agreements, where we cannot freely vacate the facilities. In order to combat these risks, we have limited our commitment under our leases by providing ourselves with a “break” option after three years or less. In most of our leases we have also obtained for ourselves the right to sublease a portion or all of the facilities under the lease.
These limitations on our ability to move could result in an impairment charge, as occurred in the prior periods in respect of some of our leased facilities, which negatively impacted our results of operations, and could, in future periods, once again have an adverse effect on our results of operations.
Default in payment by one or more resellers or customers from which we have large account receivable balances could adversely impact our results of operations and financial condition.
From time to time, our accounts receivable balances have been concentrated with certain resellers or customers. Default by one or more of these resellers or customers could result in a significant charge against our current reported earnings. We have reviewed our policies that govern credit and collections, and will continue to monitor them in light of current payment status and economic conditions. In addition, we try to reduce the credit exposures of our accounts receivable by credit limits and credit insurance for many of our customers. However, there can be no assurance that our efforts to identify potential credit risks will be successful. Our inability to timely identify resellers and customers that are credit risks could result in defaults at a time when such resellers or customers have high accounts receivable balances with us. Any such default would result in a significant charge against our earnings and adversely affect our results of operations and financial condition.
We are, and have been in the recent past, subject to litigation. Any current or future lawsuits to which we are subject may have a significant adverse effect on our financial condition or profitability.
We are currently, and have been in the recent past, subject to litigation, and could be subject to further litigation in the future.
Under applicable employment laws, we may not be able to enforce covenants not to compete and therefore may be unable to prevent our competitors from benefiting from the expertise of some of our former employees.
We rely on our management information systems for inventory management, distribution, and other key functions. If our information systems fail to adequately perform these functions, or if we experience an interruption in their operation, our business and operating results could be adversely affected.
The efficient operation of our business is dependent on our management information systems. We rely on our management information systems: to, among other things, effectively manage our accounting and financial functions, including maintaining our internal controls; to manage our manufacturing and supply chain processes; and to maintain our research and development data. The failure of our management information systems to perform properly could disrupt our business and product development, which may result in decreased sales, increased overhead costs, excess or obsolete inventory, and product shortages, causing our business and operating results to suffer. Although we take steps to secure our management information systems, including our computer systems, intranet and internet sites, email and other telecommunications and data networks, the security measures we have implemented may not be effective and our systems may be vulnerable to theft, loss, damage and interruption from a number of potential sources and events, including unauthorized access or security breaches, natural or man-made disasters (such as floods or earthquakes), cyber-attacks, computer viruses, power loss, or other disruptive events. Our reputation, brand, and financial condition could be adversely affected if, as a result of a significant cyber event or otherwise, our operations are disrupted or shut down; our confidential, proprietary information is stolen or disclosed; we incur costs or are required to pay fines in connection with stolen customer, employee, or other confidential information; we must dedicate significant resources to system repairs or increase cyber security protection; or we otherwise incur significant litigation or other costs.
Risks related to our intellectual property
We rely on a combination of patent and trademark laws in the United States and other countries, trade secret protection, confidentiality agreements and other contractual arrangements with our employees, end-users and others to maintain our competitive position. In particular, our success depends, in part, on our ability, and the ability of our licensors, to obtain patent protection for our and their products, technologies and inventions, maintain the confidentiality of our and their trade secrets and know-how, operate without infringing upon the proprietary rights of others and prevent others from infringing upon our and their proprietary rights. As we acquire additional companies and their technologies, such as Origin and its P3 technology, acquired in December 2020, RPS and its stereolithography technology, acquired in February 2021, and Xaar and its powder-based SAF technology, acquired fully in November 2021, the risks related to potential infringement of our proprietary rights in technology become more pronounced.
Despite our efforts to protect our proprietary rights, it is possible that competitors or other unauthorized third parties may obtain, copy, use or disclose our technologies, inventions, processes or improvements. We cannot assure you that any of our existing or future patents or other intellectual property rights will not be challenged, invalidated or circumvented, or will otherwise provide us with meaningful protection. Our pending patent applications may not be granted, and we may not be able to obtain foreign patents or pending applications corresponding to our U.S. patents. The laws of certain countries, such as China, may not provide the same level of patent protection and intellectual property right enforcement as in the United States, so even if we enforce our intellectual property rights or obtain additional patents in China or elsewhere outside of the United States, enforcement of such rights may not be effective. If our patents and other intellectual property do not adequately protect our technology, our competitors may be able to offer additive manufacturing systems, consumables or other products similar to ours. Our competitors may also be able to develop similar technology independently or design around our patents, and we may not be able to detect the unauthorized use of our proprietary technology or take appropriate steps to prevent such use.
If we attempt enforcement of our intellectual property rights, we may be (as we have been in the past) subject or party to claims, negotiations or complex, protracted litigation. Intellectual property disputes and litigation, regardless of merit, can be costly and disruptive to our business operations by diverting attention and energies of management and key technical personnel, and by increasing our costs of doing business. Any of the foregoing could adversely affect our operating results.
We may be subject to claims that we are infringing, misappropriating or otherwise violating the intellectual property rights of others, especially in light of the heightened pace of adoption of new technologies in our industry and the multiple additional technologies that we have been acquiring.
Our products and technology, including technology that we acquire as a result of our ongoing acquisitions of other businesses and technology that we license from others, about which we may be less knowledgeable that our organically developed technology, may infringe, misappropriate or otherwise violate the intellectual property rights of third parties. This risk is especially relevant to our industry, where the pace of innovation and adoption of new technologies by industry players has been accelerated in recent years. Patent applications in the United States and most other countries are confidential for a period of time until they are published, and the publication of discoveries in scientific or patent literature typically lags actual discoveries by several months or more. As a result, the nature of claims contained in unpublished patent filings around the world is unknown to us, and we cannot be certain that we or our acquired companies were the first to conceive inventions covered by our self-developed or our acquired patents or patent applications or that we or our acquired companies were the first to file patent applications covering such inventions. Furthermore, it is not possible to know in which countries patent holders may choose to extend their filings under the Patent Cooperation Treaty or other mechanisms. In addition, we may be subject to intellectual property infringement claims from individuals, vendors and other companies, including those that have acquired patents in the fields of 3D printing or consumable production for the sole purpose of asserting claims against us.
Under the Israeli Patent Law, 5727-1967, or the Patent Law, we may also be subject to royalty claims for “service inventions” conceived by employees in the course and as a result of or arising from their employment with us. Section 134 of the Patent Law provides that if there is no agreement between an employer and an employee as to whether the employee is entitled to consideration for service inventions, the Israeli Compensation and Royalties Committee, or the Committee, a body constituted under the Patent Law, shall determine these issues. We believe that virtually all of our employees have executed invention assignment agreements in which they have assigned to us their rights to potential inventions and acknowledged that they will not be entitled to additional compensation or royalties from commercialization of inventions. We may, nevertheless, face claims demanding remuneration in consideration for assigned inventions.
We have devoted substantial resources to the development of our technology, trade secrets, know-how and other unregistered proprietary rights. While we enter into confidentiality and invention assignment agreements intended to protect such rights, such agreements can be difficult and costly to enforce or may not provide adequate remedies if violated, and we may not have entered into such agreements with all relevant parties. Such agreements may be breached and confidential information may be willfully or unintentionally disclosed, including by employees who may leave our company and join our competitors, or our competitors or other parties may learn of the information in some other way. The disclosure to, or independent development by, a competitor of any of our trade secrets, know-how or other technology not protected by a patent or other intellectual property system could materially reduce or eliminate any competitive advantage that we may have over such competitor.
This concern could manifest itself in particular with respect to our proprietary consumables that are used with our systems. Portions of our proprietary consumables may not be afforded patent protection. Chemical companies or other producers of raw materials used in our consumables may be able to develop consumables that are compatible to a large extent with our systems, whether independently or in contravention of our trade secret rights and related proprietary and contractual rights. If such consumables are made available to owners of our systems, and are purchased in place of our proprietary consumables, our revenues and profitability would be reduced and we could be forced to reduce prices for our proprietary consumables.
Some of our patents have expired and others will expire in coming years. Upon expiration of those patents, our competitors have introduced, and are likely to continue to introduce, products using the technology previously protected by the expired patents, which products may have lower prices than those of our products. To compete, we may need to reduce our prices for those products, which would adversely affect our revenues, margins and profitability. Additionally, the expiration of our patents could reduce barriers to entry into AM systems, which could result in the reduction of our sales and earnings potential.
Risks related to operations in Israel
Furthermore, many of our male employees in Israel, including members of our senior management, are obligated to perform one month, and in some cases longer periods, of annual military reserve duty until they reach certain ages, and, in the event of a military conflict, may be called to active duty. Our operations could be disrupted by the absence of a significant number of Israeli employees or of one or more of our key Israeli employees who may be called to active duty due to a future military conflict. Such disruption could materially adversely affect our business and operations.
Our commercial insurance does not cover losses that may occur as a result of an event associated with the security situation in the Middle East. Although the Israeli government is currently committed to covering the reinstatement value of direct damages that are caused by terrorist attacks or acts of war, we cannot assure you that this government coverage will be maintained, or if maintained, will be sufficient to compensate us fully for damages incurred. Any losses or damages incurred by our Israeli operations could have a material adverse effect on our business. Any armed conflicts or political instability in the region would likely negatively affect business conditions generally and could harm our results of operations.
Furthermore, Israeli tax considerations may make potential transactions unappealing to us or to our shareholders whose country of residence does not have a tax treaty with Israel exempting such shareholders from Israeli tax. For example, Israeli tax law does not recognize tax-free share exchanges to the same extent as U.S. tax law. With respect to mergers, Israeli tax law allows for tax deferral in certain circumstances but makes the deferral contingent on the fulfillment of a number of conditions, including a holding period of two years from the date of the transaction during which sales and dispositions of shares of the participating companies are subject to certain restrictions.
Moreover, with respect to certain share swap transactions, the tax deferral is limited in time, and when such time expires, the tax becomes payable even if no disposition of the shares has occurred.
These and other similar provisions could delay, prevent or impede an acquisition of our company or our merger with another company, even if such an acquisition or merger would be beneficial to us or to our shareholders.
We also have substantial revenues and expenses that are denominated in non-US currencies other than the New Israeli Shekel, particularly the Euro. Therefore, our operating results and cash flows are also subject to fluctuations due to changes in the relative values of the U.S. dollar and those foreign currencies. These fluctuations could negatively affect our operating results and could cause our revenues and net income or loss to vary from quarter to quarter. Furthermore, to the extent that our revenues increase in regions such as Asia Pacific, where our sales are denominated in U.S. dollars, a strengthening of the dollar against other currencies could make our products less competitive in those foreign markets and collection of receivables more difficult.
From time to time we engage in currency hedging activities. These measures, however, may not adequately protect us from material adverse effects due to the impact of inflation in Israel or from fluctuations in the relative values of the U.S. dollar and other foreign currencies in which we transact business, and may result in a financial loss. For further information, please see “Item 11. Quantitative And Qualitative Disclosures About Market Risk” in this annual report.
The computation of income taxes is complex because it is based on the laws of numerous taxing jurisdictions and requires significant judgment on the application of complicated rules governing accounting for tax provisions under GAAP. Income taxes for interim quarters are based on a forecast of our effective tax rate for the year, which includes forward-looking financial projections. Such financial projections are based on numerous assumptions, including the expectations of profit and loss by jurisdiction. It is difficult to accurately forecast various items that make up the projections, and such items may be treated as discrete accounting. Examples of items that could cause variability in our income tax rate include our mix of income by jurisdiction, changes in our uncertain tax positions, the application of transfer pricing rules, and tax audits. Future events, such as changes in our business and the tax law in the jurisdictions where we do business, could also affect our rate.
One important assumption that goes into calculation of our tax rate is the tax benefit that we are eligible for in respect of some of our operations in Israel, referred to as “Approved Enterprise”, “Beneficiary Enterprise”, “Preferred Enterprise” and/or “Preferred Technology Enterprise” (as applicable), under the Law for the Encouragement of Capital Investments, 5719-1959, or the Investment Law. Based on an evaluation of the relevant factors under the Investment Law, including the level of foreign (that is, non-Israeli) investment in our company, we have estimated that our average effective tax rate to be paid with respect to all profit from the Israeli operations under these benefit programs is 7.5% to 14%, based on the current balance of activity between our Rehovot, Israel and Kiryat Gat, Israel facilities and the available level of benefits under the law. If we do not meet the requirements for maintaining these benefits, they may be reduced or cancelled and the relevant operations would be subject to Israeli corporate tax at the standard rate, which for 2018 and onwards is set at 23%. In addition to being subject to the standard corporate tax rate, we would be required to refund any tax benefits that we have already received as adjusted by the Israeli consumer price index, plus interest or other monetary penalties. Even if we continue to meet the relevant requirements, the tax benefits that we are eligible for may not be continued in the future at their current levels or at all. If these tax benefits were reduced or eliminated, the amount of taxes that we pay would likely increase, as all of our operations would consequently be subject to corporate tax at the standard rate, which may cause our effective tax rate to be materially different than our estimates and could adversely affect our results of operations. Additionally, if we increase our activities outside of Israel, for example, via acquisitions, our increased activities may not be eligible for inclusion in Israeli tax benefit programs, and that could also adversely affect our effective tax rate and our results of operations.
The Israeli government may furthermore independently determine to reduce, phase out or eliminate entirely the benefit programs under the Investment Law, regardless of whether we then qualify for benefits under those programs at the time, which would also adversely affect our effective tax rate and our results of operations.
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Local manufacturing obligation. The terms of the grants under the Innovation Law require that the manufacturing of products resulting from Authority-funded programs be carried out in Israel, unless a prior written approval of the Authority is obtained (except for a transfer of up to 10% of the production rights, for which a notification to the Authority is sufficient). As a condition for obtaining approval to manufacture outside Israel, we would be required to pay increased royalties, which usually amount to 1% in addition to the standard royalties rate, and also the total amount of our liability to IIA may be increased to between 120% and 300% of the grants we received from IIA, depending on the manufacturing volume that is performed outside Israel (less royalties already paid to IIA). This restriction may impair our ability to outsource manufacturing rights abroad, however, it does not restrict export of our products that incorporate IIA funded know-how.
It may be difficult to enforce a U.S. judgment against us and our officers and directors in Israel or the United States, or to serve process on our officers and directors.
Risks related to an investment in our ordinary shares
The market price of our ordinary shares may be subject to fluctuation, regardless of our operating results and financial condition. As a result, our shareholders could incur substantial losses.
The market price of our ordinary shares since the Stratasys, Inc.- Objet Ltd. merger has been subject to substantial fluctuation. From the start of 2019 through the early part of 2023 (through February 24, 2023), our ordinary shares have traded with closing prices that have ranged from $11.07 to $54.37, which low and high prices were each recorded since the start of 2021, evidencing a trend towards greater share price fluctuations. The price of our ordinary shares may continue to be subject to substantial fluctuation regardless of our operating results or financial condition due to a number of factors, including:
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the extent of growth of the 3D printing market generally;
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changes in earnings estimates or recommendations by securities analysts;
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development of new competitive systems and services by others;
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success or failure of research and development projects of our company or our competitors;
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developments concerning our or our competitors’ intellectual property rights;
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successes or failures of the acquisitions or dispositions that we consummate, as perceived by financial or industry analysts;
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the general tendency towards volatility in the market prices of shares of technology companies; and
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general market conditions and other factors, including factors unrelated to our operating performance.
These factors and any corresponding price fluctuations may materially and adversely affect the market price of our ordinary shares and result in substantial losses being incurred by our shareholders.
Market prices for securities of technology companies historically have been very volatile. The market for these securities has from time to time experienced significant price and volume fluctuations for reasons unrelated to the operating performance of any one company. In the past, following periods of market volatility, public company shareholders have often instituted securities class action litigation, as was the case in February and March, 2015, when class actions of our shareholders, alleging violations of the Exchange Act, were initiated against the Company and certain of our officers as defendants. Any such additional securities litigation could result in substantial costs and divert the resources and attention of our management from our business.
We may need or desire to raise substantial capital in the future. Our future capital requirements will depend on many factors, including, among others:
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the extent to which we acquire or invest in businesses, products or technologies (as we did in acquiring Origin in December 2020, RPS in February 2021, Xaar in November 2021, Riven in 2022, and expect to acquire the additive manufacturing materials business of Covestro AG in the second quarter of 2023) and other strategic relationships;
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our degree of success in capturing a larger portion of additive manufacturing demand;
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the costs of establishing or acquiring sales, marketing and distribution capabilities for our products;
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the costs of preparing, filing and prosecuting patent applications, maintaining and enforcing our issued patents and defending intellectual property-related claims; and
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the costs of financing unanticipated working capital requirements and responding to competitive pressures.
Even if we decide to pay dividends on our ordinary shares, we may be restricted from doing so or payment of such dividends may have adverse consequences for our company.
Under the Companies Law, dividends may only be paid out of our profits and other surplus funds (as defined in the Companies Law) as of the end of the most recent year or as accrued over a period of the most recent two years, whichever amount is greater, provided that there is no reasonable concern that payment of a dividend will prevent us from satisfying our existing and foreseeable obligations as they become due. In the event that we do not meet the profit and surplus funds criteria, we can seek the approval of an Israeli court in order to distribute a dividend. The court may approve our request if it is convinced that there is no reasonable concern that the payment of a dividend will prevent us from satisfying our existing and foreseeable obligations as they become due. Due to the acquisition method of accounting utilized, under GAAP, for the Stratasys, Inc.- Objet Ltd. merger and the Origin transaction, pursuant to which we were deemed to have acquired Objet’s assets and Origin's assets, we have incurred and will continue to incur significant annual amounts of amortization expense in respect of those assets. We are also subject to the risk of impairment charges from time to time to our acquired assets. These significant annual expenses under GAAP have reduced, and may continue to reduce or eliminate, our profits and surplus funds as determined under the Companies Law, and, hence, may restrict our ability to pay dividends (absent court approval).
As a foreign private issuer under the Exchange Act, we are exempt from certain rules under the Exchange Act, including the proxy rules, which impose certain disclosure and procedural requirements for proxy solicitations. Moreover, we are not required to file periodic reports and financial statements with the SEC as frequently or as promptly as domestic U.S. companies with securities registered under the Exchange Act; and are not required to comply with Regulation FD, which imposes certain restrictions on the selective disclosure of material information. In addition, our officers, directors and principal shareholders are exempt from the reporting and “short-swing” profit recovery provisions of Section 16 of the Exchange Act and the rules under the Exchange Act with respect to their purchases and sales of our ordinary shares. Accordingly, you receive less information about our company and trading in our shares by our affiliates than you would receive about a domestic U.S. company, and are afforded less protection under the U.S. federal securities laws than you would be afforded in holding securities of a domestic U.S. company.
As a foreign private issuer, we are also permitted, and have begun, to follow certain home country corporate governance practices instead of those otherwise required under the Listing Rules of the Nasdaq Stock Market for domestic U.S. issuers. We have informed Nasdaq that we follow home country practice in Israel with regard to, among other things, director nomination procedure and approval of compensation of officers. In addition, we have opted to follow home country law instead of the Listing Rules of the Nasdaq Stock Market that require that a listed company obtain shareholder approval for certain dilutive events, such as the establishment or amendment of certain equity-based compensation plans, an issuance that will result in a change of control of the company, certain transactions other than a public offering involving issuances of a 20% or greater interest in the company, and certain acquisitions of the stock or assets of another company. Following our home country governance practices as opposed to the requirements that would otherwise apply to a United States company listed on The Nasdaq Global Select Market may provide our shareholders with less protection than they would have as shareholders of a domestic U.S. company.
Our status as a foreign private issuer is subject to an annual review and test, and will be tested again as of June 30, 2023 (the last business day of our second fiscal quarter of 2023). If we lose our status as a foreign private issuer, we will no longer be exempt from such rules. Among other things, beginning on January 1, 2024, we would be required to file periodic reports and financial statements on a periodic basis (including both an annual report in respect of 2023 and quarterly reports in respect of each of the quarters of 2024) as if we were a company incorporated in the U.S., which, among other things, would result in increased compliance and reporting costs to us.
If we are classified as a passive foreign investment company, or PFIC, our U.S. shareholders may suffer adverse tax consequences.
Generally, if for any taxable year, after applying certain look-through rules, 75% or more of our gross income is passive income, or at least 50% of the value of our assets are held for the production of, or produce, passive income, we may be characterized as a PFIC for U.S. federal income tax purposes. Passive income for this purpose generally includes, among other things, certain dividends, interest, royalties, rents and gains from commodities and securities transactions and from the sale or exchange of property that gives rise to passive income. If we are a PFIC, gain realized by a U.S. shareholder on the sale of our ordinary shares may be taxed as ordinary income (rather than as capital gain income), and an interest charge added to the tax. Rules similar to those applicable to the taxation of gains realized on the disposition of our stock would apply to distributions exceeding certain thresholds.
Although we do not believe that we were a PFIC in 2022, we cannot assure you that the IRS will agree with that conclusion or that we will not become a PFIC in 2023 or in a subsequent year. The tests for determining PFIC status are applied annually, and it is difficult to make accurate predictions of our future income and the future value of our assets. U.S. shareholders should consult with their own U.S. tax advisors with respect to the U.S. tax consequences of investing in our ordinary shares. For a discussion of how we might be characterized as a PFIC and related tax consequences, please see Item 10.E, “Additional Information-Taxation-U.S. Federal Income Tax Considerations-Tax Consequences if We Are a Passive Foreign Investment Company”.
ITEM 4. INFORMATION ON THE COMPANY.
A. History and Development of the Company
In 2022, 2021 and 2020, our capital expenditures amounted to $19.8 million, $26.8 million and $29.0 million, respectively, of which $13.6 million, $25.0 million and $26.9 million, respectively, was principally related to the purchase and construction of property, plant and equipment.
During 2021, our principal property and equipment investment was the construction of our new facility, which we own, at our new property in Rehovot, Israel, where we moved our Israeli headquarters during January 2017. This new facility, towards which we paid $0.2 million and $11.1 million during 2022 and 2021, respectively, also houses research and development facilities. As of December 31, 2022, we had invested an aggregate of $119.5 million in our new facility in Israel and its related equipment.
During 2022, we made other purchases of property and equipment, mainly for the enhancement of our manufacturing capabilities to support new solution offerings, primarily for our facilities in Israel and the United States.
B. Business overview
We now offer a broader range of systems, consumables and services for additive manufacturing. Our wide range of solutions, based on our proprietary 3D printing technologies and materials, enhances the ability of designers, engineers and manufacturers to:
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visualize and communicate product ideas and designs;
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verify the form, fit and function of prototypes;
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manufacture tools, jigs, fixtures, casts and injection molds used in the process of manufacturing end-products;
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manufacture customized and short-to-medium-run end-products more efficiently, with greater agility, and more sustainably; and
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produce objects that could not otherwise be manufactured through subtractive manufacturing methodologies.
Industry overview
Historically, prototype development and customized manufacturing have been performed by traditional methods using metal extrusion, computer-controlled machining, and manual modeling techniques, in which blocks of material are carved or milled into specific objects. These subtractive manufacturing methodologies have numerous limitations. They often require heavy involvement of specialist technicians and can be time- and labor-intensive, and traditional molds for injection molding are expensive. The time intensity of traditional modeling can leave little room for design error or subsequent redesign without meaningfully impacting a product’s time-to-market and development cost. As a result, prototypes have traditionally been created only at selected milestones late in the design process, which prevents designers from truly visualizing and verifying the design and geometry of an object in the preliminary design stage. The inability to iterate a design rapidly hinders collaboration among design team members and other stakeholders and reduces the ability to optimize a design, as time-to-market and optimization become necessary trade-offs in the design process.
Desktop 3D printer usage has shown rapid growth in recent years, with the introduction and adoption of affordable entry-level 3D printers and increased availability and content. These entry-level desktop printers have increased market adoption by professional designers and education institutions. We expect that the adoption of desktop 3D printing will continue to increase in the future, in terms of design applications and engineering applications. We believe that the expansion of the market will be spurred by increased proliferation of 3D content and 3D authoring tools (3D computer-aided-design, or CAD, and other simplified 3D authoring tools), as well as increased availability of 3D scanners. We also believe that increased adoption of 3D printing will be facilitated by continued improvements in 3D printing technology and greater affordability of entry-level systems. We are active in facilitating the growth of the desktop 3D printing market by way of our investment in Ultimaker, a company created from the merger of our former subsidiary MakerBot with Ultimaker into a new combined desktop 3D printing market leader.
Stratasys solutions
Range of solutions
Our solutions offerings are characterized by the following distinguishing qualities:
- material properties of printed objects, such as heat resistance, toughness, brittleness, elongation-to-break, color and flexibility;
- quality of printed objects measured by, among other things, resolution, accuracy and surface quality;
- consistency of produced parts in a run or batch;
- multiple production-grade modeling materials;
- reliability of printing systems;
- fast time to part;
- efficiency of operations with software workflows;
- customer service;
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ease of use; and
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automatic, hands-free support removal and minimal post processing.
Range of technologies and differentiating factors
We believe this technology is differentiated by factors making it appropriate for 3D printing and additive manufacturing, including:
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ability to use FDM® systems in an office environment due to the absence of hazardous emissions;
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low post-production processing requirements;
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minimal material waste;
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build repeatability;
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ease of use, with minimal system set-up requirements;
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absence of costly replacement lasers and laser parts; and
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a high degree of precision and reliability.
Our competitive strengths
We believe that the following are our key competitive strengths:
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Differentiated product offerings with superior part quality. Our portfolio of 3D printing systems is differentiated through a combination of superior printing qualities, accuracy, print speed, the ability to print a range of materials with varying levels of strength, chemical and heat resistance, color and mechanical properties, the ability to print multiple materials simultaneously and suitability for office environments. Our offering is focused on high-end solutions to address customer needs from prototyping applications to complex manufacturing operations.
- Our FDM-based systems enable the highly precise printing of engineering and high-performance thermoplastic materials, enabling a wide range of manufacturing applications with little or no post-production processing.
- Our PolyJet inkjet-based systems are used in multiple prototyping solutions as well as in manufacturing applications, particularly in higher growth industries such as healthcare and dental. The systems jet ultra-thin layers of material, enabling voxel level control of the deposited materials, part realism (multi materials and colors), high accuracy and resolution and smooth finish to printed models. For use with these various types of systems we offer a wide variety of office-friendly resin consumables, including rigid, flexible (rubber-like), transparent and color materials. This unique quality printing system utilizes the simultaneous jetting of up to six materials to enable end-users to print models, in virtually unlimited combinations, in a single build.
- Our P3-based systems, which we added to our solutions
portfolio via the acquisition of Origin, offer a best-in-class combination of
detail, mechanical properties and throughput for mass manufacturing production
parts. This addition allows us to expand
our leadership through innovation in the fast-growing mass production parts
segment in industries such as dental, medical, tooling, and select industrial,
defense, and consumer good segments. The P3 technology is an advancement on DLP principles ,whereby liquid
photopolymer resin is cured with light. Our
Origin One 3D printers offer
precisely controls light, heat, and force, among other
parameters, via Origin's closed-loop feedback software. This new technology
enables customers to build parts with industry-leading accuracy, consistency,
size and detail, while using a wide range of commercial-grade, durable resins.
- Our powder bed fusion (PBF) SAF-based systems, which launched at the end of 2021, expand our total addressable market across multiple segments, including commercial goods (frequent demand for short and medium run production), automotive (production parts at competitive speeds), consumer goods (pre-production parts, short runs, and specialty production), and service bureaus (an excellent high-utilization environment for a wide variety of components.
- Our industrial stereolithography RPS’ Neo line of systems/printers feature dynamic and variable laser beam technology that enables build accuracy, feature detail, excellent side wall quality and low variability across the full extent of a large build platform. As open resin systems, the Neo products provide customers a choice of materials that deliver a wide range of properties such as chemical resistance, heat tolerance, flexibility durability and optical clarity.
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Integrated solutions offering/ecosystem- We believe our customers are looking for primary partner for polymer additive manufacturing, which we believe we are uniquely able to provide. We provide integrated solutions offering that include compatible products and services that are designed to meet the full gamut of our clients’ needs in an efficient manner, consisting of a broad range of systems, consumables, software and services, including:
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3D printers;
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materials;
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GrabCAD software;
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professional services;
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parts on demand;
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vertical applications;
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partnerships and alliances; and
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enhanced collaboration among industry professionals, via our GrabCAD Community, which provides engineers and designers a resource for CAD models and helps them communicate ideas and share designs.
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Proprietary technology platforms with multidisciplinary technological expertise. We believe that our proprietary 3D FDM, 3D inkjet-based PolyJet, P3 and SAF printing engines offer end users the versatility and differentiated features necessary for a wide variety of current and potential applications. We combine our proprietary hardware platforms, featuring widely-deployed inkjet printer heads or easy-to-use extrusion heads with integrated software and a wide range of proprietary materials to develop and produce leading 3D printing systems.
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Leading Direct Manufacturing Business. Our Stratasys Direct Manufacturing service business is one of the largest and leading AM parts service providers globally. This unit’s knowledge of and experience in AM, including materials and systems know-how, and AM end-use parts production has enhanced our manufacturing offering suite. For example, the Stratasys Direct team has helped accelerate our product development for the Origin One and H350 3D printers to improve their performance in production environments. Furthermore, Stratasys Direct enables us to offer a broader solution to our customers, catering to more of their 3D printing needs, whether by supply of 3D printers or of 3D printed parts through cross-sell or infinite capacity extension. We believe this offering creates better customer intimacy and a competitive advantage for Stratasys.
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Synergies between SDM and 3D printer sales businesses. Our Stratasys Direct Manufacturing’s AM parts service business has been capitalizing on the synergies between it and our 3D printer sales business. Stratasys Direct Manufacturing works closely with our North American sales organization and benefits from access to some of the largest customers for our 3D printing systems, who have been increasingly relying upon Stratasys Direct Manufacturing for production parts and development needs.
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Large and growing installed base. Our differentiated offerings have led to a large and growing installed base. The significant installed base has resulted in greater distribution reach and enhanced opportunities for cross selling, given the significantly broadened and complementary product offerings. It furthermore presents us with an opportunity to generate recurring revenues from sales of consumables and services to the installed base.
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Extensive global reach. With over 200 channel partners around the world, we are well positioned to leverage the extensive geographic reach of our marketing, sales and support organization to serve customers and grow awareness of 3D printing for prototyping, design and manufacturing. This level of service and support is becoming an especially critical differentiator as our customers adopt 3D printing for more operationally critical manufacturing applications. •
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Increased accessibility and ease of use for customers. Our GrabCAD Additive Manufacturing software platform and our GrabCAD Community enable designers, engineers, and machine operators to easily manage our 3D printing systems at scale.
• GrabCAD Print provides native CAD job programming along with traditional 3D file formats (STL, VRML), thereby reducing time and errors in job planning and resulting in high quality printed parts. We have also introduced a paid version with advanced features for the H350 3D printer that improve first print quality and reduce cost per part.
• GrabCAD Shop provides scheduling, remote monitoring and analytics, which provides visibility to managers and operators across our technologies. That enables work order management for organizations that have dedicated operators, by providing centralized, 3D printing services to engineers and designers.
• GrabCAD Connect provides two-way SDK integration for a variety of third party software applications, dramatically extending the value of our platform
• GrabCAD Community is the online community of over 13 million professional engineers, designers, manufacturers and students who share best practices via tutorials, discussion forums, design/print challenges and 3D content.
Our growth strategy
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Having the broadest technology offering in the sector. We offer five best-in-class technologies for every step in the product lifecycle – from concept through manufacturing. We believe that the proliferation of 3D content, advancements in AM technology platforms and the introduction of improved materials will continue to drive growth in 3D printing. We expect to see that growth result in a major shift towards more manufacturing application solutions as compared to primarily focusing on design and prototyping. We will continue to invest in the identification of new applications (especially manufacturing applications) for which our proprietary printing technologies, software and materials are appropriate. This approach has resulted in the broadest offering of polymer 3D printing solutions in our industry, serving an unequalled array of end markets.
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Possessing an unmatched Go-to-Market infrastructure. We believe our network of over 200 channel partners is the largest and most experienced in the industry. This is a competitive advantage that we believe is not easily or inexpensively replicated. Our goal is to reach new customers and increase sales to existing customers by leveraging that network and providing access to new solutions that address customers’ specific needs. These solutions include those offered by our Stratasys Direct Manufacturing service. As part of this strategy, we intend to grow awareness of 3D printing solutions for prototyping and manufacturing and to develop industry-specific sales channels as part of our effort to commercialize a broader range of new manufacturing and production applications.
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Possessing deep application engineering experience. Our people have the deepest application engineering expertise in the industry, which allows us to educate customers and drive future innovation. We have in place today an offering of solutions that includes the complete gamut of compatible systems, consumables, software and services (parts on-demand, professional and expert consulting services) that are designed to meet our clients’ needs in an integrated, complete manner. We will seek to extend our technological capabilities by addressing manufacturing applications and continuing to invest in our R&D efforts, which focus on enhancing our 3D PolyJet and FDM printing technologies as well as developing new innovative solutions for 3D printing and exploring inorganic opportunities for new printing technologies. We believe that by enhancing our AM technological capabilities and by developing and introducing new materials for our 3D printing and production systems, we will be able to increase both the size of, and our share of, the 3D printing marketplace.
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Having a resilient business model designed to scale as opportunities present themselves. Our corporate and Go-to-Market infrastructures are positioned to effectively absorb, scale and create operating leverage for key opportunities that can complement and grow our leading position in polymers as they arise, all while providing operating leverage to the company. We are also positioned to weather unexpected downturns like the one we have seen from the pandemic, and to scale up during times of growth, capturing market share and increasing revenues, margins, and earnings. We are not dependent on any one client or end market, as evidenced by our not having any one customer represent greater than 5% of our revenues.
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Adding more value through software, both from our partners and ourselves. We offer Industry 4.0-ready systems that include API integration to leading manufacturing software solutions.On the one hand, that makes it easier to add more systems and use them more intensively.(“Connect one Stratasys printer– connect them all”) and on the other hand, it enables our obtaining new value from our software partners. Enabling our customers to see the systems and materials usage in real time helps them to enhance our own technological offerings much easier. This enables us to provide our customers with advanced remote features like remote support, predictive support and materials replenishment. That, in turn, generates sales of our integrated solutions.
Products and services
Our products
We offer a dedicated suite of products for applications such as rapid prototyping (RP), tooling, and manufacturing parts. Our products include 3D printing systems, consumable materials, software and services.
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print speed;
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resolution;
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materials;
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resin cartridge capacity / filament spool size;
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maximum model (or tray) size;
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repeatability; and
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duty cycle, or the number of parts that a printer can produce over a given period of time without requiring maintenance.
Printing systems
Our 3D printing systems, which are based on our proprietary FDM-(Fused Deposition Modeling), PolyJet, P3, SAF and stereolithography technologies, are described below:
PolyJet printers
Our PolyJet technology-based, high-end printing systems offer the ability to print eight multiple materials including color printing in a single part build. The Stratasys J8 Series printers break restrictive technology barriers, enabling customers to print more than 500,000 different color shades and textures, including Pantone® Validated colors, and multiple material properties- ranging from rigid to flexible, and opaque to transparent. They also 3D prints concept models twice as fast as our previous generation printers, supported by a low-cost DraftGrey material.
Stratasys’ market-leading FDM portfolio of printers has reached a milestone of 35,000 installed printers. FDM printers are designed to meet a wide range of applications, from prototyping to manufacturing tools, to production parts. The F-Series printers, made up of the F170, F370, F770, F190CR and F370CR models, are designed to meet end-to-end prototyping jigs & fixtures. The Fortus Series, made up of the F450 and F900 models, largely suit the production of end parts as well as higher requirement jigs & fixtures, and tooling.
The F Series printers enable prototypes that range from rapid, economically-effective concept verification models in PLA material/ fast-draft mode, to advanced design validation prototypes using a 0.005-inch slice resolution and soluble support for unmatched precision, repeatability and aesthetics. The F Series product line allows users to create parts in PLA, ABS plus, ASA, TPU, ABS-ESD, Diran and PC-ABS materials, which parts therefore possess the strength required for true form, fit and functional testing. The F Series printers are designed to enable ease of use and maintenance while offering an easy-to-use, yet rich user experience with GrabCAD Print software. In 2022, we introduced the composite ready F190CR and F370CR hardened printers that can print Nylon 10CF. These new printers meet customer demand for manufacturing floor jigs, fixtures and tooling with a higher performance composite material.
Stereolithography printers
Key vertical target markets for printing systems
To further strengthen our leadership position and following our strategy to deepen the focus on additive manufacturing, tooling and rapid prototyping for specific vertical markets, we have announced a variety of technology and go-to-market partnerships for various key vertical markets, such as automotive, aerospace, consumer products and healthcare.
Consumable materials
The materials we sell are described below:
FDM materials
Each material has specific characteristics that make it appropriate for various applications. The ability to use different materials allows the user to match the material to the end use application, whether it is a pattern for tooling, a concept model, a functional prototype, a manufacturing tool, or an end use part.
PolyJet materials
We have invested significant research and development efforts in optimizing our PolyJet materials for use with inkjet technology. These efforts are reflected in the properties of these materials, which enable them to be packaged, stored, combined and readily cured upon printing. Our PolyJet materials are packaged in cartridges for safe handling and are suitable for use in office environments. The polymerized materials can also be machined, drilled, chrome-plated or painted in most cases.
Stereolithography materials
Software
GrabCAD Print natively reads commonly used 3D CAD file formats as well as traditional STL and VRML files, transforming them into the appropriate code to operate our 3D printing systems. Our software provides a robust range of features, including structural toolpath and infill controls, color and appearance management, multi-material management, automatic support generation, part scaling, positioning and nesting, as well as geometric editing capabilities.
Our scheduling software includes capabilities to manage the operations of one or more printers including tray packing and optimization, job estimation, system availability, scheduling and monitoring via desktop, web or mobile devices. Additionally, analytics information is available in the form of standard utilization, material usage and job history reports enabling managers and operators to maximize the use of our 3D printing systems.
GrabCAD Streamline Shop simplifies the 3D Printing Shop workflow by substantially improving the way teams manage and collaborate on prototyping work orders. Engineers, designers and shop operators minimize time-to-part by sharing a common work space to simplify print work order management, communicating requirements accurately and focusing on delivering quality prints on time.
Our software is available in nine languages to promote usage in the regions worldwide in which we operate.
Online Community
GrabCAD Community
Our services
Support services and warranty
Customer support
Our customer success department provides on-site system installation, operator training, a full range of maintenance and repair services and remote technical support to users of our products. We provide support to our customers directly and through our resellers, ensuring that support and parts may be readily obtained worldwide. We also offer advanced training to our customers and preventive maintenance, particularly on our high-performance systems. Our support network consists of the following:
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Stratasys-certified engineers who provide worldwide, on-site installation, training and support;
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direct support engineers through our company;
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indirect support engineers through certified partners, including third-party service organizations or selected resellers who provide support for our systems;
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phone and direct on-site company support in eight languages, and resellers indirect support in local languages;
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service logistics in key regional centers;
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training facilities and resources in regional centers;
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customer-relationship management (CRM) system and learning management system (LMS) to ensure high-quality support for our customers and resellers, including secure remote access to a customer service database containing service history and technical documentation to aid in troubleshooting and repairing systems;
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support, tools and up-to-date information to our direct customer and distribution channels from our product support engineering team;
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full range of commercial service programs to support the high utilization of our 3D printers and our customers’ unique needs; and
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an e-commerce platform allowing for smooth and fast purchasing of our 3D printing materials.
Our goal is to ensure maximum uptime and productivity for our AM systems. In order to do so, we regularly update the technical documentation related to our systems, offer extensive training courses for operators and promote proactive knowledge sharing designed to help users maximize the value of their equipment and to expand the applications for which they employ our 3D printing and production systems.
We offer services on a time and materials basis, as well as a full range of post-warranty maintenance contracts with varying levels of support and pricing, as described below under “Extended support programs.” Customer support is represented on cross-functional product development teams within our company to ensure that products are designed for serviceability and to provide our internal design and engineering departments with feedback on field issues. Failure analysis, corrective action, and continuation engineering efforts are driven by data collected in the field. Ongoing customer support initiatives include the development of advanced diagnostic and troubleshooting techniques and comprehensive preventative maintenance programs, an expanded training and certification program for Stratasys and Stratasys partners’ technical personnel, and improved communication between the field and the factory.
Basic warranty
Our printing systems are sold with warranties that range from 90 days to, typically, one year from installation, depending upon the product line and geographic location. Warranties are typically accompanied by on-site maintenance support. Receipt of maintenance and repair services after the warranty period is subject to the terms of our extended support programs, to the extent purchased by the end-user, as described below.
Extended support programs
Recognizing that our end-users have varying support needs, we offer a range of support programs that enable our end-users to continue to receive maintenance services beyond the initial warranty period. These support programs contain varying degrees of the support services described above and are priced accordingly.
Leasing and other services
We have arrangements, in certain countries, in which third-party financial institutions independently provide lease financing directly to our customers, on a non-recourse basis to the Company. In these arrangements, we sell and transfer title of the equipment to these financial institutions. Generally, we have no continuing ownership rights in the equipment subsequent to its sale. In addition, we provide pay-per-usage subscription services for our 3D printers and 3D production systems via partners in our global manufacturing network. The revenues generated from such program were insignificant.
We also offer a ‘Try and Buy’ program, which provides businesses the ability to try out a 3D printer prior to deciding whether or not it’s the right fit for their company. The potential purchasers of a 3D printer receive customer support from our company during the trial period.
Stratasys Direct Manufacturing paid-parts service
Customers
Marketing, sales and distribution
Marketing
Our marketing strategies are focused on increasing awareness and thought leadership for our product and solution areas, strengthening our leadership brand position in the market, and in key vertical industries such as automotive, aerospace, medical, dental, fashion education and consumer goods, accelerating and supporting sales growth, and increasing customer loyalty and customer lifetime value. We initiate thought-leadership, public and industry analyst relations and product launch programs as well as integrated campaigns targeted to extend and deepen the relationship with our existing customers and win new customers, driving demand and lead generation throughout our strategic markets in which we and our resellers and agents operate.
We measure and analyze the success of various marketing initiatives and strive to identify current and future customer needs. Based on our analysis, we create and update our product roadmaps and individual marketing plans to help optimize distribution while helping ensure a smooth process of release, ramp-up and sales of our products.
Sales distribution methods
Geographic structure of sales organization
Manufacturing and suppliers
Manufacturing
Our filament production have used Factory Physics® techniques to manage critical buffers of time, capacity and inventory to ensure product availability. We also use the “5S” method (Sort, Set-in-order, Shine, Standardize and Sustain) and a continuous improvement system as part of our lean manufacturing initiatives to improve organization and efficiency.
Inventory and suppliers
We maintain an inventory of parts to facilitate the timely assembly of products required by our production plan. While most components are available from multiple suppliers, certain components used in our systems and consumables are only available from single or limited sources. In particular, the printer heads for our PolyJet 3D printing systems are supplied by a sole supplier, Ricoh. We consider our single and limited-source suppliers (including Ricoh) to be reliable, but the loss of one of these suppliers could result in the delay of the manufacture and delivery of the relevant components (and, ultimately, of our products). This type of delay could require us to find and re-qualify the component supplied by one or more new vendors. Although we consider our relationships with our suppliers to be good, we continue to develop risk management plans for these critical suppliers. In order to hedge against the risk of a discontinuation of the supply of our inkjet printer heads in particular, we maintain a reasonable supply of excess inventory of printer heads.
Ricoh Agreement
We purchase the printer heads for our inkjet 3D printing systems from Ricoh pursuant to an OEM Purchase and License Agreement with Ricoh, or the Ricoh Agreement.
Under the Ricoh Agreement, we place orders for print heads and associated electronic components, or the Ricoh Products. Together with provision of these items, Ricoh provides us with a non-transferable, non-exclusive right to assemble, use and sell the Ricoh Products under Ricoh’s patent rights and trade secrets.
Pricing under the Ricoh Agreement depends on the quantity of Ricoh Products that we purchase during any given month, and to the extent that we commit to a certain annual minimum prior to an upcoming year, we receive a set, discounted price for all Ricoh Products ordered during that upcoming year.
The Ricoh Agreement ran for an initial term of five years (which we renewed in September 2016) and automatically renews for additional one-year periods thereafter unless either party provides the other six months’ advance written notice of termination prior to the end of the then-current term. The Ricoh Agreement may be cancelled by either party if (i) the other party substantially breaches any material provision of the agreement and has not cured such breach within 30 days of receipt of written notice thereof, or (ii) upon the occurrence of certain bankruptcy events, and may furthermore be cancelled by Ricoh if we fail to cure a breach of an undisputed payment obligation within thirty (30) days of the breach.
At any time during the term of the Ricoh Agreement, Ricoh may discontinue the manufacture and supply of a print head model, so long as it provides us with at least eighteen (18) months’ prior written notice of such discontinuance and honors all of our purchase orders for the subject print head model within the notice period. During the period of five years from the earlier of either the termination of the Ricoh Agreement or the date of discontinuance of the manufacture of Ricoh Products (that is, following the 18-month notice period described in the previous sentence), we are entitled to purchase additional Ricoh Products for the sole purpose of providing replacements for the installed base of Ricoh Products, including one final purchase order that we may place in the final year of such five-year period and that must be filled by Ricoh within twelve months of when it is placed.
The Ricoh Agreement may not be assigned by either party without the other party’s prior written consent, which may not be unreasonably withheld.
Research and development
We maintain an ongoing program of research and development, or R&D, to develop new systems and materials and to enhance our existing product lines, as well as to improve and expand the capabilities of our systems and related software and materials. This includes significant technology platform developments for our FDM, PolyJet, P3, SAF and SL technologies, our AM systems, including our integrated software, and our family of proprietary acrylic-based photopolymer materials for PolyJet printing, and our family of proprietary thermoplastic materials for FDM printing. Our research aims to develop both incremental and disruptive improvements, as well as more affordable products. Our engineering development efforts also focus on customer requested enhancements, and development of new modeling processes, software and user applications. In particular, we have devoted significant time and resources to the development of a universally compatible and user-friendly software system.
Our R&D department is divided into groups based on scientific disciplines and product lines. We continue to standardize our product platforms, leveraging each new design so that it will result in multiple product offerings that are developed faster and at reduced expense.
Intellectual property
We are also a party to various licenses and other arrangements that allow us to practice and improve our technology under a broad range of patents, patent applications and other intellectual property, including a cross-license agreement with 3D Systems Corporation under which each party licensed certain patents of the other party, an assignment of rights to us related to UV polymer-based U.S. patents, which underlie certain technologies that compete with ours, and a patent license agreement with Cornell University providing access to certain tool changer patents.
We believe that, while our patents provide us with a competitive advantage, our success depends on our marketing, business development, applications know-how and ongoing research and development efforts, in addition to our rights under granted and pending patents. Accordingly, we believe that the expiration of any single patent, or the failure of any of single patent application to result in an issued patent, would not be material to our business or financial position. In any event, there can be no assurance that our patents or other intellectual property rights will afford us a meaningful competitive advantage. Please see the risk factor related to the expiration of our patents in “Item 3.D Risk Factors-Risks related to our intellectual property.”
Competition
These technologies, which compete for additive manufacturing users, possess various competitive advantages and disadvantages relative to one another within the key categories upon which competition centers, including resolution, accuracy, surface quality, variety and properties of the materials they use and produce, capacity, speed, color, transparency, the ability to print multiple materials and others. Due to these multiple categories, end-users usually make purchasing decisions as to which technology to choose based on the characteristics that they value most. This decision is often application specific. The competitive environment that has developed is therefore intense and dynamic, as players often position their technologies to capture demand in various verticals simultaneously.
We are positioned to compete in our industry mainly on the following bases, which we view as competitive strengths:
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material properties of printed objects, such as heat resistance, toughness, brittleness, elongation-to-break, color and flexibility;
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quality of printed objects measured by, among other things, resolution, accuracy and surface quality;
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multiple production-grade modeling materials;
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our offering of the best multi-color, multi-material 3D printing systems in the market;
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reliability and repeatability of our printing systems;
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ease of use, including of one-step automated modeling process.
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automatic, hands-free support removal;
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high level of customer service; and
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deep application domain know-how and expert services, including among our channel network.
We offer a wide range of systems with varying features, capacities and price points. We believe that this enables us to compete with the other additive manufacturing technologies for a wide range of customers with a variety of applications and goals for their additive manufacturing.
We also compete with companies that use traditional prototype development and customized manufacturing technologies, and expect future competition to arise from the development of new technologies or techniques.
Seasonality
Historically, our results of operations have been subject to seasonal factors. Stronger demand for our products has historically occurred in our fourth quarter primarily due to our customers’ capital expenditure budget cycles and our sales compensation incentive programs. Our first and third quarters have historically been our weakest quarters for overall unit demand. The first quarter is typically a slow quarter for capital expenditures in general. The third quarter is typically when we see our largest volume of educational related sales, which normally qualify for special discounts as part of our long-term penetration strategy.
We experience seasonality within individual fiscal quarters, as a substantial percentage of our system sales often occur within the last month of each fiscal quarter. This trend has the potential to expose our quarterly or annual operating results to the risk of unexpected, decreased revenues in the case of our inability to build systems, consummate sales and recognize the accompanying revenues prior to the end of a given quarter.
Global operations
Employees
Government regulation
We are subject to various local, state and federal laws, regulations and agencies that affect businesses generally. These include:
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regulations promulgated by federal and state environmental and health agencies;
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foreign environmental regulations, as described under “Environmental, Social and Governance Matters” immediately below;
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the federal Occupational Safety and Health Administration;
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the U.S. Foreign Corrupt Practices Act;
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laws pertaining to the hiring, treatment, safety and discharge of employees;
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export control regulations for U.S. made products;
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CE regulations for the European market.
Effective as of February 2023, as a result of the launch of our first certified medical device with TrueDent resin in the United States, we are now also subject to medical device regulations, such as the U.S. FDA Code of Federal Regulations.
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Israeli Tax Considerations and Government Programs
General Corporate Tax Structure in Israel
Generally, Israeli companies are subject to corporate tax on their taxable income. Since 2018, the corporate tax rate has been 23%. However, the effective tax rate payable by a company that derives income from an “Approved Enterprise”, a “Beneficiary Enterprise” or a “Preferred Enterprise”, a “Special Preferred Enterprise”, a “Preferred Technology Enterprise” or “Special Preferred Technology Enterprise” as further discussed below, may be considerably lower. See “Law for the Encouragement of Capital Investments” in this Item below. Capital gains derived by an Israeli company are generally subject to the prevailing regular corporate tax rate.
Besides being subject to the general corporate tax rules in Israel, we have also, from time to time, applied for and received certain grants and tax benefits from, and participate in, programs sponsored by the Government of Israel, described below.
Law for the Encouragement of Capital Investments
The Law for the Encouragement of Capital Investments, 5719-1959, to which we refer as the Investment Law, provides certain incentives for capital investments in a production facility (or other eligible assets). Generally, an investment program that is implemented in accordance with the provisions of the Investment Law, which may be either an “Approved Enterprise”, a “Beneficiary Enterprise” or a “Preferred Enterprise”, a “Special Preferred Enterprise”, a “Preferred Technology Enterprise” or “Special Preferred Technology Enterprise”, is entitled to benefits as discussed below. These benefits may include cash grants from the Israeli government and tax benefits, based upon, among other things, the location within Israel of the facility in which the investment and manufacture activity are made. In order to qualify for these incentives, an Approved Enterprise, a Beneficiary Enterprise or, a Preferred Enterprise, a Special Preferred Enterprise, a Preferred Technology Enterprise or Special Preferred Technology Enterprise, is required to comply with the requirements of the Investment Law.
The following discussion is a summary of the Investment Law prior to its amendments as well as the relevant changes contained in the new legislations.
Tax benefits for Approved Enterprises approved before April 1, 2005.
Under the Investment Law prior to the 2005 Amendment, a company that wished to receive benefits on its investment program that is implemented in accordance with the provisions of the Investment Law, to which we refer as an “Approved Enterprise”, had to receive an approval from the Israeli Authority for Investments and Development of the Industry and Economy, to which we refer as the Investment Center. Each certificate of approval for an Approved Enterprise relates to a specific investment program in the Approved Enterprise, delineated both by the financial scope of the investment, including sources of funds, and by the physical characteristics of the facility or other assets.
An Approved Enterprise may elect to forego any entitlement to the cash grants otherwise available under the Investment Law and, instead, participate in an alternative benefits program. We have chosen to receive the benefits through the alternative benefits program. Under the alternative benefits program, a company’s undistributed income derived from an Approved Enterprise will be exempt from corporate tax for a period of between two and ten years from the first year of taxable income, depending on the geographic location within Israel of the Approved Enterprise, and a reduced corporate tax rate of between 10% to 25% for the remainder of the benefits period, depending on the level of foreign investment in the company in each year, as detailed below. The benefits commence on the date in which that taxable income is first earned. The benefits period under Approved Enterprise status is limited to 12 years from the year in which the production commenced (as determined by the Investment Center), or 14 years from the year of receipt of the approval as an Approved Enterprise, whichever ends earlier. If a company has more than one Approved Enterprise program or if only a portion of its capital investments are approved, its effective tax rate is the result of a weighted combination of the applicable rates. The tax benefits available under any certificate of approval relate only to taxable income attributable to the specific program and are contingent upon meeting the criteria set out in the certificate of approval. Income derived from activity that is not integral to the activity of the Approved Enterprise will not enjoy tax benefits. Our entitlement to the above benefits is subject to fulfillment of certain conditions, according to the law and related regulations.
A company that has an Approved Enterprise program is eligible for further tax benefits if it qualifies as a Foreign Investors’ Company, to which we refer as an FIC. An FIC eligible for benefits is essentially a company with a level of foreign investment, as defined in the Investment Law, of more than 25%. The level of foreign investment is measured as the percentage of rights in the company (in terms of shares, rights to profits, voting and appointment of directors), and of combined share and loan capital, that are owned, directly or indirectly, by persons who are not residents of Israel. The determination as to whether or not a company qualifies as a FIC is made on an annual basis according to the lowest level of foreign investment during the year. An FIC that has an Approved Enterprise program will be eligible for an extension of the period during which it is entitled to tax benefits under its Approved Enterprise status (so that the benefits period may be up to ten years) and for further tax benefits if the level of foreign investment exceeds 49%. If a company that has an Approved Enterprise program is a wholly owned subsidiary of another company, then the percentage of foreign investments is determined based on the percentage of foreign investment in the parent company.
The corporate tax rates and related levels of foreign investments with respect to an FIC that has an Approved Enterprise program are set forth in the following table:
|
Percentage of non-Israeli ownership |
|
Corporate Tax Rate |
|
Over 25% but less than 49% |
|
up to 25% |
|
49% or more but less than 74% |
|
20% |
|
74% or more but less than 90% |
|
15% |
|
90% or more |
|
10% |
In addition, dividends paid out of income attributed to an Approved Enterprise (or out of dividends received from a company whose income is attributed to an Approved Enterprise) are generally subject to withholding tax at the rate of 15%, or at a lower rate provided under an applicable tax treaty (subject to the receipt in advance of a valid certificate from the Israel Tax Authority allowing for a reduced tax rate). The 15% tax rate is limited to dividends and distributions out of income derived during the benefits period and actually paid at any time up to 12 years thereafter. After this period, the withholding tax is applied at a rate of up to 30%, or at the lower rate under an applicable tax treaty (subject to the receipt in advance of a valid certificate from the Israel Tax Authority allowing for a reduced tax rate). In the case of an FIC, the 12-year limitation on reduced withholding tax on dividends does not apply.
The Investment Law also provides that an Approved Enterprise is entitled to accelerated depreciation on its property and equipment that are included in an approved investment program in the first five years of using the equipment. This benefit is an incentive granted by the Israeli government regardless of whether the alternative benefits program is elected.
The benefits available to an Approved Enterprise are subject to the continued fulfillment of conditions stipulated in the Investment Law and its regulations and the criteria in the specific certificate of approval, as described above. If a company does not meet these conditions, it would be required to refund the amount of tax benefits, adjusted to the Israeli consumer price index and interest, or other monetary penalty.
Tax benefits under the 2005 Amendment that became effective on April 1, 2005.
The 2005 Amendment applies to new investment programs and investment programs commencing after 2004, and does not apply to investment programs approved prior to April 1, 2005. The 2005 Amendment provides that terms and benefits included in any certificate of approval that was granted before the 2005 Amendment became effective (April 1, 2005) will remain subject to the provisions of the Investment Law as in effect on the date of such approval. Pursuant to the 2005 Amendment, the Investment Center will continue to grant Approved Enterprise status to qualifying investments. However, the 2005 Amendment limits the scope of enterprises that may be approved by the Investment Center by setting criteria for the approval of a facility as an Approved Enterprise.
An enterprise that qualifies under the new provisions is referred to as a “Beneficiary Enterprise”, rather than “Approved Enterprise”. The 2005 Amendment provides that the approval of the Investment Center is required only for Approved Enterprises that receive cash grants. As a result, a company is no longer required to obtain the advance approval of the Investment Center in order to receive the tax benefits previously available under the alternative benefits program. Rather, a company may claim the tax benefits offered by the Investment Law directly in its tax returns, provided that its facilities meet the criteria for tax benefits set forth in the 2005 Amendment. A company that has a Beneficiary Enterprise may, at its discretion, approach the Israel Tax Authority for a pre-ruling confirming that it is in compliance with the provisions of the Investment Law.
Tax benefits are available under the 2005 Amendment to production facilities (or other eligible facilities) which are generally required to derive 25% or more of their business income from export to specific markets with a population of at least 14 million in 2012 (such export criteria will further be increased in the future by 1.4% per annum). In order to receive the tax benefits, the 2005 Amendment states that a company must make an investment which meets certain conditions set forth in the amendment for tax benefits and which exceeds a minimum amount specified in the Investment Law. Such investment entitles a company to receive a Beneficiary Enterprise status with respect to the investment and may be made over a period of no more than three years ending in the year in which the company chose to have the tax benefits apply to the Beneficiary Enterprise. The benefits period under the Beneficiary Enterprise status is limited to 12 years from the year the company chose to have its tax benefits apply. Where a company requests to have the tax benefits apply to an expansion of existing facilities, only the expansion will be considered to be a Beneficiary Enterprise and the company’s effective tax rate will be the weighted average of the applicable rates. In such case, the minimum investment required in order to qualify as a Beneficiary Enterprise must exceed a certain percentage of the value of the company’s production assets before the expansion.
The extent of the tax benefits available under the 2005 Amendment to qualifying income of a Beneficiary Enterprise depends on, among other things, the geographic location within Israel of the Beneficiary Enterprise. Such tax benefits include an exemption from corporate tax on undistributed income for a period of between two to ten years, depending on the geographic location of the Beneficiary Enterprise within Israel, and a reduced corporate tax rate of between 10% to 25% for the remainder of the benefits period, depending on the level of foreign investment in the company in each year, as explained above.
Dividends paid out of income attributed to a Beneficiary Enterprise will be treated similarly to payment of dividends by an Approved Enterprise under the alternative benefits program. Therefore, dividends paid out of income attributed to a Beneficiary Enterprise (or out of dividends received from a company whose income is attributed to a Beneficiary Enterprise) are generally subject to withholding tax at the rate of 15% or such lower rate as may be provided in an applicable tax treaty (subject to the receipt in advance of a valid certificate from the Israel Tax Authority allowing for a reduced tax rate). The reduced rate of 15% is limited to dividends and distributions out of income attributed to a Beneficiary Enterprise during the benefits period and actually paid at any time up to 12 years thereafter except with respect to an FIC, in which case the 12-year limit does not apply.
The benefits available to a Beneficiary Enterprise are subject to the continued fulfillment of conditions stipulated in the Investment Law and its regulations. If a company does not meet these conditions, it would be required to refund the amount of tax benefits, as adjusted by the Israeli consumer price index and interest, or other monetary penalty.
In 2021, the Company gave notice to the Israeli tax authorities that it waived the Approved / Beneficiary Enterprise regime starting from tax year 2021.
Tax benefits under the 2011 Amendment that became effective on January 1, 2011.
The 2011 Amendment canceled the availability of the benefits granted in accordance with the provisions of the Investment Law prior to 2011 and, instead, introduced new benefits for income generated by a “Preferred Company” through its Preferred Enterprise (as such terms are defined in the Investment Law) as of January 1, 2011. A Preferred Company is defined as either (i) a company incorporated in Israel which is not wholly owned by a governmental entity, or (ii) a limited partnership that: (a) was registered under the Israeli Partnerships Ordinance and; (b) all of its limited partners are companies incorporated in Israel, but not all of them are governmental entities; which has, among other things, Preferred Enterprise status and is controlled and managed from Israel. Pursuant to the 2011 Amendment, a Preferred Company was entitled to a reduced corporate tax rate of 15% with respect to its preferred income attributed to its Preferred Enterprise in 2011 and 2012, unless the Preferred Enterprise was located in a certain development zone, in which case the rate was 10%. Such corporate tax rate was reduced to 12.5% and 7%, respectively, in 2013 and was increased to 16% and 9%, respectively, in 2014 until 2016. Pursuant to the 2017 Amendment, in 2017 and thereafter, the corporate tax rate for Preferred Enterprise which is located in a certain development zone was decreased to 7.5%, while the reduced corporate tax rate for other development zones remains 16%. Income derived by a Preferred Company from a ‘Special Preferred Enterprise’ (as such term is defined in the Investment Law) would be entitled, during a benefits period of 10 years, to further reduced tax rates of 8%, or to 5% if the Special Preferred Enterprise is located in a certain development zone. Since January 1, 2017, the definition for “Special Preferred Enterprise” includes less stringent conditions.
Dividends paid out of preferred income attributed to a Preferred Enterprise or to a Special Preferred Enterprise are generally subject to withholding tax at source at the rate of 20% or such lower rate as may be provided in an applicable tax treaty (subject to the receipt in advance of a valid certificate from the Israel Tax Authority allowing for a reduced tax rate). However, if such dividends are paid to an Israeli company, no tax is required to be withheld (although, if such dividends are subsequently distributed to individuals or a non-Israeli company, withholding tax at a rate of 20% or such lower rate as may be provided in an applicable tax treaty will apply). In 2018-2020, dividends paid out of preferred income attributed to a Special Preferred Enterprise, directly to a foreign parent company, were subject to withholding tax at source at the rate of 5% (temporary provisions).
The 2011 Amendment also provided transitional provisions to address companies already enjoying current benefits under the Investment Law. These transitional provisions provide, among other things, that unless an irrevocable request is made to apply the provisions of the Investment Law as amended in 2011 with respect to income to be derived as of January 1, 2011: (i) the terms and benefits included in any certificate of approval that was granted to an Approved Enterprise, which chose to receive grants, before the 2011 Amendment became effective, will remain subject to the provisions of the Investment Law as in effect on the date of such approval, and subject to certain conditions;. (ii) the terms and benefits included in any certificate of approval that was granted to an Approved Enterprise, that had participated in an alternative benefits program, before the 2011 Amendment became effective will remain subject to the provisions of the Investment Law as in effect on the date of such approval, provided that certain conditions are met; and (iii) a Beneficiary Enterprise can elect to continue to benefit from the benefits provided to it before the 2011 Amendment came into effect, provided that certain conditions are met.
We have examined the possible effect, if any, of these provisions of the 2011 Amendment on our financial statements and have decided, at this time, not to opt to apply the new benefits under the 2011 Amendment.
Tax benefits under the 2017 Amendment that became effective on January 1, 2017.
The 2017 Amendment was enacted as part of the Economic Efficiency Law that was published on December 29, 2016, and was effective as of January 1, 2017. The 2017 Amendment provides new tax benefits for two types of “Technology Enterprises”, as described below, and is in addition to the other existing tax beneficial programs under the Investment Law.
The 2017 Amendment provides that a technology company satisfying certain conditions will qualify as a “Preferred Technology Enterprise” and will thereby enjoy a reduced corporate tax rate of 12% on income that qualifies as “Preferred Technology Income,” as defined in the Investment Law. The tax rate is further reduced to 7.5% for a Preferred Technology Enterprise located in development zone A. In addition, a Preferred Technology Company will enjoy a reduced corporate tax rate of 12% on capital gain derived from the sale of certain “Benefitted Intangible Assets” (as defined in the Investment Law) to a related foreign company if the Benefitted Intangible Assets were acquired from a foreign company on or after January 1, 2017 for at least NIS 200 million, and the sale receives prior approval from the IIA.
The 2017 Amendment further provides that a technology company satisfying certain conditions will qualify as a “Special Preferred Technology Enterprise” and will thereby enjoy a reduced corporate tax rate of 6% on “Preferred Technology Income” regardless of the company’s geographic location within Israel. In addition, a Special Preferred Technology Enterprise will enjoy a reduced corporate tax rate of 6% on capital gain derived from the sale of certain “Benefitted Intangible Assets” to a related foreign company if the Benefitted Intangible Assets were either developed by the Special Preferred Technology Enterprise or acquired from a foreign company on or after January 1, 2017, and the sale received prior approval from the IIA. A Special Preferred Technology Enterprise that acquires Benefitted Intangible Assets from a foreign company for more than NIS 500 million will be eligible for these benefits for at least ten years, subject to certain approvals as specified in the Investment Law.
Dividends distributed by a Preferred Technology Enterprise or a Special Preferred Technology Enterprise, paid out of Preferred Technology Income, are generally subject to withholding tax at source at the rate of 20% or such lower rate as may be provided in an applicable tax treaty (subject to the receipt in advance of a valid certificate from the Israel Tax Authority allowing for a reduced tax rate). However, if such dividends are paid to an Israeli company, no tax is required to be withheld. If such dividends are distributed to a foreign company and other conditions are met, the withholding tax rate will be 4%.
C. Organizational Structure.
Our corporate structure includes Stratasys Ltd., our Israeli parent company, and the following main active wholly-owned subsidiary entities:
Please see the list of subsidiaries appended to this annual report as Exhibit 8 for a complete list of our subsidiaries as of the date of this annual report.
D. Property, Plants and Equipment.
We have dual headquarters, in Eden Prairie, Minnesota and Rehovot, Israel.
Our Eden Prairie, Minnesota headquarters (near Minneapolis) is comprised of executive offices and production facilities that encompassed, as of December 31, 2022, approximately 308,646 square feet, of which we owned 227,100 square feet, in three buildings. Those buildings served the following purposes: system assembly, inventory storage, operations and sales support; manufacturing for one of our Stratasys Direct Manufacturing paid parts service locations; research and development, filament manufacturing, administrative, marketing and sales activities; and expansion of our production capacity for systems and consumables. During 2022, we entered into a new lease of an additional 168,100 square feet for storage purposes, which increases our shipping efficiency and eliminates the cost increase for managing our inventory through third parties. We took that new space as part of our warehouse consolidation project. During 2022 we entered into a new lease of additional 168,100 square feet for storage purposes which increases our shipping efficiency and eliminate cost increase for managing our inventory by 3rd party as part of Warehouse consolidation project (3)
As of December 31, 2022, we lease office space (except with respect to our Eden Prairie headquarters facilities and our Rehovot, Israel and Kiryat Gat, Israel facilities, where we own the property) for various purposes, as set forth in the table below. Unless otherwise stated, all of our facilities are fully utilized. Our material tangible fixed assets include, among other things, the properties listed below.
|
Location: |
Primary Usage: |
Area (Sq. Feet) | |||
|
Americas: |
|||||
|
Eden Prairie, Minnesota |
U.S. headquarters |
308,646 |
|||
|
Valencia, California |
Offices and warehouses |
55,035 |
|||
|
San Diego, California |
Facilities |
56,383 |
|||
| Belton, Texas | Offices and warehouses | 39,680 | |||
|
Austin, Texas |
Facilities |
33,178 |
(1 | ||
| Plymouth, Minnesota | Warehouse | 168,100 | |||
| Other facilities in Americas | 36,543 | (3 | |||
| Europe and the Middle East: | |||||
| Rehovot, Israel | Israeli headquarters | 284,713 | (2) | ||
| Kiryat Gat, Israel | Factories and warehouse | 126,617 | |||
| Rheinmunster, Germany | Europe main office | 55,027 | |||
| United Kingdom | Offices and lab space | 28,945 | |||
| Other facilities in EMEA | Offices and lab space | 16,758 | |||
| Asia Pacific: | |||||
| Hong Kong | Asia Pacific main office | 4,994 | |||
| Japan | Sales office | 13,109 | |||
| China | Sales office | 15,018 | |||
| Other facilities in Asia Pacific | Office space | 14,913 | |||
| (1) | Makerbot- Brooklyn NY -36,950 sqf. Since Sep 1st Makerbot is no longer consolidated by Stratasys and therefore removed from the property list. |
| (1) | This square footage includes the area of the two buildings of our new Israel headquarters in Rehovot, Israel. The second of those buildings was inhabited by us in May 2021, of which 92,400 square feet was leased by us to a third party under a long-term lease and another 12,119 of square feet was leased by us to another third party for a short term lease that will expire on December 31, 2023. |
| (3) | The sites Skunkworks, RiverFalls and Pondview were shut down as part of Warehouse consolidation in MN. Origin office in SF will relocate to Israel headquarter during Q1-23. Valencia 2 was merged into Valencia 1 |
ITEM 4A. UNRESOLVED STAFF COMMENTS.
None.
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS.
A. Operating Results.
Overview of Business and Trend Information
Business Performance in Macro-Economic Environment
- further actions taken by central banks in Europe and the U.S. to increase interest rates as a means to slow down inflation, which may worsen credit/financing conditions for our customers who purchase our products;
- potential contraction of economic activities and recessionary conditions that could arise as a result of interest rate increases and a decrease in consumer demand;
- any further government-mandated shutdowns in China due to COVID-19 outbreaks, which could slow down our supply chain; and
- the continued depreciated value of the Euro relative to the U.S. dollar, which has been having and may continue to have an adverse impact on the U.S.- denominated value of our European-derived revenues for purposes of our financial statements.
Key measures of our performance
Revenues
Our revenues results primarily from sales of (i) our products, which include both our AM systems and related consumable materials, (ii) provision of related services and (iii) our direct manufacturing service. We generate revenues and deliver services principally through the following channels:
•
sales to resellers, who purchase and resell our products and who provide support services for our printing systems;
•
sales of systems that are marketed by independent sales agents, pursuant to which we sell directly to end-users, pay commissions to such agents, and directly handle the sale of consumables and provision of support services; and
•
sales of systems (and all related products and services) as well as our direct manufacturing solutions that we provide to our customers directly.
Product revenues
Product revenues are influenced by a number of factors, including, among other things, (i) the adoption rate for our products, (ii) end-user product design application and manufacturing activity, and (iii) the capital expenditure budgets of end-users and potential end-users, all of which may be significantly influenced by macroeconomic factors. Product revenues are also impacted by the mix of 3D printers that we sell. Purchases of our 3D printing and production systems, especially our higher-end, higher-priced systems, typically involve longer sales cycles.
Product revenues also depend upon the volume of consumables that we sell. Sales of our consumable materials are linked to the number of AM systems that are installed and active worldwide. Sales of consumables are also driven by system usage, which is generally a function of the size of the particular system and the level of design and manufacturing activity and budget of the particular end-user. Larger systems generally use greater amounts of consumables due to their greater capacity and the higher levels of design and production.
Services revenues
Services revenues derive from (i) maintenance contracts and initial systems warranty; (ii) direct manufacturing paid-parts services; and (iii) other professional service contracts. In addition, in connection with direct sales, we generally charge separately for installation and training. Additional services revenues are generated from services contracts most often entered into directly with end-users subsequent to the expiration of the initial warranty period.
Costs of revenues
Our most significant components of costs of revenues are costs of materials used for our products, wages and related benefits costs, which together accounted for approximately 64% of our total direct cost of revenues for the year ended December 31, 2022. An additional significant component of our costs of revenues is the amortization expense that we primarily incur in connection with developed technology assets acquired as part of our business combinations. These amortization expenses vary based on the timing and type of acquisitions and estimated useful lives of the respective intangible assets. These amortization expenses were $28.2 million, $22.4 million and $15.6 million for the years ended December 31, 2022, 2021 and 2020, respectively. During the year ended December 31, 2020, we recorded under cost of revenues impairment charges $5.3 million, related to our definite life intangible assets. No impairment charges were recorded during 2022 and 2021. Refer to Note 8 of our consolidated financial statements included in Item 18 of this annual report.
For the year ended December 31, 2022, a hypothetical 10% rise in commodity prices for raw materials would have caused an approximate $16.5 million increase in costs of revenues in our Consolidated Statements of Operations and Comprehensive loss. As to wages and related benefits, a 10% increase in wages due to wage inflation would have caused an approximate $5.1 million increase in costs of revenues in our Consolidated Statements of Operations and Comprehensive loss. During 2022, we did not notice particular trends that changed, or were expected to change in the near future, the absolute or relative significance of the components of our costs of revenues in a material manner. We also believe that inflation has not had a material effect on our operations or on our financial condition during the three most recent fiscal years, as we have used price increases to offset the cost pressures caused by inflation.
Currently, we do not foresee a significant change in either the raw materials used for production or wage inflation that would materially impact our business. For further information, please see “Item 11. Quantitative And Qualitative Disclosures About Market Risk” in this annual report.
Gross profit
The gross profit and gross margin for our products are influenced by a number of factors. The most important of these is the mix of our products sold. Specifically, the gross margins on our higher-end AM systems, as well as on our consumables, are typically higher than the gross margins on our entry-level products and MakerBot desktop printers. Accordingly, an increase in the share of revenues of our entry-level products out of total revenues could cause our profit margins to decrease. Furthermore, we believe that as our worldwide installed base of AM systems increases, subsequent sales of our proprietary consumables will also increase. We also seek to reduce our costs of revenues by improving our ability to use less costly components, better management of our inventories levels and increasing manufacturing efficiencies in the production of our systems. In addition, we will also seek to achieve lower material costs and leverage our overall capabilities in our direct manufacturing service business.
Products gross margins are also impacted by the mix of revenues generated from sales to resellers based in different geographical areas as opposed to sales that are facilitated by independent sales agents or directly by us.
Service gross margins are influenced mainly by the volume of revenues generated from our direct manufacturing service business as well as the ratio of service engineers to our installed base in a given geographic area.
Operating expenses
Our operating expenses for 2022 consisted of (i) research and development expenses, and (ii) selling, general and administrative expenses.
Research and development expenses, net
Our research and development activities consist of projects aimed at developing new printing systems and materials and projects aimed at enhancing the capabilities of our existing product lines, as well as significant technology platform and applications, developments for our current technologies, including our integrated software. We also seek to develop disruptive technologies and other process improvement solutions in the additive manufacturing ecosystem. Our research and development expenses consist primarily of employee compensation and employee-related personnel expenses, materials, laboratory supplies, costs for related software and costs for facilities. Expenditures for research, development and engineering of products are expensed as incurred. Our research and development efforts are essential to our future growth and our ability to remain competitive in the AM market. We work closely with existing and potential customers, distribution channels and major resellers, who provide significant feedback for product development and innovation.
We are also entitled to reimbursements from certain government funding plans. These reimbursements are recognized as a reduction of expenses as the related cost is incurred. We are not required to pay royalties on sales of products developed using our government funding.
Selling, general and administrative expenses
Our selling, general and administrative expenses include employee compensation and employee-related expenses for marketing, sales and other sales-operation positions, and for managerial and administrative functions, including executive officers, accounting, legal, information technology and human resources. This category of expenses also covers commissions, advertising and promotions expenses, professional service fees, respective depreciation, amortization expenses related to certain intangible assets, as well as associated overhead.
Commissions consist of sales-based commissions to independent sales agents and internal sales personnel. Commission rates vary, depending on the geographic location of the agent, type of products sold, and the degree of achievement of certain performance targets. Our advertising and promotion expenses consist primarily of media advertising costs, trade and consumer marketing expenses and public relations expenses which aim to strengthen the leadership of our brand in key vertical markets.
Facilities costs that are included in our selling, general and administrative expenses include an allocated portion of the occupancy costs for our facilities in countries where sales, marketing and administrative personnel are located. Professional service fees for accounting and legal services are also included in selling, general and administrative expenses.
2022 Financial Highlights
Significant highlights of our financial performance in 2022 included:
•
Revenues increased by $44.3 million, or 7.3%, compared to 2021. The increase reflects higher revenues in all revenue streams which resulted mainly from our new products offerings.
• Operating expenses decreased by $5.7 million, or 1.7% compared to 2021. The decrease was primarily attributable to a reduction in contingent consideration liabilities of $18.3 million partially offset by higher employee related expenses mainly as a result of higher headcount due to our recent acquisitions.
• Gain from deconsolidation of subsidiary of $39.1 million that resulted from the divestment of MakerBot, our previously consolidated subsidiary.
•
Net loss amounted to $29.0 million or basic and diluted net loss per share of $0.44 in 2022, compared to net loss of $62.0 million, or basic and diluted net loss per share of $0.98, in 2021, which was reduction in net loss mainly due to our higher gross profit of $16.4 million, and a reduction in contingent consideration liabilities of $18.3 million partially offset by higher employee related expenses and higher tax expenses.
- Total cash and cash equivalents and restricted cash amounted to $150.5 million and short-term deposits amounted to $177.4 million as of December 31, 2022, which, when aggregated together, reflected a decrease of$174.3 million compared to the corresponding total amount as of December 31, 2021. The decrease in cash, cash equivalents, restricted cash and short-term deposits in 2022 was due to increased cash used in operating, investing and financing activities, which amounted to $75.4 million, $7.2 million and $2.8 million, respectively, in 2022.
Results of Operations
We are providing within this section a discussion and analysis of our historical statement of operations data in accordance with accounting principles generally accepted in the United State of America, or GAAP. While our financial statements included in Item 18 of this annual report include data for each of the three years ended December 31, 2022, 2021 and 2020, the discussion and analysis contained in this Item 5.A is limited to a comparison of our results of operations for the years ended December 31, 2022 and 2021. For a discussion and analysis of our results for the year ended December 31, 2020, and a comparison of those results with those of the year ended December 31, 2019, please see “Item 5. Operating and Financial Review and Prospects—A. Operating Results—Results of Operations” in our annual Report on Form 20-F for the year ended December 31, 2021, which we filed with the SEC on February 24, 2022.
The following table sets forth certain financial data derived from our consolidated statements of operations and comprehensive loss, presented as percentages of our revenues for the years indicated:
| Year ended December 31, | |||||||
| 2022 | 2021 | ||||||
| Revenues | 100.0 | % | 100.0 | % | |||
| Cost of revenues | 57.6 | % | 57.2 | % | |||
| Gross profit | 42.4 | % | 42.8 | % | |||
| Research and development, net | 14.3 | % | 14.5 | % | |||
| Selling, general and administrative | 37.0 | % | 41.3 | % | |||
| Operating loss | (8.8 | )% | (13.0 | )% | |||
| Gain from step acquisition | 0.0 | % | 2.4 | % | |||
| Gain from deconsolidation of subsidiary | 6.0 | % | 0.0 | % | |||
| Financial income (expenses), net | 0.0 | % | (0.3 | )% | |||
| Loss before income taxes | (2.7 | )% | (11.0 | )% | |||
| Taxes on income (tax benefit) | 0.8 | % | (0.6 | )% | |||
| Share in profits (losses) of associated companies | (0.9 | )% | 0.2 | % | |||
| Net loss | (4.4 | )% | (10.2 | )% | |||
| Net loss attributable to non-controlling interests | 0.0 | % | 0.0 | % | |||
| Net loss attributable to Stratasys Ltd. | (4.4 | )% | (10.2 | )% | |||
Discussion of Results of Operations
The below tables and related discussion present an item by item comparison of our results of operations for each of the two years ended December 31, 2022 and 2021.
Revenues
Our products and services revenues for the last two years, as well as the percentage change from year to year, were as follows:
| Year Ended December 31, | |||||||||||
| % Change | |||||||||||
| 2022 | 2021 | 2022-2021 | |||||||||
| U.S. $ in thousands | |||||||||||
| Products | $ | 452,124 | $ | 417,557 | 8.3 | % | |||||
| Services | 199,359 | 189,662 | 5.1 | % | |||||||
| $ | 651,483 | $ | 607,219 | 7.3 | % | ||||||
Our total consolidated revenues in 2022 were $651.5 million, an increase of $44.3 million, or 7.3%, compared to 2021.
Products Revenues
Revenues derived from products (including systems and consumable materials) increased by $34.6 million, or 8.3%, in 2022 as compared to 2021 mainly due to new products offerings and higher usage of our systems, partially offset by $17.8 million as a result of unfavorable exchange rates and the impact of MakerBot divestiture.
Services Revenues
Revenues by Region
Revenue amounts and the percentage of our overall revenues by region for the last two years, as well as the percentage change in revenue amounts for each such region from year to year, were as follows:
| Year Ended December 31, | ||||||||||||||||
| 2022 | 2021 | |||||||||||||||
| Revenue amount (U.S. $ in thousands) | % of overall revenues | Revenue amount (U.S. $ in thousands) | % of overall revenues | |||||||||||||
| Americas* | $ | 415,428 | 63.8 | % | $ | 388,323 | 63.9 | % | ||||||||
| EMEA | 141,660 | 21.7 | % | 130,296 | 21.5 | % | ||||||||||
| Asia Pacific | 94,395 | 14.5 | % | 88,600 | 14.6 | % | ||||||||||
| $ | 651,483 | 100.0 | % | $ | 607,219 | 100.0 | % | |||||||||
| *Consists of the United States, Canada and Latin America | ||||||||||||||||
Revenues in the Americas region increased by $27.1 million, or 7.0%, to $415.4 million in 2022 compared to $388.3 million in 2021.The increase was in all revenue streams.
Revenues in the EMEA region increased by $11.4 million, or 8.7%, to $141.7 million in 2022 compared to $130.3 million in 2021.The increase was primarily driven by higher systems revenues.
Revenues in the Asia Pacific region increased by $5.8 million, or 6.5%, to $94.4 million in 2022 compared to $88.6 million in 2021.The increase was primarily driven by higher systems revenues.
Gross Profit
Gross profit from our products and services for the last two years, as well as the percentage change from year to year, were as follows:
| Year Ended December 31, | Percentage Change (later year compared to earlier) | |||||||||||
| 2022 | 2021 | 2022-2021 | ||||||||||
| U.S. $ in thousands | ||||||||||||
| Gross profit attributable to: | ||||||||||||
| Products | $ | 217,523 | $ | 206,616 | 5.3 | % | ||||||
| Services | 58,944 | 53,462 | 10.3 | % | ||||||||
| $ | 276,467 | $ | 260,078 | 6.3 | % | |||||||
Gross profit as a percentage of revenues for our products and services for the last two years, as well as the percentage change from year to year, were as follows:
| Year Ended December 31, | Change in % (relative to earlier year %) | |||||||
| 2022 | 2021 | 2022-2021 | ||||||
| U.S. $ in thousands | ||||||||
| Gross profit as a percentage of revenues from: | ||||||||
| Products | 48.1% | 49.5% | (2.8)% | |||||
| Services | 29.6% | 28.2% | 4.9% | |||||
| Total gross profit | 42.4% | 42.8% | (0.9)% | |||||
Gross profit attributable to products revenues increased by $11.0 million, or 5.3%, to $217.5 million in 2022, as compared to $206.6 million in 2021. Gross profit attributable to products revenues as a percentage of revenues decreased to 48.1% in 2022, as compared to 49.5% in 2021. Our gross profit from products revenues increased as a result of higher product revenues, as well as a favorable product mix, partially offset by higher amortization expenses of $5.8 million.
Gross profit attributable to services revenues increased by $5.5 million, or 10.3%, to $58.9 million in 2022 as compared to $53.5million in 2021. Gross profit from services as a percentage of services revenues in 2022 increased to 29.6% as compared to 28.2% in 2021. Our gross profit from services revenues increased as a result of higher revenues.
Operating Expenses
The amount of each type of operating expense for the last two years, as well as the percentage change between such annual periods, and total operating expenses as a percentage of our total revenues in each such year, were as follows:
| Year Ended December 31, | Change from earlier to later year, as a % of amount in earlier year | ||||||||||
| 2022 | 2021 | 2022-2021 | |||||||||
| U.S. $ in thousands | |||||||||||
| Research and development, net | $ | 92,876 | $ | 88,303 | 5.2 | % | |||||
| Selling, general and administrative | 240,750 | 250,937 | (4.1 | )% | |||||||
| $ | 333,626 | $ | 339,240 | (1.7 | )% | ||||||
| Percentage of revenues | 51.2 | % | 55.9 | % | |||||||
Operating Loss
Operating loss and operating loss as a percentage of our total revenues for the last two years, as well as the percentage change in operating loss between those years, were as follows:
| Year Ended December 31, | Change from earlier to later year, as a % of amount in earlier year | |||||||||||
| 2022 | 2021 | 2022-2021 | ||||||||||
| U.S. $ in thousands | ||||||||||||
| Operating loss | $ | (57,159 | ) | $ | (79,162 | ) | (27.8 | )% | ||||
| Percentage of revenues | (8.8 | )% | (13.0 | )% | ||||||||
Gain from Step Acquisition
Gain From Deconsolidation Of Subsidiary
On August 31, 2022, we completed the previously-announced merger of our subsidiary MakerBot with Ultimaker, into a new company that had been created under the name Ultimaker. The transaction was accounted for as an equity method investment, and, accordingly, we recorded an investment of $105.6 million, and a net gain of $39.1 million from the deconsolidation of MakerBot.
Financial Income (Expenses), net
Financial expenses, net, which were primarily comprised of foreign currencies effects, interest income and interest expense, amounted to $0.23 million for the year ended December 31, 2022, compared to financial expenses, net, of $2.1 million for the year ended December 31, 2021.
Income Taxes
Income tax expense and income tax expense as a percentage of net loss before income taxes for the last two years, as well as the percentage change in income taxes between those years, were as follows:
| Year Ended December 31, | |||||||||||
| 2022 | 2021 | 2022-2021 | |||||||||
| U.S. $ in thousands | Change as a % of amount in 2022 | ||||||||||
| Loss before income taxes | $ | (17,794 | ) | $ | (66,837 | ) | (73.4 | )% | |||
| Income tax benefit (expense) | $ | (5,454 | ) | $ | 3,906 | (239.6 | )% | ||||
| As a percent of loss before income taxes | (30.7 | )% | 5.8 | % | |||||||
We had an effective tax rate of (30.7%) for the year ended December 31, 2022 as compared to an effective tax rate of 5.8% for the year ended December 31, 2021. Our effective tax rate in 2022 was primarily impacted by: (i) changes in the geographic mix of foreign taxable income and loss; (ii) a significant movement in valuation allowance and (iii) a change in uncertain tax position. Our effective tax rate in 2021 was primarily impacted by: (i) changes in the geographic mix of foreign taxable income and loss; (ii) a movement in valuation allowance; and (iii) the release of uncertain tax position due to settlement of tax audits.
Our effective tax rate is based on recurring factors, including the geographic mix of foreign taxable income and loss, as well as nonrecurring items that may not be predictable.
For a full reconciliation of our effective tax rate to the Israeli statutory rate of 23% and for further explanation of our provision for income taxes, refer to Note 9 to our consolidated financial statements included in Item 18 of this annual report.
Share in Profit (Losses) of Associated Companies
Net Loss and Net Loss Per Share
Net loss, net loss as a percentage of our total revenues, and diluted net loss per share, for the last two years, as well as the percentage change in net loss between those years, were as follows:
| Year Ended December 31, | |||||||||||
| 2022 | 2021 | 2022-2021 Change (as a % of amount in 2022) | |||||||||
| U.S. $ in thousands | |||||||||||
| Net loss | $ | (28,974 | ) | $ | (61,982 | ) | (53.25 | )% | |||
| Percentage of revenues | (4.45 | )% | (10.21 | )% | |||||||
| Basic and diluted net loss per share | $ | (0.44 | ) | $ | (0.98 | ) | (55.38 | )% | |||
Net loss for the year ended December 31, 2022 was $29.0 million, as compared to $62.0 million for the year ended December 31, 2021. The decrease in net loss was attributable to the decrease in our operating loss, partially offset by higher tax expenses.
Diluted net loss per share for the years ended December 31, 2022 and 2021 was $0.44 and $0.98, respectively. The weighted average, basic and diluted number of shares outstanding for the year ended December 31, 2022 was 66.5 million, compared to 63.5 million for the year ended December 31, 2021.
Non-GAAP Financial Measures
The following non-GAAP data for the fiscal years ended December 31, 2022 and 2021, which excludes certain items as described below, are non-GAAP financial measures. Our management believes that these non-GAAP financial measures are useful information for investors and shareholders of our company in gauging our results of operations (i) on an ongoing basis after excluding mergers, acquisitions and divestments related expense or gains and restructuring-related charges or gains, legal provisions and (ii) excluding non-cash items such as stock-based compensation expenses, acquired intangible assets amortization, including intangible assets amortization related to equity method investments, impairment of long-lived assets and goodwill, revaluation of investments and the corresponding tax effect of those items. The items eliminated in our non-GAAP adjustments either do not reflect actual cash outlays that impact our liquidity and our financial condition or have a non-recurring impact on our statement of operations, as assessed by management. These non-GAAP financial measures are presented to permit investors to more fully understand how management assesses our performance for internal planning and forecasting purposes. The limitations of using these non-GAAP financial measures as performance measures are that they provide a view of our results of operations without including all items indicated above during a period, which may not provide a comparable view of our performance to other companies in our industry. Investors and other readers should consider non-GAAP measures only as supplements to, not as substitutes for or as superior measures to, the measures of financial performance prepared in accordance with GAAP. Reconciliation between results on a GAAP and non-GAAP basis is provided in the table below.
Reconciliation of GAAP and Non-GAAP Results of Operations
| Twelve Months Ended December 31, | ||||||||||||
| 2022 | Non-GAAP | 2022 | ||||||||||
| GAAP | Adjustments | Non-GAAP | ||||||||||
| U.S. dollars and shares in thousands (except per share amounts) | ||||||||||||
| Gross profit (1) | $ | 276,467 | $ | 36,016 | $ | 312,483 | ||||||
| Operating loss (1,2) | (57,159 | ) | 70,691 | 13,532 | ||||||||
| Net income (loss) attributable to Stratasys Ltd. (1,2,3) | (28,974 | ) | 39,235 | 10,261 | ||||||||
| Net loss per diluted share attributable to Stratasys Ltd. (4) | $ | (0.44 | ) | $ | 0.59 | $ | 0.15 | |||||
| (1) | Acquired intangible assets amortization expense | 28,158 | ||||||||||
| Non-cash stock-based compensation expense | 4,083 | |||||||||||
| Restructuring and other related costs | (174 | ) | ||||||||||
| Impairment charges | 3,949 | |||||||||||
| 36,016 | ||||||||||||
| (2) | Acquired intangible assets amortization expense | 8,950 | ||||||||||
| Non-cash stock-based compensation expense | 29,378 | |||||||||||
| Restructuring and other related costs | 2,737 | |||||||||||
| Revaluation of investments | 3,777 | |||||||||||
| Contingent consideration | (18,293 | ) | ||||||||||
| Other expenses | 8,126 | |||||||||||
| 34,675 | ||||||||||||
| 70,691 | ||||||||||||
| (3) | Corresponding tax effect | 4,989 | ||||||||||
| Equity method related amortization, divestments and impairments | $ | 2,285 | ||||||||||
| Adjustments attributable to non-controlling interest | 406 | |||||||||||
| Gain from deconsolidation | (39,136) | |||||||||||
| 39,235 | ||||||||||||
| (4) | Weighted average number if ordinary shares outstanding- Basic and diluted | 66,491 | 67,068 | |||||||||
| Twelve Months Ended December 31, | ||||||||||||
| 2021 | Non-GAAP | 2021 | ||||||||||
| GAAP | Adjustments | Non-GAAP | ||||||||||
| U.S. dollars and shares in thousands (except per share amounts) | ||||||||||||
| Gross profit (1) | $ | 260,078 | $ | 30,447 | $ | 290,525 | ||||||
| Operating loss (1,2) | (79,162 | ) | 77,479 | (1,683 | ) | |||||||
| Net income (loss) attributable to Stratasys Ltd. (1,2,3) | (61,982 | ) | 57,639 | (4,343 | ) | |||||||
| Net loss per diluted share attributable to Stratasys Ltd. (4) | $ | (0.98 | ) | $ | 0.91 | $ | (0.07 | ) | ||||
| (1) | Acquired intangible assets amortization expense | 22,392 | ||||||||||
| Non-cash stock-based compensation expense | 3,093 | |||||||||||
| Restructuring and other related costs | 1,642 | |||||||||||
| Impairment charges | 3,320 | |||||||||||
| 30,447 | ||||||||||||
| (2) | Acquired intangible assets amortization expense | 8,878 | ||||||||||
| Non-cash stock-based compensation expense | 27,884 | |||||||||||
| Impairment of long-lived assets | 1,447 | |||||||||||
| Restructuring and other related costs | 2,743 | |||||||||||
| Revaluation of investments | (1,303 | ) | ||||||||||
| Contingent consideration | 570 | |||||||||||
| Other expenses | 6,813 | |||||||||||
| 47,032 | ||||||||||||
| 77,479 | ||||||||||||
| (3) | Corresponding tax effect | (864 | ) | |||||||||
| Equity method related amortization, divestments and impairments | (4,576 | ) | ||||||||||
| Gain from step acquisition | $ | (14,400 | ) | |||||||||
| $ | 57,639 | |||||||||||
| (4) | Weighted average number if ordinary shares outstanding- Basic and diluted | 63,471 | 63,471 | |||||||||
Forward-looking Statements and Factors That May Affect Future Results of Operations
See “Cautionary Note Regarding Forward-Looking Statements” at the beginning of this annual report (following the table of contents).
Variability of Operating Results
Our revenues and profitability may vary in any given year, and from quarter to quarter, depending on the timing, number and mix of products sold and the average selling price of the products, and are also affected by the seasonality of our business. In addition, due to competition, uncertain market acceptance and other factors, we may be required to reduce prices for our products in the future. In the wake of the COVID-19 pandemic, it is also useful to gauge the variability of our operating results on a linear basis, for each quarter compared to the previous one, in addition to on a year-over-year basis, compared to the corresponding period of the prior year. We have not seen a steady pattern as to the level of demand for our products in particular quarters of the year since the second quarter of 2020. Nevertheless, in our outlook for 2023, we expect our revenues to grow sequentially, largely because of expected new product introductions later as the year progresses.
Effective Corporate Tax Rate
See “Israeli Tax Considerations and Government Programs — General Corporate Tax Structure in Israel” in Item 4.B above for a discussion of the general tax structure in Israel and applicable corporate tax rates.
Effects of Government Regulations and Location on our Business
For a discussion of the effects of Israeli governmental regulation and our location in Israel on our business, see “Israeli Tax Considerations and Government Programs” in Item 4.B above and the “Risks related to operations in Israel” in Item 3.D above.
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
See “Foreign Currency Exchange Risk” in Item 11 below for a discussion of foreign currency transactions.
B. Liquidity and Capital Resources
| Year Ended December 31, | |||||||||
| 2022 | 2021 | ||||||||
| U.S $ in thousands | |||||||||
| Net loss | $ | (28,974 | ) | $ | (61,982 | ) | |||
| Impairment of other long-lived assets | 3,865 | 1,447 | |||||||
| Depreciation and amortization | 59,769 | 56,096 | |||||||
| Stock-based compensation | 33,461 | 30,977 | |||||||
| Foreign currency transactions gain (loss) | 9,090 | 3,446 | |||||||
| Gain from deconsolidation of subsidiary | (39,136 | ) | - | ||||||
| Deferred income taxes, net and uncertain tax positions | 926 | (12,380 | ) | ||||||
| Other non-cash items, net | (9,079 | ) | (13,736 | ) | |||||
| Change in working capital and other items | (105,327 | ) | 31,956 | ||||||
| Net cash provided by operating activities | (75,405 | ) | 35,824 | ||||||
| Net cash used in investing activities | (7,213 | ) | (291,165 | ) | |||||
| Net cash provided by financing activities | (2,769 | ) | 227,311 | ||||||
| Effect of exchange rate changes on cash, cash equivalents and restricted cash | (7,220 | ) | (893 | ) | |||||
| Net change in cash, cash equivalents and restricted cash | (92,607 | ) | (28,923 | ) | |||||
| Cash, cash equivalents and restricted cash, beginning of year | 243,293 | 272,216 | |||||||
| Cash, cash equivalents and restricted cash, end of year | $ | 150,686 | $ | 243,293 | |||||
Our cash, cash equivalents and restricted cash balances decreased to $150.7 million as of December 31, 2022 as compared to $243.3 million as of December 31, 2021. The decrease in cash, cash equivalents and restricted cash in 2022 was mainly due to cash flows used in operating activities.
Cash flows from operating activities
Year ended December 31, 2022
Year ended December 31, 2021
We generated $35.8 million of cash from our operating activities during 2021. Cash generated in operations derived from our net loss of $62 million, as adjusted primarily due to non-cash items including depreciation, amortization and impairment charges of goodwill and long-lived assets in an aggregate amount of $57.5 million, and stock-based compensation of $31 million and foreign currency transactions gains and a movement in deferred income taxes, which were partially offset by $13.7 million movement in other non-cash items net. Favorable changes in our working capital balances were mainly driven by an increase in our accounts payable balance.
Cash flows from investing activities
Year ended December 31, 2022
We used $7.2 million of cash in our investing activities during 2022. The net cash use during 2022 mostly reflected $69.1 million used for investments in unconsolidated entities (mainly Ultimaker), and $13.6 million that we invested for the purchase of property and equipment, partially offset by net proceeds that we withdrew from short-term bank deposits.
Year ended December 31, 2021
Cash flows from financing activities
Year ended December 31, 2022
We used $2.8 million of cash in our financing activities during 2022. These financing activities were mostly related to contingent consideration that we paid for acquisitions.
Year ended December 31, 2021
Capital resources and capital expenditures
Our total current assets amounted to $697.3 million as of December 31, 2022, of which $327.8 million consisted of cash, cash equivalents, short-term deposits and restricted cash. Total current liabilities amounted to $210.7 million as of December 31, 2022.
Most of our cash and cash equivalents are held in banks in Israel and the U.S.
The credit risk related to our accounts receivable is limited due to the relatively large number of customers and their wide geographic distribution. In addition, we seek to reduce the credit exposures of our accounts receivable by imposing credit limits, conducting ongoing credit evaluation, and by implementing account monitoring procedures, as well as by carrying credit insurance for many of our customers.
We believe that we will have adequate cash and cash equivalents to fund our ongoing operations and that these sources of liquidity will be sufficient to satisfy our working capital and capital expenditures needs, as well as our debt requirements, for the next twelve months.
Additional factors potentially impacting capital resources
We have also committed to make potential future payments to third parties as part of our acquisitions of Origin and Xaar. These payments are contingent upon the occurrence of certain future events and, given the nature of these events, it is unclear when, if ever, we may be required to pay such amounts. The total contingent payments could reach an aggregate amount of up to $61 million.
E. Critical Accounting Estimates
For a description of our significant accounting policies, see note 1 to our consolidated financial statements included in Item 18 of this annual report.
The preparation of our consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions in certain circumstances that affect the amounts reported in the accompanying consolidated financial statements and related footnotes. Actual results may differ from these estimates. We base our judgments on our experience and on various assumptions that we believe to be reasonable under the circumstances.
Of our policies, the following are considered the most critical to an understanding of our consolidated financial statements as they require the application of the most subjective and complex judgment, involving critical accounting estimates and assumptions impacting our consolidated financial statements. We have applied our policies and critical accounting estimates consistently across our businesses:
- Business combination
- Intangibles
- Goodwill
- Income taxes
We base our estimates on historical experience and on various other assumptions which we believe to be reasonable under the circumstances. Because of the uncertainty inherent in these matters, actual results could differ materially from the estimates we use in applying these policies.
Business combination
In accordance with ASC Topic 805, “Business Combination”, we allocate the fair value of purchase consideration to the assets acquired and liabilities assumed based on their estimated fair values. The excess of the fair value of purchase consideration over the fair values of these identifiable assets and liabilities is recorded as goodwill.
Fair value estimates are based on the assumptions management believes a market participant would use in pricing the asset or liability.
In the Company’s recent acquisitions, intangible assets and goodwill represented a majority of the assets acquired. Assessing fair values of intangible assets acquired in a business combination involves significant judgment about future events and uncertainties and depends on estimates and assumptions. Significant estimates utilized in valuating intangible assets include discount rates and future expected cash flow, which rely upon assumptions such as the useful life of the assets, revenue growth rates and margins projections, technological obsolescence and income tax rate assumptions.
On November 1, 2021 we acquired the remaining 55% equity interest of Xaar 3D, for aggregate consideration of $29.3 million. We paid cash upon closing and we are obligated to make additional earn-out payments and royalty payments on products and services sales for up to 15 years. We accounted for the transaction as a step acquisition and accordingly we increased the value of our previously held equity investment to its fair value of $23.8 million, which resulted in a total purchase price of $53.1 million and a gain of approximately $14.4 million.
Intangibles
Most of our identifiable intangible assets were recognized as part of business combinations we have executed in the current and prior periods. Our identifiable intangible assets are considered definite life intangible assets and are primarily comprised of developed technology, trademarks and trade names, customer relationships and patents. Definite life intangible assets are amortized using the straight-line method over their estimated period of useful life.
Our determination of the fair value of the intangible assets acquired involves the use of significant estimates and assumptions. Refer to the “Business combination” section above. We believe that the fair value assigned to the assets acquired and liabilities assumed are based on reasonable assumptions and estimates that a market participant would use. Should conditions differ from management’s estimates at the time of the acquisition, including changes in volume or timing to current expectations of future revenue growth rates and forecasted margins, or changes in market factors outside of our control, such as discount rates, material write-downs of intangible assets may be required, which would adversely affect our operating results.
We monitor events and changes in circumstances that could indicate carrying amounts of intangible assets may not be recoverable. We review the carrying amounts of our intangible assets for potential impairment when events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Impairment indicators may include any significant changes in the manner of our use of the assets or the strategy of our overall business, certain reorganization initiatives, significant negative industry or economic trends and significant decline in our share price for a sustained period.
During the years ended December 31, 2022, and 2021, we did not record any impairment charges related to our definite life intangible assets.
Goodwill
See note 7 to our consolidated financial statements for further details on the goodwill impairment test in 2022.
Income Taxes
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES.
A. Directors and Senior Management.
The following table lists the names and ages of our current directors, as well as the names, ages and positions of the current members of our senior management, as of the filing date of this annual report:
|
Name |
Age |
Position | ||
|
Dov Ofer |
68 |
Chairman of the Board of Directors | ||
|
S. Scott Crump |
69 |
Director | ||
|
John J. McEleney |
60 |
Director | ||
|
Ziva Patir |
72 |
Director | ||
|
David Reis |
62 |
Director | ||
|
Michael Schoellhorn |
57 |
Director | ||
|
Yair Seroussi |
67 |
Director | ||
| Adina Shorr | 62 | Director | ||
|
Yoav Zeif |
56 |
Chief Executive Officer | ||
|
Eitan Zamir |
46 |
Chief Financial Officer |
Yoav Zeif has served as our chief executive officer since February 18, 2020. Prior to joining our company, from 2018 until February 2020, Mr. Zeif was a partner in the New York office of McKinsey & Company, a global strategic advisory firm that is based in New York. Before serving in that role, Mr. Zeif served as President of the Americas Division, Head of Product Offering and Chief Commercial Officer at Netafim, the world’s largest micro-irrigation company, from 2013 to 2018. Prior to that, he served as Senior Vice President of Products and Marketing at Makhteshim (now Adama Ltd.), a global crop-protection company, where he managed the entire portfolio of products and all global commercial relationships. Yoav obtained an Executive MBA from the Kellogg School of Management at Northwestern University and a Ph.D. in International Economics from Bar-Ilan University.
Eitan Zamir has served as our Chief Financial Officer since February 2022. He joined Stratasys in 2019 and thereafter has overseen all external financial reporting, accounting, tax, treasury, and Sarbanes-Oxley compliance for the organization along with extensive involvement in capital raising and M&A activities. Prior to joining Stratasys, Mr. Zamir was a Partner at Price Waterhouse Coopers (PwC), based in Tel Aviv and New York. Mr. Zamir is a certified public accountant who earned his bachelor’s degree, with honors, in accounting and economics from the Hebrew University in Jerusalem, and a Master of Science with an emphasis in financial management from Tel Aviv University.
Arrangements for Election of Directors and Members of Management; Family Relationships
There are no arrangements or understandings pursuant to which any of our directors or members of senior management were selected for their roles. There are also no family relationships among any directors or members of our senior management.
B. Compensation.
The following table presents all compensation that we paid, or accrued, during the year ended December 31, 2022 to all persons who served as a director or as a member of senior management of our company at any time during the year. The table includes amounts that we paid to reimburse any of these persons for costs incurred in providing us with services during that period.
|
Salaries, Fees, Bonuses Commissions, and Related Benefits Paid or Accrued (1) |
Pension, Retirement and Other Similar Benefits | |||||
|
All directors and members of senior management as a group (2) |
$ |
2,360,953(3) |
$ |
254,319 | ||
| *The amount 2,360,953 below should ONLY include payment related to 2021 (2021 bonus). | |
|
(1) |
Does not include the value attributable to stock option or restricted stock unit (RSU) grants. For a discussion of stock option and RSU grants to our directors and members of senior management, see below. |
| (2) | Comprised of the current directors and senior management members listed in the table under “Directors and Senior Management” in Item 6.A above. |
(3) |
This compensation amount for the year ended December 31, 2022 excludes an aggregate of $0.8 million of bonuses that were paid in 2022 in respect of services that had been performed during the previous year. |
Pursuant to the Companies Law, the fees payable to our directors and our chief executive officer require approval by (i) the compensation committee of our board, (ii) the board of directors and (iii) our shareholders (in that order). Please see “Compensation Policy and Committee” in Item 6.C (“Board Practices”) below for further information regarding the requirements under the Companies Law in connection with the compensation of directors.
Director Compensation
|
Name of Director |
Annual Fee/Salary (1) |
Annual Board Committee Retainer (and/or Chairman Retainer) | ||||||
|
Dov Ofer |
$ | 200,000(2) | - | |||||
|
S. Scott Crump |
$ | 60,000 | - | |||||
|
John J. McEleney |
$ | 60,000 | $ | 30,000(3) | ||||
|
Ziva Patir |
$ | 60,000 | $ | 10,000(4) | ||||
|
David Reis |
$ | 60,000 | $ | 10,000(5) | ||||
|
Michael Schoellhorn |
$ | 60,000 | - | |||||
|
Yair Seroussi |
$ | 60,000 | $ | 20,000(6) | ||||
|
Adina Shorr |
$ | 60,000 | $ | 10,000(7) | ||||
|
(1) |
The amounts reflected in
the “Annual Fee/Salary” column do not include additional annual retainer
amounts payable to each director who serves (including as chairman) on a
committee of our board of directors, which additional amounts are reflected in
the “Annual Board Committee Retainer (and/or Chairman Retainer)” column. |
| (2) | Mr. Ofer’s compensation as our Chairman of the Board was approved by our shareholders at our 2020 annual general meeting of shareholders in November 2020. |
| (3) | Consists of the $20,000 annual retainer for serving as chairman of the compensation committee, plus a $10,000 annual retainer for serving on the audit committee. |
| (4) | Constitutes the $10,000 annual retainer for serving on the compensation committee. |
| (5) | Constitutes the $10,000 annual retainer for serving on the compensation committee |
| (6) | Constitutes the $20,000 annual retainer for serving as chairman of the audit committee. |
| (7) | Constitutes the $10,000 annual retainer for serving on the audit committee. |
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Director/Officer Equity Compensation
Grants to independent/non-employee directors
Exercise Price (for options): Equal to the fair market value of our ordinary shares, determined based on the average of the closing prices of an ordinary share on the trading days during the 30-day period following the election or re-election of the director by our shareholders.
Office Holder Compensation
The table below outlines the compensation granted to our five most highly compensated senior office holders during or with respect to the year ended December 31, 2022, in the disclosure format of Regulation 21 of the Israeli Securities Regulations (Periodic and Immediate Reports), 1970. We refer to the five individuals for whom disclosure is provided herein as our “Covered Executives.”
For purposes of the table and the summary below, and in accordance with the above-mentioned securities regulations, “compensation” includes base salary, bonuses, equity-based compensation, retirement or termination payments, benefits and perquisites such as car, phone and social benefits and any undertaking to provide such compensation.
Summary Compensation Table
Information Regarding the Covered Executive(1)
|
Name and Principal Position (2) |
Base Salary |
Variable Compensation (3) |
Benefit and Perquisites (4) |
Total Compensation, Excluding Equity-Based Compensation |
Equity-Based Compensation (5) |
Total | ||||||||||||
|
Yoav Zeif, CEO |
$ |
626,158 |
$ |
488,404 |
$ |
246,628 |
$ |
1,361,190 |
$ |
2,075,994 |
$ |
3,437,184 | ||||||
| Guy Yair, ROW President | 339,298 | 135,595 | 132,373 | 607,266 | 580,829 | $ | 1,188,096 | |||||||||||
| Omer Kreiger, EVP Products | 336,515 | 131,229 | 119,313 | 587,058 | 558,315 | $ | 1,145,373 | |||||||||||
| Richard Garrity, Chief Industrial Business Unit Officer | 333,512 | 145,107 | 32,897 | 511,516 | 576,462 | $ | 1,087,978 | |||||||||||
| Yossi Azarzar, COO | $ | 322,024 | $ | 142,740 | $ | 109,683 | $ | 574,447 | $ | 465,608 | $ | 1,040,055 |
|
(1) |
All amounts reported in the table are in terms of cost to the Company in U.S. dollars, as recorded in our financial statements. |
|
(2) |
All current executive officers listed in the table are full-time employees or consultants of our company. Cash compensation amounts denominated in currencies other than the U.S. dollar were converted into U.S. dollars at the average conversion rate for 2022. |
|
(3) |
Amounts reported in this column refer to commission, incentive and the maximum contractual bonus payments potentially payable for 2022. |
|
(4) |
Amounts reported in this column include benefits and perquisites, including those mandated by applicable law. Such benefits and perquisites may include, to the extent applicable to the Covered Executive, payments, contributions and/or allocations for savings funds, pension, severance, vacation, house or house allowance, car or car allowance, medical insurances and benefits, risk insurances (e.g., life, disability, accident), convalescence pay, payments for social security, tax gross-up payments, sign-up and relocation bonus and other benefits and perquisites consistent with our guidelines. |
|
(5) |
Amounts reported in this column represent the expense recorded in our financial statements for the year ended December 31, 2022 with respect to equity-based compensation. Equity-based compensation is determined based on the awards’ fair value on their grant date. Assumptions and key variables used in the calculation of such amounts are described in Note 11 to our audited consolidated financial statements, which are included in Item 18 of this annual report. |
Members of our senior management are eligible for bonuses each year. The bonuses are payable upon meeting objectives and targets that are set annually by our Chief Executive Officer and approved by our compensation committee and our board of directors, in that order. These same corporate bodies also set the bonus targets for our Chief Executive Officer. In accordance with a December 2012 amendment to the Companies Law, we have adopted a compensation policy that governs the compensation of our directors and senior management and which has been approved (both initially, and then in updated form) by (i) the compensation committee of our board, (ii) the board of directors and (iii) our shareholders (most recently, at our September 2018 annual general meeting of shareholders) (in that order). Please see “Compensation Policy and Committee” in Item 6.C (“Board Practices”) below for further information.
C. Board Practices.
Board of Directors
Under the Companies Law, the management of our business is vested in our board of directors. Our board of directors may exercise all powers and may take all actions that are not specifically granted to our shareholders or to management. Our board of directors serves as the primary corporate body responsible for risk management for our company, including cybersecurity risks, and periodically consults with the management of our company to obtain updates concerning, and internally discusses, the most material risks currently facing our company, and how those risks are being mitigated. Our executive officers are responsible for our day-to-day management and have individual responsibilities established by our board of directors. Our Chief Executive Officer is appointed by, and serves at the discretion of, our board of directors, subject to the employment agreement that we have entered into with him. All other executive officers are also appointed by our board of directors, subject to the terms of any applicable employment agreements that we may enter into with them.
Under our amended articles, our board of directors must consist of at least seven and not more than 11 directors, including, to the extent applicable, at least two external directors required to be elected under the Companies Law.
In May 2016, we elected to be governed by a then-newly-adopted exemption under the Companies Law regulations that exempts us from appointing external directors and from complying with the Companies Law requirements related to the composition of the audit committee and compensation committee of our board of directors. Our eligibility for that exemption is conditioned upon: (i) the continued listing of our ordinary shares on the Nasdaq Stock Market (or one of a few select other non-Israeli stock exchanges); (ii) there not being a controlling shareholder (generally understood to be a 25% or greater shareholder) of our company under the Companies Law; and (iii) our compliance with the Nasdaq Listing Rules requirements as to the composition of (a) our board of directors-which requires that we maintain a majority of independent directors (as defined under the Nasdaq Listing Rules) on our board of directors and (b) the audit and compensation committees of our board of directors (which require that such committees consist solely of independent directors (at least three and two members, respectively), as described under the Nasdaq Listing Rules). At the time that it determined to exempt our company from the external director requirement, our board affirmatively determined that we meet the conditions for exemption from the external director requirement, including that a majority of the members of our board, along with each of the members of the audit and compensation committees of the board, are independent under the Nasdaq Listing Rules.
Our board of directors may appoint directors to fill vacancies on the board, for a term of office equal to the remaining period of the term of office of the director(s) whose office(s) have been vacated.
In accordance with the exemption available to foreign private issuers under the Nasdaq Listing Rules, we do not follow the requirements of the Nasdaq rules with regard to the process of nominating directors. Instead, we follow Israeli law and practice, in accordance with which our board of directors (based on the recommendation of the executive committee thereof) is authorized to recommend to our shareholders director nominees for election. Under the Companies Law and our amended articles, nominations for directors may also be made by any shareholder holding at least one percent (1%) of our outstanding voting power. However, any such shareholder may make such a nomination only if a written notice of such shareholder’s intent to make such nomination (together with certain documentation required under the Companies Law) has been delivered to our registered Israeli office within seven days after we publish notice of our upcoming annual general meeting (or within 14 days after we publish a preliminary notification of an upcoming annual general meeting).
In addition to its role in making director nominations, under the Companies Law, our board of directors must determine the minimum number of directors who are required to have accounting and financial expertise. Under applicable regulations, a director with accounting and financial expertise is a director who, by reason of his or her education, professional experience and skill, has a high level of proficiency in and understanding of business accounting matters and financial statements. See “—External Directors” in this Item 6.C below. He or she must be able to thoroughly comprehend the financial statements of the company and initiate debate regarding the manner in which financial information is presented. In determining the number of directors required to have such expertise, our board of directors must consider, among other things, the type and size of our company and the scope and complexity of its operations. Our board of directors has determined that our company requires one director with such expertise.
External Directors
Under the Companies Law, the boards of directors of companies whose shares are publicly traded, including companies with shares traded in the United States, are generally required to include at least two members who qualify as external directors.
Our election to exempt our company from compliance with the external director requirement can be reversed at any time by our board of directors, in which case we would need to hold a shareholder meeting to once again appoint external directors, whose election would be for a three-year term. The election of each external director would require a majority vote of the shares present and voting at a shareholders meeting, provided that either:
•
the majority voted in favor of election includes a majority of the shares held by non-controlling shareholders who do not have a personal interest in the election of the external director (other than a personal interest not deriving from a relationship with a controlling shareholder) that are voted at the meeting, excluding abstentions, which we refer to as a disinterested majority; or
•
the total number of shares held by non-controlling, disinterested shareholders (as described in the previous bullet-point) voted against the election of the director does not exceed two percent (2%) of the aggregate voting rights in the company.
The term “controlling shareholder” is defined in the Companies Law as a shareholder with the ability to direct the activities of the company, other than by virtue of being an office holder. A shareholder is presumed to be a controlling shareholder if the shareholder holds 50% or more of the voting rights in a company or has the right to appoint the majority of the directors of the company or its general manager (i.e., its CEO).
For further information concerning the Companies Law provisions related to external directors, please see “Item 6. Directors, Senior Management and Employees-C. Board Practices-Board of Directors-External Directors” in our annual report on Form 20-F for the year ended December 31, 2015, which we filed with the SEC on March 21, 2016.
Board Committees
Audit Committee
Under the Companies Law, the board of directors of a public company must appoint an audit committee. The audit committee must consist of at least three directors. To the extent a company is required to appoint external directors, this committee must include all of the external directors, one of whom must serve as chairman of the committee. There are additional requirements as to the composition of the audit committee under the Companies Law. However, when we elected to exempt our company from the external director requirement, we concurrently elected to exempt our company from all of such requirements (which exemption is conditioned on our fulfillment of all Nasdaq listing requirements related to the composition of the audit committee).
The members of our audit committee consist of John McEleney, Yair Seroussi and Adina Shorr. Mr. Seroussi serves as chairman of the committee. Our board of directors has determined that each of Messrs. McEleney and Seroussi, and Ms. Shorr, meets the independence requirements set forth in the Listing Rules of the Nasdaq Stock Market and in Rule 10A-3 under the Exchange Act.
Our board of directors has determined that Mr. Seroussi qualifies as an audit committee financial expert, as defined under Item 16A of the SEC’s Form 20-F, and has the requisite financial sophistication set forth in the Nasdaq rules and regulations.
Our board of directors has adopted an audit committee charter that sets forth the responsibilities of the audit committee consistent with the rules of the SEC and the Listing Rules of the Nasdaq Stock Market, as well as the requirements for such committee under the Companies Law, including the following:
•
oversight of our independent registered public accounting firm and recommending the engagement, compensation or termination of engagement of our independent registered public accounting firm to the board of directors in accordance with Israeli law;
•
recommending the engagement or termination of the person filling the office of our internal auditor; and
•
recommending the terms of audit and non-audit services provided by the independent registered public accounting firm for pre-approval by our board of directors.
Our audit committee provides assistance to our board of directors in fulfilling its legal and fiduciary obligations in matters involving our accounting, auditing, financial reporting, internal control and legal compliance functions by pre-approving the services performed by our independent accountants and reviewing their reports regarding our accounting practices and systems of internal control over financial reporting. Our audit committee also oversees the audit efforts of our independent accountants and takes those actions that it deems necessary to satisfy itself that the accountants are independent of management.
Under the Companies Law, our audit committee is responsible for (i) determining whether there are deficiencies in the business management practices of our company, including in consultation with our internal auditor or the independent auditor, and making recommendations to the board of directors to improve such practices, (ii) determining whether to approve certain related party transactions (including transactions in which an office holder has a personal interest and whether such transaction is extraordinary) (see “-Approval of related party transactions under Israeli Law” below in this Item 6.C), (iii) determining standards and policies for determining whether a transaction with a controlling shareholder or a transaction in which a controlling shareholder has a personal interest is deemed insignificant or not and the approval requirements (including, potentially, the approval of the audit committee) for transactions that are not insignificant including the types of transactions that are not insignificant, (iv) where the board of directors approves the working plan of the internal auditor, to examine such working plan before its submission to the board and propose amendments thereto, (v) examining our internal controls and internal auditor’s performance, including whether the internal auditor has sufficient resources and tools to dispose of its responsibilities, (vi) examining the scope of our auditor’s work and compensation and submitting a recommendation with respect thereto to our board of directors or shareholders, depending on which of them is considering the appointment of our auditor and (vii) establishing procedures for the handling of employees’ complaints as to the management of our business and the protection to be provided to such employees. Our audit committee may not approve an action or a related party transaction, or take any other action required under the Companies Law, unless at the time of approval a majority of the committee’s members are present, which majority consists of unaffiliated directors including at least one external director.
Compensation Committee and Compensation Policy
The compensation policy serves as the basis for decisions concerning the financial terms of employment or engagement of our office holders, including exculpation, insurance, indemnification or any monetary payment or obligation of payment in respect of employment or engagement. The compensation policy also relates to certain factors, including advancement of our objectives, our business and our long-term strategy, and creation of appropriate incentives for executives. It also considers, among other things, our risk management, size and the nature of our operations. The compensation policy furthermore considers the following additional factors:
•
the knowledge, skills, expertise and accomplishments of the relevant director or executive;
•
the director’s or executive’s roles and responsibilities and prior compensation agreements with him or her;
•
the relationship between the terms offered and the average compensation of the other employees of our company, including those (if any) employed through manpower companies;
•
the impact of disparities in salary upon work relationships in our company;
•
the possibility of reducing variable compensation at the discretion of the board of directors; and the possibility of setting a limit on the exercise value of non-cash variable compensation; and
•
as to severance compensation, the period of service of the director or executive, the terms of his or her compensation during such service period, our company’s performance during that period of service, the person’s contribution towards our company’s achievement of its goals and the maximization of its profits, and the circumstances under which the person is leaving our company.
The compensation policy also includes the following principles:
•
the link between variable compensation and long-term performance and measurable criteria;
•
the relationship between variable and fixed compensation, and the ceiling for the value of variable compensation;
•
the conditions under which a director or executive would be required to repay compensation paid to him or her if it was later shown that the data upon which such compensation was based was inaccurate and was required to be restated in our financial statements; and
•
the minimum holding or vesting period for variable, equity-based compensation.
The compensation policy must also consider appropriate incentives from a long-term perspective and maximum limits for severance compensation.
Under the December 2012 amendment to the Companies Law, our compensation committee is responsible for recommending the compensation policy to our board of directors for its approval (and subsequent approval by our shareholders) and is charged with duties related to the compensation policy and to the compensation of our office holders as well as functions related to approval of the terms of engagement of office holders, including:
•
recommending whether our compensation policy should continue in effect, if the then-current policy has a term of greater than three (3) years (approval of the continuation of an existing compensation policy for a company such as ours must in any case occur every three years);
•
recommending to our board periodic updates to the compensation policy;
•
assessing implementation of the compensation policy; and
•
determining whether the compensation terms of the chief executive officer of our company need not be brought to approval of the shareholders (under special circumstances).
As to the composition of the compensation committee, under the Companies Law, if a company is required to appoint external directors, the committee must consist of at least three (3) members, including all of the external directors, one of whom must serve as chairman of the committee. There are additional requirements as to the composition of the audit committee under the Companies Law. However, when we elected to exempt our company from the external director requirement, we concurrently elected to exempt our company from all of such requirements (including the three-member minimum). Our exemption under the Companies Law is conditioned on our fulfillment of all Nasdaq listing requirements related to the composition of the compensation committee.
The compensation committee is subject to the same Companies Law restrictions as the audit committee as to who may not be present during committee deliberations (as described under “-Approval of Related Party Transactions Under Israeli Law—Fiduciary Duties of Directors and Executive Officers—Disclosure of Personal Interests of an Office Holder” below).
The Nasdaq Listing Rules also require that the compensation of the chief executive officer and all other executive officers of our company be determined, or be recommended to the board for determination, by a compensation committee consisting solely of independent directors (subject to a minimum of two committee members).
Nominating Committee
Our board of directors does not currently have a nominating committee, as director nominations are made in accordance with the terms of our articles, as described in “-Board of Directors” above. We rely upon the exemption available to foreign private issuers under the Listing Rules of the Nasdaq Stock Market from the Nasdaq listing requirements related to independent director oversight of nominations to our board of directors and the adoption of a formal written charter or board resolution addressing the nominations process. Also see Item 16.G “Corporate Governance” below.
Internal Auditor
Under the Companies Law, the board of directors of an Israeli public company must appoint an internal auditor recommended by the audit committee and nominated by the board of directors. An internal auditor may not be:
•
a person (or a relative of a person) who holds more than 5% of the company’s outstanding shares or voting rights;
•
a person (or a relative of a person) who has the power to appoint a director or the general manager of the company;
•
an office holder (including a director) of the company (or a relative thereof); or
•
a member of the company’s independent accounting firm, or anyone on his or her behalf.
Approval of Related Party Transactions Under Israeli Law
Fiduciary Duties of Directors and Executive Officers
The Companies Law codifies the fiduciary duties that office holders owe to a company. Each person listed in the table under Item 6.A “Directors and Senior Management” is an office holder under the Companies Law.
An office holder’s fiduciary duties consist of a duty of care and a duty of loyalty. The duty of care requires an office holder to act with the level of care with which a reasonable office holder in the same position would have acted under the same circumstances. The duty of loyalty requires that an office holder act in good faith and in the best interests of the company. The duty of care includes a duty to use reasonable means to obtain:
•
information on the advisability of a given action brought for his or her approval or performed by virtue of his or her position; and
•
all other important information pertaining to these actions.
The duty of loyalty requires an office holder to act in good faith and for the benefit of the company, and includes a duty to:
•
refrain from any conflict of interest between the performance of his or her duties to the company and his or her other duties or personal affairs;
•
refrain from any activity that is competitive with the company;
•
refrain from exploiting any business opportunity of the company to receive a personal gain for himself or herself or others; and
•
disclose to the company any information or documents relating to the company’s affairs which the office holder received as a result of his or her position as an office holder.
Disclosure of Personal Interests of an Office Holder
The Companies Law requires that an office holder promptly disclose to the board of directors any personal interest that he or she may have and all related material information known to him or her and any documents concerning any existing or proposed transaction with the company. An interested office holder’s disclosure must be made promptly and in any event no later than the first meeting of the board of directors at which the transaction is considered. A “personal interest” includes an interest of any person in an act or transaction of a company, including a personal interest of one’s relative or of a corporate body in which such person or a relative of such person is a 5% or greater shareholder, director or general manager or in which he or she has the right to appoint at least one director or the general manager, but excluding a personal interest stemming from one’s ownership of shares in the company. A personal interest furthermore includes the personal interest of a person for whom the office holder holds a voting proxy or the interest of the office holder with respect to his or her vote on behalf of the shareholder for whom he or she holds a proxy even if such shareholder itself has no personal interest in the approval of the matter. An office holder is not, however, obliged to disclose a personal interest if it derives solely from the personal interest of his or her relative in a transaction that is not considered an extraordinary transaction. Under the Companies Law, an “extraordinary transaction” is defined as any of the following:
•
a transaction other than in the ordinary course of business;
•
a transaction that is not on market terms; or
•
a transaction that may have a material impact on a company’s profitability, assets or liabilities.
If it is determined that an office holder has a personal interest in a transaction, approval by the board of directors is required for the transaction, unless the company’s articles of association provide for a different method of approval. Further, so long as an office holder has disclosed his or her personal interest in a transaction, the board of directors may approve an action by the office holder that would otherwise be deemed a breach of duty of loyalty. However, a company may not approve a transaction or action that is adverse to the company’s interest or that is not performed by the office holder in good faith. Approval first by the company’s audit committee and subsequently by the board of directors is required for an extraordinary transaction with an office holder. Compensation of, or an undertaking to indemnify or insure, an office holder, requires approval by the compensation committee, the board of directors and, in certain cases (for directors, the chief executive officer, and any executive officer whose compensation terms do not conform to the then-existing compensation policy) the shareholders, in that order. Compensation of an individual office holder, including the chief executive officer (but excluding a director), that does not conform to the company’s compensation policy may be adopted under special circumstances despite failure to obtain shareholder approval if, following the relevant shareholder vote, the compensation committee followed by the board once again approves the compensation, based on renewed and specific analysis of relevant factors.
Generally, a person who has a personal interest in a matter which is considered at a meeting of the board of directors, the audit committee or compensation committee may not be present at such a meeting or vote on that matter unless a majority of the board, audit committee or compensation committee (as appropriate) has a personal interest in the matter, or unless the chairman of the board, audit committee or compensation committee (as appropriate) determines that he or she should be present in order to present the transaction that is subject to approval. If a majority of the members of the board, audit committee or compensation committee has a personal interest in the approval of a transaction, then all directors may participate in discussions of the board of directors, audit committee or compensation committee on such transaction and the voting on approval thereof, but shareholder approval is also required for such transaction.
Disclosure of Personal Interests of Controlling Shareholders
Pursuant to Israeli law, the disclosure requirements regarding personal interests that apply to directors and executive officers also apply to a controlling shareholder of a public company. In the context of a transaction involving a shareholder of the company, a controlling shareholder also includes any shareholder who holds 25% or more of the voting rights if no other shareholder holds more than 50% of the voting rights. Two or more shareholders with a personal interest in the approval of the same transaction are deemed to be a single shareholder and may be deemed a controlling shareholder for the purpose of approving such transaction. Extraordinary transactions with a controlling shareholder or in which a controlling shareholder has a personal interest, or a transaction with a controlling shareholder or his or her relative, directly or indirectly, require the approval of the audit committee, the board of directors and the shareholders of the company, in that order. In addition, the shareholder approval must fulfill one of the following requirements:
•
a disinterested majority; or
•
the votes of shareholders who have no personal interest in the transaction and who are present and voting, in person, by proxy or by voting deed at the meeting, and who vote against the transaction may not represent more than two percent (2%) of the voting rights of the company.
To the extent that any such transaction with a controlling shareholder is for a period extending beyond three years, approval is required once every three years, unless the audit committee determines that the duration of the transaction is reasonable given the circumstances related thereto.
The engagement of a controlling shareholder as an office holder or employee requires the same approvals as are described immediately above, except that the approval of the compensation committee, rather than the audit committee, is required.
Shareholder Duties
Pursuant to the Companies Law, a shareholder has a duty to act in good faith and in a customary manner toward the company and other shareholders and to refrain from abusing his or her power in the company, including, among other things, in voting at the general meeting of shareholders and at class shareholder meetings with respect to the following matters:
•
an amendment to the company’s articles of association;
•
an increase of the company’s authorized share capital;
•
a merger; or
•
In addition, a shareholder also has a general duty to refrain from discriminating against other shareholders.
In addition, certain shareholders have a duty of fairness toward the company. These shareholders include any controlling shareholder, any shareholder who knows that it has the power to determine the outcome of a shareholder vote or a shareholder class vote and any shareholder who has the power to appoint or to prevent the appointment of an office holder of the company or other power towards the company. The Companies Law does not define the substance of this duty of fairness, except to state that the remedies generally available upon a breach of contract will also apply in the event of a breach of the duty to act with fairness.
Exculpation, Insurance and Indemnification of Directors and Officers
Under the Companies Law, a company may not exculpate an office holder from liability for a breach of the duty of loyalty. An Israeli company may exculpate an office holder in advance from liability to the company, in whole or in part, for damages caused to the company as a result of a breach of duty of care but only if a provision authorizing such exculpation is inserted in its articles of association. Our amended articles include such a provision. The company may not exculpate in advance a director from liability arising out of a prohibited dividend or distribution to shareholders.
Under the Companies Law, a company may indemnify an office holder in respect of the following liabilities and expenses incurred for acts performed by him or her as an office holder, either in advance of an event or following an event, provided its articles of association include a provision authorizing such indemnification:
•
financial liability incurred by or imposed on him or her in favor of another person pursuant to a judgment, including a settlement or arbitrator’s award approved by a court. However, if an undertaking to indemnify an office holder with respect to such liability is provided in advance, then such an undertaking must be limited to events which, in the opinion of the board of directors, can be foreseen based on the company’s activities when the undertaking to indemnify is given, and to an amount or according to criteria determined by the board of directors as reasonable under the circumstances, and such undertaking shall detail the above mentioned foreseen events and amount or criteria;
•
reasonable litigation expenses, including attorneys’ fees, incurred by the office holder as a result of an investigation or proceeding instituted against him or her by an authority authorized to conduct such investigation or proceeding, provided that (i) no indictment was filed against such office holder as a result of such investigation or proceeding; and (ii) no financial liability was imposed upon him or her as a substitute for the criminal proceeding as a result of such investigation or proceeding or, if such financial liability was imposed, it was imposed with respect to an offense that does not require proof of criminal intent; and
•
reasonable litigation expenses, including attorneys’ fees, incurred by the office holder or imposed by a court in proceedings instituted against him or her by the company, on its behalf, or by a third party, or in connection with criminal proceedings in which the office holder was acquitted, or as a result of a conviction for an offense that does not require proof of criminal intent.
Under the Companies Law, a company may insure an office holder against the following liabilities incurred for acts performed by him or her as an office holder if and to the extent provided in the company’s articles of association:
•
a breach of the duty of loyalty to the company, provided that the office holder acted in good faith and had a reasonable basis to believe that the act would not harm the company;
•
a breach of duty of care to the company or to a third party, to the extent such a breach arises out of the negligent conduct of the office holder; and
•
a financial liability imposed on the office holder in favor of a third party.
Under the Companies Law, a company may not indemnify, exculpate or insure an office holder against any of the following:
•
a breach of fiduciary duty, except for indemnification and insurance for a breach of the duty of loyalty to the company to the extent that the office holder acted in good faith and had a reasonable basis to believe that the act would not prejudice the company;
•
a breach of duty of care committed intentionally or recklessly, excluding a breach arising out of the negligent conduct of the office holder;
•
an act or omission committed with intent to derive illegal personal benefit; or
•
a fine or forfeit levied against the office holder.
Under the Companies Law, exculpation, indemnification and insurance of office holders must be approved by our compensation committee and our board of directors and, with respect to directors or controlling shareholders, their relatives and third parties in which such controlling shareholders have a personal interest, also by the shareholders. See “-Approval of Related Party Transactions Under Israeli Law—Fiduciary Duties of Directors and Executive Officers” above in this Item 6.C.
Our amended articles permit us to exculpate, indemnify and insure our office holders to the fullest extent permitted or to be permitted by the Companies Law.
We have obtained directors and officers liability, or D&O, insurance for the benefit of our office holders and intend to continue to maintain such coverage and pay all premiums thereunder to the fullest extent permitted by the Companies Law. Under our amended compensation policy (as approved by our shareholders at our 2021 annual general meeting), our D&O insurance is governed by the following guidelines:
. In addition, we have entered into agreements with each of our office holders undertaking to indemnify them to the fullest extent permitted by Israeli law.
Directors’ Service Contracts
We are not presently party to any service contracts with any of our directors that provide for benefits upon termination of employment or other service.
D. Employees
The number of our full-time equivalent employees, and the distribution of employees (i) geographically and (ii) within the divisions of our company, in each case as of December 31, 2022, 2021 and 2020 are set forth in the two tables below.
|
Region |
2022 |
2021 |
2020 |
|||
|
Americas* |
1,098 | 1,148 | 1,182 | |||
|
Israel |
531 | 477 | 458 | |||
|
Europe |
302 | 269 | 192 | |||
|
Asia Pacific |
131 | 145 | 149 | |||
|
Total |
2,062 | 2,039 | 1,981 | |||
|
Number of full-time equivalent employees | ||||||
|
Division |
2022 |
2021 |
2020 |
|||
|
Operations and support |
620 | 689 | 696 | |||
|
Research and development |
360 | 358 | 358 | |||
|
Customer service |
241 | 264 | 260 | |||
|
Sales and marketing |
495 | 353 | 295 | |||
|
General and administrative |
346 | 375 | 372 | |||
|
Total |
2,062 | 2,039 | 1,981 | |||
|
* Includes employees in Latin America. | ||
During the years covered by the above tables, we did not employ a significant number of temporary employees.
While our Israeli employees, and the vast majority of all of our employees globally are not, party to a collective bargaining agreement, certain provisions of the collective bargaining agreements between the Histadrut (General Federation of Labor in Israel) and the Coordination Bureau of Economic Organizations (including the Industrialists’ Associations) are applicable to our employees in Israel by order of the Israel Ministry of Labor. These provisions primarily concern the length of the workday, minimum daily wages for professional workers, pension fund benefits for all employees, insurance for work-related accidents, procedures for dismissing employees, determination of severance pay and other conditions of employment. We generally provide our employees with benefits and working conditions beyond the required minimums.
We have never experienced any employment-related work stoppages. We believe that our relationship with our employees is good.
The employees of our subsidiaries are subject to local labor laws and regulations that vary from country to country.
E. Share Ownership.
The following table lists, as of February 14, 2023, the number of our ordinary shares owned, and stock options held, by each of the directors and members of our senior management who served as such during the year ended December 31, 2022:
|
Shares of Stratasys(1) |
Stratasys stock options and RSUs(2) | ||||||||||||||
|
Number held(4) |
|||||||||||||||
|
Name |
Number of shares beneficially owned(3) |
Percent of outstanding shares beneficially owned (3) |
Already vested or vesting within 60 days |
Not vesting within 60 days |
Exercise price per Share (for options) |
Expiration Date (for options) | |||||||||
|
Dov Ofer |
103,541 (5) |
* |
|
10,000 |
— |
$ |
23.41 |
July 18, 2027 | |||||||
|
Chairman of the Board |
10,000 |
— | $ | 21.82 | September 13,2028 | ||||||||||
| 37,500 | — | $ | 22.28 | October 4, 2028 | |||||||||||
| 10,000 | — | $ | 20.53 | December 31, 2029 | |||||||||||
| 10,000 | — | $ | 19.61 | November 30, 2030 | |||||||||||
| 4,745 | — | $ | 25.03 | November 23, 2031 | |||||||||||
| — | 11,326 | $ | 6.18 | December 26, 2032 | |||||||||||
| — | 5,340 | $ | — | December 26, 2032 | |||||||||||
|
S. Scott Crump |
589,409 (6) |
* |
100,000 |
— |
$ |
82.15 |
June 21, 2023 | ||||||||
| Director | 100,000 | — | $ | 19.96 | April 6, 2027 | ||||||||||
| 4,745 | — | $ | 25.03 | November 23, 2031 | |||||||||||
| 2,948 | 4,422 | $ | 9.50 | September 15, 2032 | |||||||||||
| 1,947 | 2,921 | $ | — | September 15, 2032 | |||||||||||
|
John J. McEleney |
78,936 (7) |
* |
16,500 |
— |
$ |
82.15 |
June 21, 2023 | ||||||||
| Director |
10,000 |
— |
$ |
21.44 |
June 4, 2026 | ||||||||||
|
10,000 |
— |
$ |
23.41 |
July 18, 2027 | |||||||||||
| 10,000 | — | $ | 19.59 | September 13, 2028 | |||||||||||
| 10,000 | — | $ | 20.53 | December 31, 2029 | |||||||||||
| 10,000 | — | $ | 19.61 | November 30, 2030 | |||||||||||
| 4,745 | — | $ | 25.03 | November 23, 2031 | |||||||||||
| 2,948 | 4,422 | $ | 9.50 | September 15 ,2032 | |||||||||||
| 1,947 | 2,901 | $ | — | September 15 ,2032 | |||||||||||
|
Ziva Patir |
77,123 (8) |
* |
29,582 |
— |
$ |
82.15 |
June 21, 2023 | ||||||||
|
Director |
10,000 |
— |
$ |
21.44 |
June 4, 2026 | ||||||||||
|
10,000 |
— |
$ |
23.41 |
July 18, 2027 | |||||||||||
|
10,000 |
— |
$ |
20.53 |
December 31, 2029 | |||||||||||
| 10,000 | — | $ | 19.61 | November 30, 2030 | |||||||||||
| 4,745 | — | $ | 25.03 | November 23, 2031 | |||||||||||
| — | 11,326 | $ | 6.18 | December 26, 2032 | |||||||||||
| — | 5,340 | $ | — | December 26, 2032 | |||||||||||
|
David Reis |
73,541 (9) |
* |
37,500 |
— |
$ |
22.28 |
October 4, 2028 | ||||||||
|
Director |
10,000 |
— |
$ |
19.61 |
November 30, 2030 | ||||||||||
| 4,745 | — | $ | 25.03 | November 23, 2031 | |||||||||||
| — | 11,326 | $ | 6.18 | December 26, 2032 | |||||||||||
| — | 5,340 | $ | — | December 26, 2032 | |||||||||||
|
Michael Schoellhorn |
22,436 (10) |
* |
10,000 |
— |
$ |
19.61 |
November 30, 2030 | ||||||||
| Director | 4,745 | — | $ | 25.03 | November 23, 2031 | ||||||||||
| 2,948 | 4,422 | $ | 9.50 | September 15, 2032 | |||||||||||
| 1,947 | 2,921 | $ | — | September 15, 2032 | |||||||||||
|
Yair Seroussi |
47,541 (11) |
* |
10,000 |
— |
$ |
23.41 |
July 18, 2027 | ||||||||
| Director | 10,000 | — | $ | 21.82 | September 13, 2028 | ||||||||||
| 10,000 | — | $ | 20.53 | December 31, 2029 | |||||||||||
| 10,000 | — | $ | 19.61 | November 30, 2030 | |||||||||||
| 4,745 | — | $ | 25.03 | November 23, 2031 | |||||||||||
| — |
11,326 | $ | 6.18 | December 26, 2032 | |||||||||||
| — | 5,340 | $ | — | December 26, 2032 | |||||||||||
|
Adina Shorr |
71,011 (12) |
* |
10,000 |
— |
$ |
22.47 |
October 13, 2028 | ||||||||
|
Director |
10,000 |
— |
$ |
20.53 |
December 31, 2029 | ||||||||||
| 10,000 | — | $ | 19.61 | November 30, 2030 | |||||||||||
| 4,745 | — | $ | 25.03 | November 23, 2031 | |||||||||||
| — | 11,326 | $ | 6.18 | December 26, 2032 | |||||||||||
| — | 5,340 | $ | — | December 26, 2032 | |||||||||||
|
Yoav Zeif |
54,429 (13) | * | — | 150,000 | $ | 16.41 | February 18, 2030 | ||||||||
| Chief Executive Officer | — | 150,000 | $ | 16.41 | February 18, 2030 | ||||||||||
| 33,278 | 39,091 | $ | — | — | |||||||||||
| 13,385 | 22,800 | $ | — | — | |||||||||||
| — | 16,632 | $ | — | February 22, 2032 | |||||||||||
| — | 33,264 | $ | — | February 22, 2032 | |||||||||||
| Eitan Zamir | *(14) | * | |||||||||||||
| *Chief Financial Officer | |||||||||||||||
| * | Constitutes less than 1% of our outstanding shares. |
| (1) | All of our shares (including shares held by directors and members of senior management) have identical voting rights. |
| (2) | For a description of our equity incentive plans, please see “Stock Option and Share Incentive Plans” in this Item below. All options and RSUs granted under such plans have been granted without payment of any cash consideration therefor by the grantees thereof. |
| (3) | In accordance with Rule 13d-3 under the Exchange Act, the number of shares and the percentages shown for individual directors and officers include any ordinary shares underlying stock options and RSUs held by any such person that vest within 60 days of February 14, 2023 and that are also reflected in the column titled “Stratasys stock options and RSUs—Number held — Already vested or vesting within 60 days.” Further in keeping with such Rule 13d-3, the computation of percentage ownership is based upon 67,420,973 ordinary shares outstanding at February 14, 2023, plus such number of ordinary shares as such person (but not any other person) had the right to receive upon the exercise or settlement of vested stock options or RSUs (as applicable) within 60 days thereof. |
| (4) | Each stock option is exercisable for one ordinary share, and each RSU represents the right to receive one ordinary share. |
| (5) | Consists of (i) 21,296ordinary shares that have been issued to Mr. Ofer following the vesting and settlement of RSUs, and (ii) 82,245 ordinary shares issuable to Mr. Ofer upon the exercise of options granted to him that have vested or will vest within 60 days of February 14, 2023 |
| (6) | Consists of (i) 200,679 ordinary shares held by Mr. Crump, (ii) 176,294 ordinary shares owned of record by Mr. Crump’s wife, (iii) 2,796 ordinary shares that have been issued to Mr. Crump following the vesting and settlement of RSUs, 207,693 ordinary shares issuable to Mr. Crump upon the exercise of options granted to him that have vested or will vest within 60 days of February 14, 2022, and (iv) 1,947 additional ordinary shares underlying RSUs that will vest and may be settled within 60 days of February 14, 2023. |
| (7) | Consists of (i) 2,796 ordinary shares that have been issued to Mr. McEleney following the vesting and settlement of RSUs, (ii) 74,193 ordinary shares issuable to Mr. McEleney upon the exercise of options granted to him that have vested or will vest within 60 days of February 14, 2023, and (iii) 1,947 additional ordinary shares underlying RSUs that will vest and may be settled within 60 days of February 14, 2023. |
| (8) | Consists of (i) 2,796 ordinary shares that have been issued to Ms. Patir following the vesting and settlement of RSUs, and (ii) 74,327 ordinary shares issuable to Ms. Patir upon the exercise of options granted to her that have vested or will vest within 60 days of February 14, 2023 |
| (9) | Consists of (i) 52,245 ordinary shares issuable to Mr. Reis upon the exercise of options granted to him that have vested or will vest within 60 days of February 14, 2023, (ii) 15,129 ordinary shares underlying RSUs that have vested and may be settled within 60 days of February 14, 2023, and (iii) 6,167 ordinary shares underlying PSUs that have vested and may be settled within 60 days of February 14, 2023. |
| (10) | Consists of (i) 2,796 ordinary shares that have been issued to Mr. Schoellhorn following the vesting and settlement of RSUs, (ii) 17,693 ordinary shares issuable to Mr. Schoellhorn upon the exercise of options granted to him that have vested or will vest within 60 days of February 14, 2023, and (iii) 1,947 additional ordinary shares underlying RSUs that will vest and may be settled within 60 days of February 14, 2023. |
| (11) | Consists of (i) 2,796 ordinary shares that have been issued to Mr. Seroussi following the vesting and settlement of RSUs, and (ii) 44,745 ordinary shares issuable to Mr. Seroussi upon the exercise of options granted to him that have vested or will vest within 60 days of February 14, 2023. |
| (12) | Consists of (i) 33,470 ordinary shares held by Ms. Shorr, (ii) 2,796 additional ordinary shares that have been issued to Ms. Shorr following the vesting and settlement of RSUs, and (iii) 34,745 ordinary shares issuable to Ms. Shorr upon the exercise of options granted to her that have vested or will vest within 60 days of February 14, 2023. |
| (13) | Consists of (i) 7,766 ordinary shares held by Mr. Zeif, and (ii) 46,663 ordinary shares underlying RSUs that have vested and may be settled within 60 days of February 14, 2023. |
| (14) | Because Mr. Zamir beneficially owns less than 1% of our outstanding ordinary shares and his beneficial ownership has not previously been disclosed to our shareholders or otherwise made public, it is being omitted from this annual report pursuant to an allowance provided by the SEC’s Form 20-F. |
Stock Option and Share Incentive Plans
On September 16, 2022, our existing 2012 Omnibus Equity Incentive Plan (the “2012 Plan”), which became effective at the effective time of the Stratasys, Inc.- Objet Ltd. merger in December 2012, expired. In order to enable our Company to continue to provide share-based long-term incentive compensation after the expiration of the 2012 Plan, our compensation committee and our Board each approved our 2022 Share Incentive Plan (the “2022 Plan”), which our shareholders approved at our annual general meeting held on September 15, 2022. Outstanding awards under the 2012 Plan will continue to be subject to the terms of the 2012 Plan, notwithstanding the expiration of that plan.
The following sets forth certain information with respect to our current stock option and share incentive plans. The following descriptions are only a summary of each plan and each is qualified in its entirety by reference to the full text of the respective plans, which serve as exhibits to this annual report.
Upon the expiration of each of our stock option and share incentive plans, no further grants may be made thereunder, although any existing awards will continue in full force in accordance with the terms under which they were granted.
2012 Omnibus Equity Incentive Plan
For a description of our 2012 Plan, please see “Item 6. Directors, Senior Management & Employees—E. Share Ownership— Stock Option and Share Incentive Plans— 2012 Omnibus Equity Incentive Plan” in our annual report on Form 20-F for the year ended December 31, 2021, which we filed with the SEC on February 24, 2022.
2022 Share Inactive Plane
- Offering Periods. The ESPP allows eligible employees to purchase ordinary shares during certain offering periods, which may extend to up to 27 months. Our Board has approved an initial offering period of six months. Each offering period may be comprised of multiple purchase periods, all as may be determined by the compensation committee. The terms and conditions applicable to each offering period shall be set forth in an “Offering Document” adopted by the compensation committee, containing such terms and conditions as the compensation committee deems appropriate. The provisions of separate offerings or offering periods under the ESPP need not be identical.
- Method of Participation. Shares will be purchased under the ESPP on the last day of each purchase period, each a purchase date, using accumulated payroll deductions, unless the compensation committee provides otherwise with respect to the employees of a designated subsidiary in a manner consistent with Section 423 of the Code. In order to participate in the ESPP, an eligible employee must complete and submit to the administrator of the ESPP a payroll deduction and participant authorization form in accordance with procedures and prior to the deadlines prescribed by the administrator of the ESPP. Participation will be effective as of the first day of an offering period.
- Grant and Exercise of Purchase Rights. On the first day of each offering period, each participant automatically will be granted a right to purchase ordinary shares on the last day of each purchase period, subject to the limitations set forth in the ESPP. On the last day of each purchase period, the payroll deductions accumulated by each participant during such purchase period will be applied automatically to the purchase of ordinary shares at the purchase price in effect for that purchase period. However, no participant may, on any purchase date, purchase more than such number of ordinary shares as the compensation committee may prescribe. In addition, no participant will be granted a purchase right under the Section 423 Component that would permit the participant’s right to purchase ordinary shares to accrue at a rate that exceeds $25,000 in fair market value for each calendar year, determined in accordance with Section 423 of the Internal Revenue Code.
- Purchase Price. The purchase price per share of our ordinary shares applicable to purchases during each purchase period under the ESPP will be eighty-five percent (85%) (or such greater percentage as the compensation committee may designate) of the lower of (i) the fair market value per share of our ordinary shares on the first day of the offering period or (ii) the fair market value per share of our ordinary shares on the last date of the purchase period.
- Termination of Purchase Rights. Upon the termination of a participant’s employment with the Company or a designated subsidiary, or in the event the participant otherwise ceases to qualify as an eligible employee, any purchase right then held by the participant will be canceled. Payroll deductions accumulated by the participant during the offering period in which such purchase right terminates will be returned to the participant (or his or her designated beneficiary or legal representative), without interest, as soon as practicable thereafter, and the participant will have no further rights under the ESPP.
- Shareholder Rights. No participant will have any shareholder rights with respect to the ordinary shares covered by his or her purchase right until the shares are actually purchased on the participant’s behalf. No adjustment will be made for dividends, distributions or other rights for which the record date is prior to the date of such purchase.
- Transferability. Purchase rights granted to participants under the ESPP are not assignable or transferable, other than by will, or the applicable laws of descent and distribution, and may be exercised only by the participant during his or her lifetime.
- Amendment and Termination of the ESPP. Our Board has the right to amend the ESPP to any extent and in any manner it may deem advisable, provided approval of the Company’s shareholders shall be required to amend the ESPP to increase the aggregate number, or change the type, of shares that may be sold pursuant to rights under the ESPP (other than a permitted adjustments with respect to changes in the Company’s capitalization) or to change the corporations or classes of corporations whose employees may be granted rights under the ESPP.
- Sub-Plans. The compensation committee may adopt sub-plans applicable to particular designated subsidiaries or locations, which sub-plans may be designed to be outside the scope of Section 423 of the Code. The rules of such sub-plans may take precedence over other provisions of the ESPP, other than with respect to the number of shares available for issuance under the ESPP, but unless otherwise superseded by the terms of such sub-plan, the provisions of the ESPP shall govern the operation of such sub-plan.
- Effective Date and Term. The ESPP became effective in November 2021, upon approval by our 2021 annual general meeting of shareholders. No purchase rights will be granted under the ESPP after the earliest to occur of the date on which all shares available for issuance under the ESPP have been issued or the termination of the ESPP by our company.
- Corporate Transactions. In the event of certain transactions or events such as a consolidation, merger or similar transaction, a sale or transfer of all or substantially all of the Company’s assets, or a dissolution or liquidation of the Company, the compensation committee may, in its discretion, provide that each outstanding purchase right will be assumed or substituted for a right granted by the acquirer or successor corporation or by a parent or subsidiary of such entity, will be cashed out, will be cancelled with accumulated payroll deductions returned to each participant, or that the offering period will end before the date of the proposed sale, merger or similar transaction.
- New Plan Benefits. Benefits and purchases of ordinary shares under the ESPP depend on elections made by employees and the fair market value of our ordinary shares on dates in the future. As a result, it is not possible to determine the benefits that will be received by executive officers and other employees in the future under the ESPP. As described above, no employee may purchase shares under the Section 423 Component at a rate that exceeds $25,000 in fair market value in any calendar year.
| Plan | Total Ordinary Shares Reserved for Grant/Purchase | Aggregate Number of Awards Granted/Purchased out of Reserved, Net of Cancellations | Shares Available for Future Grants/Purchases | Aggregate Number of Awards/Shares Outstanding | Weighted Average Exercise Price of Outstanding Options | |||||
| 2012 Plan | 10,000,000 | 9,041,427 | 958,573 | 4,337,657 | $27.62 | |||||
| 2022 Plan | 1,296,494 | 353,170 | 943,324 | 339,125 | $13.46 | |||||
| Employee Share Purchase Plan | 5,200,000 | 249,750 | 4,950,250 | 249,750 |
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS.
A. Major Shareholders
Ownership by Major Shareholders
The following table presents the beneficial ownership of our ordinary shares by each person who is known by us to be the beneficial owner of 5% or more of our outstanding ordinary shares (to whom we refer as our major shareholders), based on the most recent beneficial ownership reports filed with the SEC by such persons on or before February 14, 2023. The data presented is based on information provided to us, or disclosed in public filings with the SEC, by the major shareholders.
Beneficial ownership of shares is determined under rules of the SEC and generally includes any shares for which a person exercises sole or shared voting or investment power, or for which a person has or shares the right to receive the economic benefit of ownership of the shares. To the extent applicable, the table below also includes as beneficially owned by any major shareholder shares underlying options, warrants or other convertible securities that are exercisable or convertible within 60 days after February 14, 2023. Shares issuable upon the exercise or conversion of such convertible securities are deemed to be outstanding for the purpose of computing the ownership percentage of the person, entity or group holding such securities, but are not deemed to be outstanding for the purpose of computing the ownership percentage of any other person, entity or group. The ownership percentages reflected below are based on 67,420,973 ordinary shares outstanding as of February 14, 2023.
Except where otherwise indicated, and except pursuant to community property laws, we believe, based on information furnished by such owners, that the beneficial owners of the shares listed below have sole investment and voting power with respect to, and the sole right to receive the economic benefit of ownership of, such shares. The shareholders listed below do not have any different voting rights from any of our other shareholders. We know of no arrangements that would, at a subsequent date, result in a change of control of our company.
|
Beneficial Owner |
Ordinary Shares |
Percentage Ownership | |||
| Nano Dimension Ltd | 8,049,186(1) | 12.1 | % | ||
|
Phoenix Holdings Ltd. |
3,978,945(2) |
5.9 |
% | ||
|
(1) |
Represents shares beneficially owned as of July 17, 2022, as indicated in a statement of beneficial ownership on Schedule 13G filed by Nano Dimension Ltd. on July 18, 2022. As indicated in that statement, Nano Dimension Ltd. possesses sole voting and investment power with respect to all such 8,049,186 ordinary shares beneficially owned by it. |
|
(2) |
Represents shares beneficially owned as of June 30, 2022, as indicated in the report of institutional investment manager on Form 13F filed by this shareholder on behalf of itself and Nikko Asset Management Americas, Inc. on July 26, 2022. The shares held by Sumitomo Mitsui Trust Holdings Inc. may be deemed to be beneficially owned by its subsidiaries (i)Nikko Asset Management Co., Ltd. and (ii)Nikko Asset Management Americas, Inc. Based on information available to us, we believe that the actual number of ordinary shares held by this shareholder is currently lower than the amount included in that report on Form 13F. |
Changes in Percentage Ownership by Major Shareholders
Record Holders
B. Related Party Transactions.
Except as described below or elsewhere in this annual report, since January 1, 2022, we have had no transaction or loan, nor do we have any presently proposed transaction or loan, involving any related party described in Item 7.B of Form 20-F promulgated by the SEC.
Indemnification Agreements
Our amended articles permit us to exculpate, indemnify and insure each of our directors and office holders to the fullest extent permitted by the Companies Law. Effective upon the effective time of the Stratasys, Inc.- Objet Ltd. merger, we entered into indemnification agreements with each of our then-current directors and other office holders, under which we undertook to indemnify them to the fullest extent permitted by Israeli law, including with respect to liabilities resulting from the merger to the extent that these liabilities are not covered by insurance. We have entered into similar indemnification agreements with all directors and other office holders who have served as such since the Stratasys, Inc.- Objet Ltd. merger. We also put into place Directors and Officers liability insurance for each of our directors and other office holders upon the effectiveness of the Stratasys, Inc.-Objet Ltd. merger, and have renewed that policy as necessary to maintain continuous coverage since the merger.
Employment and Consulting Agreements with Directors and Executive Officers
Employment agreement with our Chief Executive Officer
In conjunction with his appointment as our chief executive officer, or CEO, Yoav Zeif is party to an employment agreement with us, effective as of February 18, 2020. Under the agreement, Mr. Zeif serves as our full-time CEO for an indefinite period (subject to the termination provisions referenced further below) and receives, in respect thereof, a monthly salary of NIS 175,000 (approximately $50,140, based on the current NIS-dollar exchange ratio). Mr. Zeif may be entitled to an annual cash bonus within a range of 50% to 150% of his annual base salary, as to be determined by our board of directors (following requisite approval from the compensation committee thereof) based on achievement of company-related goals (and subject to the achievement of threshold level goals for the receipt of a minimum bonus).
In addition to cash compensation, Mr. Zeif receives annual grants of RSUs. For his initial year of employment, he will receive RSUs that are equal in value to $800,000 (subject to a cap of 55,000 RSUs). In subsequent years, Mr. Zeif will be entitled to grants of RSUs equal in value to $1.2 million or $800,000, depending on whether the average closing Stratasys share price for the 30-day period prior to the grant date is $20 or above, or below $20, respectively, and in the latter case, the number of RSUs to be granted to Mr. Zeif will be capped at 55,000. Two-thirds of the RSUs that are granted for any such year (whether initial or subsequent) will be subject to a four-year vesting schedule (commencing on the one-year anniversary of the relevant grant date, followed by 12 equal quarterly vesting periods thereafter). The vesting of the remaining one-third of the RSUs granted in any such year will be conditioned on the satisfaction of performance-based metrics that will be determined by our board of directors and that will cover not more than four calendar years.
Besides annual equity compensation, Mr. Zeif received, within the first 14 days of his employment, a one-time, special upside grant of options to purchase 300,000 ordinary shares, with an exercise price that will equal the average of the Stratasys closing share price for the 30 days following his commencement of employment. These special upside options will vest and become exercisable in two groups of 150,000 options each, in accordance with the schedule described in the following sentence, if the average closing Stratasys share price reaches two respective levels— $10 or $20 above the 30-day average closing price prior to his commencement of employment— for a consecutive six-month period following the commencement of his employment. If and when the relevant closing price level is met for the requisite consecutive six-month period, the relevant 150,000 options will vest in equal installments of 18,750 each over the next eight consecutive quarters, assuming continued employment. Any options granted pursuant to the special upside grant that are not yet vested will be subject to accelerated vesting in the event that Mr. Zeif’s employment is terminated or he resigns for good reason in connection with, or within 12 months following, a change of control transaction for which the value of our company (or our assets, if applicable) reflected in the transaction as of its closing date exceeds the respective price level that initially triggers vesting.
Under the employment agreement, Mr. Zeif is entitled to customary additional benefits, including a pension arrangement, disability insurance and severance pay contributions by us, study fund contributions by us, use of a car, annual vacation, sick leave and reimbursement for business-related, reasonably-necessary travel, lodging and related expenses. In the event of termination of Mr. Zeif’s employment by our company (other than for cause, or due to Mr. Zeif’s violation of his below-described undertakings) or by Mr. Zeif for good reason, Mr. Zeif will be entitled to an “adjustment” payment equal to six months’ base salary, in addition to a three-month (in the first year of employment) or six-month (at any time thereafter) notice period (other than in a case of termination for cause, when that notice is not required).
In connection with his execution of the employment agreement, Mr. Zeif has agreed to certain customary undertakings in favor of our company that cover confidentiality, non-competition, non-solicitation and assignment of inventions.
In order to induce Mr. Zeif to accept our employment offer and in connection with his relocation from the United States to the our principal executive offices in Israel related to his hiring, we paid him a signing/relocation bonus of $300,000, of which $100,000 will be repayable if his employment is terminated by us for cause or he resigns other than for good reason during his first 12 months of employment.
C. Interests of Experts and Counsel.
Not required.
ITEM 8. FINANCIAL INFORMATION.
A. Consolidated Statements and Other Financial Information.
The consolidated financial statements and other financial information for our company required by SEC are included in this annual report beginning on page F-1.
Export Sales
The following table presents total export sales by Stratasys, Ltd for each of the fiscal years indicated (in thousands):
| 2022 |
| 2021 |
| 2020 | ||||||||||
|
Total Export Sales* |
$ | 226,767 | $ | 211,899 | $ | 170,944 | ||||||||
|
as a percentage of Total Sales |
34.8 | % | 34.9 | % | 32.8 | % |
|
|
| |
|
* |
Export sales, as presented, are defined as sales to customers located outside of North America and Israel (where our dual headquarters are located). |
Legal Proceedings
We are a party to various legal proceedings incident to our business. Based upon the status of such cases, as determined with the advice of counsel, we have recorded provisions in our financial statements for amounts (if any) judged to be both quantifiable and probable to be paid. Except as noted below, there are no legal proceedings pending or threatened against us that we believe may have a significant effect on our financial condition, profitability and cash flows.
Dividend Policy
We have never paid cash dividends on our ordinary shares and do not anticipate that we will pay any cash dividends on our ordinary shares in the foreseeable future.
We intend to retain our earnings to finance the development of our business. Any future dividend policy will be determined by our board of directors based upon conditions then existing, including our earnings, financial condition, tax position and capital requirements, as well as such economic and other conditions as our board of directors may deem relevant. Pursuant to our articles of association, dividends may be declared by our board of directors. Dividends must be paid out of our profits and other surplus funds, as defined in the Companies Law, as of the end of the most recent year or as accrued over a period of the most recent two years, whichever amount is greater, provided that there is no reasonable concern that payment of a dividend will prevent us from satisfying our existing and foreseeable obligations as they become due. In addition, because we have received certain benefits under Israeli law relating to Approved Enterprises and Beneficiary Enterprises, our payment of dividends (out of tax-exempt income) may subject us to certain Israeli taxes to which we would not otherwise be subject. We are also restricted under our credit agreement with Bank of America from paying dividends. Please see the risk factors captioned “We do not anticipate paying any cash dividends in the foreseeable future. Therefore, if our share price does not appreciate, our shareholders may not recognize a return, and could potentially suffer a loss, on their investment in our ordinary shares,” and “Even if we decide to pay dividends on our ordinary shares, we may be restricted from doing so or payment of such dividends may have adverse consequences for our company” in Item 3.D “Risk Factors-Risks related to an investment in our ordinary shares” above.
For a discussion of the applicable rates of withholding tax on dividends paid out of income derived from an Approved Enterprise or a Beneficiary Enterprise, see “Israeli Tax Considerations and Government Programs - The Law for the Encouragement of Capital Investments” in Item 4.B above.
B. Significant Changes.
Other than as otherwise described in this annual report, no significant change has occurred in our operations since the date of our consolidated financial statements included in this annual report.
ITEM 9. THE OFFER AND LISTING.
A. Listing Details and C. Market.
Since December 3, 2012 (the first trading day after the effective time of the Stratasys, Inc.- Objet Ltd. merger), our ordinary shares have traded (and, prior to that time, Stratasys, Inc. common stock was traded) on the Nasdaq Global Select Market under the trading symbol “SSYS.”
Our ordinary shares, par value NIS 0.01 per share, are registered on the books of our transfer agent, Continental Stock Transfer & Trust Company. There are no transfer restrictions apart from the requirement that any transfers comply with applicable securities laws and the rules of the Nasdaq Stock Market or any other securities exchange on which our ordinary shares may be listed in the future.
ITEM 10. ADDITIONAL INFORMATION.
A. Share Capital.
Not applicable
B. Articles of Association.
The information called for by this Item 10.B of Form 20-F has been provided in Exhibit 2.2 to this annual report. The content of Exhibit 2.2 is incorporated by reference herein.
C. Material Contracts.
We have not entered into any material contract within the two years prior to the date of this annual report, other than contracts entered into in the ordinary course of business, or as otherwise described herein in Item 4.A-“History and Development of the Company”, Item 4.B-“Business Overview”, Item 5.B-“Operating and Financial Review and Prospects—Liquidity and Capital Resources”, Item 6.C-“Board Practices-Director Service Contracts” and Item 7.B-“Related Party Transactions”.
D. Exchange Controls.
There are currently no Israeli currency control restrictions on payments of dividends or other distributions with respect to our ordinary shares or the proceeds from the sale of ordinary shares, except for the obligation of Israeli residents to file reports with the Bank of Israel regarding certain transactions. However, legislation remains in effect pursuant to which currency controls can be imposed by administrative action at any time.
The ownership or voting of our ordinary shares by non-residents of Israel, except with respect to citizens of countries that are in a state of war with Israel, is not restricted in any way by our memorandum of association or amended articles or by the laws of the State of Israel.
E. Taxation.
The following is a short summary of certain provisions of the tax environment to which shareholders may be subject. This summary is based on the current provisions of tax law. To the extent that the discussion is based on new tax legislation that has not been subject to judicial or administrative interpretation, we cannot assure you that the views expressed in the discussion will be accepted by the appropriate tax authorities or the courts.
The summary does not address all of the tax consequences that may be relevant to all purchasers of our ordinary shares in light of each purchaser’s particular circumstances and specific tax treatment. For example, the summary below does not address the tax treatment of residents of Israel and traders in securities who are subject to specific tax regimes. As individual circumstances may differ, holders of our ordinary shares should consult their own tax adviser as to the United States, Israeli or other tax consequences of the purchase, ownership and disposition of ordinary shares. The following is not intended, and should not be construed, as legal or professional tax advice and is not exhaustive of all possible tax considerations. Each individual should consult his or her own tax or legal adviser.
Israeli Taxation Considerations
Israeli law generally imposes a capital gains tax on the sale of any capital assets by residents of Israel, as defined for Israeli tax purposes, and on the sale of assets located in Israel, including shares of Israeli companies, by both residents and non-residents of Israel unless a specific exemption is available or unless a tax treaty between Israel and the seller’s country of residence provides otherwise. The Tax Ordinance distinguishes between “Real Capital Gain” and “Inflationary Surplus”. The Inflationary Surplus is a portion of the total capital gain which is equivalent to the increase of the relevant asset’s purchase price which is attributable to the increase in the Israeli consumer price index or, in certain circumstances, a foreign currency exchange rate, between the date of purchase and the date of sale. The Real Capital Gain is the excess of the total capital gain over the Inflationary Surplus.
Israeli resident individuals
Capital Gain
As of January 1, 2006, the tax rate applicable to Real Capital Gain derived by Israeli individuals from the sale of shares which had been purchased on or after January 1, 2003, whether or not listed on a stock exchange, is 20%, unless such shareholder claims a deduction for interest and linkage differences expenses in connection with the purchase and holding of such shares, in which case the gain will generally be taxed at a rate of 25%. Additionally, if such shareholder is considered a “Significant Shareholder” (i.e., a person who holds, directly or indirectly, alone or together with another person who collaborates with such person on a permanent basis, 10% or more of any of the company’s “means of control” (including, among other things, the right to receive profits of the company, voting rights, the right to receive the company’s liquidation proceeds and the right to appoint a director)) at the time of sale or at any time during the preceding 12-month period, such gain will be taxed at the rate of 25%. Individual shareholders dealing in securities in Israel are taxed at their marginal tax rates applicable to business income (up to 47% in 2022, in addition to excess tax, if any, as described below) unless the benefiting provisions of an applicable treaty applies.
Notwithstanding the foregoing, pursuant to the Law for Change in the Tax Burden (Legislative Amendments) (Taxes), 2011, the capital gain tax rate applicable to individuals was raised from 20% to 25% from 2012 and onwards (or from 25% to 30% if the selling individual shareholder is a Significant Shareholder at any time during the 12-month period preceding the sale and\or claims a deduction for interest and linkage differences expenses in connection with the purchase and holding of such shares). With respect to assets (not shares that are listed on a stock exchange) purchased on or after January 1, 2003, the portion of the gain generated from the date of acquisition until December 31, 2011 will be subject to the previous capital gains tax rates (20% or 25%) and the portion of the gain generated from January 1, 2012 until the date of sale will be subject to the new tax rates (25% or 30%).
Dividend Income
Israeli residents who are individuals are generally subject to Israeli income tax for dividends paid on our ordinary shares (other than bonus shares or share dividends) at 25%, or 30% if the recipient of such dividend is a Significant Shareholder, at the time of distribution or at any time during the preceding 12-month period. However, dividends distributed from taxable income allocated and accrued during the benefits period of an Approved Enterprise or Beneficiary Enterprise are subject to withholding tax at the rate of 15% (and 20% with respect to Preferred Enterprise, Special Preferred Enterprise, Preferred Technology Enterprise and Special Preferred Technology Enterprise), if the dividend is distributed during the tax benefits period under the Investment Law or within 12 years after such period except with respect to an FIC, in which case the 12-year limit does not apply. An average rate will be set in case the dividend is distributed from mixed types of income (regular and Approved/ Beneficiary/ Preferred income).
Israeli resident corporations
Capital Gain
Under current Israeli tax legislation, the tax rate applicable to Real Capital Gain derived by Israeli resident corporations from the sale of shares of an Israeli company is the general corporate tax rate. As described in “Israeli Tax Considerations and Government Programs-General Corporate Tax Structure” in Item 4.B above, the corporate tax rate was 24% in 2017, and is 23% since 2018.
Dividend Income
Generally, Israeli resident corporations are exempt from Israeli corporate tax on the receipt of dividends paid on shares of Israeli resident corporations. However, dividends distributed from taxable income accrued during the benefits period of an Approved Enterprise or Beneficiary Enterprise are subject to withholding tax at the rate of 15%, if the dividend is distributed during the tax benefits period under the Investment Law or within 12 years after that period, except with respect to a FIC, in which case the 12-year limit does not apply.
Non-Israeli Residents
Capital Gain
Israeli capital gains tax is imposed on the disposal of capital assets by a non-Israeli resident if such assets are either (i) located in Israel; (ii) shares or rights to shares in an Israeli resident company, or (iii) represent, directly or indirectly, rights to assets located in Israel, unless a tax treaty between Israel and the seller’s country of residence provides otherwise. As mentioned above, Real Capital Gain is generally subject to tax at the corporate tax rate (24% in 2017 and 23% since 2018), if generated by a company, or at the rate of 25% (for any asset other than shares that are listed on a stock exchange - 20% with respect to the portion of the gain generated up to December 31, 2011) or 30% (for any asset other than shares that are listed on a stock exchange - 25% with respect to the portion of the gain generated up to December 31, 2011), if generated by an individual who is Significant Shareholder at the time of sale or at any time during the preceding 12-month period (or claims a deduction for interest and linkage differences expenses in connection with the purchase and holding of such shares) from the sale of assets purchased on or after January 1, 2003. Individual and corporate shareholders dealing in securities in Israel are taxed at the tax rates applicable to business income (a corporate tax rate for a corporation and a marginal tax rate of up to 50% for an individual in 2022) unless contrary provisions in a relevant tax treaty applies.
Notwithstanding the foregoing, shareholders who are non-Israeli residents (individuals and corporations) should generally exempt from Israeli capital gains tax on any gains derived from the sale, exchange or disposition of shares publicly traded on the Tel Aviv Stock Exchange or on a recognized stock exchange outside of Israel, provided, among other things, that (i) such gains are not generated through a permanent establishment that the non-Israeli resident maintains in Israel; (ii) the shares were purchased after being listed on a recognized stock exchange and (iii) with respect to shares listed on a recognized stock exchange outside of Israel, such shareholders are not subject to the Israeli Income Tax Law (Inflationary Adjustments) 5745-1985. However, non-Israeli corporations will not be entitled to the foregoing exemptions if Israeli residents (a) have a controlling interest of more than 25% in such non-Israeli corporation, or (b) are the beneficiaries of or are entitled to 25% or more of the revenues or profits of such non-Israeli corporation, whether directly or indirectly. Such exemption is not applicable to a person whose gains from selling or otherwise disposing of the shares are deemed to be business income.
In addition, a sale of shares may be exempt from Israeli capital gains tax under the provisions of an applicable tax treaty. For example, under the U.S.-Israel Tax Treaty, to which we refer as the U.S.-Israel Treaty, the sale, exchange or disposition of shares of an Israeli company by a shareholder who is a U.S. resident (for purposes of the U.S.-Israel Treaty) holding the shares as a capital asset is exempt from Israeli capital gains tax unless either (i) the shareholder holds, directly or indirectly, shares representing 10% or more of the voting rights during any part of the 12-month period preceding such sale, exchange or disposition, (ii) the shareholder, if an individual, has been present in Israel for a period or periods of 183 days or more in the aggregate during the applicable taxable year, (iii) the capital gains arising from such sale are attributable to a permanent establishment of the shareholder which is maintained in Israel, (iv) the capital gain arising from such sale, exchange or disposition is attributed to real estate located in Israel, or (v) the capital gains arising from such sale, exchange or disposition is attributed to royalties on copyright or film. In any such case, the sale, exchange or disposition of such shares would be subject to Israeli tax, to the extent applicable; however, under the U.S.-Israel Treaty, a U.S. resident would be permitted to claim a credit for the Israeli tax against the U.S. federal income tax imposed with respect to the sale, exchange or disposition, subject to the limitations in U.S. laws applicable to foreign tax credits. The U.S.-Israel Treaty does not provide such credit against any U.S. state or local taxes.
In some instances where our shareholders may be liable for Israeli tax on the sale of their Ordinary Shares, the payment of the consideration may be subject to the withholding of Israeli tax at source. Shareholders may be required to demonstrate that they are exempt from tax on their capital gains in order to avoid withholding at source at the time of sale. Specifically, in transactions involving a sale of all of the shares of an Israeli resident company, in the form of a merger or otherwise, the Israel Tax Authority may require from shareholders who are not liable for Israeli tax to sign declarations in forms specified by this authority or obtain a specific exemption from the Israel Tax Authority to confirm their status as non-Israeli resident, and, in the absence of such declarations or exemptions, may require the purchaser of the shares to withhold taxes at source.
Dividend Income
A non-Israeli resident who receives dividends from which tax was withheld is generally exempt from the obligation to file tax returns in Israel with respect to such income, provided that (i) such income was not generated from business conducted in Israel by the taxpayer, (ii) the taxpayer has no other taxable sources of income in Israel with respect to which a tax return is required to be filed, and (iii) the taxpayer is not obligated to pay excess tax (as further explained below).
Excess Tax
Individuals who are subject to tax in Israel (whether any such individual is an Israeli resident or non-Israeli resident) are also subject to an additional tax at a rate of 3% on annual income exceeding NIS 647,640 for 2022, which amount is linked to the annual change in the Israeli consumer price index, including, but not limited to, dividends, interest and capital gain.
U.S. Federal Income Tax Considerations
Subject to the limitations described in the following paragraphs, the discussion below describes the material U.S. federal income tax consequences to a beneficial owner of our ordinary shares, referred to in this discussion as a U.S. holder that is:
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an individual who is a citizen or resident of the United States for U.S. federal income tax purposes;
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a corporation (or other entity treated as a corporation for U.S. federal income tax purposes) created or organized in the United States or under the laws of the United States or of any state or the District of Columbia;
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an estate, the income of which is includible in gross income for U.S. federal income tax purposes regardless of its source; or
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a trust, if a court within the United States is able to exercise primary supervision over the administration of the trust and one or more United States persons have the authority to control all substantial decisions of the trust, or the trust has a valid election in effect under applicable Treasury regulations to be treated as a United States person.
This summary is not a comprehensive description of all of the tax considerations that may be relevant to each person’s decision to purchase, hold or dispose of ordinary shares. This summary considers only U.S. holders that hold ordinary shares as capital assets.
This discussion is based on current provisions of the U.S. Internal Revenue Code of 1986, to which we refer as the Code, current and proposed Treasury regulations, and administrative and judicial decisions as of the date of this annual report, all of which are subject to change, possibly on a retroactive basis. This discussion does not address all aspects of U.S. federal income taxation that may be relevant to any particular shareholder based on the shareholder’s individual circumstances. In particular, this discussion does not address the potential application of the alternative minimum tax or the U.S. federal income tax consequences to U.S. holders that are subject to special treatment, including U.S. holders that:
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are broker dealers or insurance companies;
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have elected mark-to-market accounting;
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are tax-exempt organizations;
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are financial institutions or financial services entities;
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are partnerships or other entities treated as partnerships for U.S. federal income tax purposes or partners thereof or members therein;
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hold ordinary shares as part of a straddle, hedge, conversion or other integrated transaction with other investments;
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own directly, indirectly or by attribution at least 10% of our voting power; or
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have a functional currency that is not the U.S. dollar.
In addition, this discussion does not address any aspect of state, local or non-U.S. tax laws, or the possible application of the U.S. federal estate or gift tax or any state inheritance, estate or gift tax.
Material aspects of U.S. federal income tax law relevant to a holder other than a U.S. holder, referred to in this discussion as a non-U.S. holder, are also discussed below.
Each prospective investor is advised to consult his or her own tax adviser for the specific tax consequences to that investor of purchasing, holding or disposing of our ordinary shares.
Taxation of Dividends Paid on Ordinary Shares
Subject to the discussion below under “Tax Consequences if We Are a Passive Foreign Investment Company,” a U.S. holder will be required to include in gross income as ordinary income the gross amount of any distribution paid on ordinary shares, including any Israeli taxes withheld from the amount paid, on the date the distribution is actually or constructively received, to the extent the distribution is paid out of our current or accumulated earnings and profits as determined for U.S. federal income tax purposes.” In addition, under the Patient Protection and Affordable Care Act, higher income taxpayers must pay an additional 3.8 percent tax on net investment income to the extent certain threshold amounts of income are exceeded. See “Tax on Net Investment Income” in this Item below.
Dividends that are received by U.S. holders that are individuals, estates or trusts generally will be taxed at the rate applicable to long-term capital gains (a maximum rate of 15% or 20%, in case of taxpayers with annual taxable income which exceeds certain thresholds), provided those dividends meet the requirements of “qualified dividend income.” Dividends that fail to meet these requirements, and dividends taxable to corporate U.S. holders, are taxed at ordinary income rates. No dividend received by a U.S. holder will be a qualified dividend (1) if the U.S. holder held the ordinary share with respect to which the dividend was paid for less than 61 days during the 121-day period beginning on the date that is 60 days before the ex-dividend date with respect to the dividend, excluding for this purpose, under the rules of Code Section 246(c), any period during which the U.S. holder has an option to sell, is under a contractual obligation to sell, has made and not closed a short sale of, is the grantor of a deep-in-the-money or otherwise nonqualified option to buy, or has otherwise diminished its risk of loss by holding other positions with respect to, the ordinary share (or substantially identical securities); or (2) to the extent that the U.S. holder is under an obligation (pursuant to a short sale or otherwise) to make related payments with respect to positions in property substantially similar or related to the ordinary share with respect to which the dividend is paid. If we were to be a “passive foreign investment company” (as that term is defined in the Code) for any year, dividends paid on our ordinary shares in that year or in the year following that year would not be qualified dividends. In addition, a non-corporate U.S. holder will be able to take a qualified dividend into account in determining its deductible investment interest (which is generally limited to its net investment income) only if it elects to do so, in which case the dividend will be taxed at ordinary income rates. Corporate holders will not be allowed a deduction for dividends received in respect of our ordinary shares.
Dividends on our ordinary shares will be foreign source passive income (or in some cases, general category income) for U.S. foreign tax credit purposes. Distributions in excess of earnings and profits will be applied against and will reduce, on a share-by-share basis, the U.S. holder’s basis in the ordinary shares and, to the extent in excess of that basis, will be treated as gain from the sale or exchange of ordinary shares.
The amount of a distribution paid to a U.S. holder in a foreign currency will be the U.S. dollar value of the foreign currency calculated by reference to the spot exchange rate on the day the U.S. holder receives the distribution. A U.S. holder that receives a foreign currency distribution and converts the foreign currency into U.S. dollars after receipt will have foreign exchange gain or loss based on any appreciation or depreciation in the value of the foreign currency against the U.S. dollar, which will generally be U.S. source ordinary income or loss.
U.S. holders will have the option of claiming the amount of any Israeli income taxes withheld at source either as a deduction from gross income or as a dollar-for-dollar credit against their U.S. federal income tax liability. Individuals who do not claim itemized deductions, but instead utilize the standard deduction, may not claim a deduction for the amount of the Israeli income taxes withheld, but the amount may be claimed as a credit against the individual’s U.S. federal income tax liability. The amount of foreign income taxes that may be claimed as a credit in any year is generally subject to complex limitations and restrictions, which must be determined on an individual basis by each shareholder. Those limitations include the provisions described in the following paragraphs, as well as rules that limit foreign tax credits allowable for a class of income to the U.S. federal income taxes otherwise payable on the net income in that class.
A U.S. holder will be denied a foreign tax credit for Israeli income tax withheld from dividends received on our ordinary shares:
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if the U.S. holder has not held the ordinary shares for at least 16 days of the 30-day period beginning on the date that is 15 days before the ex-dividend date; or
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to the extent that the U.S. holder is under an obligation to make related payments on substantially similar or related property.
Any days during which a U.S. holder has substantially diminished its risk of loss on the ordinary shares are not counted toward meeting the 16-day holding period required by the statute. A foreign tax credit for the Israeli tax can be deferred if the U.S. holder enters into certain types of arrangements to defer inclusion of the related dividend in income for tax purposes.
Taxation of the Disposition of Ordinary Shares
Subject to the discussion below under “Tax Consequences if We Are a Passive Foreign Investment Company,” upon the sale, exchange or other taxable disposition of our ordinary shares, a U.S. holder will recognize capital gain or loss in an amount equal to the difference between the U.S. holder’s basis in the ordinary shares, which is usually the cost to the U.S. holder of the shares, and the amount realized on the disposition. Capital gain from the sale, exchange or other disposition of ordinary shares held more than one year is long-term capital gain and is eligible for a reduced rate of taxation in the case of non-corporate taxpayers. Gain or loss recognized by a U.S. holder on the sale, exchange or other disposition of ordinary shares generally will be treated as U.S. source income or loss for U.S. foreign tax credit purposes. The deductibility of capital losses is subject to limitations.
A U.S. holder that uses the cash method of accounting calculates the U.S. dollar value of foreign currency proceeds received on a sale as of the date on which the U.S. holder receives the foreign currency. However, a U.S. holder that uses an accrual method of accounting is required to calculate the value of the proceeds of the sale as of the date of sale and may therefore realize foreign currency gain or loss on a subsequent disposition of the foreign currency based on any subsequent appreciation or depreciation in the value of the foreign currency against the U.S. dollar. That gain or loss will generally be U.S. source ordinary income or loss.
Tax Consequences if We Are a Passive Foreign Investment Company
We will be a passive foreign investment company, to which we refer as a PFIC, if 75% or more of our gross income in a taxable year, including our pro rata share of the gross income of any corporation in which we are considered to own 25% or more of the shares by value (subject to certain exceptions in the case of a U.S. corporation), is passive income. Alternatively, we will be considered to be a PFIC if at least 50% of our assets in a taxable year, ordinarily determined based on the quarter-end average fair market value of our assets over the taxable year and including the pro rata share of the assets of any corporation in which we are considered to own 25% or more of the shares by value (subject to certain exceptions in the case of a U.S. corporation), produce or are held for the production of passive income.
If we were a PFIC, and a U.S. holder did not make, as described below, a timely election either to treat us as a qualified electing fund or, if the election is available, to mark our shares to market, any excess distributions we pay to a U.S. holder would be taxed in a special way. Excess distributions are amounts paid on shares in a PFIC in any taxable year that exceed 125% of the average distributions paid on those shares in the shorter of:
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the three previous years; and
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the U.S. holder’s holding period for ordinary shares before the present taxable year.
Excess distributions must be allocated ratably to each day that a U.S. holder has held our ordinary shares. A U.S. holder would then be required to include amounts allocated to the current taxable year and each prior year in which we were not a PFIC (but not before our first taxable year beginning after December 31, 1986) in its gross income as ordinary income for the current year. Further, a U.S. holder would be required to pay tax on amounts allocated to each prior taxable year in which we were a PFIC at the highest rate in effect for that year on ordinary income, and the tax for each such year would be subject to an interest charge at the rate applicable to deficiencies for income tax.
The entire amount of gain that is realized or treated as realized by a U.S. holder upon the sale or other disposition of ordinary shares (generally whether or not the disposition is a taxable transaction) will also be treated as an excess distribution and will be subject to tax as described in the preceding paragraph.
In some circumstances a U.S. holder’s tax basis in our ordinary shares that were inherited from a deceased person who was a U.S. holder would not equal the fair market value of those ordinary shares as of the date of the deceased person’s death but would instead be equal to the deceased’s basis, if lower.
The special PFIC rules described above will not apply to a U.S. holder if that U.S. holder makes an election to treat us as a qualified electing fund, to which we refer as a QEF, in the first taxable year in which the U.S. holder owns ordinary shares, provided we comply with specified reporting requirements. Instead, a U.S. holder who has made such a QEF election is required for each taxable year in which we are a PFIC to include in income a pro rata share of our ordinary earnings as ordinary income and a pro rata share of our net capital gain as long-term capital gain, subject to a separate election to defer payment of the related tax. If deferred, the taxes will be subject to an interest charge. We would supply U.S. holders with the information needed to report income and gain under a QEF election if we were classified as a PFIC.
The QEF election is made on a shareholder-by-shareholder basis and can be revoked only with the consent of the Internal Revenue Service, to which we refer as the IRS. A shareholder makes a QEF election by attaching a completed IRS Form 8621, including the PFIC annual information statement, to a timely filed U.S. federal income tax return. If you are not required to file an income tax return or other return for the tax year, file the form directly with the IRS Service Center in Ogden, UT 84201-0201. Even if a QEF election is not made, a United States person who is a shareholder in a PFIC must file every year a completed IRS Form 8621 or other form as may be prescribed by the IRS pursuant to legislation requiring annual reports with respect to PFICs.
A U.S. holder of PFIC shares that are publicly traded may elect to mark the stock to market annually, recognizing as ordinary income or loss each year an amount equal to the difference as of the close of the taxable year between the fair market value of the PFIC shares and the U.S. holder’s adjusted tax basis in the PFIC shares. Losses would be allowed only to the extent of net mark-to-market gain previously included in income by the U.S. holder under the election for prior taxable years. If the mark-to-market election were made, then the rules described above (other than the rules for excess distributions, which would apply to the first year the election is made if we were a PFIC in a prior year and a QEF election were not made for the first year we were a PFIC) would not apply for periods covered by the election.
Although we do not believe that we were a PFIC in 2022, we cannot assure you that the IRS will agree with that conclusion or that we will not become a PFIC in 2023 or in a subsequent year. The tests for determining PFIC status are applied annually, and it is difficult to make accurate predictions of future income and assets, which are relevant to this determination. U.S. holders who hold ordinary shares during a period when we are a PFIC will be subject to these rules, even if we cease to be a PFIC in later years, subject to specified exceptions for U.S. holders who made a QEF election in the first year they held our ordinary shares and we were a PFIC or if in a later year they made any of certain elections to purge the PFIC taint of our ordinary shares, which elections generally require the payment of tax. U.S. holders are urged to consult their tax advisers about the PFIC rules, including QEF and mark-to-market elections.
Tax on Net Investment Income
A U.S. holder that is an individual or estate, or a trust that does not fall into a special class of trusts that is exempt from the tax, will be subject to a 3.8% tax on the lesser of (1) the U.S. holder’s “net investment income” for the relevant taxable year and (2) the excess of the U.S. holder’s modified adjusted gross income for the taxable year over a certain threshold (which in the case of individuals will be between $125,000 and $250,000, depending on the individual’s circumstances). A U.S. holder’s net investment income generally will include its dividends on our ordinary shares and net gains from dispositions of our ordinary shares, unless those dividends or gains are derived in the ordinary course of the conduct of trade or business (other than trade or business that consists of certain passive or trading activities). Net investment income, however, may be reduced by deductions properly allocable to that income. A U.S. holder that is an individual, estate or trust is urged to consult its tax adviser regarding the applicability of the Medicare tax to its income and gains in respect of its investment in our ordinary shares.
Tax Consequences for Non-U.S. Holders of Ordinary Shares
Except as described in “Information Reporting and Backup Withholding” below, a non-U.S. holder of ordinary shares will not be subject to U.S. federal income or withholding tax on the payment of dividends on, and the proceeds from the disposition of, ordinary shares, unless:
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the income is effectively connected with the conduct by the non-U.S. holder of a trade or business in the United States and, in the case of a resident of a country that has an income treaty with the United States, the income is attributable to a U.S. permanent establishment, or, in the case of an individual, a fixed place of business in the United States;
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the non-U.S. holder is an individual who holds the ordinary shares as a capital asset and is present in the United States for 183 days or more in the taxable year of the disposition and does not qualify for an exemption; or
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the non-U.S. holder is subject to tax under the provisions of U.S. tax law applicable to U.S. expatriates.
A non-U.S. holder is a beneficial owner of our ordinary shares that is (1) a nonresident alien as to the United States for U.S. federal income tax purposes; (2) a corporation created or organized in or under the law of a country, or any of its political subdivisions, other than the United States; or (3) an estate or trust that is not a U.S. holder.
Information Reporting and Backup Withholding
U.S. holders generally are subject to information reporting requirements for dividends paid in the United States on ordinary shares. Dividends paid in the United States to a U.S. holder on ordinary shares are subject to backup withholding at a rate of 28% unless the U.S. holder provides IRS Form W-9 or establishes an exemption. U.S. holders generally are subject to information reporting and backup withholding at a rate of 28% on proceeds paid from the disposition of ordinary shares unless the U.S. holder provides IRS Form W-9 or establishes an exemption.
The Foreign Account Tax Compliance Act, or FATCA, was enacted during 2014. FATCA generally requires foreign financial institutions (FFIs) to identify U.S. account holders and report them to the IRS or pay a 30% withholding tax. Nonfinancial foreign entities (or NFFEs) are required to report their substantial U.S. owners to withholding agents or pay a 30% withholding tax. FATCA’s objective is to prevent tax evasion by requiring the disclosure of account holder information to the IRS. Because Stratasys is a publicly traded company that is not a financial institution, FATCA has less impact than the rules discussed above that are still in effect for withholding tax purposes.
A non-U.S. holder who effects the sale of his ordinary shares by or through a U.S. office of a broker is subject to both information reporting and backup withholding tax on the payment of the proceeds unless he certifies, under penalties of perjury, that he is not a U.S. person or otherwise establishes an exemption. If a non-U.S. holder sells his ordinary shares through a non-U.S. office of a non-U.S. broker and the sales proceeds are paid to the holder outside the United States, then information reporting and backup withholding generally will not apply to that payment. However, information reporting requirements, but not backup withholding, will apply to a payment of sales proceeds, even if that payment is made to a non-U.S. holder outside the United States, if the holder sells his ordinary shares through a non-U.S. office of a broker that is a U.S. person or has some other contacts with the United States. Those information reporting requirements will not apply, however, if the broker has documentary evidence in its records that the holder is a non-U.S. person and certain other conditions are met, or the holder otherwise establishes an exemption.
Backup withholding is not an additional tax. Rather, the amount of any backup withholding will be allowed as a credit against a U.S. or non-U.S. holder’s U.S. federal income tax liability, and a taxpayer generally may obtain a refund of any amounts withheld under the backup withholding rules that exceed the taxpayer’s U.S. federal income tax liability by filing a refund claim with the IRS, provided in each case that required information is furnished to the IRS.
Information Reporting by Certain U.S. Holders
U.S. citizens and individuals taxable as resident aliens of the United States that own “specified foreign financial assets” with an aggregate value in a taxable year in excess of certain thresholds (as determined under Treasury regulations) and that are required to file a U.S. federal income tax return generally will be required to file an information report with respect to those assets with their tax returns. IRS Form 8938 has been issued for that purpose. “Specified foreign financial assets” include any financial accounts maintained by foreign financial institutions, foreign stocks held directly, and interests in foreign estates, foreign pension plans or foreign deferred compensation plans. Under those rules, our ordinary shares, whether owned directly or through a financial institution, estate or pension or deferred compensation plan, would be “specified foreign financial assets.” Under Treasury regulations, the reporting obligation applies to certain U.S. entities that hold, directly or indirectly, specified foreign financial assets. Penalties can apply if there is a failure to satisfy this reporting obligation. A U.S. holder is urged to consult his tax adviser regarding his reporting obligation.
F. Dividends and Paying Agents.
Not applicable.
G. Statement by Experts.
Not applicable.
H. Documents on Display.
As a foreign private issuer, we are exempt from the rules under the Exchange Act prescribing the furnishing and content of proxy statements, and our officers, directors and principal shareholders are exempt from the reporting and “short-swing” profit recovery provisions contained in Section 16 of the Exchange Act. In addition, we are not required under the Exchange Act to file periodic reports and financial statements with the SEC as frequently or as promptly as United States companies whose securities are registered under the Exchange Act.
I. Subsidiary Information.
Not Applicable.
J. Annual Report to Security Holders
Not Applicable.
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Market risk is the risk of loss related to changes in market prices, including mainly interest rates and foreign exchange rates, of financial instruments that may adversely impact our consolidated balance sheets, statements of operations or cash flows.
Foreign Currency Exchange Risk
Due to our international operations, currency exchange rates impact our financial performance.
The majority of our balance sheet exposure relates to foreign currency assets and liabilities in entities which their functional currency is Euro. Our net Euro balance sheet exposure as of December 31, 2022 was approximately $28.8 million.
Our total revenues amounted to $651.5 million in 2022, of which approximately 14.5% were denominated in Euros. During 2022, our Euro-denominated revenues exceeded our Euro-denominated expenses. Conversely, our expenses denominated in shekels are higher than our expected shekel-denominated revenues. For those currencies which do not have a sufficient natural hedge within our operations (such as offsetting revenues and expenses recorded in a given currency, or some other hedge), we may choose to hedge in order to reduce the impact of currency fluctuations on our operating results. In 2022, we entered into hedging transactions to reduce our potential currency exposure related to the U.S. dollar against each of the Euro and the New Israeli Shekel. Our foreign exchange forward contracts in effect as of December 31, 2022 were for the conversion of $12.7 million Euro into USD and $64.4 million into NIS.
The net effect of these risks stemming from currency exchange rate fluctuations on our operating results can be quantified as follows:
(i) A change of 10% in the value of the Euro relative to the U.S. dollar in the year ended December 31, 2022 would have resulted in a change in the U.S. dollar reporting value of our consolidated operating income of $3.9 million for that year, mainly due to revenues earned in Euros.
(ii) A change of 10% in the value of the shekel relative to the dollar in the year ended December 31, 2022 would have resulted in a change in the dollar-reported value of our consolidated operating income of $14.4 million, mainly due to shekel-recorded expenses.
We will continue to monitor exposure to currency fluctuations. Instruments that may be used to protect us against future risks may include foreign currency forward and swap contracts. These instruments may be used to selectively manage risks, but there can be no assurance that we will be fully protected against material foreign currency fluctuations. We do not use derivative financial instruments for speculative or trading purposes.
Interest Rate Risk
Our cash and cash equivalents are held primarily in bank deposits with maturities of less than 90 days, and our short-term bank deposits have maturities of more than 90 days. Both are subject to limited interest rate risk, with an average interest rate of 6.17%. A 10% change in interest rates would not have a material effect on our financial condition or results of operations.
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES.
Not Applicable.
PART II
ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES.
None
ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS.
None
ITEM 15. CONTROLS AND PROCEDURES.
(a) Disclosure Controls and Procedures.
We carried out an evaluation under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act), as of December 31, 2022, the end of the period covered by this annual report. We maintain disclosure controls and procedures designed to ensure that the information required to be disclosed by us in filings and submissions under the Exchange Act, is recorded, processed, summarized, and reported within the time periods specified by the SEC’s rules and forms, and that information required to be disclosed by us in reports that we file or submit under the Exchange Act is accumulated and communicated to management, including our chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, our management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives, and our management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on such evaluation, our chief executive officer and chief financial officer have concluded that our disclosure controls and procedures were effective as of December 31, 2022.
(b) Management’s Annual Report on Internal Control Over Financial Reporting.
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Our internal control system was designed to provide reasonable assurance to our management and board of directors regarding the reliability of financial reporting and the preparation and fair presentation of its published consolidated financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2022. In making our assessment, our management used the criteria established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on such assessment, management has concluded that, as of December 31, 2022, our internal control over financial reporting is effective based on those criteria.
Kesselman & Kesselman, an independent registered public accounting firm in Israel and a member of PricewaterhouseCoopers International Limited, to which we refer as PwC, which audited the financial statements included in this annual report containing the disclosure required by this Item 15 has issued an attestation report regarding the effectiveness of our internal control over financial reporting.
(c) Attestation Report of Registered Public Accounting Firm.
PwC’s attestation report regarding the effectiveness of our internal control over financial reporting is included in “Item 18-Financial Statements” on page F-1 of this annual report, which attestation report is incorporated by reference in this Item 15(c).
(d) Changes in Internal Control over Financial Reporting.
Based on the evaluation conducted by our management, with the participation of our chief executive officer and chief financial officer, pursuant to Rules 13a-15(d) and 15d-15(d) promulgated under the Exchange Act, our management (including such officers) have concluded that there were no changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the period covered by this annual report that have materially affected, or that are reasonably likely to materially affect, our internal control over financial reporting.
ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT.
Our board of directors has determined that Mr. Yair Seroussi, who serves on the audit committee of our board of directors, meets the requirements of an “audit committee financial expert”, as defined in Item 407(d)(5) of SEC Regulation S-K and Item 16A of SEC Form 20-F and is an independent director, as defined in Rule 5600(a)(2) of the Nasdaq Listing Rules.
ITEM 16B. CODE OF ETHICS.
We have adopted a Code of Business Conduct and Ethics, which we to which we refer as the code of ethics, that applies to all directors, officers, and employees of our company and its subsidiaries, including our principal executive officer, principal financial officer, principal accounting officer or controller and other persons performing similar functions for us. A copy of the code of ethics has been posted on our Internet website, http://investors.stratasys.com/governance.cfm and is incorporated herein by reference. The foregoing website has been provided as an inactive textual reference only, and the content of that website is not a part of this annual report.
ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
The following table sets forth, for the years ended December 31, 2021 and 2020, the fees billed to us and our subsidiaries by our principal accountant. (1)
|
Year ended | ||||||||
|
December 31, | ||||||||
| 2022 |
2021 |
|||||||
|
Audit fees (2) |
$ | 843,700 |
|
$ | 793,200 | |||
| Audit-related (3) | 20,000 | 18,750 | ||||||
|
Tax fees (4) |
140,000 | 123,500 | ||||||
|
All other fees (5) |
19,800 | 18,300 | ||||||
|
Total |
$ | 1,023,500 |
|
$ | 953,750 | |||
|
(1) |
Comprised by fees billed by Kesselman & Kesselman, a member firm of PricewaterhouseCoopers International Limited, an independent registered public accounting firm, or Kesselman & Kesselman (which served as our principal accountant with respect to the years ended December 31, 2022 and 2021). |
|
(2) |
Audit fees consist of fees for professional services rendered by our principal accountant in connection with the audit of our consolidated annual financial statements and services that would normally be provided by our principal accountant in connection with statutory and regulatory filings or engagements. |
| (3) | The audit-related fees for the year ended December 31, 2022 and 2021 were for due diligence related to acquisitions. |
|
(4) |
Tax fees are fees for services rendered by our principal accountant in connection with tax compliance, tax planning and tax advice. |
|
(5) |
All other fees are fees for other consulting services (if any) rendered by our principal accountant to us. |
ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES.
None.
ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS.
None.
ITEM 16F. CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT.
Not applicable.
ITEM 16G. CORPORATE GOVERNANCE.
The Nasdaq Global Select Market requires companies with securities listed thereon to comply with its corporate governance standards. As a foreign private issuer, we are not required to comply with all of the rules that apply to listed domestic U.S. companies. Pursuant to Nasdaq Listing Rule 5615(a)(3), we have notified Nasdaq that with respect to the corporate governance practices described below, we will instead follow Israeli law and practice and accordingly will not follow the Nasdaq Listing Rules. Except for the differences described below, we do not believe there are any significant differences between our corporate governance practices and those that apply to a U.S. domestic issuer under the Nasdaq Global Select Market corporate governance rules.
•
Quorum for Shareholder Meetings: As permitted under the Companies Law, under a recent amendment adopted to our amended and restated articles of association, the quorum required for an ordinary meeting of shareholders consists of at least two shareholders present in person, by proxy or by other voting instrument, who hold at least 25% of the voting power of our shares (and in an adjourned meeting, with some exceptions, two shareholders, regardless of the voting power associated with their shares), instead of 33 1/3% of the issued share capital required under the Nasdaq Listing Rules.
•
Executive Sessions of Independent Directors: Under the Companies Law, our independent directors (as defined under the Nasdaq Listing Rules) do not need to meet regularly in sessions at which only they are present, as is required of U.S. domestic issuers under Nasdaq Listing Rule 5605(b)(2).
•
Independent Director Oversight of Nominations: Under Israeli law, there is no requirement to have an independent nominating committee or the independent directors of a company select (or recommend for selection) director nominees, as is required under Nasdaq Listing Rule 5605(e) for a U.S. domestic issuer. Our board of directors (based on the recommendation of the executive committee thereof) handles this process, as is permitted by our amended articles and the Companies Law. We also need not adopt a formal board resolution or charter addressing the director nominations process and such related matters as may be required under the U.S. federal securities laws, as Nasdaq requires for a U.S. issuer.
•
Compensation Committee Charter: Under Israeli law, we are not required to adopt, and our company has not adopted, a formal written compensation committee charter for the compensation committee of our board of directors, as is generally require Nasdaq Listing Rules related to the composition, responsibilities and authority of the compensation committee.
•
Shareholder Approval: Pursuant to Israeli law, we seek shareholder approval for all corporate actions requiring such approval under the requirements of the Companies Law, which are different from, or in addition to, the requirements for seeking shareholder approval under Nasdaq Listing Rule 5635. See “Item 6. Directors, Senior Management and Employees—C. Board Practices — Fiduciary Duties of Office Holders” in this annual report for a description of the some of the transactions requiring shareholder approval under the Companies Law.
ITEM 16H. MINE SAFETY DISCLOSURE.
Not applicable.
ITEM 16I. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTION.
Not applicable.
PART III
ITEM 17. FINANCIAL STATEMENTS.
We have elected to provide financial statements and related information pursuant to Item 18.
ITEM 18. FINANCIAL STATEMENTS
The consolidated financial statements and the related notes required by this Item are included in this annual report beginning on page F-1.
STRATASYS LTD.
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2022
| Index to Consolidated Financial Statements | Page | |
| Consolidated Statements of Changes in Equity for the Years Ended December 31, 2022, 2021 and 2020 | ||
| Consolidated Statements of Cash Flows for the Years Ended December 31, 2022, 2021 and 2020 | ||
To the board of directors and shareholders of Stratasys Ltd.
Opinions on the Financial Statements and Internal Control over Financial Reporting
Basis for Opinions
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matters
/s/
Certified Public Accountants (Isr.)
A member firm of PricewaterhouseCoopers International Limited
March 3, 2023
We have served as the Company’s auditor since 2012.
STRATASYS LTD.
CONSOLIDATED FINANCIAL STATEMENTS
| Consolidated Balance Sheets | |||||||||
| (in thousands, except per share data) | |||||||||
| December 31, | 2022 | 2021 | |||||||
| ASSETS | |||||||||
| Current assets | |||||||||
| Cash and cash equivalents | $ | $ | |||||||
| Short-term bank deposits | |||||||||
| Accounts receivable, net of allowance for credit losses of $ | |||||||||
| Inventories | |||||||||
| Prepaid expenses | |||||||||
| Other current assets | |||||||||
| Total current assets | |||||||||
| Non-current assets | |||||||||
| Property, plant and equipment, net | |||||||||
| Goodwill | |||||||||
| Other intangible assets, net | |||||||||
| Operating lease right-of-use assets | |||||||||
| Long-term investments | |||||||||
| Other non-current assets | |||||||||
| Total non-current assets | |||||||||
| Total assets | $ | $ | |||||||
| LIABILITIES AND EQUITY | |||||||||
| Current liabilities | |||||||||
| Accounts payable | $ | $ | |||||||
| Accrued expenses and other current liabilities | |||||||||
| Accrued compensation and related benefits | |||||||||
| Deferred revenues - short-term | |||||||||
| Operating lease liabilities - short term | |||||||||
| Total current liabilities | |||||||||
| Non-current liabilities | |||||||||
| Deferred revenues - long-term | |||||||||
| Deferred income taxes | |||||||||
| Operating lease liabilities - long term | |||||||||
| Contingent consideration | |||||||||
| Other non-current liabilities | |||||||||
| Total non-current liabilities | |||||||||
| Total liabilities | $ | $ | |||||||
| Commitments and contingencies (see note 10) |
| Equity | |||||||||
| Ordinary shares, NIS 0.01 nominal value, authorized 180,000 | |||||||||
| shares; 67,086 shares and 65,677 shares | |||||||||
| $ | $ | ||||||||
| Additional paid-in capital | |||||||||
| Accumulated other comprehensive loss | ( | ) | ( | ) | |||||
| Accumulated deficit | ( | ) | ( | ) | |||||
| Total equity | |||||||||
| Total liabilities and equity | $ | $ | |||||||
| The accompanying notes are an integral part of these consolidated financial statements. |
STRATASYS LTD.
CONSOLIDATED FINANCIAL STATEMENTS
| Consolidated Statements of Operations and Comprehensive Loss | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| (in thousands, except per share data) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Years Ended December 31, | 2022 | 2021 | 2020 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Revenues | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Products | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Services | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Cost of revenues | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Products | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Services | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Gross profit | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Operating expenses | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Research and development, net | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Selling, general and administrative | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Goodwill impairment | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Operating loss | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Gain from deconsolidation of subsidiary | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Gain from step acquisition | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Financial income (expenses), net | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Loss before income taxes | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Income tax benefit (expenses) | ( | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Share in net profits (losses) of associated companies | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net loss attributable to non-controlling interests | ( | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net loss attributable to Stratasys Ltd. | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Comprehensive Loss | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net loss | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income (loss), net of tax: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustments | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Unrealized gains (losses) on derivatives designated as cash flow hedge | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income (loss), net of tax | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Comprehensive loss | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Less: Comprehensive loss attributable to non-controlling interests | ( | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Comprehensive loss attributable to Stratasys Ltd. | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| The accompanying notes are an integral part of these consolidated financial statements. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
STRATASYS LTD.
CONSOLIDATED FINANCIAL STATEMENTS
| Consolidated Statements of Changes in Equity | ||||||||||||||||||||||||
| (in thousands) | ||||||||||||||||||||||||
| Years Ended December 31, 2022, 2021, and 2020 | ||||||||||||||||||||||||
| Ordinary Shares | ||||||||||||||||||||||||
| Number of shares | Par Value | Additional Paid-In Capital | Accumulated Deficit | Accumulated Other Comprehensive Loss | Total Equity | |||||||||||||||||||
| Balances, January 1, 2020 | ( | ) | ( | ) | ||||||||||||||||||||
| Issuance of shares in connection with stock-based compensation plans | - | - | ||||||||||||||||||||||
| Stock-based compensation | - | - | - | - | ||||||||||||||||||||
| Issuance of shares as part of the Origin acquisition | - | - | ||||||||||||||||||||||
| Comprehensive loss | - | - | - | ( | ) | ( | ) | ( | ) | |||||||||||||||
| Balance as of December 31, 2020 | ( | ) | ( | ) | ||||||||||||||||||||
| Issuance of shares in connection with stock-based compensation plans | - | - | ||||||||||||||||||||||
| Stock-based compensation | - | - | - | - | ||||||||||||||||||||
| Public offering of ordinary shares, net | - | - | ||||||||||||||||||||||
| Other items | - | - | - | - | ||||||||||||||||||||
| Reduction of redeemable non-controlling interest | - | - | - | - | ||||||||||||||||||||
| Comprehensive loss | - | - | - | ( | ) | ( | ) | |||||||||||||||||
| Balance as of December 31, 2021 | ( | ) | ( | ) | ||||||||||||||||||||
| Issuance of shares in connection with stock-based compensation plans | - | - | ||||||||||||||||||||||
| Issuance of Common stock under employee stock purchase plan | - | - | ||||||||||||||||||||||
| Stock-based compensation | - | - | - | - | ||||||||||||||||||||
| Other | - | - | ( | ) | - | - | ( | ) | ||||||||||||||||
| Comprehensive loss | - | - | - | ( | ) | ( | ) | ( | ) | |||||||||||||||
| Balance as of December 31, 2022 | ( | ) | ( | ) |
The accompanying notes are an integral part of these consolidated financial statements.
STRATASYS LTD.
CONSOLIDATED FINANCIAL STATEMENTS
| Consolidated Statements of Cash Flows | ||||||||||||
| (in thousands) | ||||||||||||
| Years ended December 31, | 2022 | 2021 | 2020 | |||||||||
| Cash flows from operating activities | ||||||||||||
| Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||
| Adjustments to reconcile net loss to net cash provided by (used in) operating activities: | ||||||||||||
| Goodwill impairment | ||||||||||||
| Impairment of other long-lived assets | ||||||||||||
| Depreciation and amortization | ||||||||||||
| Stock-based compensation | ||||||||||||
| Foreign currency transaction loss (gain) | ( | ) | ||||||||||
| Gain from step acquisition | ( | ) | ||||||||||
| Gain from deconsolidation of subsidiary | ( | ) | ||||||||||
| Share in net (profits) losses of associated companies | ( | ) | ||||||||||
| Revaluation of investments | ( | ) | ||||||||||
| Revaluation of contingent consideration | ( | ) | ||||||||||
| Deferred income taxes, net and uncertain tax positions | ( | ) | ( | ) | ||||||||
| Other non-cash items, net | ( | ) | ( | ) | ||||||||
| Change in cash attributable to changes in operating assets and liabilities: | ||||||||||||
| Accounts receivable, net | ( | ) | ( | ) | ||||||||
| Inventories | ( | ) | ( | ) | ||||||||
| Other current assets and prepaid expenses | ( | ) | ||||||||||
| Other non-current assets | ||||||||||||
| Accounts payable | ( | ) | ||||||||||
| Other current liabilities | ( | ) | ( | ) | ||||||||
| Deferred revenues | ( | ) | ||||||||||
| Other non-current liabilities | ( | ) | ( | ) | ( | ) | ||||||
| Net cash provided by (used in) operating activities | $ | ( | ) | $ | $ | |||||||
| Cash flows from investing activities | ||||||||||||
| Cash paid for business combinations, net of cash acquired | ( | ) | ( | ) | ||||||||
| Purchase of property and equipment | ( | ) | ( | ) | ( | ) | ||||||
| Investments in short-term bank deposits | ( | ) | ( | ) | ( | ) | ||||||
| Proceeds from short-term bank deposits | ||||||||||||
| Proceeds from sale of equity method investment | ||||||||||||
| Net proceeds from divestitures of subsidiaries and associated companies | ||||||||||||
| Investments in non-marketable equity securities | ( | ) | ( | ) | ||||||||
| Purchase of intangible assets | ( | ) | ( | ) | ( | ) | ||||||
| Other investing activities | ( | ) | ||||||||||
| Net cash used in investing activities | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||
| Cash flows from financing activities | ||||||||||||
| Proceeds from public offering, net of issuance costs | ||||||||||||
| Proceeds from exercise of stock options | ||||||||||||
| Payment of contingent consideration | ( | ) | ||||||||||
| Other financing activities | ( | ) | ||||||||||
| Net cash provided by (used in) financing activities | $ | ( | ) | $ | $ | |||||||
| Effect of exchange rate changes on cash, cash equivalents and restricted cash | ( | ) | ( | ) | ||||||||
| Net change in cash, cash equivalents and restricted cash | ( | ) | ( | ) | ( | ) | ||||||
| Cash, cash equivalents and restricted cash, beginning of year | ||||||||||||
| Cash, cash equivalents and restricted cash, end of year | $ | $ | $ | |||||||||
| Reconciliation of cash, cash equivalents and restricted cash reported in the consolidated balance sheets: | ||||||||||||
| Cash and cash equivalents | ||||||||||||
| Restricted cash included in other current assets | ||||||||||||
| Total cash, cash equivalents and restricted cash shown in the statement of cash flows | $ | $ | $ |
The accompanying notes are an integral part of these consolidated financial statements.
STRATASYS LTD.
CONSOLIDATED FINANCIAL STATEMENTS
| Consolidated Statements of Cash Flows | |||||||||||||
| (in thousands) | |||||||||||||
| Years ended December 31, | 2022 | 2021 | 2020 | ||||||||||
| Supplemental disclosure of cash flow information | |||||||||||||
| Cash paid during the year for: | |||||||||||||
| Income taxes, net of tax refunds | $ | $ | $ | ||||||||||
| Non-cash investing and financing activities: | |||||||||||||
| Transfer of inventories to fixed assets | |||||||||||||
| Transfer of fixed assets to inventories | |||||||||||||
| Contingent consideration | |||||||||||||
| Right-of-use assets obtained in exchange for new operating lease liabilities | |||||||||||||
| Issuance of Common stock under employee stock purchase plan | - | - | |||||||||||
| Issuance of shares as part of Origin acquisition (Refer to Note 2) |
The accompanying notes are an integral part of these consolidated financial statements.
STRATASYS LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Nature of Operations and Summary of Significant Accounting Policies
a. Nature of Operations
The Company has one operating segment, which generates revenues via the sale of its 3D printing systems, related services and consumables and by providing additive manufacturing (“AM”) solutions. The Company operates mainly through offices in Israel, the United States, Germany, Hong Kong and Japan.
STRATASYS LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
b. Summary of Significant Accounting Policies
Basis of Presentation
The consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”).
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of Stratasys Ltd., and its subsidiaries. All intercompany balances and transactions, including profits from intercompany sales not yet realized outside the Company, have been eliminated in consolidation.
Functional Currency and Foreign Currency Transactions
A major part of the Company’s operations is carried out by Stratasys Ltd. in Israel and its subsidiaries in the United States. The functional currency of these entities is the U.S. dollar (“dollar” or “$”). The functional currency of other subsidiaries is generally their local currency. The financial statements of those subsidiaries are included in the consolidated financial statements, based on translation into U.S. dollars. Assets and liabilities accounts are translated at year-end exchange rates, while revenues and expenses accounts are translated at average exchange rates during the year. The remeasurement adjustments of foreign currencies translation are included in the Company’s shareholders’ equity as a component of accumulated other comprehensive loss in the accompanying consolidated financial statements. Gains and losses arising from foreign currency remeasurements of monetary balances denominated in non-functional currencies are reflected in financial income, net in the consolidated statements of operations and comprehensive loss.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates using assumptions that affect the reported amounts of assets and liabilities and related disclosures at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates, and such differences may have a material impact on the Company’s financial statements. As applicable to these consolidated financial statements, the most significant estimates relate to valuation allowance, uncertain tax positions, recoverability of intangibles and goodwill and purchase price allocation including contingent consideration.
STRATASYS LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Fair Value Measurements
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. A hierarchy has been established for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available.
Observable inputs are inputs that are developed using market data, such as publicly available information about actual events or transactions, and that reflect the assumptions that market participants would use when pricing the asset or liability. Unobservable inputs are inputs for which market data are not available and that are developed using the best information available about the assumptions that market participants would use when pricing the asset or liability. The fair value hierarchy categorizes into three levels. Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity can access at the measurement date. Level 2 inputs include inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. Level 3 inputs are unobservable inputs for the asset or liability.
The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1 inputs) and the lowest priority to unobservable inputs (Level 3 inputs). Categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.
Business Combinations
Changes in the fair value of the obligations in connection with its business combinations can result from adjustments to the discount rates, the Company’s shares price, sales and profitability targets. These fair value measurements represent Level 3 measurements, as they are based on significant inputs not observable in the market. Significant judgment is required in determining the assumptions utilized as of the acquisition date and for each subsequent measurement period. Accordingly, changes in the assumptions described above could have a material impact on the Company’s consolidated results of operations.
STRATASYS LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Cash and Cash Equivalents
All highly liquid investments, which include short-term bank deposits that are not restricted as to withdrawal or use, with maturities of ninety days or less when acquired, are considered to be cash equivalents.
Bank Deposits
Bank deposits with original maturity dates of more than three months but at balance sheet date are less than one year are included in short-term bank deposits. The fair value of bank deposits approximates the carrying value since they bear interest at rates close to the prevailing market rates.
Accounts Receivable, net
The Company maintains the allowance for estimated losses resulting from the inability of the Company’s customers to make required payments. The allowance represents the current estimate of lifetime expected credit losses over the remaining duration of existing accounts receivable considering current market conditions and supportable forecasts when appropriate. The estimate is a result of the Company’s ongoing evaluation of collectability, customer creditworthiness, historical levels of credit losses, and future expectations.
Allowance for credit losses due to the Company’s accounts receivable amounted to $
The balance and the changes in the allowance for expected credit losses are comprised as follows:
| Year ended December 31 | |||||||||
| 2022 | 2021 | 2020 | |||||||
| U.S. $ in thousands | |||||||||
| Balance at beginning of year | $ | $ | $ | ||||||
| Increase during the year | |||||||||
| Bad debt written off | ( | ) | ( | ) | ( | ) | |||
| Balance at end of year | $ | $ | $ | ||||||
STRATASYS LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Derivative Instruments and Hedge Accounting
The Company conducts its operations globally and may be exposed to global market risks and to the risk that its earnings, cash flows and equity could be adversely impacted by fluctuations in foreign currency exchange rates. As part of the Company’s risk management strategy, the Company enters into transactions involving foreign currency exchange derivative financial instruments. For its non-hedging transactions, the Company manages its foreign currency exposures on a consolidated basis, which allows the Company to net exposures and take advantage of any natural hedging. The transactions are designed to manage the Company’s net exposure to foreign currency exchange rates and to reduce the volatility of earnings and cash flows associated with changes in foreign currency exchange rates. Financial markets and currency volatility may limit the Company’s ability to hedge these exposures. The Company does not enter into derivative transactions for trading purposes.
The Company recognizes these derivative instruments as either assets or liabilities in the consolidated balance sheets at their fair value. Derivatives in a gain position are reported in other current assets in the consolidated balance sheets and derivatives in a loss position are recorded in accrued expenses and other current liabilities in the consolidated balance sheets, on a gross basis.
When the Company enters into a derivative contract, it designates the derivative for accounting purposes, as either a hedging instrument which qualifies for hedge accounting or as a non-hedging instrument which does not qualify for hedge accounting. In order to qualify for hedge accounting, the Company formally documents at the inception of each hedging relationship the hedging instrument, the hedged item, the risk management objective and strategy for undertaking each hedging relationship, and the method used to assess hedge effectiveness.
For each hedging instrument that hedges the exposure to variability in expected future cash flows and that is designated and effective as a cash flow hedge, both the effective and ineffective portion of the unrealized gain or loss on the derivative instrument are reported as a component of accumulated other comprehensive loss in the Company’s shareholders’ equity and are reclassified into earnings in the same period and in the same line item in which the hedged transaction affects earnings. The cash flows associated with these derivatives are reported in the consolidated statements of cash flows consistently with the classification of cash flows from the underlying hedged items that these derivatives are hedging.
For non-hedging instruments, the Company records the changes in fair value of derivative instruments in financial income (expenses), net in the consolidated statements of operations and comprehensive loss. The cash flows associated with these derivatives are reported in the consolidated statements of cash flows consistently with the classification of cash flows from the underlying hedged items that these derivatives are hedging. Refer to Note 12 for further information regarding the Company’s derivative and hedging activities.
STRATASYS LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Inventories
Inventories are stated at the lower of cost or net realizable value. Cost is determined mainly using standard cost, which approximates actual cost, on a first-in, first-out basis. Inventory costs consist of materials, direct labor and overhead. Net realizable value is determined based on estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. The Company periodically assesses inventory for obsolescence and excess balances and reduces the carrying value by an amount equal to the difference between its cost and the net realizable value. The net realizable value is primarily estimated based on future demand forecasts, as well as, historical sales trends, product life cycle status and product development plans.
Long-term Investments
The Company’s investments in non-marketable equity securities in which it has the ability to exercise significant influence, but does not control through variable interests or voting interests, are accounted for under the equity method of accounting. Under the equity method, the Company recognizes its proportionate share of the comprehensive income or loss of the investee. The Company’s share of profit or losses from equity method investments is included in share in profit or losses of associated companies.
STRATASYS LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Property, Plant and Equipment, net
Property, plant and equipment are stated at cost less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the assets, or in the case of leasehold improvements, the shorter of the lease term (including any renewal periods, if appropriate) or the estimated useful life of the asset. Repairs and maintenance are charged to expense as incurred, while betterments and improvements that extend the useful life or add functionality of property, plant and equipment are capitalized.
Depreciation is computed primarily over the following periods:
|
|
|
Useful Life |
|
|
|
in Years |
|
Buildings |
|
|
|
Machinery and equipment |
|
|
|
Buildings improvements |
|
|
|
Computer equipment and software |
|
|
|
Office equipment, furniture and fixtures |
|
|
The Company reviews the carrying amounts of property, plant and equipment for potential impairment when events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. In evaluating recoverability, the Company groups assets and liabilities at the lowest level such that the identifiable cash flows relating to the group are largely independent of the cash flows of other assets and liabilities. The Company then compares the carrying amounts of the assets or asset groups with the related estimated undiscounted future cash flows. In the event impairment exists, an impairment charge is recorded at the amount by which the carrying amount of the asset or asset group exceeds the fair value. In addition, the remaining depreciation period for the impaired asset would be reassessed and, if necessary, revised.
STRATASYS LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Other Intangible Assets, net
Intangible assets and their useful lives are as follows:
|
Useful Life | |
|
in Years | |
|
Developed technology |
|
|
Patents |
|
|
Trade names |
|
|
Customer relationships |
|
Definite life intangible assets are amortized using the straight-line method over their estimated period of useful life. Amortization of acquired developed technology is recorded in cost of revenues. Amortization of trade names, customer relationships and patents are recorded under selling, general and administrative expenses.
For definite life intangible assets, the Company reviews the carrying amounts for potential impairment when events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. In evaluating recoverability, the Company groups assets and liabilities at the lowest level such that the identifiable cash flows relating to the group are largely independent of the cash flows of other assets and liabilities. The Company then compares the carrying amounts of the asset or assets groups with their respective estimated undiscounted future cash flows. If the definite life intangible asset or assets group are determined to be impaired, an impairment charge is recorded at the amount by which the carrying amount of the asset or assets group exceeds their fair value. Fair value is determined by using an applicable discounted cash flow model. In addition, the remaining amortization period for the impaired asset would be reassessed and, if necessary, revised. Refer to Note 8 for further information.
Goodwill
Goodwill reflects the excess of the consideration transferred plus the fair value of any non-controlling interest in the acquiree at the business combination date over the fair values of the identifiable net assets acquired. Goodwill is an asset representing the future economic benefits arising from other assets acquired in a business combination that are not individually identified and separately recognized. The Company allocates goodwill to its reporting units based on the reporting unit expected to benefit from the business combination.
The primary items that generate goodwill include the value of the synergies between the acquired companies and the Company and the acquired assembled workforce, neither of which qualifies for recognition as an intangible asset.
STRATASYS LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Retirement Plans and Employee Rights Upon Termination
Under Israeli law, the Company is required to pay a severance payment to its employees in Israel upon dismissal of an employee or upon termination of employment in certain other circumstances. The Company makes ongoing deposits into its Israeli employee pension plans to fund their severance liabilities. For its employees who are employed under the Section 14 of the Severance Pay Law, 1963 (”Section 14”), the Company makes deposits with certain insurance companies for accounts controlled by each applicable employee in order to secure the employee’s rights upon termination. In addition, the related obligations and amounts deposited on behalf of the applicable employees for such obligations are not presented on the Company’s consolidated balance sheets, as the amounts funded are not under the control and management of the Company and the Company is legally released from the obligation to pay any severance payments to the employees once the required deposit amounts have been paid.
Severance pay liabilities with respect to for the Company’s employees in Israel who are not subject to Section 14, as well as employees who have special contractual arrangements, are provided for in the Company’s consolidated financial statements based on the length of time that they work for the Israeli entity and their latest monthly salary. The Company’s liabilities for those Israeli employees, in the amounts of $
In addition, the Company has liabilities for severance payments to its employees in other jurisdictions in accordance with local laws and practices of the countries in which they are employed.
Severance expenses for the years ended December 31, 2022, 2021 and 2020 were $
For its employees in the United States, the Company has a defined contribution retirement plan (the “Plan”) under the provisions of Section 401(k) of the Internal Revenue Code of 1986, as amended (the “Code”) that covers eligible U.S. employees as defined in the Plan. Participants may elect to contribute both pre-tax or after-tax (“Roth”) up to
STRATASYS LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Contingent Liabilities
The Company is subject to various legal proceedings that arise from time to time in the ordinary course of business. The outcomes of the legal proceedings that are pending as of the date the financial statements are issued are subject to significant uncertainty. In assessing loss contingencies related to legal proceedings that are pending against the Company or unasserted claims that may result in such proceedings, the Company’s management evaluates the perceived merits of any legal proceedings or unasserted claims as well as the perceived merits of the amount of relief sought or expected to be sought. Such assessment inherently involves an exercise of judgment. If the assessment of a contingency indicates that it is probable that loss would be incurred and the amount of the liability can be reasonably estimated, then the Company would record an accrued expense in the Company’s financial statements based on its best estimate. Loss contingencies considered to be remote by management are generally not disclosed unless material. The respective legal fees are expensed as incurred.
Revenue Recognition
The Company derives revenues from sales of additive manufacturing systems, consumables and services. The Company sells its products directly through its sales force, independent sales agents and indirectly through authorized resellers.
The Company determines revenue recognition through the following steps:
•
Identification of the contract, or contracts, with a customer
•
Identification of the performance obligations in the contract
•
Determination of the transaction price
•
Allocation of the transaction price to the performance obligations in the contract
•
Recognition of revenue when, or as, the Company satisfies a performance obligation
Revenue is measured as the amount of consideration expected to be received in exchange for transferring goods or providing services to the end customer or to the reseller. The amount of consideration is usually at fixed price at the contract inception. Consideration from Shipping and handling are recorded on a gross basis within product revenue. Revenues are recorded net of any taxes assessed by various government entities, such as sales, use and value-added taxes.
STRATASYS LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Revenue from products, which consist of systems and consumables, is recognized when the customer has obtained control of the goods, generally at a point in time upon shipment or once delivery and risk of loss has transferred to the customer. The Company recognizes revenue on sales to resellers when the reseller has economic substance apart from the Company and the reseller is considered the principal for the transaction with the end-user customer. Service revenue derives from service type warranty and from the Company’s direct manufacturing parts services. Revenue from service is recognized ratably on a straight-line basis over the time of the service, as control is transferred over time or as services are performed if not under contract.
The Company enters into contracts with customers that can include various combinations of products and services which are generally distinct and accounted for as separate performance obligations. Products or services that are promised to a customer can be considered distinct if both of the following criteria are met: (i) the customer can benefit from the products or services either on its own or together with other readily available resources, and (ii) the Company’s promise to transfer the products or services to the customer is separately identifiable from other promises in the contract.
The transaction price is allocated to each distinct performance obligations on a relative standalone selling price (“SSP”) basis and revenue is recognized for each performance obligation when control has passed. In most cases, the Company is able to establish SSP based on the observable prices of services sold separately in comparable circumstances to similar customers and for products based on the Company’s best estimates of the price at which the Company would have sold the product regularly on a stand-alone basis. The Company reassesses the SSP on a periodic basis or when facts and circumstances change.
In assessing collectability as part of the revenue recognition process, the Company considers a number of factors in the evaluation of the creditworthiness of the customer, including past due amounts, payment history and financial condition. In some cases where collectability is not assured, payment terms are set partially or entirely as prepayment or customers may be required to furnish letters of credit.
See Note 3 for additional information related to disaggregation of revenue and other.
Shipping and handling costs
Shipping and handling costs are classified as cost of revenues.
STRATASYS LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Advertising
Advertising costs are expensed as incurred and were approximately $
Research and Development Expenses
Research and development costs consist primarily of employee compensation expenses, materials, laboratory supplies, costs for related software and costs for facilities and equipment. Expenditures for research and development are expensed as incurred. Government reimbursements and other participations for development of approved projects are recognized as a reduction of expenses as the related costs are incurred. The Company is not required to pay royalties on sales of products developed using its government funding.
Income Taxes
The Company and its subsidiaries are subject to income taxes in the jurisdictions in which they operate. The Company’s provision for income taxes is based on income tax rates in the tax jurisdictions where it operates, permanent differences between financial reporting and tax reporting, and available credits and incentives.
Deferred taxes are determined utilizing the “asset and liability” method based on the estimated future tax effects of temporary differences between the carrying amount and tax bases of assets and liabilities under the applicable tax laws, and on enacted tax rates in effect when the deferred taxes are expected to be settled or realized. Deferred taxes for each jurisdiction are presented as a non-current net asset or liability, net of any valuation allowances.
Deferred taxes have not been provided on the following items:
1)
Taxes that would apply in the event of disposal of investments in first-tier foreign subsidiaries, as it is generally the Company’s intention to hold these investments, not to realize them.
2)
Dividends distributable from the income of foreign companies as the Company does not expect these companies to distribute dividends in the foreseeable future. If these dividends were to be paid, the Company would have to pay additional taxes at a rate of up to
Amounts of tax-exempt income generated from the Company’s current Approved Enterprises (see note 9c), as the Company intends to permanently reinvest these profits and does not intend to distribute dividends from such income. If these dividends were to be paid, the Company would have to pay additional taxes at a rate up to
STRATASYS LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Valuation Allowances
Valuation allowances are provided unless it is more likely than not that the deferred tax asset will be realized. In the determination of the appropriate valuation allowances, the Company considers future reversals of existing taxable temporary differences, the most recent projections of future business results, prior earnings history, carryback and carry forward and prudent tax strategies that may enhance the likelihood of realization of a deferred tax asset. Assessments for the realization of deferred tax assets made at a given balance sheet date are subject to change in the future, particularly if earnings of a subsidiary are significantly higher or lower than expected, or if the Company takes operational or tax positions that could impact the future taxable earnings of a subsidiary.
Uncertain Tax Positions
The Company takes a two-step approach to recognizing and measuring uncertain tax positions. The first step is to evaluate the tax position for recognition by determining whether the weight of available evidence indicates that it is more likely than not that, on an evaluation of the technical merits, the position will be sustained on audit, including resolution of related appeals or litigation processes, if any.
The second step is performed only if the tax position meets the more-likely-than-not recognition threshold and is to measure the tax benefit as the amount which is more than
The Company presents unrecognized tax benefits as a reduction to deferred tax asset where a net operating loss, a similar tax loss, or a tax credit carryforward that are available, under the tax law of the applicable jurisdiction, to offset any additional income taxes that would result from the settlement of a tax position.
Stock-Based Compensation
The Company calculates the fair value of stock-based option awards on the date of grant using the Black-Scholes option pricing model. The option-pricing model requires a number of assumptions, of which the most significant are the expected share price volatility and the expected option term. The computation of expected volatility is based on historical volatility of the Company’s shares. The expected option term is calculated using the simplified method, as the Company concludes that its historical share option exercise experience does not provide a reasonable basis to estimate its expected option term. The interest rate for periods within the expected term of the award is based on the U.S. Treasury yield curve in effect at the time of grant. The Company’s expected dividend rate is zero since the Company does not currently pay cash dividends on its shares and does not anticipate doing so in the foreseeable future.
STRATASYS LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Restructuring Plan
The Company may incur restructuring charges in connection with certain initiatives designed to adjust the Company’s cost and operating structure, improve efficiencies across the Company and to better align with the Company’s long-term strategy and overall market conditions. Restructuring charges include employee severance and associated termination costs related to the reduction of workforce, costs related to facilities closures, impairment charges of the respective long-lived assets and contract termination costs. Restructuring charges for employees’ termination costs are recognized when the required actions to execute the restructuring initiative were performed and the initiatives are probable and costs are estimable. Restructuring charges for facilities and contract terminations are recognized when the Company ceased using the rights conveyed by the contract. Significant judgments and estimates are involved in estimating the impact of restructuring plans on the Company’s consolidated financial statements. Actual results may differ from these estimates.
Loss per Share
The denominator for diluted net loss per share is a computation of the weighted-average number of ordinary shares and the potential dilutive ordinary shares outstanding during the period. Potential dilutive shares outstanding include the dilutive effect of in-the-money options, ESPP and unvested RSUs using the treasury stock method. PSUs are considered contingently issuable shares for diluted net loss per share purposes and the dilutive impact, if any, is not included in the weighted average shares until the performance conditions are met.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents, short term bank deposits, accounts receivables, and foreign currency exchange forward contracts. Most of the Company’s cash and cash equivalents and bank deposits are invested in U.S. dollar instruments with major banks in the U.S., Israel and Europe. Management believes that the credit risk with respect to the financial institutions that hold the Company’s cash and cash equivalents and bank deposits is low.
Concentration of credit risk with respect to accounts receivable is limited due to the relatively large number of customers and their wide geographic distribution. In addition, the Company seeks to mitigate its credit exposures to its accounts receivable by credit limits, credit insurance, ongoing credit evaluation and account monitoring procedures.
STRATASYS LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Leases
The Company determines if an arrangement is a lease at inception. Lease classification is governed by five criteria in ASC 842-10-25-2. If any of these five criteria is met, The Company classifies the lease as a finance lease; otherwise, the Company classifies the lease as an operating lease. When determining lease classification, the Company’s approach in assessing two of the mentioned criteria is: (i) generally
Operating leases are included in operating lease right-of-use (“ROU”) assets and operating lease liabilities in the consolidated balance sheet.
ROU assets represent Stratasys's right to use an underlying asset for the lease term and lease liabilities represent its obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at the commencement date based on the present value of lease payments over the lease term. The Company uses its incremental borrowing rate based on the information available at the commencement date to determine the present value of the lease payments.
The standard also provides practical expedients for an entity’s ongoing accounting. The Company elected the short-term lease recognition exemption for all leases with a term shorter than
Lease terms will include options to extend or terminate the lease when it is reasonably certain that Stratasys will exercise or not exercise the option to renew or terminate the lease.
STRATASYS LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Recently issued accounting pronouncements
Accounting Pronouncements Adopted in 2022
STRATASYS LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 2. Certain Transactions
Origin acquisition
On December 31, 2020 (the “Origin
transaction date”) the Company acquired 3D printing start-up Origin Laboratories Inc. (“Origin”) for an aggregate purchase price of $
The Origin transaction is reflected in accordance with ASC Topic 805, “Business Combinations”, using the acquisition method of accounting with the Company as the acquirer.
| U.S. $ in thousands | |||
| Cash payments | $ | ||
| Issuance of ordinary shares to Origin stockholders | |||
| Contingent consideration at estimated fair value | |||
| Total consideration | $ |
The fair value of the ordinary shares issued was determined based on the closing market price of the Company’s ordinary shares on the Origin transaction date.
In accordance with ASC Topic 805, the estimated contingent consideration as of the Origin transaction date was included in the purchase price.
An additional payment of $
STRATASYS LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The allocation of the purchase price to assets acquired and liabilities assumed, including measurement period adjustments (refer to note 7), is as follows:
| Allocation of Purchase Price | |||
| (U.S. $ in thousands) | |||
| Cash and cash equivalents | $ | ||
| Goodwill | |||
| Intangible assets | |||
| Other assets | |||
| Total assets acquired | |||
| Net deferred tax liabilities | |||
| Other labilities | |||
| Total liabilities assumed | |||
| Net assets acquired | $ |
The allocation of the purchase price to net assets acquired and liability assumed resulted in the recognition of intangible asset related to developed technology of $
Investment in Xaar 3D Ltd. ("Xaar 3D")
Following the additional investment, the Company considered the FASB guidance in accordance with ASC Topic 810 “Consolidation” regarding the propriety of implementing consolidation, for both the variable interest entity and voting model, or equity method accounting. The Company concluded that it should continue accounting for the investment according to the equity method as it has retained the ability to exercise significant influence but does not control Xaar 3D. For its additional interest in Xaar 3D the Company paid approximately $
The investment was presented under other non-current assets in the Company’s consolidated balance sheets.
| U.S. $ in thousands | |||
| Cash payments | $ | ||
| Contingent consideration at estimated fair value | |||
| Total consideration for | |||
| Fair value of | |||
| Total consideration | $ |
| Allocation of Purchase Price | |||
| (U.S. $ in thousands) | |||
| Cash and cash equivalents | $ | ||
| Goodwill | |||
| Intangible assets | |||
| Other assets | |||
| Total assets acquired | |||
| Net deferred tax liabilities | |||
| Other liabilities | |||
| Total liabilities assumed | |||
| Net assets acquired | $ |
STRATASYS LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
| (U.S. $ in thousands) | |||
| Fair value, net | $ | ||
| Net assets deconsolidated | ( | ) | |
| Transaction expenses | ( | ) | |
| Gain on deconsolidation of subsidiary |
STRATASYS LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Restructuring plan
On June 2, 2020, the Company announced a restructuring plan to reduce operating expenses as part of a cost realignment program to focus on profitable growth (the
“Plan”). The Plan’s cost-cutting measures included workforce reductions affecting approximately
STRATASYS LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 3. Revenues
Disaggregation of Revenues
The following table present the Company’s revenues disaggregated by geographical region (based on the Company's customers’ location) and revenue type for the years ended December 31, 2022, 2021 and 2020:
| Year ended December 31, | ||||||||||||
| 2022 | 2021 | 2020 | ||||||||||
| (U.S. $ in thousands) | ||||||||||||
| Americas | ||||||||||||
| Systems | $ | $ | $ | |||||||||
| Consumables | ||||||||||||
| Service | ||||||||||||
| Total Americas | ||||||||||||
| EMEA | ||||||||||||
| Systems | ||||||||||||
| Consumables | ||||||||||||
| Service | ||||||||||||
| Total EMEA | ||||||||||||
| Asia Pacific | ||||||||||||
| Systems | ||||||||||||
| Consumables | ||||||||||||
| Service | ||||||||||||
| Total Asia Pacific | ||||||||||||
| Total Revenues | $ | $ | $ | |||||||||
STRATASYS LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table present the Company’s revenues disaggregated based on the timing of revenue recognized for the years ended December 31, 2022, 2021 and 2020:
| Year ended December 31, | ||||||||||||
| 2022 | 2021 | 2020 | ||||||||||
| (U.S. $ in thousands) | ||||||||||||
| Revenues recognized in point in time from: | ||||||||||||
| Products | $ | $ | $ | |||||||||
| Services | ||||||||||||
| Total revenues recognized in point in time | ||||||||||||
| Revenues recognized over time from: | ||||||||||||
| Services | ||||||||||||
| Total revenues recognized over time | ||||||||||||
| Total Revenues | $ | $ | $ | |||||||||
Contract Assets and Contract Liabilities
Contract assets are recorded when the Company's right to consideration is conditional on constraints other than the passage of time. The Company had no material contract assets as of December 31, 2022 and 2021.
Contract liabilities include advance payments and billings in excess of revenue recognized. Contract liabilities are presented under deferred revenues. The Company's deferred revenues as of December 31, 2022 and 2021 were as follows:
| December 31, | ||||||||
| 2022 | 2021 | |||||||
| U.S. $ in thousands | ||||||||
| Deferred revenue* | $ | $ | ||||||
*Includes $
Revenue recognized in 2022 and 2021 that was included in deferred revenue balance as of January 1, 2022 and 2021, was $
Remaining Performance Obligations
Remaining Performance Obligations (“RPO”) represents contracted revenue that has not yet been recognized, which includes deferred revenue and amounts that will be invoiced and recognized as revenue in future periods. As of December 31, 2022 and 2021 the total RPO amounted to $
STRATASYS LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Incremental Costs of Obtaining a Contract
Sales commissions earned mainly by the Company’s sales agents are considered incremental costs of obtaining a contract with a customer as the Company expects the benefit of those commissions to be longer than one year. The majority of the sales commissions are not subject to capitalization as the commission expense is recognized as the related revenue is recognized. Sales commissions for initial contracts related to the service type warranty are deferred and then amortized on a straight-line basis over the expected customer relationship period (generally
Note 4. Fair Value Measurement
The following tables summarize the Company’s financial assets and liabilities that are carried at fair value on a recurring basis, on its consolidated balance sheets:
| December 31, 2022 | December 31, 2021 | |||||||||||||||||||||
| Level 2 | Level 3 | Level 2 | Level 3 | |||||||||||||||||||
| (U.S. $ in thousands) | ||||||||||||||||||||||
| Assets: | ||||||||||||||||||||||
| Foreign exchange forward contracts not designated as hedging instruments | $ | $ | $ | $ | ||||||||||||||||||
| Foreign exchange forward contracts designated as hedging instruments | ||||||||||||||||||||||
| Liabilities: | ||||||||||||||||||||||
| Foreign exchange forward contracts not designated as hedging instruments | ( | ) | ( | ) | ||||||||||||||||||
| Foreign exchange forward contracts designated as hedging instruments | ( | ) | ( | ) | ||||||||||||||||||
| Convertible notes | - | - | - | |||||||||||||||||||
| Contingent consideration* | ||||||||||||||||||||||
| $ | ( | ) | $ | $ | $ | |||||||||||||||||
*Includes $
The Company’s foreign exchange forward contracts are classified as Level 2, as they are not actively traded and are valued using pricing models that use observable market inputs, including interest rate curves and both forward and spot prices for currencies (Level 2 inputs).
Other financial instruments consist mainly of cash and cash equivalents, short term deposits, current and non-current receivables, accounts payable and other current liabilities. The fair value of these financial instruments approximates their carrying values.
The following table summarizes the activity for those financial assets and liabilities where fair value measurements are estimated utilizing Level 3 inputs.
| December 31, | ||||||||
| 2022 | 2021 | |||||||
| (U.S. $ in thousands) | ||||||||
| Fair value at the beginning of the period | $ | $ | ||||||
| Acquisitions | - | |||||||
| Revaluation of Contingent considerations and other adjustment | ( | ) | ||||||
| Settlements of Contingent considerations | ( | ) | - | |||||
| Fair value at the end of the period | $ | $ | ||||||
STRATASYS LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 5. Inventories
Inventories consisted of the following:
| December 31, | |||||||
| 2022 | 2021 | ||||||
| U.S. $ in thousands | |||||||
| Finished goods | $ | $ | |||||
| Work-in-process | |||||||
| Raw materials | |||||||
| $ | $ | ||||||
Note 6. Property, Plant and Equipment, Net
Property, plant and equipment, net consisted of the following:
| December 31, | ||||||||
| 2022 | 2021 | |||||||
| (U.S. $ in thousands) | ||||||||
| Machinery and equipment | $ | $ | ||||||
| Buildings and improvements | ||||||||
| Computer equipment and software | ||||||||
| Office equipment, furniture and fixtures | ||||||||
| Land | ||||||||
| Accumulated depreciation | ( | ) | ( | ) | ||||
| Construction work in progress | ||||||||
| $ | $ | |||||||
Depreciation expenses were $
STRATASYS LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 7. Goodwill
Changes in the carrying amount of the Company’s goodwill for the years ended December 31, 2022 and 2021 were as follows:
| 2022 | 2021 | |||||||
| (U.S. $ in thousands) | ||||||||
| Balance at January 1, | $ | $ | ||||||
| Goodwill acquired | ||||||||
| Measurement period adjustments | ||||||||
| Currency translation adjustments | ( | ) | ( | ) | ||||
| Balance at December 31, | $ | $ | ||||||
(1) In the third quarter of 2020, primarily as a
result of the COVID-19 impact on the global economy and the Company’s business,
the Company recorded a goodwill impairment charge of $
(2) The goodwill balance as of December 31, 2021 and 2022 was acquired as part of Origin, RPS and XAAR acquisitions, see Note 2, and were allocated as part of Stratasys-Core reporting unit.
Note 8. Other Intangible Assets, Net
Other intangible assets consisted of the following:
| December 31, 2022 | December 31, 2021 | |||||||||||||||||||||||
| Carrying Amount, | Net | Carrying Amount, | Net | |||||||||||||||||||||
| Net of | Accumulated | Book | Net of | Accumulated | Book | |||||||||||||||||||
| Impairment | Amortization | Value | Impairment | Amortization | Value | |||||||||||||||||||
| U.S. $ in thousands | ||||||||||||||||||||||||
| Developed technology | $ | $ | ( | ) | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Patents | ( | ) | ( | ) | ||||||||||||||||||||
| Trademarks and trade names | ( | ) | ( | ) | ||||||||||||||||||||
| Customer relationships | ( | ) | ( | ) | ||||||||||||||||||||
| Capitalized software development costs | ( | ) | ( | ) | ||||||||||||||||||||
| $ | $ | ( | ) | $ | $ | $ | ( | ) | $ | |||||||||||||||
Amortization expenses
Amortization expense relating to intangible assets for the years ended December 31, 2022, 2021 and 2020, was approximately $
As of December 31, 2022, estimated future amortization expense relating to definite life intangible assets for each of the next five years and thereafter were as follows:
| Estimated amortization expenses | ||
| Year ending December 31, | (U.S. $ in thousands) | |
| 2023 | ||
| 2024 | ||
| 2025 | ||
| 2026 | ||
| 2027 | ||
| 2028 and thereafter | ||
| Total |
During the year ended December 31, 2020, the Company recorded impairment charges of $
STRATASYS LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 9. Income Taxes
a. Deferred Tax Assets and Liabilities
The components of the Company’s deferred tax assets and liabilities as of December 31, 2022 and 2021 were as follows:
| December 31, | |||||||
| 2022 | 2021 | ||||||
| (U.S. $ in thousands) | |||||||
| Deferred tax assets | |||||||
| Tax losses carry forwards | $ | $ | |||||
| Inventory related | |||||||
| Intangible assets | |||||||
| Provision for employee related obligations | |||||||
| Stock-based compensation | |||||||
| Deferred revenue | |||||||
| Property, plant and equipment | |||||||
| Allowance for credit losses | |||||||
| Foreign currency losses | |||||||
| Research and development credit carry forwards | |||||||
| Research and development capitalization (including Section 174) | |||||||
| Gross deferred tax assets | |||||||
| Valuation allowance | ( | ) | ( | ) | |||
| Total deferred tax assets | |||||||
| Deferred tax liabilities | |||||||
| Intangibles assets | ( | ) | ( | ) | |||
| Property, plant and equipment | ( | ) | ( | ) | |||
| Basis difference in equity method investment | ( | ) | |||||
| Other items | ( | ) | ( | ) | |||
| Total deferred tax liabilities | ( | ) | ( | ) | |||
| Net deferred tax assets (liabilities) | $ | ( | ) | $ | ( | ) | |
The Company’s deferred tax assets and liabilities are classified in the consolidated balance sheets as follows:
| December 31, | ||||||||
| 2022 | 2021 | |||||||
| (U.S. $ in thousands) | ||||||||
| Deferred tax assets (under "Other non-current assets") | $ | $ | ||||||
| Deferred tax liabilities | ||||||||
| Net deferred tax assets (liabilities) | $ | ( | ) | $ | ( | ) | ||
STRATASYS LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A reconciliation of the beginning and ending balances of valuation allowance is as follows:
| Valuation allowance | |||
| U.S. $ in thousands | |||
| Balance at January 1, 2020 | $ | ||
| Additions | |||
| Decrease | ( | ) | |
| Balance at December 31, 2020 | |||
| Additions | |||
| Balance at December 31, 2021 | |||
| Additions | |||
| Decrease | $ | ( | ) |
| Balance at December 31, 2022 | $ |
b. Provision for Income Taxes
Loss before income taxes for the years ended December 31, 2022, 2021 and 2020 was as follows:
| 2022 | 2021 | 2020 | |||||||||
| (U.S. $ in thousands) | |||||||||||
| Domestic | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||
| Foreign | ( | ) | ( | ) | |||||||
| $ | ( | ) | $ | ( | ) | $ | ( | ) | |||
The components of income taxes for the years ended December 31, 2022, 2021 and 2020 were as follows:
| 2022 | 2021 | 2020 | |||||||||
| (U.S. $ in thousands) | |||||||||||
| Current | |||||||||||
| Domestic | $ | $ | ( | ) | $ | ||||||
| Foreign | ( | ) | |||||||||
| ( | ) | ||||||||||
| Deferred | |||||||||||
| Domestic | ( | ) | ( | ) | |||||||
| Foreign | ( | ) | ( | ) | ( | ) | |||||
| ( | ) | ( | ) | ||||||||
| Total income taxes | $ | $ | ( | ) | $ | ( | ) | ||||
STRATASYS LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A reconciliation of the statutory income tax rate and the effective income tax rate for the years ended December 31, 2022, 2021 and 2020 is set forth below:
| 2022 | 2021 | 2020 | |||||||||
| Statutory tax rate | % | % | % | ||||||||
| Reduced tax rate under Israeli benefit programs | ( | ) | ( | ) | |||||||
| Release of Exempt Profits (see below) | ( | ) | - | - | |||||||
| Goodwill impairment | ( | ) | |||||||||
| Stock-based compensation expense | ( | ) | ( | ) | ( | ) | |||||
| Non-deductible expenses | ( | ) | ( | ) | |||||||
| Earnings taxed under foreign law | ( | ) | |||||||||
| Valuation Allowance | ( | ) | ( | ) | |||||||
| Changes in uncertain tax positions | ( | ) | |||||||||
| Deferred Tax due to different tax rates | - | ( | ) | ||||||||
| Other | ( | ) | ( | ) | |||||||
| Effective income tax rate | ( | )% | % | % |
Uncertain tax positions
STRATASYS LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A reconciliation of the beginning and ending balance of uncertain tax positions is as follows:
| 2022 | 2021 | 2020 | |||||||||
| (U.S. $ in thousands) | |||||||||||
| Balance at beginning of year | $ | $ | $ | ||||||||
| Additions for tax positions related to the current year | |||||||||||
| Foreign currency impact | |||||||||||
| Decrease related to settlements with tax authorities and lapse of applicable statutes of limitation | ( | ) | ( | ) | ( | ) | |||||
| Classification to deferred tax assets | ( | ) | ( | ) | - | ||||||
| Balance at end of year | $ | $ | $ | ||||||||
The Company is subject to income taxes in the U.S., various states, Israel and certain other foreign jurisdictions. The Company files income tax returns in various jurisdictions with varying statutes of limitations. Tax returns of Stratasys Inc. submitted in the United States through 2015 tax year are considered to be final following the completion of the Internal Revenue Service examination. Tax returns of Stratasys Ltd. submitted in Israel through the 2019 tax year are considered to be final following the completion of the Israeli Tax Authorities examination upon audit. The expiration of the statute of limitations related to the various other foreign and state income tax returns that the Company and its subsidiaries file vary by state and foreign jurisdictions.
c. Basis of taxation:
The enacted statutory tax rates applicable to the Company’s major subsidiaries outside of Israel are as follows:
Company incorporated in the U.S.— Federal tax rate of approximately
Company incorporated in Germany—tax rate of approximately
Company incorporated in Hong Kong—tax rate of approximately
A significant portion of the Company’s income is taxed in Israel. The following is a summary of how the Company’s income is taxed in Israel:
Corporate tax rates in Israel for 2018 and thereafter is
STRATASYS LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
STRATASYS LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
STRATASYS LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 10. Contingencies
The Company is a party to various legal proceedings, the outcome of which, in the opinion of management, will not have a significant adverse effect on the financial position, profitability or cash flows of the Company.
Note 11. Equity
a. Share capital
The Company’s ordinary shares are traded in the United States on the Nasdaq Global Select Market under the ticker symbol “SSYS”. As of December 31, 2022 and 2021, there were
b. Stock-based compensation plans
The Stratasys Ltd. 2012 Omnibus Equity Incentive Plan (the “2012 Plan”), which became effective upon closing of the Stratasys-Core merger, provides for the grant of options, restricted shares, RSUs, PSUs and other share-based awards to the Company’s and its subsidiaries’ respective directors, employees, officers, consultants, and to any other person whose services are considered valuable to the Company or any of its affiliates. Under the 2012 plan, options, RSUs and PSUs generally have a contractual term of
As
of December 31, 2022, there were an aggregate of
STRATASYS LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2022, $
Stock options
A summary of the stock option activity for the year ended December 31, 2022 is as follows:
| Number of Options | Weighted Average Exercise Price | |||||
| Options outstanding as of December 31, 2021 | $ | |||||
| Granted | ||||||
| Exercised | ( | ) | ||||
| Forfeited | ( | ) | ||||
| Options outstanding as of December 31, 2022 | $ | |||||
| Options exercisable as of December 31, 2022 | $ |
The following table summarizes information about stock options outstanding at December 31, 2022:
| Options Outstanding | Options Exercisable | ||||||||||||||||||||||||
| Outstanding | Weighted- Average | Weighted- | Exercisable | Weighted- | |||||||||||||||||||||
| options at | Remaining | Average | options at | Average | |||||||||||||||||||||
| Range of | December 31, | Contractual | Exercise | December 31, | Exercise | ||||||||||||||||||||
| Exercise Prices | 2022 | Life in Years | Price | 2022 | Price | ||||||||||||||||||||
| $ | - | $ | $ | $ | |||||||||||||||||||||
| $ | - | $ | |||||||||||||||||||||||
| $ | - | $ | |||||||||||||||||||||||
| $ | - | $ | |||||||||||||||||||||||
| $ | $ | ||||||||||||||||||||||||
| Aggregate intrinsic value (U.S. $ in thousands) | $ | $ | |||||||||||||||||||||||
As of December 31, 2022, the weighted-average remaining contractual life of exercisable options was
STRATASYS LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company used the Black-Scholes option-pricing model to determine the fair value of options granted during 2022, 2021 and 2020. The following assumptions were applied in determining the options’ fair value on their grant date:
| 2022 | 2021 | 2020 | ||
| Risk-free interest rate | ||||
| Expected option term (years) | ||||
| Expected share price volatility | ||||
| Dividend yield | ||||
| Weighted average grant date fair value | $ | $ |
As of December 31, 2022, the Company had
Restricted Stock Units and Performance Stock Units
A summary of the Company’s RSUs and PSUs activity for the year ended December 31, 2022 is as follows:
| Number of RSUs and PSUs | Weighted Average Grant Date Fair Value | |||||||
| Unvested RSUs and PSUs outstanding as of December 31, 2021 | $ | |||||||
| Granted | ||||||||
| Vested | ( | ) | ||||||
| Forfeited | ( | ) | ||||||
| Unvested RSUs and PSUs outstanding as of December 31, 2022 | $ |
The total vesting-date value of equity classified RSUs vested during 2022 was $
STRATASYS LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Stock-based compensation expense for stock options and equity classified RSUs included in the Company’s Statements of Operations and Comprehensive Loss were allocated as follows:
| 2022 | 2021 | 2020 | ||||||||||
| (U.S. $ in thousands) | ||||||||||||
| Cost of revenues | $ | $ | $ | |||||||||
| Research and development, net | ||||||||||||
| Selling, general and administrative | ||||||||||||
| Total stock-based compensation expenses | $ | $ | $ | |||||||||
c. Accumulated other comprehensive loss
The following tables present the changes in the components of accumulated other comprehensive loss, net of taxes for the years ended December 31, 2022, 2021 and 2020:
| Year ended December 31, 2022 | ||||||||||||||
| Net unrealized gain (loss) on cash flow hedges | Foreign currency translation adjustments | Total | ||||||||||||
| U.S. $ in thousands | ||||||||||||||
| Balance as of January 1, 2022 | $ | $ | ( | ) | $ | ( | ) | |||||||
| Other comprehensive loss before reclassifications | ( | ) | ( | ) | ( | ) | ||||||||
| Amounts reclassified from accumulated other comprehensive loss | ( | ) | ( | ) | ||||||||||
| Other comprehensive income (loss), net of tax | ( | ) | ( | ) | ( | ) | ||||||||
| Balance as of December 31, 2022 | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||
STRATASYS LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
| Year ended December 31, 2021 | ||||||||||||||
| Net unrealized gain (loss) on cash flow hedges | Foreign currency translation adjustments | Total | ||||||||||||
| U.S. $ in thousands | ||||||||||||||
| Balance as of January 1, 2021 | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||
| Other comprehensive loss before reclassifications | ( | ) | ||||||||||||
| Amounts reclassified from accumulated other comprehensive loss | ( | ) | ( | ) | ( | ) | ||||||||
| Other comprehensive income (loss) | ( | ) | ||||||||||||
| Balance as of December 31, 2021 | $ | $ | ( | ) | $ | ( | ) | |||||||
| Year ended December 31, 2020 | ||||||||||||||
| Net unrealized gain (loss) on cash flow hedges | Foreign currency translation adjustments | Total | ||||||||||||
| U.S. $ in thousands | ||||||||||||||
| Balance as of January 1, 2020 | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||
| Other comprehensive loss before reclassifications | ( | ) | ( | ) | ||||||||||
| Amounts reclassified from accumulated other comprehensive loss | ( | ) | ( | ) | ||||||||||
| Other comprehensive income (loss) | ( | ) | ( | ) | ||||||||||
| Balance as of December 31, 2020 | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||
STRATASYS LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 12. Derivatives and Hedging Activities
The Company carries out transactions involving foreign currency exchange derivative financial instruments. The transactions are designed to hedge the Company’s exposure to change in relative value of currencies other than the U.S. dollar. The Company is primarily exposed to foreign exchange risk with respect to recognized assets and liabilities and forecasted transactions denominated in the New Israeli Shekel (“NIS”) and, the Euro. Gains and losses on the hedging instruments offset losses and gains on the hedged items.
The following table summarizes the consolidated balance sheets classification and fair values of the Company’s derivative instruments:
| Fair Value | Notional Amount | |||||||||||||||||
| December 31, | December 31, | |||||||||||||||||
| Balance sheet location | 2022 | 2021 | 2022 | 2021 | ||||||||||||||
| (U.S. $ in thousands) | ||||||||||||||||||
| Assets derivatives -Foreign exchange contracts, not designated as hedging instruments | Other current assets | $ | $ | $ | $ | |||||||||||||
| Assets derivatives -Foreign exchange contracts, designated as cash flow hedge | Other current assets | |||||||||||||||||
| Liability derivatives -Foreign exchange contracts, not designated as hedging instruments | Accrued expenses and other current liabilities | ( | ) | ( | ) | |||||||||||||
| Liability derivatives -Foreign exchange contracts, designated as cash flow hedge | Accrued expenses and other current liabilities | ( | ) | ( | ) | |||||||||||||
| $ | ( | ) | $ | $ | $ | |||||||||||||
Foreign exchange contracts not designated as hedging instruments
As of December 31, 2022, the notional amounts of the Company’s outstanding exchange forward contracts, not designated as hedging instruments, were $
STRATASYS LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Cash Flow Hedging—Hedges of Forecasted Foreign Currency Payroll and other operating expenses
As of December 31, 2022 and 2021, the Company had in effect foreign exchange forward contracts for the conversion of $
Cash Flow Hedging—Hedges of Forecasted Foreign Currency Revenue
The Company transact business in U.S. Dollars and in various other currencies. The Company may use foreign exchange or forward contracts to hedge certain cash flow exposures resulting from changes in these foreign currency exchange rates. These foreign exchange contracts, carried at fair value, have maturities of up to twelve months. The Company enters into these foreign exchange contracts to hedge a portion of its forecasted foreign currency denominated revenue in the normal course of business and accordingly, they are not speculative in nature.
As of December 31, 2022, the Company had in effect foreign exchange forward contracts, designated as cash flow hedge for accounting purposes, for the conversion of Euro
To receive hedge accounting treatment, all hedging relationships are formally documented at the inception of the hedge, and the hedges must be highly effective in offsetting changes to future cash flows on hedged transactions. The Company record changes in fair value of these cash flow hedges in accumulated other comprehensive income (loss) in its consolidated balance sheets, until the forecasted transaction occurs. When the forecasted transaction occurs, we reclassify the related gain or loss to revenue. In the event the underlying forecasted transaction does not occur, or it becomes probable that it will not occur, the Company reclassifies the gain or loss on the related cash flow hedge from accumulated other comprehensive income (loss) to the same statement of operations line item as the hedged item. If the Company does not elect hedge accounting, or the contract does not qualify for hedge accounting treatment, the changes in fair value from period to period are recorded under financial income (expenses), net.
STRATASYS LTD.
| Revenues | Cost of revenues | Research and development, net | Selling, general and administrative | Financial expenses (income), net | Other comprehensive income (loss) | ||||||||||||||||||||||||||||||||||||||||||||||
| December 31, | December 31, | December 31, | December 31, | December 31, | December 31, | ||||||||||||||||||||||||||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | 2022 | 2021 | 2022 | 2021 | 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||||||||||||||||||||||
| (U.S. $ in thousands) | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Line items in which effects of hedges are recorded | $ | ( | ) | ( | ) | $ | $ | $ | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||||||||||||||||||||||||||
| Foreign exchange contracts designated as a hedging instrument | ( | ) | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||||||
| Foreign exchange contracts not designated as a hedging instrument | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||||||||||
Note 13. Entity-Wide Disclosure
Revenues by geographic area for the years ended December 31, 2022, 2021 and 2020 were as follows*:
| Year ended December 31, | |||||||||||||
| 2022 | 2021 | 2020 | |||||||||||
| (U.S. $ in thousands) | |||||||||||||
| Americas (primarily the United States) | $ | $ | $ | ||||||||||
| EMEA | |||||||||||||
| Asia Pacific | |||||||||||||
| $ | $ | $ | |||||||||||
|
* |
Revenues are attributed to geographic areas based on the location of customer. |
No single customer accounted for
STRATASYS LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Property, plant and equipment and right-of-use assets of lessees by geographical area were as follows:
| Year ended December 31, | ||||||||||
| 2022 | 2021 | |||||||||
| Americas (primarily the United States) | $ | $ | ||||||||
| EMEA | ||||||||||
| Asia Pacific | ||||||||||
| $ | $ | |||||||||
Property, plant and equipment that were located in Israel amounted to $
Note 14. Net loss per Share
The following table presents the computation of basic and diluted net loss per share:
| Year ended December 31, | ||||||||||||||
| 2022 | 2021 | 2020 | ||||||||||||
| (In thousands, except per share amounts) | ||||||||||||||
| Numerator: | ||||||||||||||
| Net loss attributable to Stratasys Ltd. for basic and diluted net loss per share | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||
| Denominator: | ||||||||||||||
| $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||
The computation of diluted net loss per share for the years ended December 31, 2022, 2021 and 2020 excluded share awards of
STRATASYS LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 15. Leases
The Company’s operating lease expenses are recognized on a straight-line basis. Operating lease cost for the years ended December 31, 2022, 2021 and 2020, were as follows:
| December 31, | |||||||||||
| 2022 | 2021 | 2020 | |||||||||
| (U.S. $ in thousands) | |||||||||||
| Operating lease cost: | |||||||||||
| Fixed payments and variable payments that depend on an index or rate | $ | $ | $ | ||||||||
| Total operating lease cost | $ | $ | $ | ||||||||
Cash flow and other information related to operating leases were as follows:
| December 31, | ||||||||||||
| 2022 | 2021 | 2020 | ||||||||||
| (U.S. $ in thousands) | ||||||||||||
| Cash paid for amounts included in the measurement of lease liabilities | $ | $ | $ | |||||||||
| Right-of-use assets obtained in exchange for new operating lease liabilities | $ | $ | $ | |||||||||
| December 31, | ||||||||||||
| 2022 | 2021 | 2020 | ||||||||||
| Weighted-average remaining lease term — operating leases | ||||||||||||
| Weighted-average discount rate — operating leases | % | % | % | |||||||||
Maturities of operating lease liabilities were as follows:
| December 31, | ||||
| 2022 | ||||
| (U.S. $ in thousands) | ||||
| 2023 | $ | |||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| 2027 and thereafter | ||||
| Total operating lease payments | ||||
| Less: imputed interest | ( | ) | ||
| Present value of lease liabilities | $ |
ITEM 19. EXHIBITS.
|
Exhibit |
||
|
Number |
Document Description | |
|
1.1 |
Amended and Restated Articles of Association of Stratasys Ltd. (1) | |
|
1.2 |
Memorandum of Association of Stratasys Ltd. (formerly known as Objet Ltd.) (2) | |
|
2.1 |
||
|
2.2 |
||
|
4.1 |
||
|
4.2 |
Stratasys Ltd. 2012 Omnibus Equity Incentive Plan, as amended* | |
| 4.3 | Stratasys Ltd. 2021 Employee Share Purchase Plan (5) | |
|
4.4 |
||
|
4.5 |
||
|
4.6 |
Assignment, dated June 1, 1994, from S. Scott Crump, James W. Comb, William R. Priedeman, Jr., and Robert Zinniel to Stratasys, Inc. (a subsidiary of Stratasys Ltd.) with respect to a patent application for a process and apparatus of support removal for three-dimensional modeling (8) | |
|
4.7 |
Stratasys Ltd. Compensation Policy for Executive Officers and Directors (9) | |
| 4.8 | Employment Agreement, effective as of February 18, 2020, by and between Stratasys Ltd. and Yoav Zeif (10) | |
|
8.1 |
||
|
12.1 |
||
|
12.2 |
||
|
13 |
||
|
15.1 |
||
| 101 | The following financial information from Stratasys Ltd.’s Annual Report on Form 20-F for the year ended December 31, 2022 formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Balance Sheets at December 31, 2022 and 2021; (ii) Consolidated Statements of Operations and Comprehensive Income for the years ended December 31, 2022, 2021 and 2020; (iii) Consolidated Statements of Changes in Equity for the years ended December 31, 2022, 2021 and 2020; (iv) Consolidated Statements of Cash Flows for the years ended December 31, 2022, 2021 and 2020; and (v) Notes to Consolidated Financial Statements, tagged as blocks of text. | |
|
104 |
Cover Page Interactive Data File |
|
(1) |
Incorporated by reference to Appendix A to the registrant’s proxy statement for its February 3, 2015 extraordinary general meeting of shareholders, attached as Exhibit 99.1 to the registrant’s report of foreign private issuer on Form 6-K furnished to the SEC on January 6, 2015 |
|
|
|
|
(2) |
Incorporated by reference to Exhibit 3.2 to the registrant’s registration statement on Form F-4, SEC File No. 333-182025, filed with the SEC on June 8, 2012 |
|
|
|
|
(3) |
Incorporated by reference to Exhibit 4.1 to Amendment No. 3 to the registrant’s registration statement on Form F-4, SEC File No. 333-182025, filed with the SEC on August 6, 2012 |
|
|
|
|
(4) |
Incorporated by reference
to Exhibit 99.1 to the registrant’s report of foreign private issuer on Form
6-K furnished to the SEC on August 26, 2022 |
|
(5) |
Incorporated by reference
to Appendix A to the registrant’s proxy statement for its 2021 annual general
meeting of shareholders, attached as Exhibit 99.2 to the registrant’s report of
foreign private issuer on Form 6-K furnished to the SEC on October 13, 2021 |
|
(6) |
Incorporated by reference to Exhibit 10.7 to the registrant’s registration statement on Form F-4, SEC File No. 333- 182025, filed with the SEC on June 8, 2012 |
| (7) | Incorporated by reference to Exhibit 10.10 to the registrant’s registration statement on Form F-4, SEC File No. 333-182025, filed with the SEC on June 8, 2012 |
| (8) | Incorporated by reference to Amendment No. 1 to Stratasys, Inc.’s registration statement on Form SB-2 (SEC File No. 333-99108) filed with the SEC on December 20, 1995 |
|
(9) |
Incorporated by reference to Appendix B to the registrant’s proxy statement for its 2021 annual general meeting of shareholders, attached as Exhibit 99.2 to the registrant’s report of foreign private issuer on Form 6-K furnished to the SEC on October 13, 2021 |
|
(10) |
Incorporated by reference to Exhibit 4.8 to the registrant’s annual report on Form 20-F for the year ended December 31, 2019, filed with the SEC on February 26, 2020 |
# Portions of this exhibit have been omitted and filed separately with the SEC pursuant to a confidential treatment request.
SIGNATURES
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report filed on its behalf.
|
|
|
STRATASYS LTD. |
|
|
|
|
|
|
|
/s/ Yoav Zeif |
|
|
|
Yoav Zeif |
|
|
|
Chief Executive Officer |
|
|
|
March 3, 2023 |