UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 20-F
(Mark One)
☐
REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
☒
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2021
OR
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
☐
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: 001-35751
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STRATASYS LTD.
(Exact name of Registrant as specified in its charter)
Not Applicable
(Translation of Registrant’s name into English)
Israel
(Jurisdiction of incorporation or Organization)
c/o Stratasys, Inc.
7665 Commerce Way
Eden Prairie,
Minnesota 55344
1 Holtzman Street,
Science Park
P.O. Box 2496
Rehovot, Israel 76124
(Address of Principal Executive Offices)
Richard Garrity, President
Tel: (952) 937-3000
E-mail: rich.garrity@stratasys.com
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
Ordinary Shares, par value NIS 0.01 per share
Trading
Symbol(s)
SSYS
Name of each exchange on which registered
Nasdaq Global Select Market
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:
65,676,945 Ordinary Shares, NIS 0.01 par value, at December 31, 2021.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.Yes ☒ No ☐
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 ☐ No ☒
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.
Yes ☒ No ☐
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). Yes ☒ No ☐
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):
Large accelerated filer ☒
Non-accelerated filer ☐
Accelerated filer ☐
Emerging Growth Company ☐
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If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the
extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act. ☐
† The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards
Codification after April 5, 2012.
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial
reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
U.S. GAAP☒
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 ☒
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TABLE OF CONTENTS
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
USE OF TRADE NAMES
CERTAIN TERMS AND CONVENTIONS
ITEM 1.IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS.
ITEM 2.OFFER STATISTICS AND EXPECTED TIMETABLE.
ITEM 3.KEY INFORMATION.
ITEM 4.INFORMATION ON THE COMPANY.
ITEM 4A.UNRESOLVED STAFF COMMENTS.
ITEM 5.OPERATING AND FINANCIAL REVIEW AND PROSPECTS.
PART I
ITEM 6.DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES.
ITEM 7.MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS.
ITEM 8.FINANCIAL INFORMATION.
ITEM 9.THE OFFER AND LISTING.
ITEM 10.ADDITIONAL INFORMATION.
ITEM 11.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
ITEM 12.DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES.
PART II
ITEM 13.DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES.
ITEM 14.MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS.
ITEM 15.CONTROLS AND PROCEDURES.
ITEM 16A.AUDIT COMMITTEE FINANCIAL EXPERT.
ITEM 16B.CODE OF ETHICS.
ITEM 16C.PRINCIPAL ACCOUNTANT FEES AND SERVICES.
ITEM 16D.EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES.
ITEM 16E.PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS.
ITEM 16F.CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT.
ITEM 16G.CORPORATE GOVERNANCE.
ITEM 16H.MINE SAFETY DISCLOSURE.
ITEM 17.FINANCIAL STATEMENTS.
ITEM 18.FINANCIAL STATEMENTS.
ITEM 19.EXHIBITS.
SIGNATURES.
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PART III
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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:
• the extent of our success at introducing new or improved products and solutions that gain market share;
• the extent of growth of the 3D printing market generally;
• the duration, degree of severity of, and strength of recovery from, the global COVID-19 pandemic, which may continue to have material adverse consequences for our
operations, financial position, cash flows, and those of our customers and suppliers;
• changes in our overall strategy, including as related to any restructuring activities and our capital expenditures;
• the impact of shifts in prices or margins of the products that we sell or services we provide;
• the impact of competition and new technologies;
• impairments of goodwill or other intangible assets in respect of companies that we acquire;
• the extent of our success at efficiently and successfully integrating the operations of various companies that wehave acquired or may acquire;
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• the degree of our success at locating and acquiring additional value-enhancing, inorganic technology that furthers our business plan to lead in the realm of polymers;
• the potential adverse impact that recent global interruptions and delays involving freight carriers and other third parties may have on our supply chain and distribution
network,
and, consequently, our ability to successfully sell both our existing and newly-launched 3D printing products;
• global market, political and economic conditions, and in the countries in which we operate in particular;
• government regulations and approvals;
• litigation and regulatory proceedings;
• infringement of our intellectual property rights by others (including for replication and sale of consumables foruse in our systems), or infringement of others’ intellectual
property rights by us;
• potential cyber attacks against, or other breaches to, our information technologies systems;
• the extent of our success at maintaining our liquidity and financing our operations and capital needs;
• impact of tax regulations on our results of operations and financial condition; and
• any additional factors referred to in Item 3.D “Key Information - Risk Factors”, Item 4 “Information on theCompany”, 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.
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Unless the context otherwise indicates or requires, “Stratasys,” “PolyJet,” “J8 Series,” “J850,” “J826,” “J750,” “J55,” “FDM,” “Fortus,” “F900,” “Fortus 450mc,” “Fortus
380mc,” “F123 Series,” “ “F770,” “Origin,” “Origin One,” “P3,” “Stratasys Direct Manufacturing,” “GrabCAD,” “GrabCAD Print,” “GrabCAD Shop,” “GrabCAD
Community,” “GrabCAD Workbench,” “MakerBot,” “Method,” “Method X,” MakerBot CloudPrint,” “Thingiverse,” “Replicator,” “Digital Anatomy,” “TissueMatrix,”
“GelMatrix,” “BoneMatrix,” “Neo,” “H350,” “SAF” and all product names and trade names used by us in this annual report are our trademarks and service marks, which may
be registered in certain jurisdictions. Although we have sometimes omitted the “®” and “TM” trademark designations for such marks in this annual report, all rights to such
USE OF TRADE NAMES
trademarks and service marks are nevertheless reserved. Furthermore, the Stratasys Signet design logo is our property. This annual report contains additional trade names,
trademarks and service marks of other companies. We do not intend our use or display of other companies’ tradenames, trademarks or service marks to imply a relationship
with, or endorsement or sponsorship of us by, these other companies.
In this annual report, unless the context otherwise requires:
CERTAIN TERMS AND CONVENTIONS
• 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;
• 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.
• 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;
• references to “ordinary shares”, “our shares” and similar expressions refer to our Ordinary Shares, par value NIS 0.01 per share;
• references to “dollars”, “U.S. dollars”, “U.S. $” and “$” are to United States Dollars;
• references to “shekels” and “NIS” are to New Israeli Shekels, the Israeli currency;
• 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;
• references to the “Companies Law” are to the Israeli Companies Law, 5759-1999, as amended;
• references to the “Securities Act” are to the Securities Act of 1933, as amended;
• references to the “Exchange Act” are to the Securities Exchange Act of 1934, as amended;
• references to “Nasdaq” are to the Nasdaq Stock Market; and
• references to the “SEC” are to the United States Securities and Exchange Commission.
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ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS.
Not applicable.
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE.
PART I
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.
You should carefully consider the risks described below, together with all of the other information in this annual report on Form 20-F. The risks described below are not
the only risks facing us. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may also materially and adversely affect our
business operations. If any of these risks actually materializes, our business, financial condition and results of operations could suffer and the price of our shares could
decline.
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Summary of Risk Factors:
The following constitutes a summary of the material risks relevant to an investment in our company:
Risks related to our business and financial condition
● The global COVID-19 pandemic could continue to adversely affect, our business, results of operations, liquid cash resources and financial condition, and the
timing, extent and nature of economic recovery from it is uncertain.
● We may not succeed at introducing new or improved products and solutions that gain market share.
● Our annual and quarterly operating results and financial condition may fluctuate.
● Demand for our products and services may not grow as we expect.
● The 3D printing market generally may not grow as we expect.
● 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.
● 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.
●
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.
● Competition and new technologies may cut into our market share.
●
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.
● 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.
● 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.
●
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.
● Global market, political and economic conditions, and in the countries in which we operate in particular, could adversely impact our operating results.
● 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.
● We own a number of our manufacturing and office facilities, which may limit our ability to move those operations.
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Risks related to our intellectual property
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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.
●
If we are unable to obtain patent protection for our products or otherwise protect our intellectual property rights, our business could suffer.
● 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.
Risks related to operations in Israel
● 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.
● We currently receive 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.
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.
● We do not anticipate paying any cash dividends in the foreseeable future.
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Risks related to our business and financial condition
The global COVID-19 health pandemic has been adversely affecting and could continue to adversely affect, our business, results of operations and financial
condition due to its impact on the industries in which our customers operate, as well as the results of actions taken to contain the disease or treat its impact, and due to
the unknown speed, extent and nature of the economic recovery from the disease.
The COVID-19 global pandemic and measures taken to contain it, including shutdowns and “shelter-in-place” orders, have adversely affected economies in many of the
markets into which we sell our products and services. That, in turn, adversely impacted our financial results for our operations in all global regions, beginning already in the
first quarter of 2020 and continuing through the remainder of 2020. While in 2020 we implemented counter-measures (such as a four-day work-week, in effect from the
second quarter of 2020 until the end of 2020) to try to mitigate the impact of the pandemic on our operating results, our results throughout 2020 were still significantly worse
than in 2019.
While in 2021, our quarterly and annual results evidenced material improvement, including an annual increase in revenues by 16.6% compared to 2020, and approached
pre-COVID-19 levels ($607.2 million of revenue in 2021 compared to $636.1 million in 2019), we cannot assure you that the recovery for our top-line and overall results will
get even stronger going forward. In 2021, we worked at full-capacity (having returned to a five-day work-week), with a high percentage of our employees throughout the
world having received vaccines against COVID-19 over the course of the year. However, we cannot assure you that any future variants of COVID-19 will not frustrate our
and our employees’ abilities to continue to run our operations in the ordinary course. Any such disruption to operations could counter-act our current positive trajectory.
While we ended 2021 with increased cash levels ($502.2 million in cash, cash equivalents and short-term deposits) and no debt, and believe that we are well suited to
continue to manage the COVID-19 pandemic, focusing on cost controls and cash generation, we cannot assure you as to our future success with that strategy. We continue to
face uncertainty as to the degree and duration of the impact of COVID-19 going forward, and as to the nature, strength and timing of global economic recovery from it, which
help to determine whether our strategy will succeed. We furthermore do not know whether certain changes in consumer behavior caused by the pandemic are temporary or
permanent, which affects our ability to plan our marketing strategy on a long-term basis. Given our lack of long-term visibility with respect to the COVID-19 pandemic and
related recovery, we cannot project our long-term or even short-term results with as great a degree of certainty as in the past. Failure to achieve our projected results could
cause a downturn in the price of our ordinary shares and cause you losses in your investment.
The uncertainty surrounding the future direction of the COVID-19 pandemic and the recovery from it may also have the effect of amplifying many of the other risks
described herein.
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.
We derive most of our revenues from the sale of additive manufacturing systems and related consumables. The markets in which we operate are subject to rapid and
substantial innovation and technological change, mainly driven by technological advances and end-user requirements and preferences, as well as the emergence of new
standards and practices. Our ability to compete in these markets depends, in large part, on our success in enhancing our existing products and developing new additive
manufacturing systems and new consumables that will address the increasingly sophisticated and varied needs of prospective end-users, and respond to technological advances
and industry standards and practices on a cost-effective and timely basis or otherwise gain market acceptance. In keeping with our strategic goal of strengthening our position
in polymers
technology in December 2020, which we believe will help to further strengthen our position in that area. In order to further expand our polymer suite of solutions across the
product life cycle, in 2021, we acquired UK-based RP Support Ltd., or RPS, a provider of industrial stereolithography 3D printers and solutions, and Xaar 3D Ltd., or Xaar,
and its powder-based SAF™ technology, thereby accelerating our growth in production-scale 3D printing.
and in the fast-growing mass production parts market, we acquired Origin Laboratories, Inc., or Origin, and its P ™ Programmable PhotoPolymerization
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Even if we successfully utilize new acquired technologies or organically developed technologies to create new systems or enhance our existing systems, it is likely that
new systems and technologies that we develop will eventually supplant our existing systems or that our competitors will create systems that will replace our systems. As a
result, any of our products may be rendered obsolete or uneconomical by our or others’ technological advances.
Our operating results and financial condition may fluctuate.
The operating results and financial condition of our company may fluctuate from quarter to quarter and year to year and are likely to continue to vary due to a number of
factors, many of which will not be within our control. Particularly, during the period of COVID-19, we have less visibility as to the rate of recovery of the global economy
and, consequently, as to the expected changes in our operating results over time. As a result, during this period, we have been analyzing our quarterly results on a linear basis,
comparing consecutive quarters with one another, rather than each quarter with the corresponding quarter of the previous year, thereby enabling us to track the course of
economic recovery and its impact on our operating results. Given the uncertainty, since the second quarter of 2020, we have suspended providing quarterly or annual
guidance. Even as we have returned to providing limited guidance in 2021, if our operating results do not meet that guidance or the expectations of securities analysts or
investors, the market price of our ordinary shares will likely decline. Fluctuations in our operating results and financial condition may be due to a number of factors, including
the degree, speed and nature of global economic recovery from the COVID-19 pandemic, those additional factors listed below and those identified throughout this “Risk
Factors” section:
• the degree of market acceptance of our products and services, particularly in the fast-growing sector of mass production parts;
• the mix of products and services that we sell during any period;
• the geographic distribution of our sales;
• our responses to price competition;
• long sales cycles;
• unforeseen liabilities or difficulties in integrating our acquisitions or newly acquired businesses;
• changes in the amount that we spend to develop, acquire or license new products, consumables, technologies or businesses;
• changes in the amounts that we spend to promote our products and services;
• changes in the cost of satisfying our warranty obligations and servicing our installed base of systems;
• delays between our expenditures to develop and market new or enhanced systems and consumables and the generation of sales from those products;
•
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;
• impairment charges that we may be required to record in respect of our goodwill and/or other long-lived assets;
• potential cyber attacks against, or other breaches to, our information technologies systems;
• litigation or threats of litigation, including intellectual property claims by third parties;
• changes in accounting rules and tax laws;
• tax benefit that we may record due to partial or full release of valuation allowances against our deferred tax assets;
• general economic and industry conditions that affect end-user demand and end-user levels of product design and manufacturing; and
• 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;
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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.
The commercial marketplace for prototyping and manufacturing, which was once dominated by conventional production technologies, is gradually adopting additive
manufacturing as a new production technology. This is true with respect to prototype development, and to a growing extent, with respect to direct digital manufacturing, or
DDM, as an alternative to traditional manufacturing. If the commercial marketplace does not continue to transform towards the broader acceptance of 3D printing and DDM
as alternatives for prototype development and traditional manufacturing, or if it adopts 3D printing based on technologies other than the technologies that we use, we may not
be able to increase or sustain current or future levels of sales of our products and related materials and services, and our results of operations may be adversely affected as a
result.
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.
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.
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, 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 desktop 3D printers 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.
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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.
We compete with a wide variety of producers of systems that create 3D printed models, prototypes, manufacturing aids, medical guides and end-use parts as well as
producers of materials and services for these systems, including both additive and subtractive manufacturing methodologies, such as metal extrusion, computer-controlled
machining and manual modeling techniques. Our principal competition currently consists of other manufacturers of systems for prototype development and manufacturing
processes, including 3D Systems Corporation, HP, Carbon3D, EOS GmbH , Markforged and Desktop Metal (following their acquisition of EnvisionTEC), and, with respect
to our desktop 3D printers, a multitude of companies such as Markforged, Ultimaker, XYZ Printing and Formlabs. Competition with our desktop 3D printers and our other
lower-end products has intensified and creates a challenging business environment. For our broadened AM parts and services business, our chief competitors consist of 3D
Systems, Materialise, Protolabs and many other smaller service providers. We may face additional competition in the future from other new entrants into the marketplace,
including companies that may have significantly greater resources than we have that may become new market entrants or may enter through acquisition or strategic or
marketing partnerships with current competitors.
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
As of December 31, 2021, the carrying value of all of our goodwill and other intangible assets was approximatel $217.4 million compared to a carrying value of $167.3
y
million as of December 31, 2020.
During the third quarter of 2020, we noted that indicators of potential impairment existed which required an interim goodwill impairment analysis for our Stratasys-Objet
reporting unit. These indicators included longer and deeper than expected reduction in the business, refinement to our business focus into additional inorganic technologies
and sustained decline in our market capitalization during the second and third quarters of 2020, all, primarily as a result of the COVID-19 impact on the global economy and
our business.
As a result of those indicators, we revisited various assumptions supporting the cash flow projections for our Stratasys-Objet reporting unit. Based on the revised cash
flow projections, the value of the reporting unit decreased below its carrying value, and we recorded in the third quarter of 2020 a goodwill impairment charge of
$386.2 million, the reporting unit's entire goodwill.
In addition, in the third quarter of 2020, we tested the recoverability of our long-lived assets, including our purchased intangible assets. We concluded that the carrying
amounts of certain of our purchased intangible assets were not recoverable. As a result, we recorded a non-cash impairment charge of $5.3 million, in order to reduce the
carrying amounts of certain of our purchased intangible assets to their estimated fair value.
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.
Any impairment to our reporting units in the future could result in further significant charges against our earnings and could have a material adverse effect on our results
of operations. For further information, please see Notes 7 and 8 to our consolidated financial statements included elsewhere in this annual report.
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As part of our growth strategy, we have sought, and will continue to seek, to acquire or to make investments in other businesses, patents, technologies, products or
services. Our failure to do so successfully (including, if applicable, to finance such acquisitions or investments on favorable terms, to avoid adverse financial
consequences, and to realize expected results from such acquisitions or investments) may adversely affect our financial results.
As part of our growth strategy, which is focused on polymers, we expect to continue to regularly evaluate acquisitions or investments to expand our suite of products and
services. Even if we are able to identify a suitable acquisition or investment, we may not be able to consummate any such transaction if we cannot reach an agreement on
favorable terms or if we lack sufficient resources to finance the transaction on our own and cannot obtain financing at a reasonable cost or if regulatory authorities prevent
such transaction from being consummated. If we proceed with a particular acquisition or investment, we may have to use cash, issue new equity securities with dilutive effects
on existing shareholders, incur indebtedness, assume contingent liabilities or amortize assets or expenses in a manner that might have a material adverse effect on our
financial condition, results of operations or liquidity. Acquisitions will also require us to record certain acquisition-related costs and other items as current period expenses,
which would have the effect of reducing our reported earnings in the period in which an acquisition is consummated. In addition, we could also face unknown liabilities or
write-offs due to our acquisitions and investments, which could result in a significant charge to our earnings in the period in which they occur. We will also be required to
record goodwill or other long-lived asset impairment charges (if any) in the periods in which they occur, which could result in a significant charge to our earnings in any such
period. For further information on our quantitative assessment for goodwill impairment we performed in 2020 and the resulting impairments that we recorded, please see
Notes 7 and 8 to our consolidated financial statements included elsewhere in this annual report. If an acquired entity or investment does not perform as projected and in
accordance with our expectations, and is not accretive to our earnings, it may adversely impact our overall results of operations and hurt, rather than help, our business.
Our operations could suffer if we are unable to attract and retain key management or other key employees in the Israeli market or other markets in which we operate
where competition for highly skilled technical and other personnel is intense.
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. Members of our senior management team may resign at any time, as was recently the case with our chief
financial officer, Lilach Payorski, who will be succeeded by our Vice President of Finance, Eitan Zamir. There is no assurance that if any additional senior executives leave in
the future, we will be able to rapidly replace them and transition smoothly towards their successors, without any adverse impact on our operations.
Our dependence on key employees extends beyond our senior executive team, to our highly skilled scientific, technical (including software) and sales personnel. Our
principal research and development as well as significant elements of our general and administrative activities are conducted at one of our two headquarters, in Israel, and we
face significant competition for suitably skilled employees in Israel. While there has been intense competition for qualified human resources in the Israeli high-tech industry
historically (including the additive manufacturing, or AM, industry in which we operate), the industry experienced record growth and activity in 2021, both at the earlier stages
of venture capital and growth equity financings, and at the exit stage of initial public offerings and mergers and acquisitions. This flurry of growth and activity has caused an
increase in job openings in both Israeli high-tech companies and Israeli research and development centers of foreign companies, and intensification of competition between
these employers to attract qualified employees in Israel. As a result, the high-tech industry in Israel has experienced significant levels of employee attrition and is currently
facing a severe shortage of skilled human capital, including engineering, research and development, software, sales and customer support personnel. Similar shortages of key
personnel also exist in the regions surrounding our Minnesota, New York, California, Texas and Boston facilities. Companies with which we compete for qualified personnel
may have greater resources than we do, and we may not succeed in recruiting additional experienced or professional personnel, retaining personnel or effectively replacing
current personnel who may depart with qualified or effective successors. If we cannot attract and retain sufficiently qualified technical employees for our research and
development and/or product development activities (including for the software in our products), we may be unable to achieve the synergies expected from mergers and
acquisitions that we may effect from time to time, or to develop and commercialize new products or new applications for existing products.
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In addition, as a result of the intense competition for qualified human resources, the Israeli high-tech and other high-tech markets have also experienced and may continue
to experience significant wage inflation. Accordingly, our efforts to attract, retain and develop personnel may also result in significant additional expenses, which could
adversely affect our profitability. Furthermore, in making employment decisions, particularly in the high-technology industry, job candidates often consider the value of the
equity they are to receive in connection with their employment. Employees may be more likely to leave us if the shares they own or the shares underlying their equity
incentive awards have significantly appreciated or significantly decreased in value. Many of our employees may receive significant proceeds from sales of our equity in the
public markets, which may reduce their motivation to continue to work for us and could heighten the risk of employee attrition.
While we utilize non-competition agreements with our employees as a means of improving our employee retention, those agreements may not be effective towards that
goal. These agreements prohibit our employees, if they cease working for us, from competing directly with us or working for our competitors for a limited period. We may be
unable to enforce these agreements under Israeli law or the law of other jurisdictions, and it may be difficult for us to restrict our competitors from benefiting from the
expertise our former employees developed while working for us.
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 Thingiverse and GrabCAD websites 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.
Our sales of end-use parts to customers in the aerospace, medical and automotive industries, and of 3D printing systems to customers in the aerospace industry, carry
with them a greater potential for liability claims against us.
Our manufacturing services business, Stratasys Direct Manufacturing, produces parts used as prototypes, benchmarks, and end-use parts. In the case of end-use parts, our
sales to customers in the aerospace, medical and automotive industries, in particular, makes us more susceptible to product and other liability claims, which characterize
operations in those industries. Sales of our 3D printing systems to customers in the aerospace industry similarly carry with them potential liability claims if the parts produced
by those systems do not function properly. Any such claims that are not adequately covered by insurance or for which insurance is not available may adversely affect our
results of operations and financial condition.
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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.
We purchase components and sub-assemblies for our systems, raw materials that are used in our consumables, and AM systems, component parts and raw materials for
our Stratasys Direct Manufacturing services business, from third-party suppliers, some of whom may compete with us. While there are several potential suppliers of most of
these component parts, sub-assemblies and raw materials that we use, we currently choose to use only one or a limited number of suppliers for several of these components
and materials. Furthermore, the suppliers of AM systems and materials used in our SDM parts service may refuse to sell us additional AM systems or component parts and
materials for AM systems that our SDM service uses. Our reliance on a single or limited number of vendors involves a number of risks, including:
• potential shortages of some key components;
• product performance shortfalls, if traceable to particular product components, since the supplier of the faulty component cannot readily be replaced;
• discontinuation of a product or certain materials on which we rely;
• potential insolvency of these vendors; and
• 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.
In particular, we rely on a sole supplier, Ricoh Printing Systems America, Inc., or Ricoh, for the printer heads for our PolyJet 3D printers. Under the terms of our
agreement with Ricoh, we purchase printer heads and associated electronic components, and receive a non-transferable, non-exclusive right to assemble, use and sell these
purchased products under Ricoh’s patent rights and trade secrets. Due to the risk of a discontinuation of the supply of Ricoh printer heads and other key components of our
products, we maintain excess inventory of those printer heads and other components. However, if our forecasts exceed actual orders, we may hold large inventories of slow-
moving or unusable parts or raw materials, which could result in inventory write offs or write downs and have an adverse effect on our cash flow, profitability and results of
operations. See “Item 4. Information on the Company—Business Overview—Manufacturing and Suppliers—Inventory and Suppliers—Ricoh Agreement” for further
discussion of this agreement.
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Discontinuation of operations at our manufacturing sites could prevent us from timely filling customer orders and could lead to unforeseen costs for us.
We assemble and test the systems that we sell, and, in many cases, produce consumables for our systems, at single facilities in various locations that are specifically
dedicated to separate categories of systems and consumables. We similarly rely on a single facility for assembly of the component parts and materials for AM systems that our
SDM service uses. Because of our reliance on all of these production facilities, a disruption at any of those facilities could materially damage our ability to supply 3D printers,
other systems or consumable materials to the marketplace in a timely manner. Depending on the cause of the disruption, we could also incur significant costs to remedy the
disruption and resume product shipments. Such disruptions may be caused by, among other factors, earthquakes, fire, flood and other natural disasters. While we plan to
adopt an extensive disaster recovery plan in the near future, there are no assurances that will adequately protect us from any significant disruptions at our manufacturing sites.
Accordingly, any such disruption could result in a material adverse effect on our revenue, results of operations and earnings, and could also potentially damage our reputation.
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.
Global interruptions and delays involving freight carriers and other third parties may adversely impact our supply chain and distribution network, and, consequently,
frustrate our ability to sell our 3D printing systems, especially those systems that are based on newly acquired technologies that we have recently launched.
Circumstances surrounding and related to the COVID-19 pandemic have triggered unprecedented disruptions in global supply chains. Our business relies on an efficient
and effective supply chain, including delivery of raw materials and parts for our 3D printing systems, and the manufacture and transport of those systems to resellers,
independent sales representatives or end-users (as applicable). Impacts of the COVID-19 pandemic are placing strains on international supply chains that may negatively
affect the flow or availability of our products and may result in higher out-of-stock inventory positions due to difficulties in timely obtaining raw materials and parts from our
suppliers, as well as transportation of our products after manufacture to our distribution destinations. Further, as a result of these delays, we may need to source raw materials
and parts from different geographic locations or manufacturers, which could result in, among other things, higher product costs, increased transportation costs, delays in sales
of our products or lower quality of our products. The adverse impact of these irregularities in our supply chain on our ability to distribute our 3D printing systems may be
most acute for systems that are based on our three recently-acquired technologies, where we have just recently implemented our distribution channels. Our launch of these
new technologies and related products during this period of interrupted supply chains may furthermore impose an enhanced burden on our capacity to meet our customers’
demand.
Additionally, the operation of our manufacturing facilities, where our 3D printing systems are assembled, is crucial to our business operations. If our manufacturing
facilities experience closures or worker shortages due to COVID-19, whether temporary or sustained, we could sustain significant adverse impacts related to the distribution
of our products to their destinations, whether to resellers, independent sales representatives or end-users (as applicable).
Any of these circumstances could adversely affect our ability to deliver our 3D printing systems in a timely manner, which could impair our ability to meet customer
demand for products and result in lost sales and services revenues, increased supply chain costs, and, potentially, damage to our reputation.
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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.
Uncertainty with respect to the global economy, difficulties in the financial services sector and credit markets, geopolitical uncertainties and other macroeconomic factors
all affect spending behavior of potential end-users of our products and services. The uncertain prospects for economic growth in some of the regions in which we sell our
products may cause end-users to delay or reduce technology purchases. We also face risks that may arise from financial difficulties experienced by our end-users, suppliers
and distributors, which may be exacerbated by continued uncertainty in the global economy or by other geopolitical factors, including:
• the global COVID-19 health pandemic and the economic difficulties and/or crises that it has created throughout the world, including the regions where our customers are
located;
• supply chain disruptions, which may slow the delivery of raw materials, and which have increased the price of certain materials due to the significant increase in costs of
raw materials and shipping costs;
• the possibility of an ongoing U.S.- China trade war may impact the cost of raw materials, finished products or components used in our products, and our ability to sell
our products in China;
• threats of massive cyber attacks that could cause severe economic damage;
• 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;
• end-user demand for products and manufacturing activity levels may be reduced;
• distributors and end-users may be unable to obtain credit financing to finance purchases of our products;
• 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;
• 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
• 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% of our revenues in 2021 from countries outside the Americas.
Accordingly, we face significant operational risks from doing business internationally, including:
• fluctuations in foreign currency exchange rates;
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• potentially longer sales and payment cycles;
• potentially greater difficulties in collecting accounts receivable;
• potentially adverse tax consequences;
• reduced protection of intellectual property rights in certain countries, particularly in Asia and South America;
• difficulties in staffing and managing foreign operations;
• laws and business practices favoring local competition;
• costs and difficulties of customizing products for foreign countries;
• compliance with a wide variety of complex foreign laws, treaties and regulations;
• tariffs, trade barriers and other regulatory or contractual limitations on our ability to sell or develop our products in certain foreign markets; and
• 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.
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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 have invested in advanced protective systems to reduce these risks, some of which have been installed and others that are still in the process of installation. Based on
information provided to us by the suppliers of our protective systems, we believe that our level of protection is in keeping with the customary practices of peer technology
companies. We also maintain back-up files for much of our information, as a means of assuring that a breach or cyber attack does not necessarily cause the loss of that
information. We furthermore review our protections and remedial measures periodically in order to ensure that they are adequate.
Despite these protective systems and remedial measures, techniques used to obtain unauthorized access are constantly changing, are becoming increasingly more
sophisticated and often are not recognized until after an exploitation of information has occurred. We may be unable to anticipate these techniques or implement sufficient
preventative measures, and we therefore cannot assure you that our preventative measures will be successful in preventing compromise and/or disruption of our information
technology systems and related data. We furthermore cannot be certain that our remedial measures will fully mitigate the adverse financial consequences of any cyber attack
or incident.
We are subject to environmental laws and export control laws due to the import and export of our products, as well as environmental, health and safety 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 that are manufactured in the United States is also subject specifically to export controls governing dual-use products under the U.S. Export
Controls Act of 2018, which may potentially lead to the imposition of greater restrictions on our ability to export those products and penalties if we fail to comply with those
restrictions.
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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. 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.
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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. In November 2017, a former employee,
whose employment had been terminated by our company in 2008 and who had previously unsuccessfully filed a suit against our company, brought an additional proceeding
against us under Section 134 of the Israeli Patent Law seeking compensation and royalties for service inventions he invented while he served as an employee of our company.
We successfully defended against the above-described proceeding, leading to its dismissal in February 2020, with no required payments to the former employee.
However, we can provide no assurance as to the outcome of any future lawsuits, and any such actions may result in judgments against us for significant damages. Resolution
of any such matters can be prolonged and costly, and the ultimate results or judgments are uncertain due to the inherent uncertainty in litigation and other proceedings.
Moreover, our potential liabilities are subject to change over time due to new developments, changes in settlement strategy or the impact of evidentiary requirements.
Regardless of the outcome, litigation has resulted in the past, and may result in the future, in significant legal expenses and require significant attention and resources of
management. As a result, any present or future litigation could result in losses, damages and expenses that have a significant adverse effect on our financial condition or
profitability.
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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 generally enter into non-competition agreements with our employees. These agreements prohibit our employees from competing directly with us or working for our
competitors or clients for a limited period after they cease working for us. We may be unable to enforce these agreements under the laws of the jurisdictions in which our
employees work and it may be difficult for us to restrict our competitors from benefiting from the expertise that our former employees or consultants developed while
working for us. For example, Israeli courts have required employers seeking to enforce non-compete undertakings of a former employee to demonstrate that the competitive
activities of the former employee will harm one of a limited number of material interests of the employer that have been recognized by the courts, such as the secrecy of a
company’s confidential commercial information or the protection of its intellectual property. If we cannot demonstrate that such interests will be harmed, we may be unable
to prevent our competitors from benefiting from the expertise of our former employees or consultants and our ability to remain competitive may be diminished. In addition in
California, where many employees of our SDM parts service as well as Origin's employees, are located, non-competition agreements with employees are generally
unenforceable after termination of employment.
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.
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Risks related to our intellectual property
22
If we are unable to obtain patent protection for our products or otherwise protect our intellectual property rights, our business could suffer.
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
powder-based SAF technology, acquired fully in November 2021, the risks related to potential infringement of our proprietary rights in technology become more pronounced.
technology, acquired in December 2020, RPS and its stereolithography technology, acquired in February 2021, and Xaar and its
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.
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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.
In addition to patent infringement and patent-related claims, we may be subject to other intellectual property claims, such as claims that we are infringing trademarks or
misappropriating trade secrets. We may also be subject to claims relating to the content on our websites, including third-party content posted on our Thingiverse.com or
GrabCAD.com websites. Any intellectual property claims, regardless of the merit or resolution of such claims, could cause us to incur significant costs in responding to,
defending and resolving such claims, and may prohibit or otherwise impair our ability to commercialize new or existing products, including products developed by our
acquired companies. Resolution of such claims may, among other things, require us to redesign infringing technology, enter into costly settlement or license agreements on
terms that are unfavorable to us, pay royalties to employees or former employees, or indemnify our distributors and end-users. Any infringement by us, including our acquired
companies, or our licensors of the intellectual property rights of third parties may have a material adverse effect on our business, financial condition and results of operations.
If we are unable to protect the confidentiality of our trade secrets or know-how, such proprietary information may be used by others to compete against us, for
instance, in developing consumables that could be used with our printing systems in place of our proprietary consumables.
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.
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.
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.
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Risks related to operations in Israel
24
Our Israeli headquarters and manufacturing and other significant operations may be adversely affected by political, economic and military instability in Israel.
One of our dual corporate headquarters, as well as our PolyJet system manufacturing facility, all of our PolyJet research and development facilities, one of our two
PolyJet consumables manufacturing facilities, one of our FDM manufacturing facilities, and some of our suppliers, are located in central and southern Israel. In addition, many
of our key employees, officers and directors are residents of Israel. Accordingly, political, economic and military conditions in Israel may directly affect our business. Since
the establishment of the State of Israel in 1948, a number of armed conflicts have taken place between Israel and its neighboring countries. Any hostilities involving Israel or
the interruption or curtailment of trade between Israel and its trading partners could adversely affect our operations and results of operations. Over the past decade, Israel has
been engaged in armed conflict with Hamas, a militia group and political party that controls the Gaza Strip, and during the summer of 2006, Israel was engaged in an armed
conflict with Hezbollah, a Lebanese Islamist Shiite militia group and political party. These conflicts involved missile strikes against civilian targets in various parts of Israel,
including areas where some of our manufacturing facilities are located, and negatively affected business conditions in Israel. Any armed conflicts, terrorist activities or
political instability in the region, including Iranian involvement in Syria, could adversely affect business conditions and could harm our results of operations and could make it
more difficult for us to raise capital. Parties with whom we have agreements involving performance in Israel may claim that they are not obligated to perform their
commitments under those agreements pursuant to force majeure provisions in such agreements due to the political or security situation 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.
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Your rights and responsibilities as a shareholder will be governed by Israeli law, which may differ in some respects from the rights and responsibilities of
shareholders of U.S. companies.
We are organized under Israeli law. The rights and responsibilities of the holders of our ordinary shares are governed by our amended and restated articles of association
and Israeli law. These rights and responsibilities differ in some respects from the rights and responsibilities of shareholders in typical U.S.-based corporations. In particular, a
shareholder of an Israeli company has a duty to act in good faith toward the company and other shareholders and to refrain from abusing its power in the company, including,
among other things, in voting at the general meeting of shareholders on matters such as amendments to a company’s articles of association, increases in a company’s
authorized share capital, mergers and acquisitions and interested party transactions requiring shareholder approval. In addition, a shareholder who knows that it possesses the
power to determine the outcome of a shareholder vote or to appoint or prevent the appointment of a director or executive officer in the company has a duty of fairness toward
the company. There is limited case law available to assist us in understanding the implications of these provisions that govern shareholders’ actions. These provisions may be
interpreted to impose additional obligations and liabilities on holders of our ordinary shares that are not typically imposed on shareholders of U.S. corporations.
Provisions of Israeli law may delay, prevent or otherwise impede a merger with, or an acquisition of, our company, which could prevent a change of control, even
when the terms of such a transaction are favorable to us and our shareholders.
Israeli corporate law regulates mergers, requires tender offers for acquisitions of shares above specified thresholds, requires special approvals for transactions involving
directors, officers or significant shareholders and regulates other matters that may be relevant to such types of transactions. For example, a merger may not be consummated
unless at least 50 days have passed from the date on which a merger proposal is filed by each merging company with the Israel Registrar of Companies and at least 30 days
have passed from the date on which the shareholders of both merging companies have approved the merger. In addition, a majority of each class of securities of the target
company must approve a merger. Moreover, a tender offer for all of a company’s issued and outstanding shares can only be completed if the acquirer receives positive
responses from the holders of at least 95% of the issued share capital. Completion of the tender offer also requires approval of a majority of the offerees that do not have a
personal interest in the tender offer, unless, following consummation of the tender offer, the acquirer would hold at least 98% of the company’s outstanding shares.
Furthermore, the shareholders, including those who indicated their acceptance of the tender offer, may, at any time within six months following the completion of the tender
offer, petition an Israeli court to alter the consideration for the acquisition, unless the acquirer stipulated in its tender offer that a shareholder that accepts the offer may not
seek such appraisal rights.
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.
Exchange rate fluctuations between the U.S. dollar and the New Israeli Shekel, the Euro, the Yen and other non-U.S. currencies may negatively affect the earnings of
our operations.
We report our financial results and most of our revenues are recorded in U.S. dollars. However, substantially all of the manufacturing, research and development expenses
of our Israeli operations, as well as a portion of the cost of revenues, selling and marketing, and general and administrative expenses of our Israeli operations, are incurred in
New Israeli Shekels. As a result, we are exposed to exchange rate risks that may adversely affect our financial results. If the New Israeli Shekel appreciates against the U.S.
dollar or if the value of the New Israeli Shekel declines against the U.S. dollar at a time when the rate of inflation in the cost of Israeli goods and services exceeds the rate of
decline in the relative value of the New Israeli Shekel, then the U.S. dollar cost of our operations in Israel would increase and our results of operations would be adversely
affected.
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During the last year in particular, the value of the U.S. dollar has decreased significantly relative to the New Israeli Shekel and has settled at a level that is near the all-
time low. This has had an adverse impact upon our dollar-denominated financial results, due to the relative increase in cost of the New Israeli Shekel denominated expenses of
our Israeli operations. Our results of operations could also be adversely affected if we are unable to effectively hedge against currency fluctuations in the future. We cannot
predict any future trends in the rate of inflation or deflation in Israel or the rate of appreciation or devaluation of the New Israeli Shekel against the U.S. dollar. The Israeli
annual rate of inflation (deflation) amounted to 2.8%, (0.7%) and 0.6% for the years ended December 31, 2021, 2020 and 2019, respectively. The annual appreciation
(devaluation) of the New Israeli Shekel in relation to the U.S. dollar amounted to 3.3%, 7.0% and 7.8% for the years ended December 31, 2021, 2020 and 2019, respectively.
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.
Calculating our income tax rate is complex and subject to uncertainty. We currently receive 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,
which would impact our income tax rate and increase our costs.
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% 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.
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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.
Certain Israeli governmental grants that we received for certain of our research and development activities in Israel may restrict our ability to transfer manufacturing
operations or technology outside of Israel without obtaining a pre-approval from the relevant authorities and, in certain circumstances, payment of significant amounts
to the authorities.
Our Israeli-based research and development efforts were and are financed in part, through grants that we received from the National Technological Innovation Authority,
or the Authority (formerly operating as Office of the Chief Scientist of the Ministry of Economy of the State of Israel, or the OCS). Since 2007 and through December 31,
2021, we have received funding from the Authority of approximately $8.6 million, in the aggregate, under several R&D programs to support certain research and development
projects in Israel. Such funding is not subject to royalty obligations on our part.
We must comply with the requirements of the Israeli Encouragement of Research, Development and Technological Innovation Law, 5744-1984, or the Innovation Law
(formerly known as the Encouragement of Industrial Research and Development Law, 5744-1984, or the Research Law), and related regulations, with respect to those current
and past grants.
When a company develops know-how, technology or products using grants provided by the Authority, the terms of these grants and the Innovation Law restrict the
transfer of such know-how, and the transfer of manufacturing or manufacturing rights of such products, technologies or know-how outside of Israel. Even after the repayment
of such grants in full, we will remain subject to the restrictions set forth under the Innovation Law, including:
• Transfer of know-how outside of Israel. Any transfer of the know-how that was developed with the funding of the Authority, outside of Israel, requires prior approval of
the Authority, and the payment of a redemption fee.
• 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).
• Certain reporting obligations. We, as any recipient of a grant or a benefit under the Innovation Law, are required to file reports on the progress of activities for which
the grant was provided as well as on our revenues from know-how and products funded by the Authority. In addition, we are required to notify the Authority of certain events
detailed in the Innovation Law.
Therefore, if aspects of our technologies are deemed to have been developed with OCS funding, the discretionary approval of an OCS committee would be required for
any transfer to third parties outside of Israel of know-how or manufacturing or manufacturing rights related to those aspects of such technologies. We may not receive those
approvals. Furthermore, the OCS may impose certain conditions on any arrangement under which it permits us to transfer technology or development out of Israel.
The transfer of OCS-supported technology or know-how outside of Israel may involve the payment of significant amounts, depending upon the value of the transferred
technology or know-how, the amount of OCS support, the time of completion of the OCS-supported research project and other factors. Furthermore, the consideration
available to our shareholders in a transaction involving the transfer outside of Israel of technology or know-how developed with OCS funding (such as a merger or similar
transaction) may be reduced by any amounts that we are required to pay to the OCS.
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We received grants from the OCS prior to an extensive amendment to the Research Law that came into effect as of January 1, 2016, or the Amendment, which may also
affect the terms of existing grants. The Amendment provides for an interim transition period (which has not yet expired), after which time our grants will be subject to terms of
the Amendment. Under the Research Law, as amended by the Amendment, the Authority is provided with a power to modify the terms of existing grants. Such changes, if
introduced by the Authority in the future, may impact the terms governing our grants.
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.
We are organized in Israel. Most of our officers and most of our directors (as of December 31, 2021) reside outside of the United States, and a majority of our assets are
located outside of the United States. Therefore, a judgment obtained against us or any of our executive officers and directors in the United States, including one based on the
civil liability provisions of the U.S. federal securities laws, may not be collectible in the United States and may not be enforced by an Israeli court. It also may be difficult for
you to effect service of process on these persons in the United States or to assert U.S. securities law claims in original actions instituted in Israel.
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 2022 (through February 18, 2022), our ordinary shares have traded with closing prices that have ranged from $12.07 to $54.37, which low and high prices were each
recorded since the start of 2020, 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:
• the extent of growth of the 3D printing market generally;
• changes in earnings estimates or recommendations by securities analysts;
• development of new competitive systems and services by others;
• success or failure of research and development projects of our company or our competitors;
• developments concerning our or our competitors’ intellectual property rights;
• successes or failures of the acquisitions or dispositions that we consummate, as perceived by financial or industry analysts;
• the general tendency towards volatility in the market prices of shares of technology companies; and
• 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.
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Raising additional capital by issuing securities or issuing securities pursuant to acquisitions of other companies or technologies may cause dilution to our
shareholders, and may furthermore be difficult under certain market conditions.
We may need or desire to raise substantial capital in the future. Our future capital requirements will depend on many factors, including, among others:
• 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, and Xaar in
November 2021) and other strategic relationships;
• our degree of success in capturing a larger portion of additive manufacturing demand;
• the costs of establishing or acquiring sales, marketing and distribution capabilities for our products;
• the costs of preparing, filing and prosecuting patent applications, maintaining and enforcing our issued patents and defending intellectual property-related claims; and
• the costs of financing unanticipated working capital requirements and responding to competitive pressures.
If we raise funds or pay for acquisitions of other entities by issuing equity or convertible debt securities, it will reduce the percentage ownership of our then-existing
shareholders, and the holders of such new securities may have rights, preferences or privileges senior to those possessed by our then-existing shareholders.
The market price for our ordinary shares, which had declined significantly from its all-time high in periods following the Stratasys, Inc.- Objet Ltd. merger until reaching
new lows in the middle part and late part of 2020 (through November 2020), has recovered strongly over the last few months. Should our share price decline once again,
however, that would adversely impact our ability to raise funds in the capital markets or to utilize our securities as payment in an acquisition transaction.
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.
We intend to retain all available funds and any future earnings to fund the development and growth of ourbusiness. As a result, capital appreciation, if any, of our
ordinary shares will be investors’ sole source of a return on their investment for the foreseeable future.
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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).
In general, the payment of dividends may also be subject to Israeli withholding taxes. In addition, because we receive certain benefits under the Israeli law relating to
“Approved Enterprise” and “Beneficiary Enterprise”, our payment of dividends (out of tax-exempt income) may subject us to certain Israeli taxes to which we would not
otherwise be subject. See “Risks related to our operations in Israel—The government tax benefits that we currently receive require us to meet several conditions and may be
terminated or reduced in the future, which would increase our costs.”
We are a foreign private issuer under the rules and regulations of the SEC and are therefore exempt from a number of rules under the Exchange Act and are
permitted to file less information with the SEC than a domestic U.S. reporting company, which will reduce the level and amount of disclosure that you receive.
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.
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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, 2021 (the last business day of our second fiscal quarter
of 2021). 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, 2022, we would be
required to file periodic reports and financial statements on a periodic basis (including both an annual report in respect of 2021 and quarterly reports in respect of each of the
quarters of 2022) 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 2021, we cannot assure you that the IRS will agree with that conclusion or that we will not become a PFIC in 2022 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”.
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ITEM 4. INFORMATION ON THE COMPANY.
A. History and Development of the Company
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Our legal and commercial name is Stratasys Ltd., and we are the product of the 2012 merger of two leading additive manufacturing companies, Stratasys, Inc. and Objet
Ltd. Stratasys, Inc. was incorporated in Delaware in 1989, and Objet Ltd. was incorporated in Israel in 1998. As part of that merger transaction, the ordinary shares of
Stratasys Ltd. were listed on the Nasdaq Global Select Market under the trading symbol “SSYS”. We have acquired a number of companies since that time, including:
Cooperation Technology Corporation, or MakerBot, a leader in desktop 3D printing, which owned and operated Thingiverse.com, a website dedicated to the sharing of user-
created digital design files (in August 2013); and Solid Concepts and Harvest Technologies, two leading providers of additive manufacturing services (in July 2014 and
August 2014, respectively). Following those last two acquisitions, in 2015, we introduced our branded Stratasys Direct Manufacturing, or SDM, service, which significantly
broadened and increased our production and offering of AM parts, which are used by our customers as prototypes, benchmarks and end-use parts. In December, 2020, we
acquired 3D printing start-up, Origin Inc., or Origin, and
engine for our company. The acquisition was aimed at fortifying our leadership in polymers and production applications of 3D printing in industries such as dental, medical,
tooling, and select industrial, defense, and consumer goods markets. In February 2021, we acquired UK-based RP Support Ltd., or RPS, a provider of industrial
stereolithography 3D printers and solutions. RPS’ complementary technology further expands our polymer suite of solutions across the product life cycle, from concept
modeling to manufacturing. In April 2021, we introduced the Stratasys H350 3D printer, the first system powered by the powder-based SAF™ technology of Xaar 3D Ltd., or
Xaar, and in November 2021, we acquired all remaining shares of Xaar from Xaar plc (we previously owned a 45% share in Xaar), thereby accelerating our growth in
production-scale 3D printing.
Programmable PhotoPolymerization technology, which we expect to be an important growth
its proprietary
P3
We have dual headquarters. Our registered office and one of our two principal places of business is located at 1 Holtzman Street, Science Park, P.O. Box 2496, Rehovot
76124, Israel, and our telephone number at that office is (+972)-74-745-4314. Our other principal place of business is located at 7665 Commerce Way, Eden Prairie,
Minnesota, and our telephone number there is (952) 937-3000. Our agent in the United States is Richard Garrity, President of our Delaware subsidiary, Stratasys, Inc., whose
address is c/o Stratasys, Inc. at the address of our Eden Prairie, Minnesota headquarters. Our web address is www.stratasys.com. The information contained on that website (or
on our other websites, including stratasysdirect.com and makerbot.com) is not a part of this annual report. As an Israeli company, we operate under the provisions of the
Companies Law.
In 2021, 2020 and 2019, our capital expenditures amounted to$26.8 million, $29.0 million and $25.2 million, respectively, of which $25.0 million, $26.9 million and
$22.5 million, respectively, was principally related to the purchase and construction of property, plant and equipment.
During 2021 and 2020, 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 $11.1 million and $19.8 million during 2021 and 2020, respectively,
also houses research and development facilities. As of December 31, 2021, we had invested an aggregate of $118.9 million in our new facility in Israel and its related
equipment.
During 2021, 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.
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B. Business overview
We are a global leader in connected, polymer-based 3D printing solutions, which we provide at every stage of the product life cycle, with multiple technologies and
complete solutions for superior application fit, across design, manufacturing and healthcare. We focus, in particular, on polymer 3D printing solutions that address the fastest-
growing manufacturing solutions, which we view as the biggest potential growth opportunity in the 3D printing industry. Leveraging distinct competitive advantages that
include a broad set of best-in-class 3D printing platforms, software, materials and technology partner ecosystems, innovative leadership, and a global GTM infrastructure, we
are positioned to further expand our leadership position in this significant and growing global marketplace.
Our approximately 1,700 granted and pending additive technology patents to date have been used to create models, prototypes, manufacturing tools, and production parts
for a multitude of industries including aerospace, automotive, transportation, healthcare, consumer products, dental, medical, and education. Our products and comprehensive
solutions improve product quality, development time, cost, time-to-market and patient care. Our additive manufacturing ecosystem of solutions and expertise includes
materials, software, expert services, and on-demand parts production. By the end of 2021, we estimate that we derivedover 29% of our revenues from manufacturing
solutions.
Our acquisition, which closed in December 2020, of Origin, a provider of photopolymer solutions for production-oriented applications, expanded our leadership through
innovation in the fast-growing mass production parts segment by providing us with a next-generation photopolymer platform. Origin’s pioneering approach to additive
manufacturing of end-use parts will enable us to serve a large market with manufacturing-grade 3D printers, utilizing P3 ™ Programmable PhotoPolymerization technology.
This technology precisely controls light, heat, and force, among other variables, to produce parts with exceptional accuracy and consistency and enables a broad range of
chemistry which turns into unique production grade properties.
Our acquisition of RPS, which closed in February 2021, enables us to leverage RPS’ industry-leading go-to-market infrastructure to offer their Neo® line of systems to the
global market with an expanded set of applications. RPS’ Neo line of 3D printers feature dynamic laser beam technology that enables build accuracy, feature detail, and low
variability across the full extent of a large build platform. As an open resin system, the Neo products provide customers materials with a wide range of properties such as
chemical resistance, heat tolerance, flexibility, durability, and optical clarity, and can produce large parts up to 800 x 800 x 600 mm, providing a significant build area in a
small footprint.
Our acquisition, in November 2021, of the remaining outstanding shares of Xaar that we had not already owned (we had held a 45% stake in Xaar) was aimed at
accelerating our growth in production-scale 3D printing. In April 2021, we had introduced the Stratasys H350™ 3D printer, the first system powered by Xaar’s powder-based
SAF™ technology. Representing the culmination of more than 10 years of research and development, SAF-based 3D printers are designed to deliver cost-competitive parts at
production-level throughput. H Series™ Production Platform printers such as the H350 are designed to deliver part quality, consistency, and reliability that ensures customer
satisfaction and high production yield. Using SAF technology, the printers execute key 3D printing steps in the same direction across the print bed to provide a uniform
thermal experience – and therefore part consistency – for all printed parts regardless of their placement in the build, representing a significant improvement over traditional
powder-bed fusion processes.
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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:
• visualize and communicate product ideas and designs;
• verify the form, fit and function of prototypes;
• manufacture tools, jigs, fixtures, casts and injection molds used in the process of manufacturing end-products;
• manufacture customized and short-to-medium-run end-products more efficiently, with greater agility, and more sustainably; and
• produce objects that could not otherwise be manufactured through subtractive manufacturing methodologies.
Our goal is to be the first choice for polymer 3D printing. Given our significant experience and proven operating history, we have many competitive advantages including:
● Broadest offering of innovative technologies. We offer five different 3D printing technology platforms more than any other vendor in the industry, each of which
have been optimized for specific industry applications. They are complemented by a technology-agnostic software platform, with an extensive and rapidly expanding
ecosystem of software solutions and software partners for workflow and connectivity.
● Expansive materials ecosystem. To ensure maximum performance and quality, we provide a robust range of advanced materials and filaments in three distinct tiers,
including: (i) Stratasys Preferred, which are engineered by us or our third-party material partners exclusively to provide the best combination of material and printer
performance; (ii) Stratasys Validated, which are validated by us with basic reliability testing to accelerate the expansion of material options available in the
marketplace; and (iii) Open: Unvalidated materials accessed via an open material license, which may offer unique attributes and the potential to address new
applications but have not received validation testing or optimization relative to performance and functionality on a Stratasys printer.
● Deep application engineering expertise. We believe we have the most industry application engineers in the world who provide our deep quality and process
certification expertise for tier-1 manufacturing OEMs. This is essential for meeting the rigorous demands of industries like aerospace, where there are over 300,000
Stratasys parts already flying around the world today, or healthcare, where we support multiple materials for biocompatible applications. We have multi-industry
experience with multiple 3D printing technologies serving the aerospace, automotive, dental, consumer, education, and medical industries.
● Unparalleled market access. We believe our network of over 200 channel partners is the strongest and most experienced in the industry, covering every region and
every major market. This network of resellers worldwide is exclusive to us and our technologies, and has been built over many years, making it unable to be quickly
and easily duplicated. This channel network has focused primarily on selling and servicing our FDM and PolyJet solutions since the merger of Stratasys and Objet in
2012, and starting in 2021, included the Origin P3
medical, dental, consumer goods, automotive, commercial goods, and service bureaus.
, SAF, and Neo stereolithography technologies, which dramatically expand the total addressable market across
● Marquis customer base. Many of the world’s leading companies across aerospace, technology, automotive, consumer, energy, and healthcare are our strategic
partners. These include: General Motors, whose new multi-million-dollar additive manufacturing facility in Michigan features Stratasys systems from low to high end;
TE Connectivity, which is now using Origin One 3D printers to produce end use parts for aerospace connectivity; Airbus, which recently extended Stratasys’ contract
to include several more aircraft platforms as well as spare parts production; and the U.S. Navy, which signed a $20 million contract with Stratasys in 2021 for systems,
materials, support and training for multiple locations around the world.
● Software/Digital manufacturing connectivity. Through our GrabCAD Additive Manufacturing Platform, we have created a smart and connected software ecosystem
to enable additive manufacturing at scale across the digital thread, from design through production. Our SDKs integrate with many different software partner solutions,
allowing customers to turn data into intelligence by collecting important information that can be used to improve productivity. This level of integration expands the
capabilities of 3D printers. In addition, many of our 3D printing systems are software-upgradable.
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We benefit from recurring revenues from the sale of resin and plastic consumables and related services. We provide products and services to our global customer base
throughout our offices in North America and internationally, including: Baden-Baden, Germany; Shanghai, China; and Tokyo, Japan, as well as through our worldwide
network of over 200 channel partners and resellers who are exclusive to us and our additive manufacturing technologies. Additionally, through our MakerBot subsidiary, we
deploy an online sales channel. We have over 2,000 employees worldwide, including what we believe is one of the largest additive manufacturing service bureaus in the
United States.
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.
3D printing addresses many of the inherent limitations of traditional modeling technologies through its combination of functionality, quality, ease of use, speed and cost.
3D printing can be significantly more efficient and effective than traditional model-making techniques for use across the design process, from concept modeling and design
review and validation, to fit and function prototyping, pattern making and tooling, to direct manufacturing of repeatable, cost-effective parts, short-run parts and customized
end products. Introducing 3D modeling earlier in the design process to evaluate fit, form and function can result in faster time-to-market and lower product development costs,
while keeping intellectual property in-house. As the 3D printing industry is maturing, its role in a product’s lifecycle is further expanding, specifically into manufacturing
solutions that follow the initial modeling and prototyping stages of the product lifecycle. This evolution opens a substantially larger total addressable market for additive
manufacturing solutions.
For short and medium-run manufacturing, 3D printers eliminate the need for complex manufacturing set-ups and reduce the cost and lead-time associated with
conventional tooling. Direct digital manufacturing, or DDM, involves the use of 3D production systems for the direct manufacture of parts that are subsequently incorporated
into the user’s end product or manufacturing process. DDM is particularly attractive in applications that require shorter-run or lower-volume parts or rapid turn-around, and
for which tooling would not be appropriate due to small volumes.
Increasingly, attention is being paid to the potential sustainability benefits of additive manufacturing as well. By producing parts on-site and at scale, carbon emissions
associated with transportation and delivery can be reduced. Additive manufacturing also reduces waste because the right number of products are created at the right time. One
study has suggested that additive manufacturing could reduce industrial energy use by 2050. Light-weighting parts through additively designed polymer components save
airlines fuel. – about 14,000 gallons of fule per year per plane for every pound eliminated.
New technologies,
such as ur P and SAF technologies, which are beginning to significantly increase the volumes at which additive manufacturing is competitively
o
3
advantageous – up to tens of thousands and beyond in some cases. DDM also enables the production of objects that have been topologically designed, or designed on the basis
of a computerized determination of where to place the key components of the object and how to connect them, a process that is generally unavailable using conventional
subtractive manufacturing methodologies.
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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 3D printing
will continue to increase in the future, in terms of design applications and more importantly manufacturing 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 3D printing market by bringing intuitive, design-to-3D print solutions to the market. We
also believe that the increasing adoption of 3D printing in manufacturing processes serves as an important source of growth in the 3D printing industry.
Stratasys solutions
Range of solutions
We provide integrated solutions throughout a product’s lifecycle for designers, engineers, manufacturers, and medical professionals, including compatible products and
services designed for our customers’ use to effectively solve their specific application needs. Our solutions consist of 3D printing systems, consumables, software, paid parts,
and professional services and encompass everything from prototyping and design all the way through mass production.
Our solutions allow our end-users to print 3D models and parts that enhance their ability to visualize, verify and communicate product designs, thereby improving the
design, development and validation processes and reducing time-to-market. Our systems create visual aids for concept modeling and functional prototyping to test fit, form
and function, permitting rapid evaluation of product designs. Using presentation models developed with our systems, designers and engineers can typically conduct design
reviews and identify potential design flaws earlier in the process and make improvements before incurring significant costs due to re-tooling and rework, allowing them to
optimize a design much more rapidly and cost-effectively.
Our systems aid in the communication of ideas otherwise communicated in abstract or 2D media. For example, physicians use visually and/or biomechanically accurate
3D printed Stratasys models to plan surgical procedures. A model produced with our systems may be used as a sales tool, as a model or part display, or simply for use in
conducting a focus group. It may also be used for accelerated collaboration in product design and manufacturing cycles at multiple locations, enabling visualization and tactile
response, which can be critical to product development or sales process.
Our solutions also empower end-users to quickly and efficiently deploy parts to incorporate into theirmanufacturing process and improve its effectiveness while at the
same time lowering costs. For instance, our solutions enable the production of manufacturing aids and tools such as jigs, fixtures, casts and injection molds aiding in the
production and assembly process. These solutions are often faster to produce than through traditional methods, and frequently cost less. Materials like nylon carbon fiber
enable these printed products to be both exceptionally strong and lightweight.
Additive manufacturing of end-use-parts, using our solutions, is a growing focus of our offerings to customers, and is attractive in applications requiring fast, short-run or
low-mid-volume parts where tooling would not be cost-efficient. Our solutions enable the production of objects that generally could not otherwise be manufactured through
subtractive manufacturing methodologies.
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In addition, our solutions enable doctors to train and plan medical procedures based on medical models, created by our printers, as well as create surgical guides to support
complex surgeries. In the dental space, our Polyjet and P solutions enable dental labs to create dental and orthodontic, patient specific models and guides for various
applications, based on digital dentistry workflow.
3
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;
• ease of use; and
• automatic, hands-free support removal and minimal post processing.
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Range of technologies and differentiating factors
Our solutions are driven by our proprietary technologies, which we have both developed organically and acquired over time through targeted acquisitions. We hold
approximately 1,700 patents and pending patents internationally, and our 3D printing systems utilize our patented extrusion-based FDM®,i nkjet-based PolyJet™, powder-
bed-based SAF™, photopolymer-based 3 P , and stereolithography technologies to enable the production of prototypes, tools used for production, and manufactured goods
directly from 3D CAD files or other 3D content. We believe that our broad range of product and service offerings is a function of our 3D printing technology leadership.
FDM. A key attribute of our FDM® 3D printing technology is its ability to use a variety of production grade thermoplastic materials featuring surface resolution,
chemical and heat resistance, color, and mechanical properties necessary for production of functional prototypes and parts for a variety of industries with specific demands
and requirements. Use of these materials also enables the production of highly durable end parts and objects with soluble cores for the manufacture of hollow parts, the
manufacture of which were previously dependent on slower and more expensive subtractive manufacturing technologies.
We believe this technology is differentiated by factors making it appropriate for 3D printing and additive manufacturing, including:
• ability to se FDM®
u
systems in an office environment due to the absence of hazardous emissions;
• low post-production processing requirements;
• minimal material waste;
• build repeatability;
• ease of use, with minimal system set-up requirements;
• absence of costly replacement lasers and laser parts; and
• a high degree of precision and reliability.
PolyJet. We believe that our inkjet-based 3D printing technology is differentiated from other competing technologies in its ability to scale and deliver high-resolution and
multi-material, full-color 3D printing, down to the voxel level, in an office environment system. Our easy-to-use, PolyJet™ 3D printers create high-resolution, smooth surface
finish models with the look, feel and functionality of the final designed product. We offer a wide variety of office-friendly resin consumables, including rigid and flexible
(rubber-like) materials and materials for medical applications that simulate the biomechanical properties of human tissue. Using our PolyJet digital materials technology, our
solutions offer unique quality 3D printing systems depositing multiple materials simultaneously. This enables users, in a single build process, to print parts and assemblies
made of multiple materials—each retaining its distinct mechanical and physical properties. For example, users can print objects with both rigid and flexible portions in a
single build or mix different base colors in order to achieve desired color tone. The PolyJet technology enables on-demand mixing of a variety of resins to create a broad range
of pre-defined digital materials, which are composite materials with modified physical or mechanical and color properties. In 2019, we began offering ‘Pantone® Validated’
colors, allowing us to now support more than 500,000 color and texture combinations, including the industry’s clearest material, nearly as clear as glass, with a wide range of
color and texture combinations, which is a key differentiating attribute of our 3D printers.
Stereolithography. Our stereolithography technology enables the production of high-quality, durable parts that meet the requirements of a wide range of applications, as
well as additive manufacturing prototypes and tools. Industrial stereolithography systems are well-established in the 3D printing industry for applications such as large
prototypes, tooling, investment casting patterns, and orthodontic clear aligner molds. They provide quality surface finish, large build sizes, a fast time to print, and an
affordable cost per part. We believe that the Neo line of systems we acquired via RPS is superior relative to other solutions currently available due to an open choice of resins,
low service requirements, and reliable and accurate builds with simple day-to-day operation. With access to our strong global channels, we believe we can bring these benefits
to many more manufacturing organizations.
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P3. Our P3 resin-based 3D printing technology, which we added to our solutions portfolio through our acquisition of Origin,p rovides a best-in-class combination of detail,
mechanical properties and throughput for mass production parts. We believe we have the strongest materials portfolio in the category – including everything from aerospace-
and Covestro. The P platform is software-based and cloud-connected
grade flame-resistant materials to biocompatible materials from leading companies like BASF, Henkel
so we can easily optimize our platform for our customers, including cloud-based upgrades.
3
SAF. SAF Selective Absorption Fusion technology was developed via our joint venture with Xaar plc, Xaar 3D Ltd., which we acquired in 2021.SAF is an industrial-
grade additive manufacturing technology designed to deliver production-level throughput for end-use parts. Representing the culmination of more than 10 years of research
and development, SAF-based 3D printers can deliver a competitive cost per part with the part quality, consistency, and reliability that ensures satisfaction and high production
yield. The SAF technology uses a counter-rotating roller to coat powder bed layers onto a print bed and prints absorber fluid to image the part layers. The imaged layers are
fused by passing an infrared lamp over the entire span of the print bed. SAF technology executes these key process steps in the same direction across the print bed to provide a
uniform thermal experience – and therefore part consistency – for all printed parts regardless of their placement in the build. H Series™ 3D printers using SAF use materials
by leading third party materials providers, including PA11, which is derived from sustainable castor oil.
We believe that the range of 3D printing consumable materials that we offer, consisting of over 60 FDM spool-based filament materials, 45 PolyJet cartridge-based resin
materials, 158 non-color digital materials, and over 500,000 color variations, is the widest in the industry, in addition to the broad set of materials we offer through our
materials ecosystem.
Our competitive strengths
We believe that the following are our key competitive strengths:
• Differentiated product offerings with superior model 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 spans the entire spectrum from entry-level desktop printers to high-
end solutions for complex manufacturing operations.
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 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.
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.
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Our P -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,
principles ,whereby liquid photopolymer resin is cured with light. Our Origin One offering 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.
tooling, and select industrial, defense, and consumer good segments. The P technology is an advancement on DPL
3
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.
• 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:
• 3D printers;
• materials;
• GrabCAD Print software;
• professional services;
• parts on demand;
• vertical applications;
• partnerships and alliances; and
• 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 and 3D inkjet-based PolyJet 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.
• 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 is expected to enhance our DDM offering
suite. This unit offers a wide array of underlying printing technologies and materials. Furthermore, Stratasys Direct Manufacturing 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. We believe this offering creates better customer
intimacy and a competitive advantage for Stratasys.
Diverse, global customer base. We have a broad customer base, ranging from global market leading brands to small businesses and professionals and individuals.
Our end-users include companies across a wide range of industries and applications, including automotive, aerospace, architecture, consumer products, educational
institutions, defense, medical analysis, medical systems, electronics, and heavy equipment.
• 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. As a result of organizational changes we made in 2018, Stratasys Direct Manufacturing is now directly under 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. This has also favorably shifted the mix of production parts sold by Stratasys Direct Manufacturing
towards more profitable additive manufacturing parts in place of conventional parts.
• 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.
• Leading position in desktop 3D printing. Our MakerBot performance and desktop categories of 3D printers provide accessible desktop 3D printers and materials and
leading content creation and sharing solutions. We believe the desktop 3D printing category is poised for future growth driven by the broader adoption of 3D printing and
an increase the in number of applications where 3D printing is used. We believe our installed base, brand awareness and portfolio of solutions in this category positions
us to capitalize on the continued growth of this category.
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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. In addition, through our MakerBot
subsidiary we deploy an online sales channel.
• Increased accessibility and ease of use for customers. Our GrabCAD Additive Manufacturing software platform enables 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) reducing
time and errors in job planning and resulting in high quality printed parts. Additionally, our advanced scheduling, remote monitoring and analytics provide visibility to
managers and operators across our technologies. GrabCAD Shop provides work order management for organizations that have dedicated operators providing
centralized, 3D Printing services to engineers and designers. GrabCAD SDK provides two-way integration for a variety of third party software applications, dramatically
extending the value of our platform GrabCAD Community is the online community of over 6 million professional engineers, designers, manufacturers and students who
share best practices via tutorials, discussion forums, design/print challenges and 3D content.
Our growth strategy
We are focused on polymers, which we view as the biggest potential profit pool in the industry. Our solutions deliver value to every touchpoint across the product
lifecycle. The key elements of our strategy for growth include the following:
• 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.
• 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.
• 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.
• 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 10% of our revenues.
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• Having a growing software partner ecosystem. We offer Industry 4.0-ready systems that include API integration to leading manufacturing software solutions. This
network of software partners means our customers get more value from their investment in Stratasys, making it easier to add more systems and use them more
intensively. It also helps us to enhance our own technological offerings while at the same time receive real-time feedback on those offerings. For example, our GrabCAD
Community, which fosters collaboration among engineers and designers and helps them to communicate ideas and share designs, enhances the likelihood that we can
draw from these new collaborations and enhance awareness, and, as a result, generate 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.
Collectively, this portfolio of products offers a broad range of performance options for our customers, depending on their application, the nature and size of the designs,
prototypes, and/or final parts desired. Our products are available at a variety of different price points and include entry-level desktop 3D printers, a range of systems for RP,
and large production systems for additive manufacturing. We also offer a range of 3D printing materials (as described under “Consumable materials” below). The
performance of our different systems varies in terms of capabilities, which are related to the following features:
• print speed;
• resolution;
• materials;
• resin cartridge capacity / filament spool size;
• maximum model (or tray) size;
• repeatability; and
• duty cycle, or the number of parts that a printer can produce over a given period of time without requiring maintenance.
Our systems are integrated with our software and are supported by services provided to our customers, both directly and through our reseller channel.
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Printing systems
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We offer a series of printing systems suitable for RP, from design validation, visualization and communication to form, fit and functional performance testing. These
systems are targeted at work groups and provide customers with a broad range of features such as printing capacity, production speed and price.
Our 3D printing systems, which are based on our proprietary FDM, PolyJet 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.
Our J55 3D Printer makes that same fast, full-color design realism accessible to designers and teams everywhere in an office-friendly format and smaller footprint. At
about a third the price of J8 Series printers, the J55 including high fidelity and five simultaneously printer materials enabling nearly 500,000 colors or a variety of materials
providing tactile, textual, and sensory capabilities. We also introduced a complementary J35™ Pro 3D printer in 2021, which is an all-in-one, multi material desktop 3D
printer for designers and engineers needing up to three materials.
Both J8 Series 3D printers and the J55 printer support KeyShot 3D rendering software, enabling designers to save KeyShot designs directly in the new 3MF format and
produce 3D printed models in a single day, when traditional modeling can take one-to-three weeks.
The J55 3D printer is also now available in two industry-specific versions, the J5 DentaJet™ and the J5 MediJet™. The J5 DentaJet is the industry’s 3D printer able to
accommodate mixed trays of dental parts. The J5 MediJet is designed to produce anatomic visual models and drilling and cutting guides that are sterilizable and
biocompatible.
The Stratasys J850 Digital Anatomy™ printer helps medical device companies optimize design throughout the product lifecycle. It 3D prints with GelMatrix™ resin,
TissueMatrix™ resin and BoneMatrix™ resin — three new materials which, when combined, form over 100 new, unique digital materials to suit anatomical applications.
These materials, when used for 3D printing, produce medical models and anatomies that achieve a true-to-life feel and response. This includes both soft tissues, including
organs and blood vessels as small as 1mm in diameter, as well as porous bone structures, fibrotic tissues, and ligaments.
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FDM printers
The F123 Series printers enable end-to-end rapid prototyping for every stage of the prototyping process, as well as preparation of jigs and fixtures. The prototypes that can
be created include: rapid, economically effective concept verification models in PLA material and fast-draft mode and advanced design validation prototypes using a 0.005-
inch slice resolution and soluble support for unmatched precision, repeatability and aesthetics. The F123 Series product line allows users to create parts in PLA, ABS plus,
ASA, TPU, ABS-ESD, Diran and PC-ABS materials. These materials can produce parts with the strength required for true form, fit and functional testing. The F123 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 2020 we added a large
format 3D printer to the family, the F770. This 3D printer provide a meter-long build platform and 13 cubic-foot build volume for large prototypes, tools and end use parts
with the same easy-to-use interface of the other members of the F123 family.
We also offer printing systems typically used for Additive Manufacturing— production tooling and end parts applications— and high-performance Prototyping
applications. The Stratasys Fortus 380mc and 450mc build high-performance parts in customary materials, but with advanced complexity and other requirements needed for
current-day manufacturers. These systems are run via easy-to-use interfaces and software controls, making them user-friendly in producing complex parts more efficiently.
When a job demands exclusive production of high-strength parts for tough applications, the Fortus 450mc Carbon Fiber Edition may be used. It produces functional
prototypes, production parts and parts used for rugged tooling, based on the strength and stiffness of carbon-filled composite material used with that printing system.
The Stratasys F900 offers a streamlined workflow and easier job-monitoring with an internal camera and GrabCAD Print software. Standard certifications are included,
eliminating the effort and cost to qualify the 3D printer for the user's production floor. Additionally, we announced the Aircraft Interiors Solution in 2018, which allows a
faster, simpler path for certifying additively manufactured parts for aircraft installation, and the Rail Industry Solution in 2019 to provide the same benefits for end-use parts
on trains.
Our MakerBot Replicator series represents our desktop 3D printers, compact 3D printers, and connected 3D printers. Our desktop and compact 3D printers are affordable,
and designed for easy, desktop use. They are typically used by educational institutions and designed for individuals operating alone or within an enterprise. Our Method™
series of performance printers is aimed at bridging the gap between industrial and desktop systems, providing industrial level of reliability and precision combined with
accessibility and ease of use found in desktop systems. The Method printers are built for the professional individual user. The METHOD Carbon Fiber Edition and METHOD
X Carbon Fiber Edition are manufacturing workstations with a heated chamber, capable of printing composite materials such as Nylon Carbon Fiber. MakerBot Nylon
Carbon Fiber is compatible with Stratasys SR-30 soluble support material, has a heat deflection temperature of 100C greater, tensile strength 155% stronger than MakerBot
real ABS. The MakerBot LABS Experimental Extruder allows customers to print third-party materials on the METHOD platform, including abrasive composite materials
with carbon fiber and glass fillings. We also provide PC-ABS, PC-ABS FR, Nylon 12 Carbon fiber along with Labs materials fromBASF Forward AM, Polymaker, Kimya,
MCPP and Jabil Additive, bringing the total number of released materials for the METHOD platform to 24.
Stereolithography printers
Our Neo® line of industrial stereolithography 3D printers feature dynamic laser beam technology that enables build accuracy, feature detail, and low variability across the
full extent of a large build platform. As an open resin system, the Neo products provide customers materials with a wide range of properties, such as chemical resistance, heat
tolerance, flexibility, durability, and optical clarity, as well as low service requirements, reliability and accurate builds. All Neo systems are Industry 4.0-ready with
Titanium™ control software that includes a camera, network connectivity, support remote diagnostics, and mid-build parameter customization. The printers can automatically
email progress reports on the job. The Neo line of printers provides a significant build area in a small footprint, with simple day-to-day operation. The largest printer, the
Neo800, features a 31.5 x 31.5 x 23.6 in. build volume. The Neo450s and 450e address customer needs for smaller printers, at 17.72 x 17.72 x 15.75 in. We initiated sales of
this line of systems following our acquisition of RPS in February 2021.
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Origin P3 printers
We completed the acquisition of Origin on the last day of 2020. The Origin One 3D printer, which is expected to be generally available in early 2022 ,uses P3™
(Programmable PhotoPolymerization) technology to precisely control light, heat, and force, among other variables, to produce parts with exceptional accuracy and
consistency. Origin engages with a network of materials partners (like BASF, Henkel and DSM), who work to develop a wide range of commercial-grade materials for this P3
system, resulting in some of the toughest and most resilient materials in additive manufacturing. This addition adds Origin’s software-centric additive manufacturing solution
that offers best-in-class printing technology based on digital light processing for production-oriented polymer applications and accelerates our expansion into mass production
additive manufacturing. In 2021, we also announced a dental-specific version of the Origin One, the Origin One Dental, ideal for printing higher volumes of accurate, single-
material dental parts.
SAF printers
At the end of 2021, we began shipping the first SAF technology-based 3D printer, the H350, in the U.S. and Europe.H Series™ Production Platform printers such as the
H350 are designed to give manufacturers production consistency, a competitive and predictable cost per part, and complete production control for volumes of thousands of
parts. The H350 printer itself was manufactured with a dozen different 3D printed parts made with SAF technology. The printer is designed to meet the needs of customers in
industries such as commercial goods, automotive, and consumer goods and electronics that benefit from the ability to quickly produce large volumes of 3D-printed parts with
compelling and predictable economics. The H350 provides several control features designed to ensure the system is production-ready. All build data is logged for process
traceability and remains fully under the customer’s control. Materials can be controlled, tracked and traced, and print settings can be fine-tuned for each customer’s needs. We
offer customers validated third-party materials, including PA11 and PA12. We announced GrabCAD Print software for the H350 in late 2021.
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
We sell a broad range of 3D printing materials, consisting of over 60 FDM spool-based filament materials, over 45 PolyJet cartridge-based resin materials, 158 non-color
digital materials, and over 500,000 color variations, for use in our 3D printers and production systems. The sale of these materials provides us with a recurring revenue stream
from users of our 3D printers and production systems. In 2021, we announced a new hybrid ecosystem model for our 3D printing materials. The Stratasys Material Ecosystem
is designed to enable manufacturing customers to address new applications with demanding requirements while also having dual sources for materials. The ecosystem
includes:
●
Stratasys Preferred: Preferred by Stratasys for its customers for the highest-performance applications. These materials are engineered specifically for Stratasys printers
to provide the best combination of material and printer performance and are developed either by Stratasys or third-party material partners. All currently available
Stratasys-made materials are Stratasys Preferred.
●
Stratasys Validated: Materials validated by Stratasys with basic reliability testing to accelerate the expansion of material options available in the marketplace.
● Open: Unvalidated materials accessible via an annual Open Material License (OML). These materials may offer unique attributes and the potential to address new
applications but they have not received validation testing or optimization on Stratasys printers.
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We believe this model will help accelerate the move to additive manufacturing at scale and encourage more utilization of its printers. Preferred and Validated materials
are sold through Stratasys channels.
The materials we sell are described below:
FDM materials
The modeling and support filament used in the FDM-based 3D printers and production systems features a wide variety of production grade thermoplastic materials. We
continue to develop filament modeling materials that meet our customers’ needs for increased speed, strength, accuracy, surface resolution, chemical and heat resistance,
color, and mechanical properties. These materials are processed into our proprietary filament form, which is then utilized by our FDM systems. Our spool-based system has
proven to be a significant advantage for our products, because it allows the user to quickly change material by simply mounting the lightweight spool and feeding the desired
filament into the office-friendly FDM devices. Currently, we have a variety of build materials in multiple colors commercially available for use with our FDM technology.
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 a DDM end use part.
Our FDM printing materials are also environmentally friendly, as the packaging in which they are sold is returned to us for reuse after the contents are consumed.
For MakerBot METHOD users, we also provide the MakerBot LABS Experimental Extruder. This extruder turns METHOD into an open materials platform, enabling
users to print with a wide variety of third-party materials on an industrial 3D printing platform. We have been qualifying third-party materials for the extruder, such as Kimya
ABS composite materials by ARMOR and Polymaker polycarbonate materials.
PolyJet materials
Our resin consumables, which consist of our PolyJet family of proprietary acrylic-based photopolymer materials as well as our other inkjet-based systems, enable users to
create highly accurate, finely detailed 3D models and parts for a wide range of prototype development and customized manufacturing applications. The wide variety of resins
within the PolyJet family is characterized by transparent, colored, or opaque visual properties and flexible, rigid or other physical properties. Support materials that are used
together with the model materials enable the 3D printing of models with a wide array of complex geometries. Our resin-based materials are produced in-house and are
specially designed for our printing systems.
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
Our stereolithography materials are primarily from the Covestro Additive Manufacturing SOMOS™ portfolio. The materials can offer a variety of functional prototyping
solutions, by the way of delivering flexible, durable, rigid, high temperature or clear materials, to simulate production-targeted polymers.
Additionally, several materials can be utilized for manufacturing applications, such as jigs and fixtures, investment casting, injection mold or composite tooling
applications.
This range of materials enables us to offer a range of solutions from concept modeling and prototyping, to manufacturing.
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Software
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Software is an integral part of our solutions-based, go-to-market strategy. Built on cloud, desktop and mobile technologies, the GrabCADA dditive Manufacturing
Platform is an open and enterprise-ready software platform that enables manufacturers to manage production-scale additive manufacturing operations. Stratasys’ platform is
specifically designed for the unique needs of additive manufacturing across the entire digital thread – from design through production – while also integrating with Industry
4.0 infrastructure and enterprise applications. As of October 2021, the platform consisted of more than 38,000 application users, 20,000 3D printers, and 3,000 workflow
users. The platform processes 35 gigabytes of data streams per day. Several components are included in the platform:
GrabCAD Print, our job programming software, enables the unique features of our 3D printing technologies such as creating lightweight, structurally sound infills for
FDM, and multi-material and color and material management for PolyJet. The feature set of GrabCAD Print is designed to make the process of creating high-quality, highly
detailed and accurate models accessible to users in Engineering and Design Offices, Enterprise Model Shops, Manufacturing and Health Care markets.
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 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.
The GrabCAD Software Development Kit (SDK) enables companies and Independent Software Vendors (ISVs) to integrate Stratasys 3D printing at production scale with
existing design and manufacturing software applications infrastructure to support enterprise goals such as system connectivity, compliance and workflow automation. The
GrabCAD SDK leverages standard protocols such as MTConnect and provides Application Programming Interfaces (API’s), documentation, sample code and a professional
support network
The GrabCAD Software Partner Program is available to Independent Software Vendors (ISVs) wishing tointegrate into the GrabCAD AM Platform. The GrabCAD
Software Partner Program makes up a robust ecosystem of software partners in Additive Manufacturing powered by Stratasys. Stratasys provides access to GrabCAD SDK—
a complete set of developer tools to support technical integration as well as world class support and joint marketing.
GrabCAD Workbench is a cloud-based project data management solution that enables design teams to work together collaborating on design tasks and managing CAD
files. Capabilities include file version management, 3D view-markup-measure-compare, and backup and restore in a securely managed environment fostering project
workflow efficiency. MakerBot CloudPrint software is designed to provide a seamless 3D printing workflow for MakerBot teams to collaborate around the world. MakerBot
CloudPrint is designed to be both easy to use and provide the scalability of the cloud to provide a more efficient 3D printing workflow management solution.
Our software is available in 9 languages to promote usage in the regions worldwide in which we operate.
Online Community
Thingiverse.com
Thingiverse is our online community for sharing downloadable, digital 3D designs. The Thingiverse platform enables users to share and customize their digital designs.
We believe that Thingiverse is the largest repository of free 3D printable content available to consumers. Thingiverse includes approximately four million public designs
available for downloading.
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GrabCAD Community
We operate the GrabCAD Community for mechanical engineers, designers, manufacturers and students where members can share best practices via tutorials, discussion
forums, and design/print challenges. They can also upload and download free CAD models and access our GrabCAD Print and Workbench software. This community had
more than 8 million members and over 5.1 million CAD files available for free download as of the end of 2021.
Our services
Support services and warranty
Customer support
Our customer support 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:
• Stratasys-certified engineers who provide worldwide, on-site installation, training and support;
• direct support engineers through our company;
• indirect support engineers through certified partners, including third-party service organizations or selected resellers who provide support for our systems;
• phone and direct on-site company support in eight languages, and resellers indirect support in local languages;
• service logistics in key regional centers;
• training facilities and resources in regional centers;
• 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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• free content on YouTube to help self-maintenance and trouble shooting;
• support, tools and up-to-date information to our direct customer and distribution channels from our product support engineering team;
• full range of commercial service programs to support the high utilization of our 3D printers and our customers’ unique needs; and
• 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.
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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
Stratasys Direct Manufacturing is a contract manufacturing service provider of parts on-demand via 3D printing and conventional production processes. With over 30
years of experience, Stratasys Direct Manufacturing provides rapid prototyping and production parts using the broadest set of additive and conventional technologies of any
service bureau in North America and backed by experts ready for the most complex projects. With Stratasys Direct Manufacturing, customers can quickly design, innovate
and meet demands of any complexity or scale by accessing the right expertise, industrial-grade 3D printing technologies, and materials without the capital expense. Stratasys
Direct Manufacturing pioneered additive manufacturing production applications and specializes in guiding customers from concept development and prototyping through
short-run production and long-term manufacturing. Stratasys and Stratasys Direct Manufacturing work together to help Stratasys customers meet their needs with overflow
manufacturing capacity or access to technologies they do not have in-house. Stratasys Direct Manufacturing also operates an ecommerce service for quick-turn parts,
www.stratasysdirect.com, which enables its customers to obtain quotes and order parts around the clock, seven days a week.
Customers
We have a diverse set of customers worldwide, including, among other prominent companies: General Motors; BAE Systems; Boeing; and the Mayo Clinic. No single
customer or group of affiliated customers nor any individual sales agent or group of affiliated sales agents accounted for more than 10% of our sales in 2021, 2020 or 2019.
Our solutions are used across a wide array of applications in a variety of different industries.
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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, 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 use a variety of inbound and outbound marketing methods to reach potential customers. Examples of inbound methods include digital marketing demand and lead
generation programs such as blogs, social media, search marketing (Search Engine Optimization and Pay-Per-Click advertising), lead nurturing with webinars, white papers
and other means. Outbound channel examples include digital and print communication programs, public relations, direct mail and e-mail campaigns, virtual and in-person
tradeshows and roadshows, thought leadership events, newsletters, industry associations and referrals. In addition, we have built and maintain on-site product and technology
demonstration capabilities in certain regional offices across the world.
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
Our sales organization sells, distributes and provides follow-up support services with respect to our AM systems and related consumables, through a worldwide sales and
marketing infrastructure. We generally use three methods for distribution and support: (i) sales to resellers who purchase and resell our products and through whom follow-up
support and maintenance services and replacement parts are provided to end-users; (ii) sales of systems that are arranged by a network of independent sales representatives
worldwide, pursuant to which we sell directly to end-users, pay commissions to such representatives, and directly handle the sale of consumables and provision of follow-up
support services; and (iii) direct sales of systems or services to end-users without the involvement of any intermediaries, for which all aspects of our sales and follow-up
services are handled exclusively by our company. In certain instances, the same individual or company can serve as a reseller with respect to certain of our products while
acting as an independent sales agent for other products. Our resellers and independent sales representatives are overseen by regional managers and operate on a non-exclusive
basis, although we believe that most do not sell competing AM systems.
Almost all of the reseller and independent sales representatives locations that distribute our products have our AM systems available for tradeshows, product
demonstrations, and other promotional activities. Additionally, many of them enjoy a long-term presence and offer third-party 3D CAD software packages in their respective
territories, enabling them to cross-sell our systems to customers who purchase those other products.
In addition to our direct and indirect seller network, we also offer our MakerBot Replicator and Method series and related consumables and services through our online
and retail channels.
Geographical structure of sales organization
The primary sales organization for our 3D printers and production systems including related consumables, materials and services is divided into groups based on the
following geographical regions: Americas; Europe and Middle East; and Asia Pacific. This structure allows us to align our sales and marketing resources with our diverse
customer base. Our sales organization in each region provides sales support to the network of independent reseller and sales agent locations throughout the particular region.
We also operate sales and service centers in various locations throughout North America and internationally, including: Baden-Baden, Germany; Shanghai, China; and Tokyo,
Japan.
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Manufacturing and suppliers
Manufacturing
The manufacturing process for our 3D printing and production FDM and PolyJet systems consists of assembling those systems using both off-the-shelf and customized
components manufactured specifically for us and producing and packaging the consumables products to be used by those systems. Our core competencies include FDM,
PolyJet and Stereolithography, or SL, systems assembly and integration, software installation and resin and filament manufacturing. The majority of those activities are done
internally at our facilities. We currently operate on a build-to-forecast basis and obtain all parts used in the FDM and PolyJet systems manufacturing process from either
distributors of standard electrical or mechanical parts or custom fabricators of our proprietary designs. Our manufacturers and suppliers are periodically assessed by us based
on their on-time performance and quality.
We purchase major component parts for our FDM, PolyJet and SL systems from various suppliers, subcontractors and other sources, and test those parts in our U.S. and
Israeli facilities.
Computer-based Material Requirements Planning, or MRP, is used for reordering to better ensure on-time delivery of parts and raw materials. Operators and assemblers
are trained on assembly and test procedures including Assembly Requirement Documents, which originate in engineering. In the manufacturing processes for our FDM,
PolyJet and SL systems, and for our consumables, we employ a Quality Management System, or QMS, that meets international quality standards including ISO 9001:2008
and ISO 13485:2003, in the case of medical devices. We also outsource the manufacturing of main subassemblies up to fully assembled systems ready for integration.
The system assembly process for our FDM, PolyJet and SL systems includes semi-automated functional tests of key subassemblies. Key functional characteristics are
verified through these tests, and the results are stored in a statistical database.
Upon completion of the assembly of our 3D printing and production FDM, PolyJet and SL systems, we perform a complete power up and final quality tests to help ensure
the quality of those products before shipment to customers. The final quality tests must be run error-free before the FDM, PolyJet and SL systems can be cleared for shipment.
We maintain a history log of all FDM, PolyJet and SL products that shows revision level configuration and a complete history during the manufacturing and test process. All
identified issues on the FDM, PolyJet and SL systems during the manufacturing process are logged, tracked and used to make continuous production process improvements.
The commonality of designs among our different FDM, PolyJet and SL product families eases the transition to manufacturing new designs.
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.
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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.
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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, 3 P ,
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.
We invest a significant amount of our resources in R&D, because we believe that superior technology is a key to maintaining a leading market position. Our net R&D
expenses were approximately $88.3 million, $84.0 million and $94.3 million in the years ended December 31,2021, 2020 and 2019, respectively. Our consumable materials
development and production operations for our FDM and PolyJet systems are located at our facilities in Eden Prairie, MN, Rehovot, Israel, and Kiryat Gat, Israel. We regard
the consumable materials formulation and manufacturing process as a trade secret and hold patent claims related to these products. We purchase and formulate raw materials
for our consumables production from various polymer resin and thermoplastic materials suppliers with different levels of processing and value-add applied to the raw
materials.
Intellectual property
We consider our proprietary technology to be important to the development, manufacture, and sale of our products and seek to protect such technology through a
combination of patents, trade secrets, and confidentiality agreements and other contractual arrangements with our employees, consultants, customers and others. All patents
and patent applications for additive manufacturing processes and apparatuses associated with our technology were assigned to us by those inventors. The principal granted
patents relate to our FDM systems, our PolyJet technologies, our 3D printing processes and our consumables, certain of which have already expired and certain of which have
expiration dates ranging from 2022 to 2039.
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.
In addition, we own certain registered trademarks and make use of a number of additional registered and unregistered trademarks, including “Stratasys,” the Stratasys
Signet logo, “Objet,” “PolyJet,” “Connex,” ”J8 Series,” “J850,” “J826,” “J750,” “J700,” “J5,” “J35,” “J55”, ” Vero,” “VeroFlex,” “VeroUltra,” “VeroVivid,” “Tango,”
“Durus,” “Rigur,” “Elastico,” “FDM,” “Fortus,” “F123 Series,” “F370,” “F900,” “F770,” “Insight,” “Antero,” “Diran,” “Origin,” “P3,” “Stratasys Direct Manufacturing,”
“Stratasys Direct,” “GrabCAD,” “GrabCAD Print,” “GrabCAD Shop,” “GrabCAD Community,” “GrabCAD Workbench,” “MakerBot,” “Method,” “Method X,” “Sketch,”
“Thingiverse,” “Replicator,” “RapidRinse,” “Digital Anatomy,” “TissueMatrix,” “GelMatrix,” “BoneMatrix,” “Neo,” “H350,” “SAF,”
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.”
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Competition
Our principal competitors consist of other developers of additive manufacturing systems as well as other companies that use fused deposition modeling or inkjet-based or
vat polymerization or digital light processing (DLP) or power bed fusion technologies to compete in additive manufacturing.
The companies that use these technologies to compete with us include, inter alia, 3D Systems Corporation, EOS GmbH, HP, Carbon, Inc., Markforged, Inc. and Desktop
Metal (following their acquisition of EnvisionTEC).
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.
For our desktop systems and materials, we face competition from a variety of sources, including companies using material extrusion and vat polymerization systems, such
as Markforged, Ultimaker, XYZ Printing and Formlabs. The competing offerings in the lower-end categories vary based on cost, printer and part quality, support materials,
speed, ease of use, software ecosystem and reliability.
We are positioned to compete in our industry mainly on the following bases, which we view as competitive strengths:
• 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;
• multiple production-grade modeling materials;
• our offering of the best multi-color, multi-material 3D printing systems in the market;
• reliability and repeatability of our printing systems;
• ease of use, including of one-step automated modeling process.
• automatic, hands-free support removal;
• high level of customer service; and
• 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.
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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.
The COVID-19 pandemic has shifted our seasonality. In 2020, the second, third and fourth quarters reflected similar levels of demand for our products.
We furthermore 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
We have offices in, among other locations, Brazil, China, Germany, Hong Kong, Israel, Japan, Korea, India, Mexico, the United Kingdom and the United States, and
organize our operations by geographic region, focusing upon the following key regions: the Americas; Europe and Asia Pacific. Our products are distributed in each of these
regions, as well as in other parts of the world. Our customers are dispersed geographically, and we are not reliant on any single country or region for most of our product sales
and services revenues, although 66% of our 2020 revenues were generated in the Americas and our SDM printed parts services are primarily based in the United States and
therefore reliant on United States customers. A breakdown of our consolidated revenues by geographic markets and by categories of operations (that is, products and services)
for the years ended December 31, 2021, 2020 and 2019 is provided in “Item 5.A Operating and Financial Review and Prospects—Operating Results.” In maintaining global
operations, our business is exposed to risks inherent in such operations, including currency fluctuations, market conditions, and inflation in the primary locations in which our
operating expenditures are incurred. Information on currency exchange risk, market risk, and inflationary risk appears elsewhere in this annual report in “Item 3.D Risk
Factors” and in “Item 11. Quantitative and Qualitative Disclosure About Market Risk—Foreign Currency Exchange Risk.”
Employees
The total number of our full-time equivalent employees, and the distribution of our employees (i) geographically and (ii) within the divisions of our company, in each case
as of December 31, 2021, 2020 and 2019, are set forth in this annual report in “Item 6.D Directors, Senior Management and Employees—Employees”.
Government regulation
We are subject to various local, state and federal laws, regulations and agencies that affect businesses generally. These include:
• regulations promulgated by federal and state environmental and health agencies;
• foreign environmental regulations, as described under “Environmental, Social and Governance Matters” immediately below;
• the federal Occupational Safety and Health Administration;
• the U.S. Foreign Corrupt Practices Act;
• laws pertaining to the hiring, treatment, safety and discharge of employees;
• export control regulations for U.S. made products;
• Israeli tax regulations, as described under “Israeli Tax Considerations and Government Programs” below;and
• CE regulations for the European market.
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Environmental, Social and Governance Matters
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Stratasys is Spearheading Sustainability for the Additive Manufacturing Industry
Our dedication to strategic Environmental, Social and Governance (ESG) activity is a cornerstone of our purpose: to empower people to create without limits for an
economic, personalized and sustainable world.
In 2021, Stratasys, with broad input from both employees and customers and the support of our board of directors, prioritized four UN Sustainable Development Goals
for the Company:
1- Responsible consumption and production
2-
Industry infrastructure and innovation
3- Climate action
4- Quality education
We are advancing our efforts through the concept of what we have coined as ”Mindful Manufacturing.” This means driving global growth in manufacturing through 3D
printing in a way that contributes to a positive social and environmental impact. In particular, 3D printing is uniquely positioned to address pressing climate issues - localizing
supply chains to reduce the carbon footprint incurred by air and sea freight, enabling the production of strong but lighter weight parts, and reducing the energy requirements
of the production process itself. We will be launching several internal and external activities around the four UN SDGs to advance this Mindful Manufacturing mission.
Environmental
Mindful Manufacturing is a call to action. As a global leader in polymer additive manufacturing solutions, with the broadest portfolio in the industry, Stratasys is focused
on making an impact, across industries. Our efforts in this arena are two-fold:
(i) We target an improved circular economy. This entails advancing the digital processes that support our additive technologies, for manufacturing. We focus on
improved reliability, for less physical iterations; we support digital inventories that can be printed on-demand; our systems utilize a naturally sourced printing material (PA
11); we look to improve the way in which natural resources are employed in our printing processes – energy and water; and, we offer recycling options as well.
(ii) We aim to harness our expertise to drive innovation. This means expanding our roadmap to include products that enable the production of parts that have a reduced
carbon footprint. Imagine cars running with durable 3D printed parts that weigh 30% less than before and provide the same reliability at the same level of quality.
Manufacturing is resource-intensive by nature. It is important to note, however, that 3D printing works in a manner that is far more environmentally friendly than
alternative, traditional production methods. Working with industry leaders in aerospace, automotive, healthcare and consumer production companies, Stratasys has the ability
to help our customers reduce carbon footprints for entire markets. We will base our work on data and research and plan on publishing ‘Life Cycle Analysis’ reports to make
the scientific case for greener manufacturing. To this end, we have become a founding member of the Additive Manufacturer Green Trade Association (AMGTA), which
promotes the environmental case for the entire 3D printing industry.
Right now, Stratasys has just begun its sustainability journey. We are focused on Scope 1 – collecting data on our operations and internal consumption to improve
activity across our global sites. This includes installing solar panels and beginning to generate renewable energy, for example. We are setting our initial baseline, not only
because regulation and compliance require, but because we believe this is a more meaningful way for our business to make an impact; it is our corporate responsibility to
create a world where future generations can thrive.
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Environmental Compliance
We are subject to various environmental, health and safety laws, regulations and permitting requirements, including (but not limited to) those governing the emission and
discharge of hazardous materials into ground, air or water; noise emissions; the generation, storage, use, management and disposal of hazardous and other waste; the import,
export and registration of chemicals; the cleanup of contaminated sites; and the health and safety of our employees. Based on information currently available to us, we do not
expect environmental costs and contingencies to have a material adverse effect on our operations. The operation of our facilities, however, entails risks in these areas.
Significant expenditures could be required in the future to comply with environmental or health and safety laws, regulations or requirements. Certain of these compliance
requirements are imposed by our customers, who at times require us to be registered with U.S. health or safety regulatory agencies, whether on the federal or state level.
Under environmental laws and regulations, we are required to obtain environmental permits from governmental authorities for certain operations. In particular, in Israel,
where we assemble our inkjet-based PolyJet 3D printing systems and manufacture our resin consumables, businesses storing or using certain hazardous materials, including
materials necessary for our Israeli manufacturing process, are required, pursuant to the Israeli Dangerous Substances Law 5753-1993, to obtain a toxin permit from the
Ministry of Environmental Protection. Our two Israeli toxin permits will remain in effect until February 2023 and June 2023, respectively, for each site.
In the European marketplace, amongst others, electrical and electronic equipment is required to comply with the Directive on Waste Electrical and Electronic Equipment
of the European Union (EU), which aims to prevent waste by encouraging reuse and recycling, and the EU Directive on Restriction of Use of Certain Hazardous Substances,
which restricts the use of various hazardous substances in electrical and electronic products. Our products and certain components of such products “put on the market” in the
EU (whether or not manufactured in the EU) are subject to these directives. Additionally, we are required to comply with certain laws, regulations and directives, including
TSCA in the United States, as well as REACH, RoHS and CLP in the EU, governing chemicals. These and similar laws and regulations require, amongst others, the
registration, evaluation, authorization and labeling of certain chemicals that we use and ship.
Social
Per our defined SDG’s, the Stratasys Sustainability commitment extends beyond environmental sustainability. For example, we are proud of our ”People First” approach
to business. We put environmental health and safety, or EHS, as a top priority, securing the health and safety of our employees, through clear policies and annual training. For
years we have been active members in our local communities, with meaningful Corporate Social Responsibility (CSR) activity around the world. For example, we support
food security in the US and leverage our technologies to advance next generation tech and robotics enthusiasts via our long-term partnership with FIRST Robotics. We
launched our Diversity Equity and Inclusion program in 2021 and are a proud sponsor of Technology, Industry, People, Economics (TIPE) Women in 3D Printing. We
continue to advance an inclusion program to address internal opportunities across all human resource touch points (hiring, learning and development) and have had substantial
representation on our board of directors for women (20%) since well before it became a requirement.
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Governance
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ESG, is strongly rooted in the structure of corporate management and disclosure. This is a foundation for our ethical global operations, as the 3D printing company
with the largest install base among industry-leading companies. We have a long-standing Code of Ethics and have also extended our culture and values to our suppliers via a
suppliers’ code of conduct. We are required to report financial data as a public company, yet we extend beyond the minimum obligation and provide more comprehensive
quarterly analysis of our results for the market, allowing us to better engage with the broader investment community. We conduct quarterly internal updates for employees and
team leaders at our company to share business updates openly and share ongoing developments with our global teams. We strive for clarity, engagement and care. It is our
goal to deliver on our purpose, in everything we do: We live as a corporate body by our values: Innovate; Be Customer First; Aim Higher; Own It; and Make it Together.
Israeli Tax Considerations and Government Programs
Tax regulations also have a material impact on our business, particularly in Israel where we are organized and have one of our headquarters. The following is a summary
of certain aspects of the current tax structure applicable to companies in Israel, with special reference to its effect on us (and our operations, in particular). The following also
contains a discussion of the Israeli government programs benefiting us. 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 tax authorities or the courts will accept the views expressed in this discussion. This discussion does not address all
of the Israeli tax provisions that may be relevant to our Company. For a discussion of the Israeli tax consequences related to ownership of our capital stock, please see “Israeli
Taxation Considerations” in Item 10.E below.
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.
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The Investment Law has been amended several times over the recent years, with the three most significant changes effective as of April 1, 2005, to which we refer as the
2005 Amendment, as of January 1, 2011, to which we refer as the 2011 Amendment, and as of January 1, 2017, to which we refer as the 2017 Amendment. Pursuant to the
2005 Amendment, tax benefits granted in accordance with the provisions of the Investment Law prior to its revision by the 2005 Amendment, remain in force, but any benefits
granted subsequently are subject to the provisions of the amended Investment Law. Similarly, the 2011 Amendment introduced new benefits instead of the benefits granted in
accordance with the provisions of the Investment Law prior to the 2011 Amendment, yet companies entitled to benefits under the Investment Law as in effect up to January 1,
2011, were entitled to choose to continue to enjoy such benefits, provided that certain conditions are met, or elect instead, irrevocably, to forego such benefits and elect for the
benefits of the 2011 Amendment. The 2017 Amendment introduces new benefits for Technological Enterprises, alongside the existing tax benefits.
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
Over 25% but less than 49%
49% or more but less than 74%
74% or more but less than 90%
90% or more
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Corporate
Tax Rate
up to 25%
20%
15%
10%
A company that has elected to participate in the alternative benefits program and that subsequently pays a dividend out of the income derived from the portion of its
facilities that have been granted Approved Enterprise status during the tax exemption period will be subject to tax in respect of the amount of dividend distributed (grossed up
to reflect such pre-tax income that it would have had to earn in order to distribute the dividend) at the corporate tax rate that would have been otherwise applicable if such
income had not been tax-exempted under the alternative benefits program. This rate generally ranges from 10% to 25%, depending on the level of foreign investment in the
company in each year, as explained above.
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.
We have received the requisite approval, including a final approval, for our Approved Enterprise investment programs, in accordance with the Investment Law. The
above-described benefits that accompany these investment programs and our Beneficiary Enterprise investment programs (for which accompanying benefits are described
below) have had the effect, both historically and in 2019, 2020 and 2021, of reducing our (and before the Stratasys, Inc.- Objet Ltd. merger, Objet’s) effective consolidated tax
rates considerably lower than the statutory Israeli corporate tax rate, which for 2018 and onwards has been set at 23%.
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.
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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.
Furthermore, a company qualifying for tax benefits under the 2005 Amendment, which pays a dividend out of income attributed to its Beneficiary Enterprise during the
tax exemption period, will be subject to tax in respect of the amount of the dividend distributed (grossed-up to reflect the pre-tax income that it would have had to earn in
order to distribute the dividend) at the corporate tax rate which would have otherwise beeIsrael 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 4n applicable.
As of December 31, 2021, we had accumulated tax-exempt income of approximately $198.7 million that is attributable to our various Approved and Beneficiary
Enterprise programs. If such tax exempt income were to be distributed, it would be taxed at the reduced corporate tax rate applicable to such income, which would have
amounted to approximately $19.9 million of tax liability as of December 31, 2021.
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Following recent changes in the law, certain transactions will be treated as deemed dividend distributions for the purpose of the Encouragement Law triggering corporate
tax on the respective amount of the transaction. See also Tax benefits under 2021Amendments
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 noticed 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.
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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.
New 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 National Authority for Technological
Innovation (previously known as the Israeli Office of the Chief Scientist), to which we refer as 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 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.
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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%.
In 2021, the Company noticed the Israeli tax authorities that it waived the Approved / Beneficiary Enterprise regime starting from tax year 2021. The Company is
currently considering its qualification for the 2017 amendment and the term and degree to which it may be qualified as a Preferred Technology Enterprise or Special Preferred
Technology Enterprise.
Tax benefits under 2021 Amendments
On November 15, 2021, the Investment Law was amended to provide, on a temporary basis, a reduced corporate income tax on the distribution or release within a year
from such amendment of tax-exempt profits derived by Approved and Benefited Enterprises, which we refer to as Exempt Profits. The amount of the reduced tax will be
determined based on a formula. In order to qualify for the reduction, the Company must invest certain amounts in productive assets and research and development in Israel. In
parallel to the temporary amendment, the law was also amended to reduce the ability of companies to retain the tax-exempt profits. Effective August 15, 2021, dividend
distributions will be treated as if made on a pro-rata basis from all types of earnings, including Exempt Profits.
Following recent Israeli court ruling, certain transactions (such as acquisitions and intercompany loans) may be treated as deemed dividend distributions for the purpose of
the Encouragement Law triggering corporate tax on the respective amount of the transaction.
C. Organizational Structure.
Our corporate structure includes Stratasys Ltd., our Israeli parent company, and the following main active wholly-owned subsidiary entities:
• Stratasys, Inc., a Delaware corporation, which was formerly a publicly held company and which became our indirect, wholly-owned subsidiary as a result of the
Stratasys, Inc.- Objet Ltd. merger. Following our acquisition of Origin in December 2020, Stratasys, Inc. now has offices and warehouses in San Francisco, California;
• Baccio Corporation (formerly known as Cooperation Technology Corporation), to which we refer as MakerBot, a Delaware corporation which is the direct parent
company of MakerBot Industries, LLC, which we acquired in August 2013;
• Stratasys Direct, Inc. (our parts service business unit), a California corporation;
• Stratasys AP Limited, a Hong Kong limited company, which together with several other subsidiaries (including Stratasys Japan Co. Ltd., our Japanese subsidiary, and
Stratasys Shanghai Ltd., our Chinese subsidiary), carries out most of our operations in the Asia Pacific region;
• Stratasys GMBH, a German limited liability company, which together with other subsidiaries (including Stratasys Schweiz AG (Stratasys Switzerland Ltd.), our Swiss
subsidiary) carries out our European operations; and
• Stratasys Latin America Representacao De Equipamentos Ltd., a Brazilian subsidiary, which has commenced our Brazilian operations.
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, 2021,
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.
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Our new building complex in Rehovot, Israel, which contains two buildings, is situated on a property that we purchased in 2015 and encompasses approximately284,713
square feet. It houses our Israeli headquarters, research and development facilities and certain marketing activities. We entered the first building in January 2017 and the
second building in May 2021.
As of December 31, 2021, 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
Valencia, California
San Diego, California
River Falls, Wisconsin
Belton, Texas
Brooklyn, New York
Austin, Texas
Other facilities in Americas
Europe and the Middle East:
Rehovot, Israel
Kiryat Gat, Israel
Rheinmünster, Germany
Switzerland
United Kingdom
United Kingdom
Other facilities in EMEA
Asia Pacific:
Hong Kong
Japan
China
Other facilities in Asia Pacific
U.S. headquarters
Offices and warehouses
Facilities
Offices; R&D of filaments
Offices and warehouses
Offices and warehouses
Facilities
Office space and warehouses
Israeli headquarters
Factories and warehouses
Europe main office
Office space
Office and lab space
Office space
Sales offices
Asia Pacific main office
Sales office
Sales office
Office space
308,646
55,035
56,383
40,998 (1)
39,680
36,950
33,178
72,263
284,713 (2)
126,617
55,027
183
5,995
7,617
5,933
16,844
13,109
15,018
16,412
(1) We vacated the River Falls, Wisconsin property on January 15, 2022 as part of our Eden Prairie “one roof” initiative.
(2)
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.
ITEM 4A. UNRESOLVED STAFF COMMENTS.
None.
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS.
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and
the related notes included in this annual report. The discussion below contains forward-looking statements that are based upon our current expectations and are subject to
uncertainty and changes in circumstances. Actual results may differ materially from these expectations due to inaccurate assumptions and known or unknown risks and
uncertainties, including those identified in “Cautionary Note Regarding Forward-Looking Statements” and in Item 3.D “Key Information – Risk Factors”, above.
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A. Operating Results.
Overview
We are a global leader in connected, polymer-based 3D printing solutions, across the entire manufacturing value chain. Leveraging distinct competitive advantages that
include a broad set of best-in-class 3D printing platforms, software, a materials and technology partner ecosystem, innovative leadership, and global GTM infrastructure, we
are positioned to capture share in a significant and growing global marketplace, with a focus on manufacturing, which we view as having the largest and fastest growing total
addressable market.
Our approximately 1,700 granted and pending additive technology patents to date have been used to create models, prototypes, manufacturing tools, and production parts
for a multitude of industries including aerospace, automotive, transportation, healthcare, consumer products, dental, medical, and education. Our products and comprehensive
solutions improve product quality, development time, cost, and time-to-market. Our 3D ecosystem of solutions and expertise includes 3D printers, materials, software, expert
services, and on-demand parts production.
A series of recent acquisitions has strengthened our leadership in various facets of our business. Our acquisition, in December 2020, of Origin significantly strengthened
our leadership in mass production for polymer 3D printing. Origin’s pioneering approach to additive manufacturing of end-use parts will enable us to serve a large market
with manufacturing-grade 3D printers, utilizing P3
Programmable PhotoPolymerization. Our acquisition, in the first quarter of 2021, of UK-based RP Support Ltd., or RPS, a
provider of industrial stereolithography 3D printers and solutions, provides us with a complementary technology that further expands our polymer suite of solutions across the
product life cycle. Similarly, our acquisition, in November 2021, of all remaining shares of Xaar 3D Ltd. (XAAR), is expected to accelerate our growth in production-scale
3D printing.
COVID-19 Impact and Business Strategy
Our current outlook, as well as our results of operations for the year ended December 31, 2021, should be evaluated together with the ongoing global COVID-19
pandemic and the complexities that it has presented and continues to present. Our revenues for all of 2021 furthered a positive trend that began in the first quarter of the year,
reflecting growth both on a year-over-year basis and on a sequential quarterly basis. The annual results evidence these improvements on an aggregate basis, with an increase
in revenues by 16.6% compared to 2020, when the COVID-19 pandemic adversely impacted our revenues significantly. Our improved performance in 2021 was primarily
driven by a 15.3% increase in consumables revenues and by a 32.3% increase in system revenues. Our revenues in 2021 have begun to approach pre-COVID-19 levels ($607.2
million in 2021 compared to $636.1 million in 2019), signaling a full recovery for our top-line results.
In 2021, we worked at full-capacity on a global basis, with a high percentage of our employees throughout the world having received vaccines against COVID-19 over
the course of the year.
We continue to monitor the impact of COVID-19, assessing implications for our operations, supply chain, liquidity, cash flow and customer orders, and have been acting
in an effort to mitigate adverse consequences as needed. We ended 2021 with $502.2 million in cash, cash equivalents and short-term deposits, which is significantly greater
than our liquid assets level as of the end of 2020. We believe that we are well suited to continue to manage the COVID-19 pandemic (to the extent that it continues to remain
a significant factor) with a strong balance sheet and no debt, while focusing on cost controls and cash generation. We selectively applied certain R&D cost controls to ensure
that our NPI programs were not affected, and we plan to continue investing as needed in order to support our new product development programs.
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Key measures of our performance
Revenues
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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.
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Costs of revenues
Our costs of revenues consist of costs of products and costs of services. Costs of products consist primarily of components and subassemblies purchased for the
manufacture of our AM systems and raw materials, such as thermoplastic and photopolymer materials, for the manufacture of our consumables, as well as any royalties paid
with respect to sales of certain of those consumables. Costs of products also include manufacturing and manufacturing-related labor costs, indirect production costs and
depreciation, as well as amortization expense which is mainly related to developed technology assets acquired as part of our business combinations.
Our costs of services revenues consist primarily of costs of our service personnel, material and other production costs of our direct manufacturing service business, and
installation costs, which include engineers dedicated to on-site training and support, and travel costs of these engineers. Both costs of products and costs of services include
related facilities costs.
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 61% of our total direct cost of revenues for the year ended December 31, 2021. 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 $22.4 million, $15.6 million and
$16.5 million for the years ended December 31, 2021, 2020 and 2019, 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 2021 and 2019.Refer to Note 8 of our
consolidated financial statements included in Item 18 of this annual report.
For the year ended December 31, 2021, ahypothetical 10% rise in commodity prices for raw materials would have caused an approximate $14.3 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 $7 million increase in costs of revenues in our Consolidated Statements of Operations and Comprehensive loss. During 2021, 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.
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.
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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 2021 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.
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2021 Financial Highlights
Significant highlights of our financial performance in 2021 included:
•
•
Revenues increased by $86.4 million, or 16.6%, compared to 2020. The increase reflects a recovery from COVID-19 as well as revenue from RPS, which we acquired
in early 2021.
Operating expenses decreased by $336.2 million, or 49.8% compared to 2020. The decrease reflects not recording a goodwill impairment charge in 2021 as
compared to recognize a goodwill impairment charge of $386.2 million in 2020. Excluding the change in the goodwill charge, the operating expenses increased by $50
million, or 17.3% compared to 2020, mainly driven by our return to a five-day workweek, post-COVID expenses as the market started opening up, and cost related to our
acquisitions (Origin, RPS and Xaar).
•
Net loss attributable to Stratasys amounted to $62 million or basic and diluted net loss per share of $0.98 in 2021, compared to net loss attributable to Stratasys of
$443.7 million, or basic and diluted net loss per share of $8.08, in 2020, which was mainly due to the non-cash goodwill impairment charge of $386.2 million.
• Total cash and cash equivalents and restricted cash amounted to $243.3 million as of December 31, 2021, a decrease of $28.9million compared to December 31,2020.
The decrease in cash, cash equivalents and restricted cash in 2021 was due to cash used in investing activities of $291.2 million, offset by cash provided by operating
and financing activities of $35.8 million and $227.3 million, respectively. In our investment activities for 2021 we used $25.0 million mainly to purchase property and
equipment, an additional $232.0 million as investments in short-term bank deposits and $20.6 million of net cash for recent acquisitions.
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,
2021, 2020 and 2019, 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, 2021 and
2020. For a discussion and analysis of our results for the year ended December 31, 2019, and a comparison of those results with those of the year ended December 31, 2020,
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, 2020, which we filed with the SEC on March 1, 2021.
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:
Revenues
Cost of revenues
Gross profit
Research and development, net
Selling, general and administrative
Operating loss
Gain from step acquisition
Financial income (expenses), net
Year ended December 31,
2021
2020
100.0%
57.2%
42.8%
14.5%
41.3%
(13.0)%
2.4%
(0.3)%
100.0%
57.9%
42.1%
16.1%
113.5%
(87.6)%
0.0%
(0.1)%
Loss before income taxes
Taxes on income (tax benefit)
Share in profits (losses) of associated companies
Net loss
Net loss attributable to non-controlling interests
Net loss attributable to Stratasys Ltd.
73
(11.0)%
(0.6)%
0.2%
(10.2)%
0.0%
(10.2)%
(87.7)%
(3.1)%
(0.8)%
(85.3)%
(0.1)%
(85.2)%
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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, 2021 and 2020.
Revenues
Our products and services revenues for the last two years, as well as the percentage change from year to year, were as follows:
Products
Services
Year Ended December 31,
2021
2020
U.S. $ in thousands
417,557 $
189,662
607,219 $
339,782
181,035
520,817
$
$
% Change
2021-2020
22.9%
4.8%
16.6%
Our total consolidated revenues in 2021 were $607.2 million, an increase of $86.4 million, or 16.6%, compared to 2020.
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Products Revenues
Revenues derived from products (including systems and consumable materials) increased by $77.8 million , or 22.9%, in 2021 as compared to 2020.
System revenues increased by 32.3% in 2021 as compared to 2020. Consumables revenues increased by 15.3% in 2021 as compared to 2020.
Our 2021 revenue results demonstrates an end-market recovery compared to 2020, which had been fully impacted by the pandemic.
Services Revenues
Services revenues (including SDM, service type warranty and maintenance contracts, spare parts and other services) increased by $8.6 million in 2021, or 4.8%, as
compared to 2020. Within services revenues, customer support revenues, which includes revenues generated mainly by service type warranty and maintenance contracts on
our systems, increased by 5.3%. The results demonstrates than an end-market recovery is well underway compared to 2020 as our customers are increasing their utilization of
our systems.
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,
2021
2020
Americas*
EMEA
Asia Pacific
*Represent the United States, Canada and Latin America
Revenue
amount (U.S.
$ in
thousands)
388,323
130,296
88,600
607,219
$
$
% of overall
revenues
Revenue
amount (U.S.
$ in
thousands)
343,477
101,584
75,756
520,817
63.9% $
21.5%
14.6%
100.0% $
% of overall
revenues
65.9%
19.6%
14.5%
100.0%
Revenues in the Americas region increased by $44.8 million, or 13.1%, to $388.3 million in 2021 compared to $343.5 million in 2020. The increasereflected recovery
from COVID-19 for both product revenue and service revenue.
Revenues in the EMEA region increased by $28.7 million, or 28.3%, to $130.3 million in 2021 compared to $101.6 million in 2020.The increase reflected recovery
from COVID-19 for both product and service revenue as well as revenues from RPS which we acquired in early 2021.
Revenues in the Asia Pacific region increased by $12.8 million, or 17.0%, to $88.6 million in 2021 compared to $75.8 million in 2020.The increase was primarily
driven by higher products revenues and reflected recovery from COVID-19.
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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:
Gross profit attributable to:
Products
Services
Year Ended December 31,
2021
2020
U.S. $ in thousands
Percentage
Change (later
year compared to
earlier)
2021-2020
$
$
206,616
53,462
260,078
$
$
168,547
50,847
219,394
22.6%
5.1%
18.5%
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:
Gross profit as a percentage of revenues from:
Products
Services
Total gross profit
Year Ended December 31,
2020
2021
2021-2020
Change in %
(relative to
earlier year %)
49.5%
28.2%
42.8%
49.6%
28.1%
42.1%
(0.2)%
0.4%
1.7%
Gross profit attributable to products revenues increased by $38.1 million, or 22.6%, to $206.6 million in 2021, as compared to $168.5 million in 2020. Gross profit
attributable to products revenues as a percentage of revenues decreased to 49.5% in 2021, as compared to 49.6% in 2020. Our gross profit from products revenues was
favorably impacted by the mix of revenue sources driven by an increase in sales of hardware and consumables, partially offset by increased global cost pressures that included
both logistics and raw materials and ramp-up production costs for new product introductions, which adversely impacted our profitability.
Gross profit attributable to services revenues increased by $2.6 million, or 5.1%, to $53.5 million in 2021 as compared to $50.8 million in 2020. Gross profit from services
as a percentage of services revenues in 2021 increased to 28.2% as compared to 28.1% in 2020, constituting an insignificant change.
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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,
2021
2020
Change from
earlier to later
year, as a % of
amount in earlier
year
2020-2021
Research and development, net
Selling, general and administrative
Goodwill impairment
Percentage of revenues
$
$
$
U.S. $ in thousands
88,303
250,937
-
339,240
$
55.9%
84,012
205,224
386,154
675,390
129.7%
5.1%
22.3%
(100)%
(49.8)%
Research and development expenses, net, increased by $4.3 million, or 5.1%, in 2021 compared to 2020. Research and development expenses, net, as a percentage of
revenues decreased to 14.5% in 2021 compared to 16.1% in 2020, which was primarily attributable to the growth in revenues in 2021.
Our research and development expenses were impacted by the timing of project spending and product launches based on our portfolio management. We continue to invest
in strategic long-term initiatives that include advancements in our core FDM and Polyjet Technologies and in our new powder-based and photopolymer-based, SAF and P3
technologies, advanced composite materials, software and development of new applications that will enhance our current solutions offerings.
Selling, general and administrative expenses in 2021 increased by $45.7 million, or 22.3%, to $250.9 million, compared to $205.2 million in 2020. The amount of selling,
general and administrative expenses constituted 41.3% of our revenues in 2021, as compared to 39.4% in 2020. The increase in these expenses was driven by the increase in
our operating activities in 2021, our return to a five-day work week, commissions, and travel expenses.
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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
Operating loss
Percentage of revenues
2021
2020
2021-2020
U.S. $ in thousands
$
(79,162)
$
(455,996)
(82.6)%
(13.0)%
(87.6)%
Operating loss for the year ended December 31, 2021 was $79.2 million as compared to an operating loss of $456.0 million for the year ended December 31, 2020. The
decrease in operating loss was primarily attributable to the increase in our gross profit and the absence in 2021 of the large goodwill impairment that we recorded in 2020,
offset, in part, by higher operating expenses in 2021, as discussed above.
Gain from Step Acquisition
On November 1, 2021 we acquired the remaining 55% share of XAAR, for an aggregate consideration of $29.3 million(we previously owned a 45% share in Xaar). The
transaction was accounted for as 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.
Financial Income (Expenses), net
Financial expenses, net, which were primarily comprised of foreign currencies effects, interest income and interest expense, amounted to $2.1 million for the year ended
December 31, 2021, compared to financial expenses, net, of $0.6 million for the year ended December 31, 2020.
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Income Taxes
78
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:
Loss before income taxes
Income tax expense (benefit)
As a percent of loss before income taxes
Year Ended December 31,
2021
2020
U.S. $ in thousands
$
$
(66,837)
(3,906)
(5.8)%
$
$
(456,571)
(16,394)
(3.6)%
2021-2020
Change as a % of
amount in 2020
(85.4)%
(76.2)%
We had an effective tax rate of 5.8% for the year ended December 31, 2021 as compared to an effective tax rate of 3.6% for the year ended December 31, 2020. Our
effective tax rate in 2021 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) release of uncertain tax position due to settlement of tax audits. Our effective tax rate in 2020 was primarily impacted by: (i) the goodwill impairment charge, which
is not deductible for tax purpose; (ii) a partial release of valuation allowance on our U.S tax losses; and (iii) changes in the geographic mix of foreign taxable income and loss.
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
Share in profit (losses) of associated companies reflects our proportionate share of the profits of unconsolidated entities accounted for by using the equity method of
accounting. During 2021, we had net profit of our equity method investments in a total amount of $0.9 million, compared to a loss of $3.9 million in 2020.
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Net Loss and Net Loss Per Share Attributable to Stratasys Ltd.
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,
2021
2020
2021-2020
Change (as a %
of amount in
2020)
Net loss attributable to Stratasys Ltd.
Percentage of revenues
Basic and diluted net loss per share
$
$
U.S. $ in thousands
(61,982)
(10.21)%
(0.98)
$
$
(443,721)
(85.20)%
(8.08)
(86.03)%
(87.87)%
Net loss attributable to Stratasys Ltd. for the year ended December 31, 2021 was $62 million, as compared to $443.7 million for the year ended December 31, 2020. The
decrease in net loss attributable to Stratasys Ltd. was primarily attributable to the absence in 2021 of the large goodwill impairment that we recorded in 2020, and
increased gross profit in 2021, mainly due to the improved conditions surrounding COVID-19 in 2021 relative to 2020, as described above.
Diluted net loss per share for the years ended December 31, 2021 and 2020 was $0.98 and $8.08, respectively. The weighted average, basic and diluted number of shares
outstanding for the year ended December 31, 2021 was 63.5 million, compared to 54.9 million for the year ended December 31, 2020, which increase reflected the
issuance of shares in our follow-on offering that was consummated in March 2021.
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Non-GAAP Financial Measures
80
The following non-GAAP data for the fiscal years ended December 31, 2021 and 2020, 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 the 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
2021
GAAP
Twelve Months Ended December 31,
Non-GAAP
Adjustments
U.S. dollars and shares in thousands (except per share
amounts)
2021
Non-GAAP
Gross profit (1)
Operating loss (1,2)
Net income (loss) attributable to Stratasys Ltd. (1,2,3)
Net loss per diluted share attributable to Stratasys Ltd. (4)
$
$
260,078 $
(79,162)
(61,982)
(0.98) $
30,447 $
77,479
57,639
0.91 $
290,525
(1,683)
(4,343)
(0.07)
(1)Acquired intangible assets amortization expense
Non-cash stock-based compensation expense
Restructuring and other related costs
Impairment charges
(2)Acquired intangible assets amortization expense
Non-cash stock-based compensation expense
Impairment of long-lived assets
Restructuring and other related costs
Revaluation of investments
Contingent consideration
Legal and other expenses
(3)Corresponding tax effect
Equity method related amortization, divestments and impairments
Gain from obtaining control
$
$
22,392
3,093
1,642
3,320
30,447
8,878
27,884
1,447
2,743
(1,303)
570
6,813
47,032
77,479
(864)
(4,576)
(14,400)
57,639
(4)Weighted average number of ordinary shares outstanding- Basic and diluted
63,471
63,471
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2020
GAAP
Twelve Months Ended December 31,
Non-GAAP
Adjustments
U.S. dollars and shares in thousands (except per share
amounts)
2020
Non-GAAP
Gross profit (1)
Operating loss (1,2)
Net income (loss) attributable to Stratasys Ltd. (1,2,3)
Net loss per diluted share attributable to Stratasys Ltd. (4)
$
$
219,394 $
(455,996)
(443,721)
(8.08) $
(1) Acquired intangible assets amortization expense
Non-cash stock-based compensation expense
Restructuring and other related costs
Impairment charges
247,976
(9,148)
(13,901)
(0.25)
28,582 $
446,848
429,820
7.83 $
15,607
1,771
5,948
5,256
28,582
(2) Acquired intangible assets amortization expense
Non-cash stock-based compensation expense
Goodwill impairment
Restructuring and other related costs
Other expenses
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(3)Corresponding tax effect
Release of valuation allowance
Equity method related amortization, divestments and impairments
Adjustments attributable to non-controlling interest
82
8,720
18,433
386,154
4,312
647
418,266
446,848
(3,398)
(14,007)
713
(336)
429,820
$
$
(4)Weighted average number if ordinary shares outstanding- Basic and diluted
54,918
54,918
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84
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. In 2021, the second,
third and fourth quarters reflected similar levels of increase in demand for our products relative to the previous quarter. This basis for quarterly comparisons, in the wake of
COVID-19, thereby supplements our traditional expectations for our results based on specific quarters and seasons within each calendar year.
Our future results will be affected by a number of factors, including our ability to: increase the number of products sold; develop, introduce and deliver new products on a
timely basis; accurately anticipate customer demand patterns; and manage future inventory levels in line with anticipated demand. Our results may also be affected by
competitive factors, the extent to which our cost controls plan succeeds, the availability of working capital, results of litigation, the enforcement of intellectual property rights,
currency exchange rate fluctuations, commodity prices and economic conditions in the geographic areas in which we operate. Macro factors, including global economic
conditions, as impacted by developments such as the rate of infection for the coronavirus in particular regions and on a worldwide basis, and macro factors particular to our
industry, such as the extent of growth of the 3D printing market generally, may also impact our operating results. There can be no assurance that our historical performance in
revenues, gross profit and net income (loss) will improve, or that revenues, gross profit and net income (loss) in any particular quarter will improve, over the results reflected
in preceding quarters, including comparable quarters of previous years. See Item 3.D - “Risk Factors” above.
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.
In 2021, we generated losses mainly from our Israeli parent company and its US subsidiaries, with no tax benefit being recorded for those losses, as the near-term
realization of these assets is uncertain.
As part of the process of preparing our consolidated financial statements, we must estimate our income taxes in each of the jurisdictions in which we operate. This process
involves estimating our actual current tax exposure together with assessing temporary differences resulting from differing treatment of items for tax and accounting purposes.
Actual income taxes could vary from these estimates due to future changes in income tax laws or the results of final tax examinations and reviews.
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.
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B. Liquidity and Capital Resources
A summary of our consolidated statement of cash flows for the last two years is set forth in the below table.While our financial statements included in Item 18 of this
annual report include cash flow data for each of the three years ended December 31, 2021, 2020 and 2019, the discussion contained in this Item 5.B is limited to a comparison
of our liquidity and capital resources— including cash flows— for the years ended December 31, 2021 and 2020. For a discussion of our cash flows for the year ended
December 31, 2019, and a comparison of those cash flows with those for the year ended December 31, 2020, please see “Item 5. Operating and Financial Review and
Prospects—B. Liquidity and Capital Resources” in our Annual Report on Form 20-F for the year ended December 31, 2020, which we filed with the SEC on March 1, 2021.
Net loss
Goodwill impairment
Impairment of other long-lived assets
Depreciation and amortization
Stock-based compensation
Foreign currency transactions gain (loss)
Other non-cash items, net
Change in working capital and other items
Net cash provided by operating activities
Net cash used in investing activities
Net cash provided by 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
Year Ended December 31,
2020
2021
U.S $ in thousands
(61,982) $
-
1,447
56,096
30,977
3,446
(13,736)
19,576
35,824
(291,165)
227,311
(893)
(28,923)
272,216
243,293 $
(444,116)
386,154
6,985
49,560
20,204
(8,718)
1,387
16,346
27,802
(52,625)
228
3,214
(21,381)
293,597
272,216
$
$
Our cash, cash equivalents and restricted cash balances decreased to $243.3 million as of December 31, 2021 as compared to $272.2 million as of December 31, 2020.
The decrease in cash, cash equivalents and restricted cash in 2021 was mainly due to cash flows used in investing activities, mainly for recent acquisitions and long
term investments.
Cash flows from operating activities
Year ended December 31, 2021
We generated $35.8 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 long-lived assets in an aggregate amount of $57.5 million, stock-based compensation of $31
million and foreign currency transactions gains of $3.4 million, 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.
Year ended December 31, 2020
We generated $27.8 million of cash from our operating activities during 2020. Cash generated in operations derived from our net loss of $444.1 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 $442.7 million, and
stock-based compensation of $20.2 million, which were partially offset by foreign currency transactions gains and a movement in deferred income taxes. Changes in working
capital and related items reduced our cash flow from operating activities by $31.8 million; primarily due to proactive steps that we took to increase inventory levels and
accounts receivable.
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Cash flows from investing activities
Year ended December 31, 2021
We used $291.2 million of cash for our investing activities during 2021. We used $32.3 million of cash for recent acquisitions and investment in unconsolidated entities.
An additional $25 million of cash was used to purchase property, equipment and intangibles and $232 million net was invested in short-term bank deposits. Our principal
property and equipment purchases were for our new buildings complex under construction in Rehovot, Israel. The new facility in Rehovot, Israel, contains two buildings,
housing our Israeli headquarters, research and development facilities and certain marketing activities.
Year ended December 31, 2020
We used $52.6 million of cash for our investing activities during 2020. We used $26.9 million to purchase property and equipment. Our principal property and equipment
investments were for our new building complex under construction in Rehovot, Israel. The new facility in Rehovot, Israel, which will contain two buildings, houses our Israeli
headquarters, research and development facilities and certain marketing activities. We entered the first building in January 2017. Other equipment purchases were primarily
targeted at enhancing our manufacturing capabilities to support new solutions offerings. In addition, in 2020, we used $29.1 million of cash for the acquisition of Origin, a
consolidated entity.
Cash flows from financing activities
Year ended December 31, 2021
We generated $227.3 million of cash from financing activities during 2021. The increase from financing activities was primarily due to the follow-on public offering of
shares in a net amount of $218.9 million that we completed in March 2021.
Year ended December 31, 2020
We generated $0.2 million of cash from financing activities during 2020. Cash generated from financing activities was mainly attributable to cash proceeds from the
exercises of stock options.
Capital resources and capital expenditures
Our total current assets amounted to $800.7 million as of December 31, 2021, of which $502.3 million consisted of cash, cash equivalents, short-term deposits and
restricted cash. Total current liabilities amounted to $210.5 million as of December 31, 2021.
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.
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Additional factors potentially impacting capital resources
We are obligated to our suppliers under ordinary course purchase orders in an aggregate amount of approximately $150 million as of December 31, 2021. All of those
obligations will become due over the course of the 2022 year.
We have also committed to make potential future payments to third parties as part of our acquisitions of Origin, RPS 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 $63.7 million.
C. Research and Development, Patents and Licenses, Etc.
For a discussion of our research and development policies, see “Research and Development” and “Regulation— Israeli Tax Considerations and Government Programs –
Law for the Encouragement of Capital Investments” in Item 4.B above and the “Risks related to operations in Israel” in Item 3.D above.
D. Trend Information.
For trend information, see the Risk Factors described in Item 3.D above, the “Overview” and “Operating Results” sections of this Item 5 - “Operating and Financial
Review and Prospects” and Item 4 - “Information on the Company” above.
E. Critical Accounting Estimates
We have prepared our consolidated financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of
America. This has required us to make estimates, judgments, and assumptions that affected the amounts we reported. Note 1 to our consolidated financial statements included
in Item 18 of this annual report contains the significant accounting policies that we used to prepare our consolidated financial statements.
The accounting policies that reflect our more significant estimates, judgments and assumptions and which we believe are the most critical towards fully understanding and
evaluating our reported financial results include:
• Revenue Recognition
• Income taxes
• Inventories
• Intangibles
• Goodwill
• Business combination
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.
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Revenue Recognition
Our contracts with our customers for products sales (AM systems and consumables) are under standard contracts and ship and bill arrangements. The transaction price is
agreed upon in the contract and is primarily fixed in nature with insignificant amounts recognized for rebates programs. We estimate for rebates based on each specific
program and our historical experience and reduce revenue when the sales occur. Revenue from products is recognized upon satisfaction of the performance obligation which
is typically at a point in time when control is transferred to the customer. Usually, control is transferred upon shipment or once delivery and risk of loss has transferred to the
customer depending on the contract terms. generates revenue from various services provided to customers, mainly from service type warranty, time and material services and
direct manufacturing of parts. The transaction price is agreed upon in the contract and can be based on a fixed amount or on a time and material arrangement. 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.
We generates revenue from various services provided to customers, mainly from service type warranty, time and material services and direct manufacturing of parts. The
transaction price is agreed upon in the contract and can be based on a fixed amount or on a time and material arrangement. 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.
We enter into contracts with customers that may include multiple performance obligations with various combinations of products and services which are distinct and
accounted for as separate performance obligations. The transaction price is allocated to each performance obligations on a relative standalone selling price ( "SSP" ) basis. In
most cases, we are able to establish SSP based on the observable prices of services sold separately in comparable circumstances to similar customers and for products based on
our best estimates of the price at which we would have sold the product regularly on a stand-alone basis.
We assess collectability as part of the revenue recognition process. This assessment includes a number of factors such as an evaluation of the creditworthiness of the
customer, past due amounts, past payment history, and current economic conditions. If it is determined that collectability cannot be reasonably assured, we will defer
recognition of revenue until collectability is assured.
Refer to Note 3 - Revenues, as well as Note 1 - Nature of Operations and Summary of Significant Accounting Policies - Revenue Recognition in our consolidated
financial statements included in Item 18 of this annual report - for additional information regarding our revenue recognition policies.
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Income Taxes
89
Our effective tax rate is primarily impacted by the geographical mix of taxable income and loss. We record a tax provision for the anticipated tax consequences of our
reported operating results. The provision for income tax is calculated based on our assumptions as to our entitlement to various benefits under the applicable tax laws and tax
rates in the jurisdictions in which we operate. We are subject to income taxes in Israel, the U.S. and other foreign jurisdictions. A significant portion of our income is taxed in
Israel. We have realized significant tax savings based on the determination that some of our industrial projects have been granted “Approved Enterprise” and “Beneficiary
Enterprise” status, which provides certain benefits, including tax exemptions for undistributed income and reduced tax rates. Income not eligible for Approved Enterprise and
Beneficiary Enterprise benefits is taxed at the regular corporate rates, which were 23% in 2018 and thereafter. We are also a Foreign Investors Company, or FIC, as defined by
the Investment Law. FICs are entitled to further reductions in the tax rate normally applicable to Approved Enterprises and Beneficiary Enterprises, depending on the level of
foreign ownership. In addition, we are an “Industrial Company” as defined by the Israeli Law for the Encouragement of Industry (Taxation), 1969, and, as such, are entitled to
certain tax benefits.
Our entitlement to the above benefits is subject to our fulfilling the conditions stipulated by the Investment Law and regulations. Should we fail to meet such requirements
in the future, income attributable to our Approved Enterprise and Beneficiary Enterprise programs could be subject to the statutory Israeli corporate tax rate and we could be
required to refund a portion of the tax benefits already received with respect to such programs, as adjusted by the Israeli consumer price index and interest, or other monetary
penalty.
In 2021, We have noticed the Israeli tax authorities that we waived the Approved / Beneficiary Enterprise regime starting from tax year 2021. We are currently
considering our qualification for the 2017 amendment and the term and degree to which we may be qualified as a Preferred Technology Enterprise or Special Preferred
Technology Enterprise which provides for reduced tax rate, as further discussed under Item 4 - Israeli Tax Considerations and Government Programs - New Tax benefits
under the 2017 Amendment that became effective on January 1, 2017.
Significant judgment is required in evaluating our uncertain tax positions and determining our provision for income taxes. In evaluating the exposure associated with our
various tax filing positions, we record reserves for uncertain tax positions in accordance with US GAAP, based on the technical support for the positions and our past audit
experience with similar situations. Although we believe our tax positions comply with applicable tax laws and we intend to defend our positions, no assurance can be given
that the final tax outcome of these matters will not be different from that which is reflected in our historical income tax reserves and accruals. We adjust these reserves in light
of changing facts and circumstances, such as the closing of a tax audit or the refinement of an estimate. To the extent that the final tax outcome of these matters is different
than the amounts recorded, such differences will impact the provision for income taxes in the period in which such determination is made. The provision for income taxes
includes the impact of reserve provisions and changes to reserves that are considered appropriate, as well as the related estimated interest and penalties.
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 effective tax rates in effect when the deferred taxes are expected to be settled or realized. Deferred
taxes for each jurisdiction are presented as a net asset or liability, net of any valuation allowances. Significant judgment required in determining any valuation allowance
recorded against deferred tax assets. In assessing the need for a valuation allowance, we considered all available evidence, including past operating results, the most recent
projections for taxable income, and prudent and feasible tax planning strategies. We reassess our valuation allowance periodically and if future evidence allows for a partial or
full release of the valuation allowance, a tax benefit will be recorded accordingly.
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Inventories
Our 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. We assess periodically our inventories for obsolescence and excess balances, or when certain
events or changes in circumstances occur that trigger such assessment. The net realizable value of our inventory is based on certain factors including, but not limited to:
forecasted selling prices and future demand for our products and services, historical sales patterns, technological changes, estimated service period, product end-of-life dates,
alternative uses for the inventory, new products launches and other market conditions as applicable. If required, we reduce the carrying value of our inventories by an amount
equal to the difference between its cost and the net realizable value. Once such inventory is written down, a new lower cost basis for that inventory is established. Our
provisions for inventory write-downs for obsolescence and excess balances requires us to utilize significant judgment. Although we make every effort to ensure the accuracy
of the net realizable value of our inventories, any significant unanticipated deteriorating factor could have a material impact on the carrying value of our inventories and
reported operating results.
Intangibles
Most of our identifiable intangible assets were recognized as part business combinations we have executed in the current and prior periods. Our identifiable intangible
assets are primarily comprised of developed technology, trademarks and trade names, customer relationships and patents.
We review the carrying amounts of our long-lived 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. In evaluating recoverability we
compare the carrying amounts of the asset or assets groups with their respective estimated undiscounted future cash flows. If the asset or assets group are determined to be
impaired, an impairment charge is recorded as the amount by which the carrying amount of the asset or assets group exceed their fair value.
During the year ended December 31, 2021, we did not record any impairment charges related to our definite life intangible assets, compared to $5.3 million recorded
during the year ended December 31, 2020.
In 2021, additional intangible assets of $52.4 million were recognized by us as part of our acquisitions of XAAR and RPS.
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Goodwill
Goodwill reflects the excess of the consideration transferred plus the fair value of any non-controlling interest in the acquiree at the acquisition date over the fair values of
the identifiable net assets acquired. Goodwill is not amortized but rather is tested for impairment annually at the reporting unit level, or whenever events or circumstances
present an indication of impairment. In the third quarter of 2020, we recorded a goodwill impairment charge of $386.2 million. No goodwill impairment was recorded during
the years ended December 31, 2021 and 2019.
Determining the fair value of our reporting units requires significant judgment, including judgments about the appropriate terminal growth rates, weighted average costs of
capital and the amounts and timing of projected future cash flows. Projected future cash flows are based on our most recent budget, forecasts and strategic plans as well as
certain growth rate assumptions. Potential changes in our costs and operating structure, the expected timing of utilization of synergies strategic opportunities, negative effect of
exchange rate differences and overall weakness in the 3D printing marketplace, could negatively impact our near-term cash-flow projections and could trigger a potential
impairment of our goodwill. In addition, failure to execute our strategic plans for our Stratasys-Objet reporting unit could negatively impact the fair value of our Stratasys-
Objet reporting unit, and increase the risk of an additional goodwill impairment in the future. We will continue to monitor the fair value our Stratasys-Objet reporting unit to
determine whether events and changes in circumstances such as further deterioration in the business climate or operating results, further significant decline in our share price,
changes in management’s business strategy or downward changes of our cash flows projections, warrant further interim impairment testing.
In 2021, additional goodwill of $27.1 million was recognized as part of the XAAR and RPS acquisitions. Refer to Note 7 to our audited financial statements included in
Item 18 of this annual report for further information.
Business combination
In accordance with ASC Topic 805, “Business Combination", we allocate the fair value of purchase consideration to the tangible assets acquired, liabilities assumed, and
intangible assets acquired 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. Assessing fair values of intangible assets acquired involves significant judgment about future events and uncertainties and is deeply reliant
on estimates and assumptions. Significant estimates in valuing intangible assets include, but are not limited to, future expected cash flows and discount rate. Contingent
consideration incurred in a business combination is included as part of the consideration transferred and recorded at a probability weighted assessment of their fair value as of
the acquisition date. The fair value of the contingent consideration is re-measured at each reporting period, with any adjustments in fair value recognized in the statement of
operations. The allocation of the consideration transferred in certain cases may be subject to revision based on the final determination of fair values during the measurement
period, which may be up to one year from the acquisition date. The cumulative impact of revisions during the measurement period is recognized in the reporting period in
which the revisions are identified. We include the results of operations of the businesses that it has acquired in our consolidated results prospectively from the respective dates
of acquisition.
On February 16, 2021 we acquired RP Support Limited (“RPS”), a provider of industrial stereolithography 3D printers and solutions. In exchange for 100% of the
outstanding shares of RPS, we paid cash upon closing and we are obligated to make additional payments (in cash), subject to performance-based criteria, via earnout payments
over two years.
On November 1, 2021 we acquired the remaining 55% equity interest of XAAR 3D, for an aggregate consideration of $29.3 million. We paid cash upon closing and we
are obligated to make additional earn-out payments and royalties on products and services sales for up to 15 years. We accounted for the transaction as 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 total purchase price of $53.1 million and a gain
of approximately $14.4 million.
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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
Dov Ofer
S. Scott Crump
John J. McEleney
Ziva Patir
David Reis
Michael Schoellhorn
Yair Seroussi
Adina Shorr
Yoav Zeif
Lilach Payorski *
Age
67
68
59
71
61
56
66
61
55
48
Position
Chairman of the Board of Directors
Director
Director
Director
Director
Director
Director
Director
Chief Executive Officer
Chief Financial Officer
* As previously reported by us, following the filing of this annual report, Ms. Payorski will step down as our Chief Financial Officer and will be succeeded in that role
by Eitan Zamir, currently our Vice President of Finance.
Dov Ofer has served as our Chairman of the Board since May 2020 and as a director since July 2017. While serving as a director (prior to his appointment as our
Chairman), Mr. Ofer served on the oversight committee of the Board, which guided our executive management during an interim period prior to the appointment of our
current, permanent chief executive officer. Mr. Ofer served as the Chief Executive Officer of Lumenis Computerized Systems Ltd. From 2007 to 2013, Mr. Ofer served as
Chief Executive Officer of Lumenis Ltd. (Nasdaq: LMNS), a medical laser device company. From 2005 to 2007, he served as Corporate Vice President and General Manager
of HP Scitex (formerly a subsidiary of Scailex Corporation Ltd. (TASE: SCIX)), a producer of large format printing equipment. From 2002 to 2005, Mr. Ofer served as
President and Chief Executive Officer of Scitex Vision Ltd. Prior to joining Scitex, Mr. Ofer held various managerial positions in the emerging Israeli high-tech sector and
participated in different mergers and acquisitions within the industry. Currently, Mr. Ofer serves as chairman of Hanita Coatings RCA Ltd., chairman of Plastopil Hazorea
Company Ltd. (TASE: PPIL), vice chairman of Scodix Ltd. and director of Kornit Digital Ltd. and Orbix Medical Ltd. He holds a B.A. in Economics from the Hebrew
University in Israel as well as an M.B.A. from the University of California Berkeley in California.
S. Scott Crump has served as our director since November 2021.Mr. Crump previously served as our Chairman of the Executive Committee of the Board and our Chief
Innovation Officer from February 2015 and February 2013, respectively, in each case until May 2020, at which time he was appointed our Chief External Affairs and
Innovation Officer, which he served as through August 2020. Mr. Crump also served from June 2018 through March 2020 on the oversight committee of our Board that
helped to support our interim chief executive officer in the management of our company during an interim period, and our current CEO, Mr. Yoav Zeif, during Mr. Zeif’s
initial period at our company. Since leaving his position as a director on the Board, has served as the technology consultant to the Board. Mr. Crump previously served as
Chairman of the Board of our company from the Stratasys, Inc.- Objet Ltd. merger until February 2015, as Chairman, Chief Executive Officer, President, Treasurer and a
director of Stratasys, Inc. from its inception in 1988 until the Stratasys, Inc.- Objet Ltd. merger, and as Chief Financial Officer of Stratasys from February 1990 to May 1997.
Mr. Crump was, with Lisa H. Crump, his wife, a co-founder of Stratasys, Inc., and he is the inventor of our FDM technology. Mr. Crump holds a B.S. in mechanical
engineering from Washington State University.
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John J. McEleney has served as a director of our Company since the Stratasys, Inc.- Objet Ltd. merger, and, before that, as a director of Stratasys, Inc. from 2007 until the
Stratasys, Inc.- Objet Ltd. merger. He is the co-founder of Onshape Inc., a venture backed start-up company focused on applying modern computing to the 3D product design
market. Prior to Onshape he was the Chief Executive of Cloud Switch, which was acquired by Verizon. He served as a director of SolidWorks Corporation, a wholly owned
subsidiary of Dassault Systemes S.A. (Nasdaq: DASTY), from June 2000 to May 2008, and also served as its Chief Executive Officer from 2001 until June 2007. Mr.
McEleney joined SolidWorks in 1996, serving in several capacities, including Chief Operating Officer and Vice President, Americas Sales. Prior to joining SolidWorks, Mr.
McEleney held several key management positions at CAD software pioneer Computervision and at defense contractor Raytheon. Mr. McEleney also serves as a director of
Newforma, a privately held software company. He holds a B.S. in Mechanical Engineering from the University of Rochester, an M.S. in Manufacturing Engineering from
Boston University and an M.B.A. from Northeastern University.
Ziva Patir has served as our director since June 2013. Ms. Patir serves on the board of directors of ABRA, a public company providing IT services and IT consulting.
She also serves on the board of directors of A. Luzon Real Estate & Finance, an investing and financing real-estate company. Ms. Patir serves as a consultant to governments
on issues of strategy and compliance, risk-based regulatory enforcement activities, standardization and policy. Since 2022, she serves as the Chair of the Board of the HaBima
National Theatre of Israel in Tel Aviv, Israel. Ms. Patir also serves as a member of the board of Lahav at Tel-Aviv University, the leading provider of executive education in
Israel. Ms. Patir served as the Vice President of Standards, Policy and Sustainability for Better Place, an infrastructure electrical vehicles company providing technology
design and service for switchable battery cars, a position that she held from 2008 until May 2013. From 2008 to 2010, she served as Chair of the Board of the Road Safety
Authority (RSA) in Israel. From 1996 to 2008, Ms. Patir held the position of Director General of the Standard Institution of Israel (SII). From 2004 to 2008, Ms. Patir served
as Vice President of the International Organization for Standardization (ISO), the world’s largest developer and publisher of international standards, as well as chair of the
Technical Management Board, leading overall management of ISO technical work. From 1998 to 2000, Ms. Patir was a member of the International Electrotechnical
Commission Council Board. Ms. Patir is a Certified Quality Engineer and holds a B.Sc. in Chemistry from Tel-Aviv University and a M.Sc. in Chemistry/Polymer Science
from the Weizmann Institute of Science.
David Reis has served as our director from June 2013 to the present time. For parts of that period, he served as our Vice Chairman of the Board, as an Executive Director
and as a key member of the oversight committee of the Board, which guided our executive management during an interim period prior to the appointment of our current,
permanent chief executive officer. Since 2017, Mr. Reis serves as Chairman at Enercon Technologies Ltd., Tuttnauer Ltd and Highcon Ltd. He also served as a Director of
Objet from 2003 until the closing of the Stratasys-Objet merger. Mr. Reis served as the Stratasys Chief Executive Officer from March 2009 until June 30, 2016 (and, prior to
the Stratasys-Objet merger, as Objet’s CEO). Previously, he served as Chief Executive Officer and President of NUR Macroprinters Ltd. (NURMF.PK), a wide format printer
manufacturer that was acquired by HP, from February 2006 to March 2008. Prior to joining NUR, Mr. Reis served as the Chief Executive Officer and President of ImageID,
an automatic identification and data capture solution provider, and of Scitex Vision (Nasdaq & TASE: SCIX), a developer and manufacturer of wide-format printers. Mr. Reis
holds a B.A. in Economics and Management from the Technion-Israel Institute of Technology and an M.B.A. from the University of Denver. Reis is also a graduate of the
Harvard Business School Advanced Management Program.
Michael Schoellhorn has served as our director since November 2020. Since February 2019 Mr. Schoellhorn has served as Airbus' (Toulouse, France) Chief Operating
Officer and a member of its Executive Committee. He has been a member of the Supervisory Board of Airbus Operations GmbH, Hamburg since 2019 and was appointed as
its chairman in 2020. Prior to joining Airbus, Mr. Schoellhorn served as Chief Operating Officer and a member of the Management Board at BSH Home Appliances GmbH
(Munich, Germany), a leading manufacturer of home appliances owned by the Robert Bosch Group (Stuttgart,Germany), from January 2015 until 2019. Prior to that, Mr.
Schoellhorn started his career as a management trainee with Bosch in 1999 and held various operational senior management positions in the automotive sector of Robert
Bosch GmbH - in the US, the Czech Republic, and Germany, until he was appointed Executive Vice President for Manufacturing and Quality in 2012. Mr. Schoellhorn
studied at IMD Business School (Lausanne, Switzerland), Tepper School of Business (Pittsburgh, USA), Bosch-Carnegie-Institute (Pittsburgh, USA), and the Robert-Bosch-
Kolleg (Stuttgart, Germany). He holds a degree in Mechanical Engineering and a PhD in Control Engineering, both from the Helmut Schmidt University. Mr. Schoellhorn
served in the German armed forces, as an officer and a helicopter pilot, from 1984 until 1994. He is a member of the presidency of BDLI (the German aerospace industries
association), and of the Baden Baden Entrepreneur Talks, a discussion forum for German business and political leaders.
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Yair Seroussi has served as our director since July 2017. Mr. Seroussi has served as an independent director at DSP Group, Inc. (Nasdaq: DSPG) since February 2002.
He serves as a Member of the Advisory Team at SkyFund, a leading mid-market Israeli private equity fund. He is a member of the Board of Governors of the Hebrew
University, and Chairman of the Eli Hurvitz Strategic Management Institute at the Tel Aviv University. Mr. Seroussi served as chairman of the board of Bank Hapoalim from
2009 through 2016. Mr. Seroussi also served as the president of the Israeli Bank Association for four years. He served as a board member and as chairman of the audit
committee of Bank Hapoalim from 1997 through 2002. Mr. Seroussi was the founder and head or Morgan Stanley Israel for 16 years. He was the founder and chairman of the
Mustang Mezzanine Fund. He served as the chairman of the Investment Committee of Mivtachim, Israel’s largest pension fund, and was a member of various investments
committees of private equity funds. Mr. Seroussi served as a director of Israel Corp and Frutarom Industries. Mr. Seroussi also served for over a decade in Israel’s Ministry of
Finance, where he held several senior positions. Between the years 1988-199, he served as Head of the Office of the Ministry of Finance in the U.S. and Head of the
Commodities Division in NY. In 1991-1992, Mr. Seroussi was a member of the team that created the Yozma Program that initiated the Venture Capital industry in Israel. He
holds a Bachelor’s degree in Economics and Political Science from the Hebrew University.
Adina Shorr has served as our director since having been appointed by the Board in July 2018, and was re-elected by our shareholders at our 2018 annual general
meeting of shareholders. Ms. Shorr has been the Chief Executive Officer of Scodix, a company that provides solutions to commercial printers, since September 2018. Prior to
that time, she served as Chief Executive Officer and Chairman of the Board of Lucidlogix Technologies Ltd. from November 2013 to August 2018. Before that, Ms. Shorr
had served as the Chief Executive Officer of CellGuide Ltd. (which was acquired by Lucidlogix) from October 2009 through October 2013. Ms. Shorr served as the Chief
Executive Officer and President of Objet Ltd. (formerly known as Objet Geometries, Ltd.), one of the two predecessor companies to Stratasys Ltd., for a six-year period
ending in March 2009, and also served as its President. She has extensive experience in leadership and management of technology, systems and solutions stemming from her
over twenty-year career in the high-tech sector, both in the United States and Israel. She served as Corporate Vice President of Leaf Products at Creo Inc. from March 2000 to
March 2003, where she initiated and led in 2000 the establishment of Leaf Products, a start-up for professional digital photography within Creo. Prior to that time, Ms. Shorr
served for nine years at Scitex, four years of which she served as the President of the Scitex Input Division. Beginning in 1991, she worked in the United States for IBM in a
sales support capacity and for Unisys in Program Management and was responsible for the management of the business facets of the Unisys Network Computing Division.
Ms. Shorr has served as a director of Advanced Vision Technology Ltd. since June 2014 and was a director of Objet Geometries Ltd. and then Stratasys Ltd. from May 2012
to June 2013. Ms. Shorr holds an MBA and a BA, both with honors, from Michigan State University in East Lansing, Michigan.
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.
Lilach Payorski has served as our Chief Financial Officer since January 1, 2017. She joined Stratasys Ltd. in January 2013 and thereafter served as our Vice President,
Corporate Finance, until August 2015, and as our Senior Vice President, Corporate Finance, from August 2015 through December 31, 2016. Prior to joining our company,
from December 2009 to December 2012, Ms. Payorski served as Head of Finance at PMC-Sierra, a company operating in the Semiconductors industry, which was
subsequently acquired by Microsemi Corporation. Prior to that time, she served as Compliance Controller at Check Point Software Technologies Ltd. (Nasdaq: CHKP), an IT
security company, from 2005 to 2009, and in a finance leadership role at Wind River Systems (Nasdaq: WIND), a software company, which was subsequently acquired by
Intel Corporation, from 2003 to 2005. Earlier in her career, she served as a CPA with Ernst & Young LLP both in Israel and later in Palo Alto, CA. Ms. Payorski earned a
Bachelor of Arts in Accounting and Economics from the Tel Aviv University.
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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, 2021 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.
All directors and members of senior management as a group (2)
Salaries, Fees, Bonuses
Commissions, and Related
Benefits Paid or Accrued (1)
2,923,460(3)
$
Pension, Retirement and
Other Similar Benefits
Accrued
$
158,824
(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, except that the
total amount of compensation reflected in this table for the year ended December 31,2021 only includes compensation for Mr. S. Scott Crump, since his appointment as
a director in November 2021. In addition, this table includes compensation for Mr. Zeev Holtzman, a former director, for the period for which he served on the board of
directors during 2021 (from the start of 2021 until November 2021).
(3)
This compensation amount for the year ended December 31, 2021 excludes an aggregate of $0.5 million of bonuses that were paid in 2021 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.
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Director Compensation
The following table sets forth the directors’ fees, salary or other compensation (excluding value attributable to RSU grants and stock option grants, and excluding
reimbursement for reasonable expenses incurred in connection with services) that are payable to each of our current directors, as most recently approved by our shareholders
at our November 2021 annual general meeting of shareholders:
Name of Director
Dov Ofer
S. Scott Crump
John J. McEleney
Ziva Patir
David Reis
Michael Schoellhorn
Yair Seroussi
Adina Shorr
Annual Fee/Salary
(1)
200,000(2)
60,000
60,000
60,000
60,000
60,000
60,000
60,000
$
$
$
$
$
$
$
$
Annual Board Committee Retainer
(Chairman Retainer)
-
-
30,000(3)
10,000(4)
-
-
20,000(5)
10,000(6)
$
$
$
$
(1)
The amounts reflected in the “Annual Fee/Salary” column do not include per-meeting fees payable to those directors for whom the above table lists per meeting fees in
the right-hand column of the table. The above table does not include an annual fee of US$2,500 for service on each committee of our board of directors on which any
of the above directors serves (as described under Item 6.C below).
(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 $20,000 for serving as chairman of the compensation committee plus $10,000 for serving on the audit committee.
(4)
(5)
(6)
Constitutes the annual retainer for serving on the compensation committee.
Constitutes the annual retainer for serving as chairman of the audit committee.
Constitutes the annual retainer for serving on the audit committee.
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Director/Officer Equity Compensation
Grants to independent/non-employee directors
At our 2021 annual general meeting of shareholders, our shareholders approved the following annual equity package for each of our independent and/or non-executive
directors, which, as of the present time, includes all current members of the board:
Value of Grants: Annual grants of $140,000 value, consisting of 50% RSUs (with $70,000 value) and 50%options to purchase ordinary shares(with $70,000 value).
Deemed Value of RSUs/options: The number of RSUs to be granted will be determined by dividing $70,000 by the fair market value of a single ordinary share,
determined based on the average of the closing prices of an ordinary share on the trading days during the 30-day period following the annual general meeting at which the
director is elected or re-elected. The number of options to be granted will be determined by dividing $70,000 by the Black-Scholes value of an option to purchase one ordinary
share, as of the date of the annual general meeting of shareholders at which the director is elected or re-elected.
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 directorby our shareholders.
Vesting Schedule: Each of the RSUs and options vest equally on a monthly basis until the earlier of (i) the first anniversary of the grant date, or (ii) the end of the term of
the applicable director at the next annual general meeting of shareholders after the grant date, at which such director’s directorship may be extended or terminated (which we
refer to as the Full Vesting Date), provided that all such RSUs and options shall be fully vested at the Full Vesting Date.
Other Terms: The other terms of the RSUs/ options to purchase ordinary shares granted annually to our non-employee directors shall be in accordance with our then-
effective equity incentive plan (currently, our 2012 Omnibus Equity Incentive Plan). For a description of the terms of our stock option and share incentive plans, see “Share
Ownership - Stock Option and Share Incentive Plans” in Item 6.E below.
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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, 2021,
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)
Yoav Zeif, CEO
Base Salary
688,299
$
$
Variable
Compensation (3)
Benefit and
Perquisites (4)
812,644
$
91,835
Total
Compensation,
Excluding
Equity-Based
Compensation
1,592,777
$
Equity-Based
Compensation (5)
Total
$
1,641,363
$
3,234,140
Richard Garrity, Americas
President
$
310,846
$
244,998
$
43,825
$
599,670
$
610,202
$
1,209,872
Guy Yair, ROW President
$
319,012
$
222,313
$
86,760
$
628,085
$
577,382
$
1,205,467
Omer Kreiger, EVP
Products
$
354,287
$
222,497
$
67,775
$
644,559
$
522,840
$
1,167,398
Nadav Goshen, CEO of
MakerBot
$
319,505
$
192,244
$
313,654
$
825,403
$
316,198
$
1,141,602
(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 2021.
(3) Amounts reported in this column refer to commission, incentive and the maximum contractual bonus payments potentially payable for 2021.
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(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, 2021 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.
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As a result of our election to be exempt from the external director requirement under the Companies Law, each of our directors is elected annually, at our annual general
meeting of shareholders. The vote required for the election of each director is a majority of the voting power represented at the meeting and voting on the election proposal.
Following our 2021 annual general meeting of shareholders that took place in November 2021, the current members of our board consist of the Chairman — Dov Ofer,
S.Scott Crump, John J. McEleney (Chairman of the Compensation Committee), Ziva Patir, David Reis, Michael Schoellhorn, Yair Seroussi (Chairman of the Audit
Committee) and Adina Shorr. For more information, please see “Election of Directors” in Item 10.B (“Memorandum and Articles of Association”) below.
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 theNasdaq 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.
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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 theNasdaq 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.
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Compensation Committee and Compensation Policy
Under a December 2012 amendment to the Companies Law, we have appointed a compensation committee and established a policy regarding the terms of engagement of
office holders, or a compensation policy. Such compensation policy was set by our board, after considering the recommendations of our newly-appointed compensation
committee, and was approved by our shareholders in September 2013. In February 2015 and again in September 2018, following approval by our compensation committee
and board, our shareholders approved an amended and restated version of our compensation policy at an extraordinary general meeting of shareholders and at our 2018
annual general meeting of shareholders (respectively). At our annual shareholders meeting held in November 2020, our compensation policy was amended in respect of the
provisions related to directors’ and officers’ insurance.
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.
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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).
We initially appointed our compensation committee in mid-2013. The committee currently consists of Ziva Patir and John McEleney. John McEleney serves as chairman
of the committee. Our board of directors has determined that each of Mr. McEleney and Ms. Patir, meets the independence requirements set forth in the Listing Rules of the
Nasdaq Stock Market and in Rule 10C-1 under the Exchange Act.
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.
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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.
The role of the internal auditor is to examine, among other things, our compliance with applicable law and orderly business procedures. In February 2021, we appointed
Irena Ben-Yakar, of Deloitte Israel & Co. as our new internal auditor.
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.
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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.
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Disclosure of Personal Interests of Controlling Shareholders
106
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
•
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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
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• 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 2020 annual
general meeting), our D&O insurance is governed by the following guidelines:
(i)
(i)
an aggregate maximum D&O insurance coverage level of $160 million comprised of up to $100 million of ABC (general) D&O insurance coverage and up to $60
million of Side A coverage, and
the payment of premiums and deductibles under each of the Company’s D&O insurance policies (including D&O run-off and public offering insurance) that are
consistent with market terms, and that are not material to our company.
. 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.
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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, 2021, 2020 and 2019 are set forth in the two tables below.
Region
Americas*
Israel
Europe
Asia Pacific
Total
Division
Operations and support
Research and development
Customer service
Sales and marketing
General and administrative
Total
Number of full-time equivalent employees
by region as of December 31,
2020
2021
2019
1,148
477
269
145
2,039
1,182
458
192
149
1,981
Number of full-time equivalent employees
by function as of December 31,
2020
2021
2019
689
358
264
353
375
2,039
696
358
260
295
372
1,981
1,355
538
203
172
2,268
809
392
259
408
400
2,268
* Includes employees in Latin America.
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110
During the years covered by the above tables, we did not employ a significant number of temporary employees.
The increase in the size of our workforce in 2021 was due to our acquisition of new companies as part of our implementation of our growth strategy. The growth was
mainly in Europe, the location of our RPS-RP Support and Stratasys Powder Production teams. The increase in our sales and marketing employees was mainly due to the
revised categorization of some of our positions (mainly application engineers) as within the sales and marketing group.
The decrease in the size of our workforce in 2020 was due to our implementation of areduction in our global workforce as part of a strategic plan to accelerate growth
with a leaner operating model. The resizing affected approximately 10% of Stratasys’ employees, and was designed to reduce operating expenses as part of a cost realignment
program to focus on profitable growth.
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.
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E. Share Ownership.
111
The following table lists, as of February 14, 2022, 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 (including for part of the year) ended December 31, 2021:
Name
Dov Ofer
Chairman of the Board
S. Scott Cru
Director
mp
John J. McEleney
Director
Ziva Patir
Director
David Reis
Director
Michael Schoellhorn
Director
Yair Seroussi
Director
Adina Shorr
Director
Yoav Zeif
Chief Executive Officer
Lilach Payorski
Chief Financial Officer
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Shares of Stratasys(1)
Stratasys stock options and RSUs (2)
Number held(4)
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)
101,027(5)
*
579,487(6)
69,014
75,238
71,656(7)
12,514
45,027
67,869(8)
12,249
*(9)
*
*
*
*
*
*
*
*
*
112
10,000
10,000
37,500
10,000
10,000
3,163
1,864
100,000
100,000
1,582
932
16,500
10,000
10,000
10,000
10,000
10,000
1,582
932
29,582
10,000
10,000
10,000
10,000
3,559
2,097
37,500
10,000
3,559
2,097
10,000
1,582
932
10,000
10,000
10,000
10,000
3,163
1,864
10,000
10,000
10,000
2,768
1,631
26,770
—
—
—
— $
— $
— $
— $
— $
1,582 $
932 $
— $
— $
3,163 $
1,864 $
— $
— $
— $
— $
— $
— $
3,163 $
1,864 $
— $
— $
— $
— $
— $
1,186 $
699 $
— $
— $
1,186 $
699 $
— $
3,163 $
1,864 $
— $
— $
— $
— $
1,582 $
932 $
— $
— $
— $
1,977 $
1,165 $
45,599 $
150,000 $
150,000 $
36,185 $
23.41
21.82
22.28
20.53
19.61
—
—
82.15
19.96
25.03
—
82.15
21.44
23.41
19.59
20.53
19.61
25.03
—
82.15
21.44
23.41
20.53
19.61
25.03
—
22.28
19.61
25.03
—
19.61
25.03
—
23.41
21.82
20.53
19.61
25.03
—
22.47
20.53
19.61
25.03
—
—
16.41
16.41
—
July 18, 2027
September 13,2028
October 4, 2028
December 31, 2029
November 30, 2030
November 23, 2031
November 23, 2031
June 21, 2023
April 6, 2027
November 23, 2031
November 23, 2031
June 21, 2023
June 4, 2026
July 18, 2027
September 13, 2028
December 31, 2029
November 30, 2030
November 23, 2031
November 23, 2031
June 21, 2023
June 4, 2026
July 18, 2027
December 31, 2029
November 30, 2030
November 23, 2031
November 23, 2031
October 4, 2028
November 30, 2030
November 23, 2031
November 23, 2031
November 30, 2030
November 23, 2031
November 23, 2031
July 18, 2027
September 13, 2028
December 31, 2029
November 30, 2030
November 23, 2031
November 23, 2031
October 13, 2028
December 31, 2029
November 30, 2030
November 23, 2031
November 23, 2031
—
February 18, 2030
February 18, 2030
—
*
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)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
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.
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, 2022 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 65,735,372 ordinary shares outstanding at February 14, 2022, 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.
Each stock option is exercisable for one ordinary share, and each RSU represents the right to receive one ordinary share.
Consists of (i) 18,500 ordinary shares that have been issued to Mr. Ofer following the vesting and settlement of RSUs, (ii) 5,027 additional ordinary shares underlying
RSUs that will vest and may be settled within 60 days of February 14, 2022, as well as (iii) an additional 77,500 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, 2022
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) 201,582 ordinary sharesissuable 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) 932 additional ordinary shares
underlying RSUs that will vest and may be settled within 60 days of February 14, 2022.
Consists of (i) 18,500 ordinary shares that have been issued to Mr. Reis following the vesting and settlement of RSUs, (ii) 2,097 additional ordinary shares underlying
RSUs that will vest and may be settled within 60 days of February 14, 2022, as well as (iii) an additional 51,059 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, 2022.
Consists of (i) 33,470 ordinary shares held by Ms. Shorr,(ii) 32,768 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, 2022, and (iii) 1,631 additional ordinary shares underlying RSUs that will vest and may be settled within 60 days of February
14, 2022.
Because Ms. Payorski beneficially owns less than 1% of our outstanding ordinary shares and her 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.
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Stock Option and Share Incentive Plans
The following sets forth certain information with respect to our current stock option and share incentive plan. The following description is only a summary of the plan and
is qualified in its entirety by reference to the full text of the plan, which serves as an exhibit to this annual report.
Upon the expiration of our stock option and share incentive plan, 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
Our 2012 Omnibus Equity Incentive Plan, which became effective at the effective time of the Stratasys, Inc.- Objet Ltd. merger, provides for the grant of options,
restricted shares, restricted share units and other share-based awards to our and our subsidiaries’ respective directors, employees, officers, consultants, and advisors and to any
other person whose services are considered valuable to our company or any of our affiliates. Following the approval of the 2012 Plan by the Israeli tax authorities, we have
only granted options or other equity incentive awards under the 2012 Plan. All previously-granted options and awards under our Amended and Restated 2004 Omnibus Stock
Option and Restricted Stock Incentive Plan have expired. Under the 2012 Plan, there were 2,500,000 ordinary shares originally reserved for issuance, none of which was
granted prior to the effectiveness of the Stratasys, Inc.-Objet Ltd. merger. Upon the adoption of an amendment to the 2012 Plan at our extraordinary general meeting of
shareholders in February 2013, the reserved pool under the plan consisted of 4,000,000 shares, which was to be automatically increased annually on January 1 (beginning on
January 1, 2014) by a number of ordinary shares equal to the lower of (i) 500,000 shares, subject to adjustment due to certain changes as provided under the 2012 Plan, and
(ii) a number of shares determined by our board of directors, if so determined prior to the January 1 on which the increase will occur. Pursuant to that provision, on each of
January 1, 2015, 2016, 2017 and 2018, the pool of shares under the 2012 Plan was automatically increased by 500,000 shares, to 5,000,000 shares, 5,500,000, 6,000,000 and
6,500,000 shares total, respectively. On January 1, 2019, the pool of shares was further increased by an additional 200,000 shares, to 6,700,000, and on January 1, 2020, the
pool of shares was further increased by an additional 500,000 shares to 7,200,000. At our 2020 annual general meetings of shareholders, held in November 2020, our
shareholders approved an increase in the pool by an additional 500,000 shares, to 7,700,000 shares. On January 1, 2021, the pool of shares was further automatically increased
by an additional 500,000 shares, to 8,200,000. At our 2021 annual general meetings of shareholders, held in November 2021, our shareholders approved an increase in the
pool by an additional 1,300,000 shares, to 9,500,000 shares. On January 1, 2022, the pool of shares was further automatically increased by an additional 500,000 shares, to
10,000,000 shares.
The 2012 Plan is administered by our board of directors or by a committee designated by the board, which determines, subject to Israeli law, the grantees of awards and
the terms of the grant, including, exercise prices, vesting schedules, acceleration of vesting and the other matters necessary in the administration of the 2012 Plan. The 2012
Plan enables our company to issue awards under various tax regimes including, without limitation, pursuant to Sections 102 and 3(9) of the Tax Ordinance and Section 422 of
U.S. Internal Revenue Code of 1986, to which we refer as the Code.
Section 102 of the Tax Ordinance allows employees, directors and officers who are not controlling shareholders and are considered Israeli residents to receive favorable
tax treatment for compensation in the form of shares or options. Our Israeli non-employee service providers and controlling shareholders may only be granted options under
Section 3(9) of the Tax Ordinance, which does not provide for similar tax benefits. Section 102 of the Tax Ordinance includes two alternatives for tax treatment involving the
issuance of options or shares to a trustee for the benefit of the grantees and also includes an additional alternative for the issuance of options or shares directly to the grantee.
Section 102(b)(2) of the Tax Ordinance, the most favorable tax treatment for grantees, permits the issuance to a trustee under the “capital gains track.” However, under this
track we will not be allowed to deduct an expense with respect to the issuance of the options or shares. Options granted under the 2012 Plan to U.S. residents may qualify as
“incentive stock options” within the meaning of Section 422 of the Code. The exercise price for “incentive stock options” must not be less than the fair market value on the
date on which an option is granted, or 110% of the fair market value if the option holder holds more than 10% of our share capital.
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Under the 2012 Plan, we are expected to grant options to our employees, directors and officers who are not controlling shareholders and are considered Israeli residents,
under the capital gains track. In order to comply with the terms of the capital gains track, all options granted under the 2012 Plan pursuant and subject to the provisions of
Section 102 of the Tax Ordinance, as well as the ordinary shares to be issued upon exercise of these options and other shares received subsequently following any realization
of rights with respect to such options, such as share dividends and share splits, must be granted to a trustee for the benefit of the relevant employee, director or officer and
should be held by the trustee for at least two years after the date of the grant.
Awards under the 2012 Plan may be granted until September 16, 2022, ten years from the date on which the 2012 Plan was approved by our shareholders.After that time,
no additional grants may be made under the 2012 Plan, but outstanding grants will continue to be governed by the terms of the plan.
Options granted under the 2012 Plan generally vest over four years commencing on the date of grant such that 25% vest after one year and an additional 6.25% vest at the
end of each subsequent three-month period thereafter for 36 months. Options, other than certain incentive share options, that are not exercised within ten years from the grant
date expire, unless otherwise determined by the board or its designated committee, as applicable. Incentive share options granted to a person holding more than 10% of the
combined company’s voting power expire within five years from the date of the grant. In case of termination for reasons of death, disability, or retirement, the grantee or his
legal successor may exercise options that have vested prior to termination within a period of one year from the date of disability or death, or within three months following
retirement. If we terminate a grantee’s employment or service for cause, all of the grantee’s vested and unvested options will expire on the date of termination. If a grantee’s
employment or service is terminated for any other reason, the grantee may exercise his or her vested options within 90 days of the date of termination. Any expired or
unvested options return to the pool for reissuance.
In the event of a merger or consolidation of our company, or a sale of all, or substantially all, of our shares or assets or other transaction having a similar effect, then
without the consent of the option holder, the board or its designated committee, as applicable, may but is not required to (i) cause any outstanding award to be assumed or an
equivalent award to be substituted by such successor corporation or (ii) in case the successor corporation refuses to assume or substitute the award (a) provide the grantee with
the option to exercise the award as to all or part of the shares or (b) cancel the options against payment in cash in an amount determined by the board or the committee as fair
in the circumstances. Notwithstanding the foregoing, the board or its designated committee may upon such event amend or terminate the terms of any award, including
conferring the right to purchase any other security or asset that the board shall deem, in good faith, appropriate.
The following table presents certain option data information for the above-described stock option and share incentive plans as at February 14, 2022:
Plan
2012 Plan
Total Ordinary
Shares Reserved
for Grants
Aggregate Number
of Awards Granted
out of Reserve, Net
of Cancellations
10,000,000
9,385,458
Shares Available
for Future Grants
614,542
Aggregate Number
of Awards
Outstanding
6,110,893 $
Weighted Average
Exercise Price of
Outstanding Options
28.86
On September 3, 2013, March 4, 2020 and March 1, 2021, we filed registration statements on Form S-8 to register the issuance of ordinary shares underlying options and
RSUs granted or to be granted under the 2012 Plan.
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Employee Share Purchase Plan
115
Our Employee Share Purchase Plan, or ESPP, was approved by our shareholders at our 2021 annual general meeting of shareholders. The purpose of the ESPP is to enable
eligible employees of the Company and its subsidiaries to use payroll deductions to purchase our ordinary shares and thereby acquire an ownership interest in the Company.
The ESPP will be comprised of two distinct components: (1) the component intended to qualify for favorable U.S. federal tax treatment under Section 423 of the U.S. Internal
Revenue Code of 1986, as amended (the “Section 423 Component”), and (2) the component not intended to be tax qualified under Section 423 of the Internal Revenue Code
to facilitate participation for employees who are not eligible to benefit from favorable U.S. federal tax treatment and, to the extent applicable, to provide flexibility to comply
with non-U.S. law and other considerations (the “Non Section 423 Component”).
The maximum aggregate number of ordinary shares that may be purchased initially under the ESPP will be 5,200,000 shares (the “ESPP Share Pool”), subject to
adjustment as provided for in the ESPP.
The ESPP Share Pool represents 7.4% of our fully diluted share capital as of September 30, 2021 (i.e., out of 70,666,722 ordinary shares, which constitutes the total of: (i)
our outstanding number of ordinary shares (65,466,722, as of September 30, 2021) (which excludes the separate pool of 6,480,037 additional shares that may become issuable
under outstanding awards or future awards under our 2012 Plan, assuming the approval of the increase to that plan described in Proposal 2 above) plus (ii) those 5,200,000
additional shares that will be issuable under the ESPP Share Pool). There is furthermore no “evergreen” provision in our ESPP.
Administration. Unless otherwise determined by the Board, the ESPP will be administered by the compensation committee, which will have the authority to interpret and
determine eligibility under the plan, prescribe forms, rules and procedures relating to the plan, and otherwise do all things necessary or appropriate to carry out the purposes of
the plan.
Shares Subject to the ESPP. As noted above, the ESPP Share Pool will initially consist of 5,200,000 ordinary shares, subject to adjustment, as described below. Shares
delivered upon exercise of purchase rights under the ESPP may be either shares of authorized but unissued share capital, treasury shares, or ordinary shares acquired in an
open-market transaction. In the event of certain changes in our outstanding ordinary shares, including changes by reason of a share dividend, share split, reverse share split,
split-up, recapitalization, merger, consolidation, reorganization, or other capital change, the aggregate number and type of shares available for purchase under the ESPP, the
number and type of shares granted or purchasable during an offering period, and the purchase price per share under an outstanding purchase right shall be equitably adjusted
as determined appropriate by the compensation committee.
If any purchase right granted under the ESPP expires or terminates for any reason without having been exercised in full or ceases for any reason to be exercisable in whole
or in part, the unpurchased ordinary shares will again be available for purchase pursuant to offerings under the ESPP.
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Eligibility. Participation in the Section 423 Component may be limited in the terms of any offering to employees of the Company and any of its designated subsidiaries
(a) who customarily work 20 hours or more per week, (b) whose customary employment is for more than five months per calendar year, and (c) who satisfy the procedural
enrollment and other requirements set forth in the ESPP. Under the Section 423 Component, designated subsidiaries include any subsidiary (within the meaning of
Section 424(f) of the Internal Revenue Code (sometimes referred to as the “Code”) of the Company that has been designated by our Board or the compensation committee as
eligible to participate in the plan (and if an entity does not so qualify within the meaning of Section 424(f) of the Code, it shall automatically be deemed to be a designated
subsidiary in the Non-Section 423 Component). In addition, with respect to the Non-Section 423 Component, designated subsidiaries may include any corporate or non-
corporate entity in which the Company has a direct or indirect equity interest or significant business relationship. Under the Section 423 Component, no employee may be
granted a purchase right if, immediately after the purchase right is granted, the employee would own (or, under applicable statutory attribution rules, would be deemed to
own) shares possessing 5% or more of the total combined voting power or value of all classes of shares of the Company or any of its subsidiaries. In addition, in order to
facilitate participation in the ESPP, the compensation committee may provide for such special terms applicable to participants who are citizens or residents of a non-U.S.
jurisdiction, or who are employed by a designated subsidiary outside of the United States, as the compensation committee may consider necessary or appropriate to
accommodate differences in local law, tax policy or custom. Further to that allowance, we intend to file an application with the Israeli Tax Authority for favorable treatment
under Section 102 of the Israeli Tax Ordinance for shares purchased under the ESPP by employees who are Israeli residents. Except as permitted by Section 423 of the Code,
with respect to the Section 423 Component, such special terms may not be more favorable than the terms of rights granted under the Section 423 Component to eligible
employees who are residents of the United States.
General Terms of Participation.
• 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 purchaז se 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.
Participants may elect payroll deductions of up to 15% of the participant’s total eligible earnings per payroll period within an offering period. A participant may
increase or decrease the percentage of compensation designated in his or her subscription agreement, or may suspend his or her payroll deductions, at any time during
an offering period. However, the compensation committee may limit the number of changes a participant may make to his or her payroll deduction elections during
each offering period (and in the absence of any specific designation by the compensation committee, a participant shall be allowed to decrease (but not increase) his or
her payroll deduction elections one time during each offering period). A participant may withdraw all but not less than all of the payroll deductions credited to his or
her account and not yet used to exercise his or her rights under the ESPP at any time by giving written notice to the Company in such form and timing acceptable to the
Company. Upon withdrawal, any amount withheld from a participant’s compensation will be returned to the participant, without interest, as soon as administratively
practicable.
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• 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.
Our Board also has the right at any time to terminate the ESPP. In connection with such a termination or suspension, each participant’s accumulated payroll
deductions will be returned to the participant without interest, or the offering period may be shortened so that the purchase of shares occurs prior to the termination of the
ESPP.
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• 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 acquiror 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.
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, 2022. 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, 2022. 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 65,676,945 ordinary shares outstanding as of February 14, 2022.
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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
ARK Investment Management LLC
PRIMECAP Management Company
Sumitomo Mitsui Trust Holdings, Inc.
Ordinary
Shares Beneficially
Owned
7,654,932 (1)
3,825,199 (2)
4,501,549 (3)
Percentage Ownership
11.7 %
5.8 %
6.9 %
(1)
(2)
(3)
Represents shares beneficially owned as of December 31, 2021, as indicated in the amended statement of beneficial ownership on Schedule 13G/A filed by ARK
Investment Management LLC on February 9, 2022. As indicated in that amended statement, ARK Investment Management LLC possesses sole voting power with
respect to 6,250,970 of those ordinary shares, shared voting power with respect to 807,802 of those ordinary shares, and sole dispositive power with respect to all
7,654,932 ordinary shares beneficially owned by it.
Represents shares beneficially owned as of December 31, 2021, as indicated in the amended statement of beneficial ownership on Schedule 13G/A filed by
PRIMECAP Management Company on February 10, 2022. As indicated in that amended statement, PRIMECAP Management Company possesses sole voting and
dispositive power with respect to all such 3,825,199 ordinary shares.
Represents shares beneficially owned as of December 31, 2021, as indicated in amended statements of beneficial ownership on Schedule 13G/A filed by this
shareholder and by Nikko Asset Management Americas, Inc. on February 4, 2022 and February 14, 2022, respectively. 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.
Changes in Percentage Ownership by Major Shareholders
During 2019, the ownership of our ordinary shares by our current largest shareholder, ARK Investment Management LLC, increased from 12.6% to 15.6%. In 2020, that
ownership percentage further increased to 21.9%. In 2021, that ownership percentage decreased, to 11.7%.
During 2019, PRIMECAP Management Company, one of our major shareholders, decreased its percentage ownership of our ordinary shares from 14.2% to 13.7%. In
2020 and 2021, it further declined, to 8.6% and 5.8%, respectively.
Sumitomo Mitsui Trust Holdings, Inc. and its affiliates first acquired greater than 5% of our outstanding ordinary shares during 2019, having reported holding 10.1% as
of the end of August 2019. As of the end of 2019, their percentage ownership increased to 10.7%. In 2020, their percentage ownership decreased to 7.3%, and in 2021 it
further decreased to 6.9%.
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Record Holders
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Based upon a review of the information provided to us by our transfer agent, as of February 14, 2022, there were83 holders of record of our shares, of which 58 record
holders holding approximately 99.99% of our outstanding ordinary shares, had registered addresses in the United States. These numbers are not representative of the number
of beneficial holders of our shares nor is it representative of where such beneficial holders reside, since many of these shares were held of record by brokers or other
nominees. As of the said date, CEDE & Co, the nominee company of the Depository Trust Company (with a registered address in the United States), held of record
approximately 92.51% of our outstanding ordinary shares on behalf of hundreds of firms of brokers and banks in the United States, who in turn held such shares on behalf of
several thousand clients and customers.
B. Related Party Transactions.
Except as described below or elsewhere in this annual report, since January 1, 2021, 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.
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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):
Total Export Sales*
as a percentage of Total Sales
2021
2020
2019
$
211,899
$
170,944
$
216,384
34.9%
32.8%
37.9%
* Export sales, as presented, are defined as sales to customers located outside of North America and Israel (where our dual headquarters are located).
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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.
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ITEM 9. THE OFFER AND LISTING.
A. Listing Details and C. Market.
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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.
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C. Material Contracts.
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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.
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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 2021, including 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.
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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 47% for an
individual in 2021) 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.
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Dividend Income
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Non-Israeli residents (whether individuals or corporations) are generally subject to Israeli income tax on the receipt of dividends paid on ordinary shares at the rate of 25%
or 30% (if the dividend recipient is a Significant Shareholder at the time of distribution or at any time during the preceding 12-month period), 15% if the dividend is
distributed from income attributed to our Approved Enterprise or Beneficiary Enterprise (and 20% with respect to Preferred Enterpriseor 4% with respect to Preferred
Technology Enterprise and Special Preferred Technology Enterprise if certain conditions are met). Such dividends are generally subject to Israeli withholding tax at a rate of
25% so long as the shares are registered with a nominee company (whether the recipient is a Significant Shareholder or not) and 15% if the dividend is distributed from
income attributed to an Approved Enterprise or a Beneficiary Enterprise (and 20% if the dividend is distributed from income attributed to a Preferred Enterprise or 4% with
respect to Preferred Technology Enterprise and Special Preferred Technology Enterprise if certain conditions are met), unless a reduced rate is 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). For example, under the U.S.-Israel Treaty, the
maximum rate of tax withheld at source in Israel on dividends paid to a holder of our ordinary shares who is a U.S. resident (for purposes of the U.S.-Israel Treaty) is 25%.
However, generally, the maximum rate of withholding tax on dividends, not generated by our Approved Enterprise or Beneficiary Enterprise, that are paid to a U.S.
corporation holding at least 10% or more of our outstanding voting capital from the start of the tax year preceding the distribution of the dividend through (and including) the
distribution of the dividend, is 12.5%, provided that no more than 25% of our gross income for such preceding year consists of certain types of dividends and interest.
Notwithstanding the foregoing, dividends distributed from income attributed to an Approved Enterprise or Beneficiary Enterprise are subject to a withholding tax rate of 15%
for such U.S. corporation shareholder, provided that the condition related to our gross income for the previous year (as set forth in the previous sentence) is met. The
aforementioned rates will not apply if the dividend income was generated through a permanent establishment of the U.S. resident that is maintained in Israel. If the dividend is
attributable partly to income derived from an Approved Enterprise, a Beneficiary Enterprise or Preferred Enterprise, and partly to other sources of income, the withholding
rate will be a blended rate reflecting the relative portions of the two types of income. U.S. residents who are subject to Israeli withholding tax on a dividend may be entitled to
a credit or deduction for United States federal income tax purposes in the amount of the taxes withheld, subject to detailed rules contained in the Code.
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 2021, 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:
• an individual who is a citizen or resident of the United States for U.S. federal income tax purposes;
• 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;
• an estate, the income of which is includible in gross income for U.S. federal income tax purposes regardless of its source; or
• 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.
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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:
• are broker dealers or insurance companies;
• have elected mark-to-market accounting;
• are tax-exempt organizations;
• are financial institutions or financial services entities;
• are partnerships or other entities treated as partnerships for U.S. federal income tax purposes or partners thereof or members therein;
• hold ordinary shares as part of a straddle, hedge, conversion or other integrated transaction with other investments;
• own directly, indirectly or by attribution at least 10% of our voting power; or
• 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.
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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:
• 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
• 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.
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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:
• the three previous years; and
• 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.
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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 2020, we cannot assure you that the IRS will agree with that conclusion or that we will not become a PFIC in 2021 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.
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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:
• 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;
• 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
• 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 24% 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 24% 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.
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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.
We are subject to the informational requirements of the Exchange Act. In accordance with these requirements, we are required to file reports and other information with
the SEC. The SEC maintains a website that contains reports and information statements and other information about issuers, such as us, who file electronically with the
SEC. The address of that website is www.sec.gov. The reports and other information filed by us with the SEC are also available at ourw ebsite, at investors.stratasys.com. The
web addresses of the SEC and our company have been included as inactive textual references only. Information on those websites is not part of this annual report.
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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.
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Market risk is the risk of loss related to changes in market prices, including 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, 2021 was approximately $27.6 million.
Our total revenues amounted to $607.2 million in 2021, of which approximately 8.3% were denominated in Euros. During 2021, 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 2021, 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, 2021 were for the
conversion of Euro 54.7 million into USD and $32.1 million into NIS and other currencies of $32.1 million into USD.
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, 2021 would have resulted in a change in the U.S. dollar reporting
value of our consolidated operating income of $1.3 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, 2021 would have resulted in a change in the dollar-reported value of
our consolidated operating income of $10.5 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.
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Interest Rate Risk
Our cash and cash equivalents are held primarily in bank deposits with maturities of less than 180 days, and our short-term bank deposits have maturities of more than
180 days. Both are subject to limited interest rate risk, with an average interest rate of 0.58%.
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, 2021, 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, 2021.
(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, 2021. 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, 2021, 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.
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(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.
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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)
Audit fees (2)
Audit-related (3)
Tax fees (4)
All other fees (5)
Total
Year ended
December 31,
2021
2020
$
$
793,200 $
18,750
123,500
18,300
953,750 $
862,700
35,000
55,000
1,800
954,500
(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, 2021 and 2020).
(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, 2021 and 2020 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.
138
Table of Contents
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 theNasdaq 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.
Table of Contents
139
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.
Table of Contents
140
STRATASYS LTD.
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2021
Index to Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm (PCAOB name: Kesselman & Kesselman C.P.A and PCAOB ID:1309)
Consolidated Balance Sheets at December 31, 2021 and 2020
Consolidated Statements of Operations and Comprehensive Loss for the Years Ended December 31, 2021, 2020 and 2019
Consolidated Statements of Changes in Equity for the Years Ended December 31, 2021, 2020 and 2019
Consolidated Statements of Cash Flows for the Years Ended December 31, 2021, 2020 and 2019
Notes to the Consolidated Financial Statements
Page
F-2
F-5 to F-6
F-7
F-8
F-9 to F-10
F-11 to F-54
Table of Contents
F-1
Report of Independent Registered Public Accounting Firm
To the board of directors and shareholders of Stratasys Ltd.
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of Stratasys Ltd. and its subsidiaries (the “Company”) as of December 31, 2021 and 2020, and the related
consolidated statements of operations and comprehensive loss, of changes in equity and of cash flows for each of the three years in the period ended December 31, 2021,
including the related notes (collectively referred to as the “consolidated financial statements”). We also have audited the Company's internal control over financial reporting as
of December 31, 2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2021
and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021 in conformity with accounting principles
generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as
of December 31, 2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.
Basis for Opinions
The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its
assessment of the effectiveness of internal control over financial reporting, included in Management's Annual Report on Internal Control over Financial Reporting appearing
under Item 15(b). Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting
based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be
independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange
Commission and the PCAOB.
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.
F-2
Table of Contents
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 Matter
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to
be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially
challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements,
taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to
which it relates.
Purchase Price Allocation – Xaar Acquisition
As described in Note 2 to the consolidated financial statements, the Company completed the acquisition of the remaining 55% stake of Xaar 3D Limited ("Xaar") on
November 1, 2021 for a total consideration of $29.3 million paid in cash, including the fair value of additional contingent payments estimated at $15.3 million payable in cash
upon the achievement of certain financial targets. This resulted in $45 million of intangible assets being recorded and $14.4 million gain from step acquisition. Management
applied significant judgment in estimating the fair value of intangible assets acquired and contingent consideration recorded, which also impacted the amount of gain from the
step acquisition of Xaar and involved the use of significant estimates and assumptions with respect to the achievement of the financial metrics and the related timing and
amounts of the contingent payments, as well as the net cash flow projections and the discount rate used in respect of the intangible assets recorded.
The principal considerations for our determination that performing procedures relating to the step acquisition of Xaar is a critical audit matter are (i) the high degree of auditor
judgment and subjectivity in performing procedures relating to the fair value measurement of intangible assets acquired, the contingent consideration recorded and the
resulting gain from step acquisition, due to the significant judgment by management when developing the estimate; (ii) significant audit effort in evaluating the significant
assumptions relating to the estimate, such as the achievement of the financial metrics and the related timing and amounts of the contingent payments, as well as the net cash
flow projections and the discount rate used in respect of the intangible assets recorded; and (iii) the audit effort involved the use of professionals with specialized skill and
knowledge.
Table of Contents
F-3
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements.
These procedures included testing the effectiveness of controls relating to the acquisition accounting, including controls over management’s valuation of the intangible assets,
the contingent consideration and the amount of gain from step acquisition and controls over development of the cash flow projections and the discount rate assumptions
utilized in the valuation of the intangible assets and the contingent consideration. These procedures also included, among others (i) reading the purchase agreement and (ii)
testing management’s process for estimating the fair value of intangible assets and contingent consideration. Testing management’s process included evaluating the
appropriateness of the valuation methods, testing the completeness and accuracy of data provided by management, and evaluating the reasonableness of significant
assumptions related to the cash flow projections and the discount rate for the intangible assets and contingent consideration. Evaluating the reasonableness of the cash flow
projections involved considering the past performance of the acquired businesses, as well as economic and industry forecasts. The discount rate was evaluated by considering
the cost of capital of comparable businesses and other industry factors. Professionals with specialized skill and knowledge were used to assist in the evaluation of the
Company’s cash flow projections.
/s/ Kesselman & Kesselman
Certified Public Accountants (Isr.)
A member firm of PricewaterhouseCoopers International Limited
Tel-Aviv, Israel
February 24, 2022
We have served as the Company’s auditor since 2012.
F-4
Table of Contents
STRATASYS LTD.
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheets
(in thousands, except share data)
December 31,
ASSETS
Current assets
Cash and cash equivalents
Short-term bank deposits
Accounts receivable, net of allowance for credit losses of $0.5 million and $0.9 million as of December 31, 2021 and
December 31, 2020, respectively
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)
F-5
Table of Contents
Redeemable non-controlling interests
Equity
Ordinary shares, NIS 0.01 nominal value, authorized 180,000 thousand
shares; 65,677 thousand shares and 56,617 thousand shares
issued and outstanding at December 31, 2021 and 2020, respectively
Additional paid-in capital
Accumulated other comprehensive loss
Accumulated deficit
Total equity
2021
2020
$
243,179 $
259,000
129,382
129,147
6,871
33,123
800,702
203,295
65,144
152,244
14,651
28,667
12,519
476,520
$
1,277,222 $
$
51,976 $
55,358
44,684
51,174
7,276
272,092
27,000
106,068
131,672
6,717
16,943
560,492
201,232
35,694
131,569
21,298
24,268
15,449
429,510
990,002
16,987
31,061
25,659
49,165
9,282
210,468
132,154
21,133
7,341
7,693
53,478
21,095
110,740
14,227
42
12,567
37,400
34,017
98,253
$
321,208 $
230,407
-
227
$
182
$
3,012,481
(8,771)
(2,047,878)
155
2,753,955
(8,846)
(1,985,896)
956,014
759,368
Total liabilities and equity
$
1,277,222 $
990,002
The accompanying notes are an integral part of these consolidated financial statements.
Table of Contents
F-6
STRATASYS LTD.
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Statements of Operations and Comprehensive Loss
(in thousands, except share and per share data)
Years Ended December 31,
2021
2020
2019
$
$
$
$
$
417,557 $
189,662
607,219
210,941
136,200
347,141
260,078
88,303
250,937
-
339,240
(79,162)
14,400
(2,075)
(66,837)
3,906
949
(61,982) $
-
(61,982) $
(0.98) $
63,471
(61,982)
(3,170)
3,245
75
(61,907)
-
(61,907) $
339,782 $
181,035
520,817
171,235
130,188
301,423
219,394
84,012
205,224
386,154
675,390
(455,996)
-
(575)
(456,571)
16,394
(3,939)
(444,116) $
(395)
(443,721) $
(8.08) $
54,918
(444,116)
533
(1,663)
(1,130)
(445,246)
(395)
(444,851) $
430,746
205,334
636,080
182,430
139,958
322,388
313,692
94,253
231,138
-
325,391
(11,699)
-
4,555
(7,144)
(3,523)
(412)
(11,079)
(230)
(10,849)
(0.20)
54,260
(11,079)
(580)
617
37
(11,042)
(230)
(10,812)
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 step acquisition
Financial income (expenses), net
Loss before income taxes
Income tax benefit (expenses)
Share in profits (losses) of associated companies
Net loss
Net loss attributable to non-controlling interests
Net loss attributable to Stratasys Ltd.
Net loss per share attributable to Stratasys Ltd. - basic and diluted
Weighted average shares outstanding - basic and diluted
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.
F-7
Table of Contents
STRATASYS LTD.
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Statements of Changes in Equity
(in thousands)
Years Ended December 31, 2021, 2020, and 2019
Balances, January 1, 2019
Issuance of shares in connection with
stock-based compensation plans
Ordinary Shares
Number of
shares
Par Value
Additional Paid-In
Capital
$
53,881
560
$
146
2
2,681,048
5,282
Accumulated Deficit
Accumulated Other
Comprehensive Loss
$
(1,531,326)
$
(7,753)
$
-
-
Total Equity
1,142,115
5,284
Stock-based compensation
Comprehensive loss
Balance as of December 31, 2019
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
-
-
54,441
688
-
1,488
-
56,617
1,129
-
7,931
-
-
-
65,677
$
-
-
148
2
-
5
-
155
3
-
24
-
-
-
182
20,564
-
2,706,894
226
20,204
26,631
-
2,753,955
8,052
30,977
218,826
444
227
-
(10,849)
(1,542,175)
-
-
-
(443,721)
(1,985,896)
-
-
-
-
-
-
37
(7,716)
-
-
-
(1,130)
(8,846)
-
-
-
-
-
-
3,012,481
$
$
(61,982)
(2,047,878)
$
75
(8,771)
$
20,564
(10,812)
1,157,151
228
20,204
26,636
(444,851)
759,368
8,055
30,977
218,850
444
227
(61,907)
956,014
The accompanying notes are an integral part of these consolidated financial statements.
F-8
Table of Contents
STRATASYS LTD.
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Statements of Cash Flows
(in thousands)
Years ended December 31,
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 sale of investments
Gain from step acquisition
Share in (profits) losses of associated companies
Revaluation of investments
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
Deferred income taxes, net and uncertain tax positions
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
Repayment of bank loan
Other financing activities
Net cash provided by (used in) financing activities
2021
2020
2019
$
(61,982) $
(444,116) $
(11,079)
-
1,447
56,096
30,977
3,446
-
(14,400)
(949)
(1,301)
2,914
(25,003)
(53)
(14,976)
4,465
28,492
41,393
8,872
(12,380)
(11,234)
35,824
(20,553)
(24,981)
(361,000)
129,000
-
-
(11,779)
(1,770)
(82)
(291,165)
218,850
8,055
-
406
227,311
386,154
6,985
49,560
20,204
(8,718)
-
-
3,939
-
(2,552)
29,465
37,120
10,147
(1,040)
(24,534)
(10,033)
(6,398)
(20,299)
1,918
27,802
(29,115)
(26,943)
(27,000)
28,300
3,175
1,000
-
(2,070)
28
(52,625)
-
228
-
-
228
-
776
50,942
20,564
(1,900)
(3,578)
-
412
-
(103)
4,967
(48,647)
(2,936)
5,807
(13,114)
(7,273)
(3,779)
3,161
(5,413)
(11,193)
-
(22,420)
(28,300)
-
-
4,909
-
(2,752)
(20,963)
(69,526)
-
5,284
(27,293)
-
(22,009)
Table of Contents
Effect of exchange rate changes on cash, cash equivalents and restricted cash
(893)
3,214
2,591
F-9
Net change in cash, cash equivalents and restricted cash
Cash, cash equivalents and restricted cash, beginning of year
(28,923)
272,216
(21,381)
293,597
(100,137)
393,734
Cash, cash equivalents and restricted cash, end of year
$
243,293 $
272,216 $
293,597
243,179
114
243,293 $
272,092
124
272,216 $
293,484
113
293,597
$
2021
2020
2019
$
2,418
-
$
1,140 $
-
2,673
977
17,985
-
4,138
410
37,400
26,636
10,730
449
3,307
322
-
-
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.
F-10
Table of Contents
STRATASYS LTD.
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Statements of Cash Flows
(in thousands)
Years ended December 31,
Supplemental disclosure of cash flow information
Cash paid during the year for:
Income taxes, net of tax refunds
Interest
Non-cash investing activities:
Transfer of inventories to fixed assets
Transfer of fixed assets to inventories
Contingent consideration
Issuance of shares as part of Origin acquisition (Refer to Note 2)
The accompanying notes are an integral part of these consolidated financial statements.
Table of Contents
F-11
STRATASYS LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Nature of Operations and Summary of Significant Accounting Policies
a. Nature of Operations
Stratasys Ltd. (collectively with its subsidiaries, the “Company” or “Stratasys”) is a global leader in connected, polymer-based 3D printing solutions, across the entire
manufacturing value chain. The Company leverages its competitive advantages, which include a broad set of best-in-class 3D printing platforms, software, a materials and
technology partner ecosystem, innovative leadership, and global GTM infrastructure, in order to position itself to capture share in a significant and growing global
marketplace, with a focus on manufacturing. The Company’s approximately 1,700 granted and pending additive technology patents to date have been used to create models,
prototypes, manufacturing tools, and production parts for a multitude of industries including aerospace, automotive, transportation, healthcare, consumer products, dental,
medical, and education. Stratasys’ products and comprehensive solutions improve product quality, development time, cost, and time-to-market. The Company’s 3D ecosystem
of solutions and expertise includes 3D printers, materials, software, expert services, and on-demand parts production.
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.
The global COVID-19 pandemic began adversely impacting the Company's financial results for its operations in all global regions already in the first quarter of 2020.
The impact of COVID-19 on the Company’s results of operations was most pronounced throughout the 2020 year, with lesser impact for each subsequent quarter in the
second half of 2020. The Company’s employees were often relegated to remote work, and were reduced to a four-day work week, during the height of the pandemic,
beginning during the second quarter, and through the end of, 2020. In 2021, the Company returned to work at full-capacity (a five-day work week) on a global basis, with
a high percentage of its employees throughout the world receiving vaccines against COVID-19 over the course of the year. This was reflected in the Company’s operating
results during 2021, which evidenced a positive trend that began in the first quarter and continued throughout the rest of the year, with revenue growth each quarter both on
a year-over-year basis and on a sequential quarterly basis. The annual results for 2021 evidenced those improvements on an aggregate basis, with revenues for 2021
approaching pre-COVID-19 levels, signaling a near-full recovery for the Company’s top-line results.
The Company continues to face relative uncertainty as to the remaining intensity and duration of, and the nature and timeline for recovery from, the COVID-19
pandemic going forward, and how all of that impacts the Company, including the the extent to which overall potentially permanent changes in the behavior of the
Company’s consumers have been caused by the pandemic. The Company has taken the approach of managing the pandemic (to the extent that it continues to remain a
significant factor) via the strengthening of its balance sheet and cash assets, and avoidance of debt, while focusing on cost controls and cash generation. The Company has
selectively applied certain research and development cost controls to ensure that its strategically important product development programs were not affected by them.
With respect to the Company’s goodwill impairment in 2020 refer to Note 7.
F-12
Table of Contents
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 revenue recognition, inventories measurement, valuation allowance, uncertain tax positions, recoverability of
intangibles and goodwill and purchase price allocation including contingent consideration.
In particular, a number of estimates have been and will continue to be affected by the ongoing COVID-19 pandemic. The severity, magnitude and duration, as well as the
economic consequences, of the COVID-19 pandemic, are uncertain, rapidly changing and difficult to predict. As a result, the accounting estimates and assumptions may
change over time in response to COVID-19. Such changes could have an additional impact on the Company’s long-lived asset and intangible asset valuation; inventory
valuation; and the allowance for expected credit losses.
F-13
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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
The Company allocates the fair value of consideration transferred in a business combination to the assets acquired, liabilities assumed, and non-controlling interests in the
acquired business based on their fair values at the acquisition date. Acquisition-related expenses and restructuring costs are recognized separately from the business
combination and are expensed as incurred. The excess of the fair value of the consideration transferred plus the fair value of any non-controlling interest in the acquiree over
the fair value of the assets acquired, liabilities assumed in the acquired business is recorded as goodwill. The fair value of the consideration transferred may include a
combination of cash, equity securities, earn out payments and deferred payments. The allocation of the consideration transferred in certain cases may be subject to revision
based on the final determination of fair values during the measurement period, which may be up to one year from the acquisition date. The cumulative impact of revisions
during the measurement period is recognized in the reporting period in which the revisions are identified. The Company includes the results of operations of the businesses
that it has acquired in its consolidated results prospectively from the respective dates of acquisition.
The Company records obligations in connection with its business combinations at fair value on the acquisition date. Each reporting period thereafter, the Company
revalues earn-out payments and deferred payments which are classified as liabilities and records the changes in their fair value in the consolidated statements of operations and
comprehensive loss.
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.
F-14
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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 depoists. 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 adopted the Current Expected Credit Losses ("CECL") guidance effective January 1, 2020, with no material impact on its consolidated financial
statements. 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 $517 thousand and $870 thousand as of December 31, 2021 and 2020,
respectively. Changes in the allowance for credit losses are recognized in selling, general and administrative expenses. Accounts receivable are written-off against the
allowance for credit losses when management deems the accounts are no longer collectible.
The balance and the changes in the allowance for expected credit losses are comprised as follows:
2021
Year ended December 31
2020
U.S. $ in thousands
2019
$
$
870 $
50
(403)
517 $
939 $
454
(523)
870 $
1,110
223
(394)
939
F-15
Balance at beginning of year
Increase during the year
Bad debt written off
Balance at end of year
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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.
On the date that 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, 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.
F-16
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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.
Other non-marketable equity securities without readily determinable fair value in which the Company does not have a controlling interest or significant influence are
recorded at their original cost and adjusted for observable price changes for identical or similar instruments less any impairment. Marketable securities are carried at fair value
with changes in value recorded in Consolidated Statements of Operations and Comprehensive Loss.
The Company reviews its unconsolidated long-term investments for potential impairment or other adjustments, which generally involves an analysis of the facts and
changes in circumstances influencing the investments
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:
Buildings
Machinery and equipment
Buildings improvements
Computer equipment and software
Office equipment, furniture and fixtures
Useful Life
in Years
25 - 40
5 - 10
5 - 10
3 - 5
5 - 14
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.
F-17
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STRATASYS LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Other Intangible Assets, net
Intangible assets and their useful lives are as follows:
Developed technology
Patents
Trade names
Customer relationships
Weighted Average
Useful Life (in Years)
9
10
10
9
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 not amortized but rather is tested for impairment annually in the fourth quarter at the reporting unit level, or
whenever events or circumstances present an indication of potential impairment which requires an interim goodwill impairment analysis. 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.
ASC 350, “Intangibles - Goodwill and other” (“ASC 350”) requires goodwill to be tested for impairment at the reporting unit level at least annually or between annual
tests in certain circumstances, and written down when impaired.
ASC 350 allows an entity to first assess qualitative factors to determine whether it is necessary to perform the two-step quantitative goodwill impairment test. If the
qualitative assessment does not result in a more likely than not indication of impairment, no further impairment testing is required. If it does result in a more likely than not
indication of impairment, the quantitative goodwill impairment test two-step impairment test is performed. Alternatively, ASC 350 permits an entity to bypass the qualitative
assessment for any reporting unit and proceed directly to performing the quantitative first step of the goodwill impairment test. If the carrying value of the reporting unit
exceeds its fair value, the Company recognizes an impairment of goodwill for the amount of this excess, in accordance with the guidance in FASB Accounting Standards
Update (“ASU”) 2017-04, Intangibles - Goodwill and Other (Topic 350), Simplifying the Test for Goodwill Impairment.
The Company performs its quantitative goodwill impairment test by comparing the fair value of its reporting unit with its carrying value. If the reporting unit’s carrying
value is determined to be greater than its fair value, an impairment charge is recognized for the amount by which the carrying value exceeds the reporting unit’s fair value. If
the fair value of the reporting unit is determined to be greater than its carrying amount, the applicable goodwill is not impaired.
F-18
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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 $3.2 million and $4.1 million as of December 31, 2021 and 2020, respectively, are presented
as other non-current liabilities in the Company’s consolidated balance sheets. These liabilities are recorded as if it was payable at each balance sheet date. These liabilities are
partially funded by the purchase of insurance policies or by the establishment of pension funds with dedicated deposits in the funds. The amounts used to fund these liabilities
are included in the Company’s consolidated balance sheets under other non-current assets. As of December 31, 2021 and 2020, the Company had $3.2 million and $3.1
million, respectively, deposited in these insurance policies and pension funds. These policies are the Company’s assets. However, under employment agreements and subject
to certain limitations, any policy may be transferred to the ownership of the individual employee for whose benefit the funds were deposited.
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, 2021, 2020 and 2019 were $3.4 million, $9.1 million and $4.0 million, respectively.
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 50% of annual taxable compensation, as defined by the Plan, up to a maximum amount prescribed by the Code. The Company, at its discretion, makes
matching contributions equal 4% of the participant’s annual compensation. For the years ended December 31, 2021, 2020 and 2019 the Company made 401(k) Plan
contributions of approximately $4.0 million, $4.1 million and $4.2 million respectively.
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STRATASYS LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Contingent Liabilities
F-19
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.
Redeemable Non-controlling Interests
Non-controlling interests with embedded redemption features, such as put options, whose settlement is not at the Company’s discretion, are considered redeemable non-
controlling interests. Redeemable non-controlling interests are considered to be temporary equity and are therefore presented as a mezzanine section between liabilities and
equity on the Company’s consolidated balance sheets. Redeemable non-controlling interests are measured at the greater of the initial carrying amount adjusted for the non-
controlling interest’s share of comprehensive income or loss or its redemption value. Adjustments of redeemable non-controlling interest to its redemption value are recorded
through additional paid-in capital.
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.
F-20
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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.
F-21
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STRATASYS LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Advertising
Advertising costs are expensed as incurred and were approximately $4.5 million, $6.3 million and $16.2 million, for the years ended December 31, 2021, 2020 and 2019,
respectively.
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 effective 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 25% on the distribution, and the amount would be recorded as an
income tax expense in the period the dividend is declared.
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 10% on the
distribution, and the amount would be recorded as an income tax expense in the period the dividend is declared.
F-22
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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 50% likely of being realized upon ultimate settlement. The Company reevaluates these tax positions quarterly and makes adjustments as required. The liabilities relating
to uncertain tax positions are classified as current in the consolidated balance sheets to the extent the Company anticipates making payments within one year. The Company
classifies interest and penalties recognized in the financial statements relating to uncertain tax positions under the provision for income taxes.
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 measures and recognizes compensation expense for its equity classified stock-based awards, including stock-based option awards, restricted stock units
(“RSUs”) and performance stock units (“PSUs”) under the Stratasys Ltd. 2012 Omnibus Equity Incentive Plan (the “2012 Plan”) based on estimated fair values on the grant
date.
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.
F-23
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STRATASYS LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Each of the above factors requires the Company to use judgment and make estimates in determining the percentages and time periods used for the calculation. If the
Company were to use different percentages or time periods, the fair value of stock-based option awards could be different. The fair values of the Company’s RSUs and PSUs
are measured based on the fair value of the Company’s ordinary shares on the date of grant.
The Company recognizes compensation expenses for its stock-based option awards and RSUs on a straight-line basis over the requisite service period (primarily a four-
year period). The Company accounts for forfeitures as they occur. The Company recognizes compensation expenses for its PSUs based on the probability that the performance
metrics will be achieved over the vesting period. At each reporting period the Company evaluates the probability that its PSUs will be earned and adjust its previously
recognized compensation expense as necessary. If the achievement of the respective performance metrics is not probable or the respective performance are not met the
Company reverses its previously recognized compensation expense.
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
Basic loss per share is computed by dividing net income (loss) attributable to ordinary shareholders of Stratasys Ltd. by the weighted average number of ordinary shares
(including fully vested RSUs and PSUs) outstanding for the reporting periods.
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 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 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.
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STRATASYS LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Leases
F-24
The Company adopted the new lease accounting guidance on January 1, 2019, using a modified retrospective transition approach, with certain practical expedients, and
as a result did not adjust prior periods. Following the adoption, the Company recognized right-of-use assets of $ 27.4 million and lease liabilities of $ 27.9 million
for its operating leases. The Company does not have finance 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 75% or more of the remaining economic life of the underlying asset is a major part of the
remaining economic life of that underlying asset; and (ii) generally 90% or more of the fair value of the underlying asset comprises substantially all of the fair value of the
underlying asset.
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 12 months. This means that for those leases, the Company does not recognize ROU assets or lease liabilities, including not recognizing ROU assets or
lease liabilities for existing short-term leases of those assets in transition, but recognizes lease expenses over the lease term on a straight-line basis. The Company also
elected the practical expedient to not separate lease and non-lease components for all of the Company leases, other than leases of real estate.
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.
The Company is a party to several lease agreements for its facilities, the latest of which has been extended until September2026. The Company has the option to extend
certain agreements for additional periods, the earliest of which is until the start of January 2022 and the latest is until the end of October 2028. During the extended lease
period, the aggregate annual rental payments will increase by 2% to 4% each year.
The company also leases vehicles for its employees with different commencement and ending periods in Israel and Germany solely. The latest lease agreement is until the
start of April 2024.
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STRATASYS LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Recently issued accounting pronouncements
Accounting Pronouncements Adopted in 2021
F-25
In December 2019, the FASB issued new guidance to simplify the accounting for income taxes by removing certain exceptions to the general principles and simplification
of areas such as franchise taxes, step-up in tax basis goodwill, separate entity financial statements and interim recognition of enactment of tax laws or rate changes The
guidance will be effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020, with early adoption permitted. The Company
expect to adopt this guidance effective January 1, 2021, with no material impact on its consolidated financial statements.
Recently issued accounting pronouncements, not yet adopted
In August 2020, the FASB issued ASU 2020-06 “Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s
Own Equity (Subtopic 815 – 40).” This guidance simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible
instruments and contracts on an entity’s own equity. The amendments to this guidance are effective for fiscal years beginning after December 15, 2021, and interim periods
within those fiscal years. The Company will adopt this guidance effective January 1, 2022, with no material impact on its consolidated financial statements.
In October 2021, the FASB issued ASU 2021-08 “Business Combinations (Topic 805), Accounting for Contract Assets and Contract Liabilities from Contracts with
Customers”, which requires contract assets and contract liabilities acquired in a business combination to be recognized and measured by the acquirer on the acquisition date in
accordance with ASC 606, Revenue from Contracts with Customers. The guidance will result in the acquirer recognizing contract assets and contract liabilities at the same
amounts recorded by the acquire. The guidance should be applied prospectively to acquisitions occurring on or after the effective date. The guidance is effective for fiscal
years beginning after December 15, 2022, including interim periods within those fiscal years. Early adoption is permitted, including in interim periods, for any financial
statements that have not yet been issued. The Company does not expect it to have a material impact on its consolidated financial statements.
F-26
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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
$97.1 million (“Origin transaction”), including cash and shares. The acquisition enables Stratasys to expand its leadership through innovation in the fast-growing mass
production parts market with a next-generation photopolymer platform. Stratasys expects Origin’s proprietary Programmable PhotoPolymerization (P3
important growth engine for the company. The acquisition was aimed at fortifying our leadership in polymers and production applications of 3D printing in industries such as
dental, medical, tooling, and select industrial, defense, and consumer goods markets.
) technology to be an
In exchange for 100% of the outstanding shares of Origin the Company issued 1,488 thousand ordinary shares, paid cash upon closing and is obligated to pay additional
payments (combination of cash and shares) subject to performance-based earnouts over 3 years.
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.
The following table summarizes the fair value of the consideration transferred to Origin stockholders for the Origin transaction:
Cash payments
Issuance of ordinary shares to Origin
stockholders
Contingent consideration at estimated fair
value
Total consideration
$
$
U.S. $ in
thousands
33,025
26,636
37,400
97,061
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 considerationas of the Origin transaction date was included in the purchase price.The total contingent
payments could reach to a maximum aggregate amount of up to $40 million. Approximately 50% of the payments shall be settled in cash, and 50% shall be settled through the
issuance of ordinary shares. The estimated fair value of the contingent consideration is based on management’s assessment of whether, and at what level, the financial metrics
will be achieved, and the present value factors associated with the timing of the payments. This fair value measurement is based on significant unobservable inputs in the
market and thus represents a Level 3 measurement within the fair value hierarchy. Changes in the fair value of contingent consideration will be recorded in operating
expenses. Refer to note 4.
An additional payment of $6 million, which is subject to the founders' retention over 3 years, is recorded as compensation expense over the retention period.
Compensation expenses for the year ended December 31, 2021 were approximately $4.3 million
Table of Contents
STRATASYS LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
F-27
The allocation of the purchase price to assets acquired and liabilities assumed, including measurement period adjustments (refer to note 6), 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
$
2,083
38,104
71,120
3,493
114,800
14,007
3,732
17,739
97,061
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 $71
million. This intangible asset has a useful-life of 10 years. The fair value estimate of the developed technology is determined using a variation of the income approach known
as the “Multi-Period Excess Earnings Approach”. This valuation technique estimates the fair value of an asset based on market participants’ expectations of the cash flows an
asset would generate over its remaining useful life. The net cash flows were discounted to present value.
Investment in Xaar 3D Ltd. ("Xaar 3D")
During the fourth quarter of 2019, the Company entered into an agreement with Xaar plc (“Xaar”) to purchase additional shares of Xaar 3D that will increase its stake
from 15 to 45 percent, with Xaar retaining the remaining 55 percent. Xaar and Stratasys had announced the formation of Xaar 3D Ltd in July 2018; for the purpose of
developing Powder Bed Fusion (”PBF”) additive manufacturing solutions that Stratasys can bring to the market. In addition, the agreement included an option for Stratasys to
acquire the remaining shares of 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 $15.7 million.
The investment was presented under other non-current assets in the Company’s consolidated balance sheets.
F-28
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STRATASYS LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On November 1, 2021 (the "Xaar 3D transaction date") , the Company acquired the remaining55% share of XAAR 3D, for an aggregate purchase price of $29.3
million. The Company paid cash upon closing and it is obligated to make additionalearn-out payments and royalties on products and services sales for up to 15 years.
The Xaar 3Dtransaction is reflected in accordance with ASC Topic 805, “Business Combinations”, using the acquisition method of accounting with the Company as the
acquirer. The Company accounted for the acquisition of the remaining equity of Xaar 3D as a step acquisition, which required re-measurement of the Company's previous
ownership interest to fair value prior to completing purchase accounting. Using step acquisition accounting the Company increased the value of its previously held equity
investment to its fair value of $23.8 million, which resulted in a gain of approximately $14.4 million, recorded in the consolidated statements of operations in the fourth
quarter of 2021. The acquisition of the remaining equity interest also resulted in the recognition of a previously unrealized foreign currency gain of $0.6 million, which was
reclassified from accumulated OCI. The fair value of the previously held equity method investment was determined based upon a valuation of the acquired business, as of
the date of acquisition, as detailed below.
The following table summarizes the fair value of the consideration transferred to Xaar 3D stockholders for the Xaar 3D transaction:
Cash payments
Contingent consideration at estimated fair
value
Total consideration for 55% holding
Fair value of 45% holding
U.S. $ in
thousands
13,967
$
15,314
29,281
23,775
Total consideration
$
53,056
In accordance with ASC Topic 805, the estimated contingent consideration as of the Xaar 3D transaction date was included in the purchase price. The total contingent
payments could reach to a maximum aggregate amount of up to $21 million. The estimated fair value of the contingent consideration is based on management’s assessment
of whether, and at what level, the financial metrics will be achieved, and the present value factors associated with the timing of the payments. This fair value measurement is
based on significant unobservable inputs in the market and thus represents a Level 3 measurement within the fair value hierarchy. Changes in the fair value of contingent
consideration will be recorded in operating expenses. Refer to note 4.
F-29
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STRATASYS LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the Xaar 3d transaction date. The estimated fair values are
preliminary and based on the information that was available as of November 1, 2021. Thus, the measurements of fair value reflected are subject to changes and such changes
could be significant. The preliminary allocation of the purchase price to assets acquired and liabilities assumed 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 liabilities
Total liabilities assumed
Net assets acquired
$
82
25,375
45,000
5,280
75,737
1,736
20,945
22,681
53,056
The allocation of the purchase price ("PPA") to net assets acquired and liability assumed resulted in the recognition of intangible asset related to developed technology
of $45 million. This intangible asset has a useful-life of7 years. The fair value estimate of the developed technology is determined using a variation of the income approach
known as the “Multi-Period Excess Earnings Approach”. This valuation technique estimates the fair value of an asset based on market participants’ expectations of the cash
flows an asset would generate over its remaining useful life. The net cash flows were discounted to present value. In addition, as part of the PPA, the Company assumed a
royalty liability to a third party in respect of the developed technology. Such liability amounting to $14 million was recorded based on a fair value estimate, which was
determined using the valuation model used to value the developed technology and is recorded under other non-current liabilities.
Pro forma information giving effect to the acquisition has not been provided as the results would not be material.
RPS acquisition
On February 16, 2021 the Company acquired RP Support Limited (“RPS”), a provider of industrial stereolithography 3D printers and solutions. In exchange for 100% of
the outstanding shares of RPS, the Company paid cash upon closing and it is obligated to make additional payments (in cash), subject to performance-based criteria, via
earn-out payments over two years.
F-30
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STRATASYS LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Marketable equity investment
The Company recognized in the year ended December 31, 2021 gain of $0.6 million, for revaluation of an equity investment. In prior periods the investment was
treated as a non-marketable equity investment without readily determinable fair value. The entity in which the Company invested became public during the first quarter of
2021 and accordingly the investment is now treated as a marketable equity investment.
Other transactions
During the second quarter of 2019, the Company sold an investment recognized a gain of approximately $3.6 million, net of transaction costs. The gain was recorded
under Operating expenses.
During 2021, the Company invested a total of $11.8 million in non-marketable equity securities without readily determinable fair value in which the Company does not
have a controlling interest or significant influence.
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 approximately10% of employees, as well as other cost-mitigation measures. The Company
recorded $6.4 million and $3.9 million of employee-related charges and other related charges, respectively, during 2020. The plan was substantially completed in 2020.
F-31
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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, 2021, 2020 and 2019:
s
A
merica
Systems
Consumables
Service
EMEA
Systems
Consumables
Service
Asia Pacific
Systems
Consumables
Service
2021
Year ended December 31,
2020
(U.S. $ in thousands)
2019
$
124,311 $
121,245
142,767
388,323
98,884 $
106,857
137,736
343,477
Total Americas
42,077
61,192
27,027
130,296
33,110
35,623
19,867
88,600
29,584
48,521
23,479
101,584
22,266
33,670
19,820
75,756
Total EMEA
Total Asia
Pacific
127,198
129,921
158,743
415,862
39,810
58,883
26,274
124,967
36,000
38,934
20,317
95,251
Total Revenues
$
607,219 $
520,817 $
636,080
Table of Contents
STRATASYS LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
F-32
The following table present the Company’s revenues disaggregated based on the timing of revenue recognized for the years ended December 31, 2021, 2020 and 2019:
Revenues recognized in point in time from:
2021
Year ended December 31,
2020
2019
Products
Services
Total revenues recognized in point in time
Revenues recognized over time from:
Services
Total revenues recognized over time
$
417,557 $
46,049
463,606
339,782 $
40,405
380,187
143,613
143,613
140,630
140,630
430,746
43,885
474,631
161,449
161,449
Total Revenues
$
607,219 $
520,817 $
636,080
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, 2021 and 2020.
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, 2021 and 2020 were as follows:
Deferred revenue*
December 31,
2021
2020
U.S. $ in thousands
72,307 $
63,392
$
*Includes $21.1 million and $14.3 million under long term deferred revenue in the Company's consolidated balance sheets as of December 31, 2021 and December 31,
2020, respectively.
Revenue recognized in 2021 and 2020 that was included in deferred revenue balance as of January 1, 2021 and 2020, was $48.7 million and $50.1 million, respectively.
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, 2021 and 2020 the total RPO amounted to $128.0 million and $85.7 million, respectively. The
Company expects to recognize $104.5 million of this RPO during the next 12 months, $12.5 million over the subsequent 12 months and the remaining $11.0 million
thereafter.
Table of Contents
STRATASYS LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Incremental Costs of Obtaining a Contract
F-33
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 5 years) if the Company expects to recover those costs. The Company determined the period of benefit by taking into
consideration customer contracts including renewals, the technology and other factors. Amortization expense is included in selling, general and administrative expenses in the
consolidated statements of operations. As of December 31, 2021 and 2020, the deferred commission amounted to $7.4 million and $5.0 million, respectively and presented
under Other non-current assets.
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, 2021
December 31, 2020
Level
2
Level 3
Level 2
Level 3
(U.S. $ in thousands)
Assets:
Liabilities:
Foreign exchange forward contracts not designated as
hedging instruments
Foreign exchange forward contracts designated as
hedging instruments
Foreign exchange forward contracts not designated as
hedging instruments
Foreign exchange forward contracts designated as
hedging instruments
Contingent consideration
$
82 $
910
(89)
(60)
-
-
-
-
$
56 $
793
(1,098)
(1,584)
-
-
-
-
$
-
843 $
55,919
55,919 $
-
(1,833) $
37,400
37,400
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).
Contingent consideration represents liabilities recorded at fair value in connection with acquisitions, and thus represents a Level 3 measurement within the fair value
hierarchy (refer to Note 2).
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.
F-34
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STRATASYS LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 5. Inventories
Inventories consisted of the following:
Finished goods
Work-in-process
Raw materials
Note 6. Property, Plant and Equipment, Net
Property, plant and equipment, net consisted of the following:
Machinery and equipment
Buildings and improvements
Computer equipment and software
Office equipment, furniture and fixtures
Land
Accumulated depreciation
Construction work in progress
December 31,
2021
2020
U.S. $ in thousands
$
$
58,784 $
4,360
66,003
129,147 $
61,297
3,163
67,212
131,672
December 31,
2020
2021
(U.S. $ in thousands)
157,692 $
178,025
51,311
14,723
19,079
420,830
(219,357)
201,473
1,822
203,295 $
147,531
172,868
49,233
13,966
19,302
402,900
(202,556)
200,344
888
201,232
$
$
Depreciation expenses were $24.8 million, $25.2 million and $25.8 million in the years ended December 31, 2021, 2020 and 2019, respectively.
F-35
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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, 2021 and 2020 were as follows:
Balance at January 1,
Goodwill acquired
Goodwill impairment charges
Measurement period adjustments
Currency translation adjustments
Balance at December 31,
2021
2020
(U.S. $ in thousands)
35,694 $
27,092
-
2,410
(52)
65,144 $
385,658
35,694
(386,154)
-
496
35,694
$
$
During the first quarter of 2020, the Company performed an analysis of the impact of recent events, including business and industry specific considerations, on the fair
value of the Stratasys-Objet reporting unit. As part of this analysis the Company considered the potential impacts of COVID-19 and the sensitivity of estimates and
assumptions used in the last annual impairment test as well as changes in market capitalization.
During the second quarter of 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 approximately10% of employees, as well as other cost-mitigation measures.
Please refer to Note 12 for further discussion. The Company reassessed its analysis from the first quarter in light of macroeconomic developments and its cost-cutting
measures.
Based on the Company's goodwill assessment for the Stratasys-Objet reporting unit, the Company determined that no impairment was required as of March 31, 2020, and
June 30, 2020.
During the third quarter of 2020, the Company noted that indicators of potential impairment existed which required an interim goodwill impairment analysis for Stratasys-
Objet reporting unit. These indicators included longer and deeper than expected reduction in the business, refinement to the company’s business focus into additional inorganic
technologies and sustained decline in the Company’s market capitalization during the past two quarters, all, primarily as a result of the COVID-19 impact on the global
economy and the Company’s business.
As a result of the factors discussed above, the Company revisited its assumptions supporting the cash flow projections for its Stratasys-Objet reporting unit, including: (i)
the expected duration and depth of revenue reduction and certain revenue growth assumptions; (ii) the associated operating profit margins; (iii) the long term growth rate; and
(iv) the discount rate . In estimating the discounted cash flow, the Company used the following key assumptions: the Company currently expects it will take approximately
two years to regain the loss of revenue and return to its pre COVID-19 activity levels considering the impact of both volume and price with a similar effect on profitability.
Following such period, the Company expects to return to similar growth rates as estimated in prior valuations. The Company assumed a long term terminal growth rate of
2.5%, lower than the 3.1% used in prior valuations. In addition, changes in business focus due to introduction of new technologies were expected to lower the total revenues
attributable to the Stratasys-Objet reporting unit. The resulting cash flow amounts were discounted using the same discount rate of 13.5%.
Based on the revised cash flow projections, the value of the reporting unit decreased below its carrying value, and the Company recorded in the third quarter of 2020 a
goodwill impairment charge of $386.2 million, the entire reporting unit’s goodwill.
During the fourth quarter of 2021, the Company performed its annual impairment test for goodwill impairment. Based on the Company's qualitative analysis, which
considered the Company's market valuation, its operation results and projections, and the timing of its goodwill acquisitions, no goodwill was determined to be impaired as of
December 31, 2021.
The goodwill balance as of December 31, 2020 was acquired as part of Origin acquisition and the goodwill acquired during 2021was acquired as part of the RPS and
XAAR acquisitions See Note 2.
Table of Contents
F-36
STRATASYS LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 8. Other Intangible Assets, Net
Other intangible assets consisted of the following:
December 31, 2021
December 31, 2020
Carrying
Amount,
Net of
Impairment
Accumulated
Amortization
$
$
406,578
16,220
26,055
100,731
7,410
(279,037) $
(8,503)
(22,241)
(87,559)
(7,410)
Net
Book
Value
Carrying
Amount,
Net of
Impairment
$
U.S. $ in thousands
127,541
7,717
3,814
13,172
-
357,863
17,699
26,036
101,107
7,410
$
Accumulated
Amortization
Net
Book
Value
(260,123) $
(8,487)
(21,114)
(81,413)
(7,410)
97,740
9,212
4,922
19,695
-
$
556,994
$
(404,750) $
152,244
$
510,115
$
(378,547) $
131,569
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, 2021, 2020 and 2019, was approximately $31.3 million, $24.3 million and $25.2
million, respectively.
As of December 31, 2021, estimated future amortization expense relating to definite life intangible assets for each of the next five years and thereafter were as follows:
Year ending December 31,
2022
2023
2024
2025
2026
2027 and thereafter
Total
Estimated amortization expenses
(U.S. $ in thousands)
36,626
22,106
18,188
15,600
15,517
44,207
152,244
During the year ended December 31, 2020, the Company recorded impairment charges of $5.3 million, related to its definite life intangible assets. No impairment charges
were recorded during 2021 and 2019.
F-37
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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, 2021 and 2020 were as follows:
December 31,
2021
2020
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
Gross deferred tax assets
Valuation allowance
Total deferred tax assets
Deferred tax liabilities
Intangibles assets
Property, plant and equipment
Other items
Total deferred tax liabilities
Net deferred tax assets (liabilities)
(U.S. $ in thousands)
$
$
$
671,458
4,210
12,783
1,186
9,528
2,257
630
143
358
15,933
718,486
(693,120)
25,366
(12,533)
(17,991)
(882)
(31,406)
(6,040) $
645,318
3,892
19,081
557
7,507
1,871
835
249
278
16,693
696,281
(661,979)
34,302
(21,567)
(2,847)
(4,344)
(28,758)
5,544
The Company’s deferred tax assets and liabilities are classified in the consolidated balance sheets as follows:
Deferred tax assets (under "Other non-current assets")
Deferred tax liabilities
Net deferred tax assets (liabilities)
December 31,
2021
2020
(U.S. $ in thousands)
$
$
1,301 $
7,341
(6,040) $
5,586
42
5,544
As of December 31, 2021 and 2020 the Company had tax net operating losses carry-forward of approximately $628.5 million and $607.3 million, respectively. In addition,
the Company incurred capital losses of $2,203.2 million in 2020 due to a legal reorganization of certain entities in the group. Those tax losses carry-forward resulted in
deferred tax assets of approximately $671.5 million and $645.3 million, as of December 31, 2021 and 2020, respectively. As a result of losses incurred in the last few years,
and since the near-term realization of these assets is uncertain, the Company recorded a full valuation allowance for its deferred tax assets that are not likely to be realized.
F-38
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STRATASYS LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Significant judgment is required in determining any valuation allowance recorded against deferred tax assets. In assessing the need for a valuation allowance, the
Company considered all available evidence, including past operating results, the most recent projections for taxable income, and prudent and feasible tax planning strategies.
The Company reassess its valuation allowance periodically and if future evidence allows for a partial or full release of the valuation allowance, a tax benefit will be recorded
accordingly.
A reconciliation of the beginning and ending balances of valuation allowance is as follows:
Balance at January 1, 2019
Decrease
Balance at December 31, 2019
Additions
Decrease
Balance at December 31, 2020
Additions
Balance at December 31, 2021
Valuation
allowance
U.S. $ in
thousands
152,659
(888)
151,771
524,215
(14,007)
661,979
31,141
693,120
$
$
Included in the net deferred tax are net operating loss and credit carryovers of $159.2 million which expire in years ending from December 31, 2022 through December
31, 2041, whereas some losses may be carried forward indefinitely, as discussed below.
On December 22, 2017, the Tax Cuts and Jobs Act (the“Act”) was enacted into law. The new legislation represents fundamental and dramatic modifications to the U.S.
tax system. The Act contained several key tax provisions that impacted the Company's U.S. subsidiaries, including the reduction of the maximum U.S. federal corporate
income tax rate from 35% to 21%, effective January 1, 2018. Other significant changes under the Act included, among others, a one-time repatriation tax on accumulated
foreign earnings, a limitation of net operating loss deduction to 80% of taxable income, and indefinite carryover of post-2017 net operating losses. The Act also repealed the
corporate alternative minimum tax for tax years beginning after December 31, 2017. Losses generated prior to January 1, 2018 will still be subject to the 20-year carryforward
limitation and the alternative minimum tax. Other impacts due to the Act included the repeal of the domestic manufacturing deduction, modification of taxation of controlled
foreign corporations, a base erosion anti-abuse tax, modification of interest expense limitation rules, modification of limitation on deductibility of excessive executive
compensation, and taxation of global intangible low-taxed income.
U.S. GAAP requires that the impact of tax legislation be recognized in the period in which the law was enacted. In 2017, the Company revalued its valuation allowance
and deferred tax assets at the statutory 21% rate that is in effect in 2018 and forward. The provisional impact of this rate change was recorded in the fourth quarter of 2017
and there was a reduction of $65.6 million in the valuation allowance, offset by a reduction of $65.6 million in the deferred tax assets. The accounting was completed in the
fourth quarter of 2018.
The Act introduced new intangible income rules, Global Intangible Low-Taxed Income (GILTI) and Foreign Derived Intangible Income (FDII). The Company has
analyzed the impact of GILTI/FDII and determined that no impact can be recorded due to the U.S. subsidiaries’ net operating losses. Thus, the Company cannot elect to
include these amounts in the measurement of its deferred taxes under U.S. GAAP.
Table of Contents
STRATASYS LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
F-39
On March 27, 2020, the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”) was enacted into law in response to the economic fallout of the COVID-
19 pandemic in the United States. Among the many business-related provisions, some of which related to non-income taxes, were changes made to net operating losses
(NOLs). The CARES Act amended Internal Revenue Code Section 172(b)(1) for tax years beginning in 2018, 2019 and 2020, requiring taxpayers to carry back NOLs arising
in those years to the five preceding tax years, unless the taxpayer elects to waive or reduce the carryback period. To the extent unused as a carryback, these NOLs are now
carried forward indefinitely. The CARES Act suspended the Tax Cuts and Jobs Act’s 80% limitation on NOL deductions for tax years beginning in 2018, 2019 and 2020.
The 80% limitation will be reinstated for tax years beginning after 2020, for NOLs arising in tax years after 2017.
The Company believes that all future profits of its subsidiaries will be indefinitely reinvested or that there is no expectation to distribute any taxable dividends from these
subsidiaries. The determination of the amount of the unrecognized deferred tax liability related to the undistributed earnings is estimated as an immaterial amount.
b. Provision for Income Taxes
Loss (income) before income taxes for the years ended December 31, 2021, 2020 and 2019 was as follows:
Domestic
Foreign
$
$
2021
2020
(U.S. $ in thousands)
(381,935) $
(74,636)
(456,571) $
(50,193) $
(16,644)
(66,837) $
2019
(11,895)
4,751
(7,144)
The components of income taxes for the years ended December 31, 2021, 2020 and 2019 were as follows:
Current
Domestic
Foreign
Deferred
Domestic
Foreign
Total income taxes
2021
2020
(U.S. $ in thousands)
2019
$
$
(14,146) $
2,141
(12,005)
4,992 $
(3,902)
1,090
8,745
(646)
8,099
(3,906) $
(4,112)
(13,372)
(17,484)
(16,394) $
3,392
2,524
5,916
(2,007)
(386)
(2,393)
3,523
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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, 2021, 2020 and 2019 is set forth below:
Statutory tax rate
Reduced tax rate under Israeli benefit programs
Goodwill impairment
Stock-based compensation expense
Non-deductible acquisition expenses
Earnings taxed under foreign law
Valuation Allowance
Changes in uncertain tax positions
Deferred Tax due to different tax rates
Non recurring Capital gain
Withholding tax
Other
Effective income tax rate
2021
2020
2019
23.0%
6.2
-
(3.5)
(0.1)
10.8
(42.7)
17.9
(6.1)
-
(0.1)
0.4
5.8%
23.0%
(1.4)
(17.5)
(0.5)
-
(4.1)
3.1
1
0.1
-
-
(0.1)
3.6%
23.0%
18.0
-
(21.0)
(1.4)
(14.9)
-
(59.8)
11.2
11.5
(1.7)
(2.6)
(48.9)%
Uncertain tax positions
Significant judgment is required in evaluating the Company’s tax positions and determining its provision for income taxes. During the ordinary course of business, there
are many transactions and calculations for which the ultimate tax determination is uncertain. The Company establishes reserves for tax-related uncertainties based on estimates
of whether, and the extent to which, additional taxes will be due. These reserves are established when the Company believes that certain positions might be challenged despite
its belief that its tax return positions are fully supportable. The Company adjusts these reserves in light of changing facts and circumstances, such as the outcome of a tax audit
or changes in the tax law. The provision for income taxes includes the impact of reserve provisions and changes to reserves that are considered appropriate.
F-41
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STRATASYS LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A reconciliation of the beginning and ending balance of uncertain tax positions is as follows:
Balance at beginning of year
Additions for tax positions related to the current year
Foreign currency impact
Adjustments for tax positions related tax settlements
Reduction of reserve for statute expirations
Balance at end of year
2021
2020
(U.S. $ in thousands)
2019
$
$
23,389 $
3,826
2,918
(26,685)
(433)
3,015 $
25,517 $
312
3,017
-
(5,457)
23,389 $
22,044
2,336
1,353
-
(216)
25,517
The Company’s accrual for estimated interest and penalties was $0.87 million as of December 31, 2021. The Company does not expect uncertain tax positions to change
significantly over the next twelve months.
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 2013 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 21%.
Company incorporated in Germany—tax rate of approximately 29%.
Company incorporated in Hong Kong—tax rate of approximately 16.5%.
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 23%. The Company elected to compute its taxable income in accordance with Income Tax Regulations (Rules for
Accounting for Foreign Investors Companies and Certain Partnerships and Setting their Taxable Income), 1986. Accordingly, the Company’s taxable income or loss is
calculated in U.S. dollars. Applying these regulations reduces the effect of foreign exchange rate fluctuations (of the NIS in relation to the U.S. dollar) on the Company’s
Israeli taxable income.
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STRATASYS LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Tax benefits under the Law for Encouragement of Capital Investments, 1959 (the “Investment Law”)
Various industrial projects of the Company have been granted “Approved Enterprise” and “Beneficiary Enterprise” status, which provided certain benefits, including tax
exemptions for undistributed income and reduced tax rates. Income not eligible for Approved Enterprise and Beneficiary Enterprise benefits is taxed at the regular corporate
rate, which was 23% in 2021.
The Company is a Foreign Investors Company, or FIC, as defined by the Investment Law. FICs are entitled to further reductions in the tax rate normally applicable to
Approved Enterprises and Beneficiary Enterprises, depending on the level of foreign ownership. When foreign (non-Israeli) ownership equal or exceeds 90%, the Approved
Enterprise and Beneficiary Enterprise income is either tax-exempt for a limit period between two to ten years depending on the location of the enterprise or taxable at a tax rate
of 10% for a 10-year period. The Company cannot assure that it will continue to qualify as a FIC in the future or that the benefits described herein will be granted in the future.
In the event of distribution of dividends from the said tax-exempt income during the tax exemption period as described above, the amount distributed will be subject to tax
in respect of the amount of dividend distributed (grossed up to reflect such pre-tax income that it would have had to earn in order to distribute the dividend) at the corporate
tax rate that would have been otherwise applicable if such income had not been tax-exempted under the alternative benefits program. This rate generally ranges from 10% to
25%, depending on the level of foreign investment in the company in each year, as explained above, Dividends paid out of income attributed to Approved Enterprise or
Beneficiary Enterprise (or out of dividends received from a company whose income is attributed to an Approved or Beneficiary Enterprise) are generally subject to
withholding tax at the source at the rate of 15%, unless a lower rate is provided in a treaty between Israel and the shareholder’s country of residence (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.
On November 15, 2021, the Investment Law was amended to provide, on a temporary basis, a reduced corporate income tax on the distribution or release within a year
from such amendment of tax-exempt profits derived by Approved and Benefited Enterprises, which we refer to as Exempt Profits. The amount of the reduced tax will be
determined based on a formula. In order to qualify for the reduction, the Company must invest certain amounts in productive assets and research and development in Israel. In
parallel to the temporary amendment, the law was also amended to reduce the ability of companies to retain the tax-exempt profits. Effective August 15, 2021, dividend
distributions will be treated as if made on a pro-rata basis from all types of earnings, including Exempt Profits.
As of December 31, 2021, tax-exempt income of approximately $198.7 million is attributable to the Company’s various Approved and Beneficiary Enterprise programs.
If such tax-exempt income is distributed, it would be taxed at the reduced corporate tax rate applicable to such income, and taxes of approximately $19.9 million would be
incurred as of December 31, 2021.
Following recent Israeli court ruling, certain transactions (such as acquisitions and intercompany loans) may be treated as deemed dividend distributions for the purpose of
the Encouragement Law triggering corporate tax on the respective amount of the transaction.
A January 2011 amendment to the Investment Law (the “2011 Amendment”) created alternative benefit tracks to those previously in place, as follows: an investment
grants track designed for enterprises located in certain development zones and two new tax benefits tracks (“Preferred Enterprise” and “Special Preferred Enterprise”), which
provide for application of a unified tax rate to all preferred income of the company, as defined in the Investment Law.
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STRATASYS LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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) effective as of January 1, 2011
and thereafter. 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 16% with respect to its preferred income attributed to its Preferred Enterprise, unless the Preferred Enterprise was located in a
certain development zone, in which case the rate was 9%. 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 remains16%.
Dividends paid out of preferred income attributed to a Preferred Enterprise is generally subject to withholding tax at source at the rate of20%, 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.
Tax benefits under the Israeli Law for the Encouragement of Industry (Taxation), 1969
The Company is an “Industrial Company” as defined by the Israeli Law for the Encouragement of Industry (Taxation), 1969, and, as such, is entitled to certain tax benefits
including accelerated depreciation, deduction of public offering expenses in three equal annual installments and amortization of other intangible property rights for tax
purposes.
New 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 to7.5% 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 National Authority for Technological
Innovation, to which we refer as NATI.
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 an Israeli company or acquired from a foreign company on or after January 1, 2017, and the sale
received prior approval from NATI. 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.
F-44
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STRATASYS LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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%.
In 2021, the Company noticed the Israeli tax authorities that it waived the Approved / Beneficiary Enterprise regime starting from tax year 2021. The Company is
currently considering its qualification for the 2017 amendment and the term and degree to which it may be qualified as a Preferred Technology Enterprise or Special Preferred
Technology Enterprise.
Note 10. Contingencies
During the fourth quarter of 2021, the Company reached preliminary settlement on an employee related matter in the US. The financial statements for the year ended
December 31,2021 include a provision in respect of this settlement.
The Company is a party to various other 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 issued share capital is composed of ordinary shares NIS 0.01 par value per share.Ordinary shares confer upon their holders the right to receive notice to
participate and vote in general meetings of the Company, and the right to receive dividends if declared.
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, 2021 and 2020,
there were 65,677 thousand ordinary shares and 56,617 thousand ordinary shares issued and outstanding, respectively. The increase in the outstanding and issued ordinary
shares during 2021 was attributable to exercises of stock options and RSUs under the Company’s stock-based compensation plans, and to the public offering of ordinary
shares.
During 2021 the reserve pool under 2012 plan was increased by 1.8 million shares. On January 1, 2022 the reserve pool under the 2012 plan was further
automatically increased by an additional 0.5 million shares.
b. Stock-based compensation plans
The Stratasys Ltd. 2012 Omnibus Equity Incentive Plan (the “2012 Plan”), which became effective upon closing of the Stratasys-Objet 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 ten years from the grant date. Options granted become exercisable and RSUs are vested over the requisite service period, which is normally a four-year period beginning on
the grant date, subject to continued service to the Company. PSUs are vested only upon the achievement of certain pre-determined performance metrics. Once the performance
metrics are met, vesting of PSUs is subject to continued service to the Company over the requisite service period, which is normally a two-year to four-year period. As of
December 31, 2021, 1.5 million shares were available for future equity awards under the 2012 plan.
F-45
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STRATASYS LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Stock options
A summary of the stock option activity for the year ended December 31, 2021 is as follows:
Options outstanding as of December 31, 2020
Granted
Exercised
Forfeited
Options outstanding as of December 31, 2021
Options exercisable as of December 31, 2021
Number of
Options
2,102,529 $
84,326
(399,911)
(54,576)
1,732,368 $
1,376,409 $
Weighted
Average
Exercise Price
28.06
13.00
20.14
37.72
28.85
31.99
The following table summarizes information about stock options outstanding at December 31, 2021:
Range of
Exercise Prices
0.76
19.96
24.66
103.36
- $
- $
- $
- $
19.66
23.41
91.56
120.51
$
$
$
$
Outstanding
options at
December 31,
2021
799,417
445,930
476,942
10,079
1,732,368
Options Outstanding
Weighted- Average
Remaining
Contractual
Life in Years
Weighted-
Average
Exercise
Price
Options Exercisable
Exercisable
options at
December 31,
2021
Weighted-
Average
Exercise
Price
6.71
5.80
3.22
2.80
5.49
$
$
17.87
21.72
52.28
104.84
28.85
481,418 $
445,930
438,982
10,079
1,376,409 $
19.32
21.72
54.64
104.84
31.99
Aggregate intrinsic value (U.S. $ in thousands)
$
6,529
$
3,725
As of December 31, 2021, the weighted-average remaining contractual life of exercisable options was4.8 years. The total intrinsic value of options exercised during 2021,
2020 and 2019 was approximately $5.19 million, $0.04 million and $1.0 million, respectively.
The Company used the Black-Scholes option-pricing model to determine the fair value of options granted during 2021 and 2020. No options were granted during 2019.
The following assumptions were applied in determining the options’ fair value on their grant date:
Risk-free interest rate
Expected option term (years)
Expected share price volatility
Dividend yield
Weighted average grant date fair value
2021
0.4%-1.3%
5.0-5.1
52.8%-58.7%
-
$14.99
2020
0.4%-1.8%
5.0-5.1
52.5%-52.8%
-
$8.09
As of December 31, 2021, the Company had0.4 million unvested options. As of December 31, 2021, the unrecognized compensation cost related to all unvested, equity-
classified stock options of $2.7 million is expected to be recognized as an expense on a straight-line basis over a weighted-average period of3.0 years.
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STRATASYS LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Restricted Stock Units and Performance Stock Units
A summary of the Company’s RSUs and PSUs activity for the year ended December 31, 2021 is as follows:
Unvested RSUs outstanding as of December 31, 2020
Granted
Vested
Forfeited
Unvested RSUs outstanding as of December 31, 2021
Number of
RSUs and
PSUs
2,801,116 $
1,378,782
(729,565)
(367,535)
3,082,798 $
Weighted
Average
Grant Date
Fair Value
21.08
33.66
21.71
22.71
26.36
The total vesting-date value of equity classified RSUs vested during 2021 was $19.0 million. As of December 31, 2021, the unrecognized compensation cost related to all
unvested equity classified RSUs and PSUs of $54.5 million is expected to be recognized as an expense on a straight-line basis over a weighted-average period of2.1 years.
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:
Cost of revenues
Research and development, net
Selling, general and administrative
Total stock-based compensation expenses
$
$
c. Accumulated other comprehensive loss
2021
2020
(U.S. $ in thousands)
1,771 $
6,102
12,331
20,204 $
3,093 $
6,564
21,320
30,977 $
2019
1,848
5,167
13,549
20,564
The following tables present the changes in the components of accumulated other comprehensive loss, net of taxes for the years ended December 31, 2021, 2020 and
2019:
Balance as of January 1, 2021
Other comprehensive loss before reclassifications
Amounts reclassified from accumulated other comprehensive loss
Other comprehensive income (loss), net of tax
Balance as of December 31, 2021
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STRATASYS LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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
Balance as of January 1, 2019
Other comprehensive loss before reclassifications
Amounts reclassified from accumulated other comprehensive loss
Other comprehensive income (loss)
Balance as of December 31, 2019
d. Public offering of ordinary shares
Net unrealized
gain (loss) on
cash flow
hedges
Year ended December 31, 2021
Foreign
currency
translation
adjustments
U.S. $ in thousands
Total
(1,673) $
3,668
(423)
3,245
1,572 $
(7,173) $
(2,603)
(567)
(3,170)
10,343 $
(8,846)
1,065
(990)
75
(8,771)
Net unrealized
gain (loss) on
cash flow
hedges
Year ended December 31, 2020
Foreign
currency
translation
adjustments
U.S. $ in thousands
Total
(10) $
(1,024)
(639)
(1,663)
(1,673) $
(7,706) $
533
-
533
(7,173) $
(7,716)
(490)
(639)
(1,130)
(8,846)
Net unrealized
gain (loss) on
cash flow
hedges
Year ended December 31, 2019
Foreign
currency
translation
adjustments
U.S. $ in thousands
Total
(627) $
1,548
(931)
617
(10) $
(7,126) $
(580)
-
(580)
(7,706) $
(7,753)
968
(931)
37
(7,716)
$
$
$
$
$
$
During March 2021, the Company completed a public offering of $218.9 million, net of $11.1 million underwriting discounts and offering expenses. The total number of
shares sold by the Company in the public offering was 7,931,034. The Company recorded a deferred tax asset in respect of a tax benefit, arising from the underwriting
discounts and offering expenses, as an increase to Additional Paid-In Capital.
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STRATASYS LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 12. Derivatives and Hedging Activities
Th C
i
i
i
l i
f
i
h
d i
i
fi
i l i
Th
i
d i
d
h d
h C
’
The Company carries out transactions involving foreign currency exchange derivative financial instruments. The transactions are designed to hedge the Company’s
exposure in 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”), the Euro and the Japanese Yen. 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:
Assets derivatives -Foreign exchange contracts, not designated
as hedging instruments
Assets derivatives -Foreign exchange contracts, designated as
cash flow hedge
Liability derivatives -Foreign exchange contracts, not
designated as hedging instruments
Liability derivatives -Foreign exchange contracts, designated
as cash flow hedge
Fair Value
December 31,
Notional Amount
December 31,
Balance sheet location
2021
2020
2021
2020
(U.S. $ in thousands)
Other current assets
$
82 $
56
$
12,380 $
36,882
Other current assets
Accrued expenses and other
current liabilities
Accrued expenses and other
current liabilities
910
(89)
(60)
793
(1,098)
(1,584)
60,408
33,047
26,320
10,417
37,999
50,186
$
843 $
(1,833) $
132,155 $
135,484
Foreign exchange contracts not designated as hedging instruments
As of December 31, 2021, the notional amounts of the Company’s outstanding exchange forward contracts, not designated as hedging instruments, were $45.4 million
and were used to reduce foreign currency exposures of the Euro, New Israeli Shekel (the “NIS”), Japanese Yen, Korean Won and Chinese Yuan. With respect to such
derivatives, gain of $2.9 million and loss of $6.2 million were recognized under financial income, net for the years ended December 31, 2021 and 2020, respectively. Such
gains partially offset the revaluation losses of the balance sheet items, which are also recognized under financial income, net.
F-49
Table of Contents
STRATASYS LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Cash Flow Hedging—Hedges of Forecasted Foreign Currency Payroll and other operating expenses
As of December 31, 2021 and 2020, the Company had in effect foreign exchange forward contracts for the conversion of $32.1 million and $10.4 million, respectively,
into NIS. These foreign exchange forward contracts were designated as cash flow hedge for accounting purposes. The Company uses short-term cash flow hedge contracts to
reduce its exposure to variability in expected future cash flows resulting mainly from payroll costs denominated in New Israeli Shekels. The changes in fair value of those
contracts are included in the Company’s accumulated other comprehensive loss.
Cash Flow Hedging—Hedges of Forecasted Foreign Currency Revenue
We transact business in U.S. Dollars and in various other currencies. We 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. We enter into these
foreign exchange contracts to hedge a portion of our forecasted foreign currency denominated revenue in the normal course of business and accordingly, they are not
speculative in nature.
As of December 31, 2021, the Company had in effect foreign exchange forward contracts, designated as cash flow hedge for accounting purposes, for the conversion of
Euro 54.7 million in USD.
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. We record changes in fair value of these cash flow hedges in accumulated other comprehensive income (loss)
in our 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, we reclassify 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 we do 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.
F-50
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STRATASYS LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Revenues
Cost of revenues
Research and
development, net
Selling, general and
administrative
Financial expenses
(income), net
December 31,
2021
2020
December 31,
2020
2021
December 31,
2020
2021
2021
(U.S. $ in thousands)
December 31,
2020
December 31,
2020
2021
Other
comprehensive
income (loss)
December 31,
2020
2021
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
$(607,219)
(520,817) $347,141 $301,423
$88,303 $84,012
$250,937 $205,224
$ 2,075 $
575
$
75 $ (1,130)
914
235
(243)
(198)
(398)
(279)
(696)
(397)
-
-
3,245
(1,663)
-
-
-
-
-
-
-
-
(2,870)
6,194
-
-
Note 13. Entity-Wide Disclosure
Revenues by geographic area for the years ended December 31, 2021, 2020 and 2019 were as follows*:
Americas (primarily the United States)
EMEA
Asia Pacific
Year ended December 31,
2021
2020
(U.S. $ in thousands)
2019
388,323 $
130,296
88,600
607,219 $
343,477 $
101,584
75,756
520,817 $
415,862
124,967
95,251
636,080
$
$
* Revenues are attributed to geographic areas based on the location of customer.
No single customer accounted for 10% or more of Company’s total revenues, or Company’s net accounts receivable, in any fiscal year presented.
F-51
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STRATASYS LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Property, plant and equipment and right-of-use assets of lessees by geographical area were as follows:
Americas (primarily the United States)
EMEA
Asia Pacific
Year ended December 31,
2021
46,456 $
162,576
8,914
217,946 $
2020
67,208
147,132
8,190
222,530
$
$
Property, plant and equipment that were located in Israel amounted to $136.4 million and $126.9 million for the years ended December 31, 2021 and 2020, respectively
and are included under the EMEA region in the above table.
Right-of-use assets of lessees that were located in Israel amounted to$1.4 million and $2.5 million for the years ended December 31, 2021 and 2020 respectively and are
included under the EMEA region in the above table.
Note 14. Net loss per Share
The following table presents the computation of basic and diluted net loss per share:
Year ended December 31,
2020
(In thousands, except per share amounts)
2019
2021
Numerator:
Net loss attributable to Stratasys Ltd. for basic and diluted net loss per share
$
(61,982) $
(443,721) $
(10,849)
Denominator:
Weighted average shares – denominator for basic and diluted net loss per share
63,471
54,918
54,260
Net loss per share Basic and diluted
$
(0.98) $
(8.08) $
(0.20)
The computation of diluted net loss per share for the years ended December 31, 2021, 2020 and 2019 excluded share awards of4.8 million, 4.9 million and 4.3 million,
respectively, because their inclusion would have had an anti-dilutive effect on the diluted net loss per share.
F-52
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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, 2021, 2020 and 2019, were as
follows:
Operating lease cost:
Fixed payments and variable payments that depend on an
index or rate
Total operating lease cost
$
$
10,196 $
10,102 $
10,196 $
10,102 $
8,564
8,564
2021
December 31,
2020
(U.S. $ in thousands)
2019
Cash flow and other information related to operating leases were as follows:
Cash paid for amounts included in the measurement of
lease liabilities
Right-of-use assets obtained in exchange for new operating
lease liabilities
$
$
2021
December 31,
2020
(U.S. $ in thousands)
2019
9,829 $
10,559 $
9,685
5,955 $
10,008 $
7,246
Weighted-average remaining lease term — operating
leases
Weighted-average discount rate — operating leases
2021
December 31,
2020
2019
2.59 years
3.00 years
3.18 years
4.58%
4.78%
4.72%
Maturities of operating lease liabilities were as follows:
December 31,
2021
(U.S. $ in
thousands)
7,504
5,118
2,499
538
114
15,773
(804)
14,969
2022
2023
2024
2025
2026
Total operating lease payments
Less: imputed interest
Present value of lease liabilities
F-53
$
$
Table of Contents
ITEM 19. EXHIBITS.
Exhibit
Number
1.1
1.2
2.1
2.2
4.1.1
4.1.2
4.1.3
4.1.4
4.2
4.3
4.4
4.5
4.8
4.9
8.1
12.1
12.2
13
15.1
101
104
Table of Contents
Document Description
Amended and Restated Articles of Association of Stratasys Ltd. (1)
Memorandum of Association of Stratasys Ltd. (2)
Specimen ordinary share certificate of Stratasys Ltd. (3)
Description of ordinary shares of Stratasys Ltd*
Stratasys Ltd. 2012 Omnibus Equity Incentive Plan (4)
Amendment to Stratasys Ltd. 2012 Omnibus Equity Incentive Plan (5)
Additional amendment to Stratasys Ltd. 2012 OmnibusEquity Incentive Plan (6)
Additionalamendment to Stratasys Ltd. 2012 Omnibus Equity Incentive Plan (7)
StratasysLtd. 2021 Employee Share Purchase Plan (8)
Form of Indemnification Agreement by andbetween Stratasys Ltd. and each of its directors and executive officers (9)
OEM Purchase and License Agreement,effective as of May 5, 2011, by and between Stratasys Ltd. (formerly known as Objet Geometries Ltd.) and
RicohPrinting Systems America, Inc. (10)
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 (11)
Stratasys Ltd. Compensation Policy for Executive Officers and Directors (11)
Employment Agreement, effective as of February 18, 2020, by and between Stratasys Ltd. and Yoav Zeif (13)
Subsidiary List of Stratasys Ltd.*
Certificate of Chief Executive Officer pursuant to Rule 13a-14(a)/Rule 15d-14(a) under the Exchange Act*
Certificate of Chief Financial Officer pursuant to Rule 13a-14(a)/Rule 15d-14(a) under the Exchange Act*
Certification of Chief Executive Officer and Chief Financial Officer pursuant to Rule 13a-14(b)/Rule 15d-14(b) under the Exchange Act and 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*
Consent of Kesselman & Kesselman, a member firm of PricewaterhouseCoopers International Limited, an independent registered public accounting
firm*
The following financial information from Stratasys Ltd.’s Annual Report on Form 20-F for the year ended December 31, 2020 formatted in XBRL
(eXtensible Business Reporting Language): (i) Consolidated Balance Sheets at December 31, 2021 and 2020; (ii) Consolidated Statements of Operations
and Comprehensive Income for the years ended December 31, 2021, 2020 and 2019; (iii) Consolidated Statements of Changes in Equity for the years
ended December 31, 2021, 2020 and 2019; (iv) Consolidated Statements of Cash Flows for the years ended December 31, 2021, 2020 and 2019; and (v)
Notes to Consolidated Financial Statements, tagged as blocks of text.
Cover Page Interactive Data File
142
(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)
(4)
(5)
(6)
(7)
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
Incorporated by reference to Exhibit 10.6 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
Incorporated by reference to Proposal 3 of the registrant’s proxy statement for its February 2013 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 28, 2013
Incorporated by reference to Proposal 4 of the registrant’s proxy statement for its November 2020 annual 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 October 21, 2020
Incorporated by reference to Proposal 2 of the registrant’s proxy statement for its November 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
(8)
Incorporated by reference to Appendix A to the registrant’s proxy statement for its November 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
(9)
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
(10)
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#
(11)
December 20, 1995
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
(12)
registrant’s report of foreign private issuer on Form 6-K furnished to the SEC on October 21, 2020
Incorporated by reference to Appendix B to the registrant’s proxy statement for itsannual general meeting of shareholders, attached as Exhibit 99.1 to the
(13)
2020
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,
*Filed herewith
# Portions of this exhibit have been omitted and filed separately with the SEC pursuant to a confidential treatment request.
Table of Contents
143
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
February 24, 2022
Exhibit 2.2 Description of Stratasys Ltd. Ordinary Shares
The Stratasys Ltd. (hereinafter, “we”, “us”, “our” or similar expressions) authorized share capital consists of 180 million ordinary shares, nominal value NIS 0.01 per share.
As of February 14, 2022, 65,676,745 ordinary shares were issued and outstanding.
We may from time to time, by approval of a majority of our shareholders, increase our authorized share capital. Our fully paid ordinary shares are issued in registered form
and are freely transferable under our amended and restated articles of association, as further amended (to which we refer herein as our amended articles). Under the Israeli
Companies Law, 5759-1999, or the Companies Law, we are required to maintain a major shareholder register listing for shareholders holding 5% or more of our outstanding
ordinary shares.
Our amended articles and the laws of the State of Israel do not restrict the ownership or voting of ordinary shares by non-residents of Israel, except with respect to
individuals and entities that are residents of countries in a state of war with Israel, and except with respect to entities which are controlled by residents of countries in a state of
war with Israel.
Listing, Register Number and Purpose
Our ordinary shares are listed and traded on the Nasdaq Global Select Market under the trading symbol “SSYS.”
Our registration number at the Israeli Registrar of Companies is 51-260769-8. Our purpose under our memorandum of association includes every lawful purpose.
Dividend and Liquidation Rights
Holders of our ordinary shares are entitled to their proportionate share of any cash dividend, share dividend or dividend in kind declared with respect to our ordinary shares.
We may declare dividends out of profits legally available for distribution. Under the Companies Law, a company may distribute a dividend only if the distribution does not
create a reasonably foreseeable risk that the company will be unable to meet its existing and anticipated obligations as they become due. A company may only distribute a
dividend out of the company’s profits, as defined under the Companies Law.
Under the Companies Law, the declaration of a dividend does not require the approval of the shareholders of a company unless the company’s articles of association
provide otherwise. Our amended articles provide that our board of directors may declare and distribute dividends without the approval of the shareholders.
In the event of liquidation, holders of our ordinary shares will have the right to share ratably in any assets remaining after payment of liabilities, in proportion to the paid-up
nominal value of their respective holdings. These rights may be affected by the grant of preferential liquidation or dividend rights to the holders of a class of shares that may be
authorized in the future.
Shareholder Meetings
Holders of ordinary shares have one vote for each ordinary share held on all matters submitted to a vote of shareholders. This right may be changed if shares with special
voting rights are authorized in the future.
Under the Companies Law, an annual general meeting of our shareholders is required to be held once every calendar year, but no later than 15 months from the date of the
previous annual general meeting.
All meetings other than the annual general meeting of shareholders are referred to as extraordinary general meetings. Our board of directors may call extraordinary general
meetings whenever it sees fit, at such time and place, within or outside of Israel, as it may determine. In addition, the Companies Law and our amended articles provide that our
board of directors is required to convene an extraordinary general meeting upon the written request of (i) any two of our directors or one-quarter of our board of directors or (ii)
one or more shareholders holding, in the aggregate, either (a) 5% of our outstanding issued shares and 1% of our outstanding voting power or (b) 5% of our outstanding voting
power. The Chairman of the Board of Directors or any other person appointed for that purpose by the board of directors, presides at each of our general meetings. The Chairman
of the Board of Directors is not entitled to vote at a general meeting in his capacity as Chairman.
Subject to the provisions of the Companies Law and the regulations promulgated thereunder, shareholders that are entitled to participate and vote at general meetings are the
shareholders of record on a date decided by our board of directors, which may be between four and 40 days prior to the date of the meeting. Furthermore, the Companies Law
and the amended articles require that resolutions regarding the following matters must be passed at a general meeting of our shareholders:
● amendments to the amended articles;
● appointment or termination of our auditors;
● appointment of directors and appointment and dismissal of external directors;
● approval of acts and transactions involving related parties, as defined by the Companies Law or pursuant to our amended articles;
● director compensation;
● increases or reductions of our authorized share capital;
● a merger; and
● the exercise of our board of directors’ powers by a general meeting, if the board of directors is unable to exercise its powers and the exercise of any of its powers is
required for our proper management.
The Companies Law and the amended articles require that a notice of any annual general meeting or extraordinary general meeting be provided to shareholders at least 21
days prior to the meeting, and if the agenda of the meeting includes the appointment or removal of directors, the approval of transactions with office holders or interested or
related parties, or an approval of a merger, notice must be provided at least 35 days prior to the meeting.
Under the Companies Law and the amended articles, shareholders are not permitted to take action via written consent in lieu of a meeting.
Voting Rights
Quorum requirements
Pursuant to our amended articles, holders of ordinary shares have one vote for each share held on all matters submitted to a vote before the shareholders at a general
meeting. The quorum required for a general meeting consists of at least two shareholders present in person, by proxy or written ballot who hold or represent between them at
least 25% of the total outstanding voting rights. A meeting adjourned for lack of a quorum is generally adjourned to the same day in the following week at the same time and
place or to a later time/date if so specified in the summons or notice of the meeting. At the reconvened meeting, any two or more shareholders present in person or by proxy
constitute a lawful quorum.
2
Vote requirements
Our amended articles provide that all resolutions of our shareholders require the approval of a majority of the voting power present and voting at a general meeting, in
person or by proxy, unless otherwise required by the Companies Law or by the amended articles. Under the Companies Law, each of (i) the approval of an extraordinary
transaction with a controlling shareholder, (ii) the terms of employment or other engagement of the controlling shareholder of the company or such controlling shareholder’s
relative (even if not extraordinary) and (iii) the terms of employment of the chief executive officer require, in addition to approval by the audit committee (or, in the case of a
compensatory arrangement, the compensation committee) and the board of directors, approval by a special majority of the shareholders that fulfills one of the following
requirements:
● the majority includes a majority of non-controlling shareholders who lack a conflict of interest (referred to under the Companies Law as a “personal interest”) in approval
of the transaction or terms of employment or engagement (as applicable); or
● the votes of non-controlling shareholders who have no conflict of interest in the transaction or terms of employment or engagement and who are present and voting, in
person, by proxy or by voting deed at the meeting, and who vote against it, may not represent more than two percent (2%) of the voting rights of the company.
- 3 -
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.
Under our amended articles, if the share capital is divided into classes, the alteration of the rights, privileges, preferences or obligations of any class of share capital will
require approval by a majority of the voting power present and voting, in person or by proxy, at a class meeting of the class so affected (or such other percentage of the relevant
class that may be set forth in the governing documents relevant to such class).
Israeli law provides that a shareholder of a public company may vote in a meeting and in a class meeting by means of a voting deed in which the shareholder indicates how
he or she votes on resolutions relating to the following matters:
● appointment or removal of directors;
3
● approval of transactions with office holders or interested or related parties;
● approval of a merger or any other matter in respect of which there is a provision in the articles of association providing that decisions of the general meeting may also be
passed by voting deed;
4
● approval of an arrangement or reorganization of the company pursuant to Section 350 of the Companies Law; and
● other matters which may be prescribed by Israel’s Minister of Justice.
The provision allowing the vote by voting deed does not apply if, to the best knowledge of the company at the time of calling the general shareholders meeting, a controlling
shareholder will hold on the record date for such shareholders meeting, voting power sufficient to determine the outcome of the vote.
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
● the approval of interested party transactions and acts of office holders that require shareholder approval.
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.
Access to Corporate Records
Under the Companies Law and our amended articles, shareholders are provided access to the following corporate records: minutes of our general meetings; our shareholders
register and principal shareholders register, articles of association and financial statements; and any document that we are required by law to file publicly with the Israeli
Companies Registrar or the Israel Securities Authority. In addition, shareholders may request to be provided with any document related to an action or transaction requiring
shareholder approval under the related party transaction provisions of the Companies Law. We may deny this request if we believe it has not been submitted in good faith or if
such denial is necessary to protect our interest or protect a trade secret or patent.
Modification of Class Rights
5
The rights attached to any class of shares, such as voting, liquidation and dividend rights, may be amended by adoption of a resolution by the holders of a majority of the
shares of that class present at a separate class meeting, or otherwise in accordance with the rights attached to such class of shares, as set forth in our amended articles.
Transfer Agent and Registrar
Our transfer agent and registrar in the United States is Continental Stock Transfer & Trust Company.
Anti-Takeover Provisions
Full Tender Offer
A person wishing to acquire shares of a public Israeli company and who could as a result hold over 90% of the target company’s issued and outstanding share capital or
voting rights is required by the Companies Law to make a tender offer to all of the company’s shareholders for the purchase of all of the issued and outstanding shares of the
company. A person wishing to acquire shares of a public Israeli company and who could as a result hold over 90% of the issued and outstanding share capital or voting rights of
a certain class of shares is required to make a tender offer to all of the shareholders who hold shares of the relevant class for the purchase of all of the issued and outstanding
shares of that class. If the shareholders who do not accept the offer hold less than 5% of the issued and outstanding share capital and voting rights of the company or of the
applicable class, all of the shares that the acquirer offered to purchase will be transferred to the acquirer by operation of law (provided that a majority of the offerees that do not
have a personal interest in such tender offer shall have approved it, which condition shall not apply if, following consummation of the tender offer, the acquirer would hold at
least 98% of all of the company’s outstanding shares and voting rights (or shares and voting rights of the relevant class)). However, shareholders may, at any time within six
months following the completion of the tender offer, petition the court to alter the consideration for the acquisition. Even shareholders who indicated their acceptance of the
tender offer may so petition the court, unless the acquirer stipulated that a shareholder that accepts the offer may not seek appraisal rights). If the shareholders who did not
accept the tender offer hold 5% or more of the issued and outstanding share capital or voting rights of the company or of the applicable class, the acquirer may not acquire
shares of the company that will increase its holdings to more than 90% of the company’s issued and outstanding share capital or voting rights or 90% of the shares or voting
rights of the applicable class, from shareholders who accepted the tender offer.
Special Tender Offer
6
The Companies Law provides that an acquisition of shares of a public Israeli company must be made by means of a special tender offer if as a result of the acquisition the
purchaser could become a holder of 25% or more of the voting rights in the company, unless one of the exemptions in the Companies Law (as described below) is met. This rule
does not apply if there is already another holder of at least 25% of the voting rights in the company. Similarly, the Companies Law provides that an acquisition of shares in a
public company must be made by means of a tender offer if as a result of the acquisition the purchaser could become a holder of more than 45% of the voting rights in the
company, if there is no other shareholder of the company who holds more than 45% of the voting rights in the company, unless one of the exemptions in the Companies Law is
met.
A special tender offer must be extended to all shareholders of a company but the offeror is not required to purchase shares representing more than 5% of the voting power
attached to the company’s outstanding shares, regardless of how many shares are tendered by shareholders. A special tender offer may be consummated only if (i) at least 5% of
the voting power attached to the company’s outstanding shares will be acquired by the offeror and (ii) the number of shares tendered in the offer exceeds the number of shares
whose holders objected to the offer.
If a special tender offer is accepted, then the purchaser or any person or entity controlling it or under common control with the purchaser or such controlling person or entity
may not make a subsequent tender offer for the purchase of shares of the target company and may not enter into a merger with the target company for a period of one year from
the date of the offer, unless the purchaser or such person or entity undertook to effect such an offer or merger in the initial special tender offer.
Merger
7
The Companies Law permits merger transactions if approved by each party’s board of directors and, unless certain requirements described under the Companies Law are
met, by a majority vote of each party’s shares, and, in the case of the target company, a majority vote of each class of its shares, voted on the proposed merger at a shareholders
meeting called with at least 35 days’ prior notice.
For purposes of the shareholder vote, unless a court rules otherwise, the merger requires approval by a majority of the votes of shares represented at the shareholders’
meeting that are held by parties other than the other party to the merger, or by any person (or group of persons acting in concert) who holds (or hold, as the case may be) 25% or
more of the voting rights or the right to appoint 25% or more of the directors of the other party to the merger. If, however, the merger involves a merger with a company’s own
controlling shareholder or if the controlling shareholder has a personal interest in the merger, then the merger is instead subject to the same special majority approval that
governs all extraordinary transactions with controlling shareholders (as described above under “Voting Rights—Vote requirements”).
If the transaction would have been approved by the shareholders of a merging company but for the separate approval of each class or the exclusion of the votes of certain
shareholders as provided above, a court may still approve the merger upon the request of holders of at least 25% of the voting rights of a company, if the court holds that the
merger is fair and reasonable, taking into account the value of the parties to the merger and the consideration offered to the shareholders of the company that have petitioned the
court to approve the merger.
Upon the request of a creditor of either party to the proposed merger, the court may delay or prevent the merger if it concludes that there exists a reasonable concern that, as
a result of the merger, the surviving company will be unable to satisfy the obligations of any of the parties to the merger, and may further give instructions to secure the rights of
creditors.
In addition, a merger may not be consummated unless at least 50 days have passed from the date on which a proposal for approval of the merger was filed by each party
with the Israeli Registrar of Companies and at least 30 days have passed from the date on which the merger was approved by the shareholders of each party.
Preferred Share Issuance
Under the Companies Law, we are allowed to create and issue shares having rights different from those attached to our ordinary shares, including shares providing certain
preferred rights, distributions or other matters and shares having preemptive rights. No preferred shares are currently authorized under our amended articles. In the future, if we
do authorize, create and issue a specific class of preferred shares, such class of shares, depending on the specific rights that may be attached to it, may have the ability to
frustrate or prevent a takeover or otherwise prevent our shareholders from realizing a potential premium over the market value of their ordinary shares. The authorization and
designation of a class of preferred shares will require an amendment to our amended articles, which requires the prior approval of the holders of a majority of the voting power
present and voting, in person or by proxy, at the applicable general meeting of our shareholders. The convening of the meeting, the shareholders entitled to participate and the
majority vote required to be obtained at such a meeting will be subject to the requirements set forth in the Companies Law as described above under “Voting Rights.”
Board of Directors
8
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 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 any employment agreement
that we may enter 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 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.
As a result of our election to be exempt from the external director requirement under the Companies Law, each of our directors is elected annually, at our annual general
meeting of shareholders. The vote required for the election of each director is a majority of the voting power represented at the meeting and voting on the election proposal.
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 theNasdaq 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).
EXHIBIT 8.1
Subsidiaries
ENTITY
MakerBot Industries, LLC
Stratasys Solutions Ltd.
Stratasys AP Limited
Stratasys Direct, Inc.
Stratasys GMBH
Stratasys, Inc.
Stratasys Japan Co. Ltd.
Stratasys Korea Ltd.
Stratasys Latin America Representacao De Equipamentos Ltd.,
Stratasys Mexico S.A. de C.V.
Stratasys Shanghai Ltd.
Stratasys Powder Production Aps.
RP Support Ltd.
New York
England
Hong Kong
California
Germany
Delaware
Japan
Korea
Brazil
Mexico
China
Denmark
United Kingdom
JURISDICTION OF
INCORPORATION
OR ORGANIZATION
CERTIFICATION PURSUANT TO
RULE 13a-14(a)/RULE 15d-14(a) UNDER
THE EXCHANGE ACT
Exhibit 12.1
I, Yoav Zeif, certify that:
1. I have reviewed this annual report on Form 20-F of Stratasys Ltd.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in
light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition,
results of operations and cash flows of the company as of, and for, the periods presented in this report;
4. The company’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules
13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f)) for the company and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material
information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this
report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;
(c) Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure
controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the company’s internal control over financial reporting that occurred during the period covered by the annual report that has
materially affected, or is reasonably likely to materially affect, the company’s internal control over financial reporting; and
5. The company’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company’s auditors
and the audit committee of the company’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect
the company’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the company’s internal control over financial reporting.
Date: February 24, 2022
/s/ Yoav Zeif
Yoav Zeif
Chief Executive Officer
CERTIFICATION PURSUANT TO
RULE 13a-14(a)/RULE 15d-14(a) UNDER
THE EXCHANGE ACT
Exhibit 12.2
I, Lilach Payorski, certify that:
1. I have reviewed this annual report on Form 20-F of Stratasys Ltd.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in
light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition,
results of operations and cash flows of the company as of, and for, the periods presented in this report;
4. The company’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules
13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f)) for the company and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material
information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this
report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;
(c) Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure
controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the company’s internal control over financial reporting that occurred during the period covered by the annual report that has
materially affected, or is reasonably likely to materially affect, the company’s internal control over financial reporting; and
5. The company’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company’s auditors
and the audit committee of the company’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect
the company’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the company’s internal control over financial reporting.
Date: February 24, 2022
/s/ Lilach Payorski
Lilach Payorski
Principal Financial Officer and Principal Accounting Officer
CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER AND CHIEF
FINANCIAL OFFICER PURSUANT TO
RULE 13a-14(b)/RULE 15d-14(b) UNDER THE EXCHANGE ACT
AND 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 13
In connection with the Annual Report of Stratasys Ltd. (the “Company”) on Form 20-F for the period ended December 31, 2021 as filed with the Securities and Exchange
Commission on the date hereof (the “Report”), we, Yoav Zeif, Chief Executive Officer of the Company, and Lilach Payorski, Chief Financial Officer of the Company, certify,
pursuant to Rule 13a-14(b)/Rule 15d-14(b) under the Securities Exchange Act of 1934, as amended and 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley
Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.
Dated: February 24, 2022
By /s/ Yoav Zeif
Yoav Zeif
Chief Executive Officer
By /s/ Lilach Payorski
Lilach Payorski
Chief Financial Officer
Exhibit 15.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (Nos. 333-190963, 333-236880, 333-253694) and Form F-3 (Nos. 333-251938,
333-253780) of Stratasys Ltd. of our report dated February 24, 2022 relating to the financial statements and the effectiveness of internal control over financial reporting, which
appears in this Form 20-F.
Tel-Aviv, Israel
February 24, 2022
/s/ Kesselman & Kesselman
Certified Public Accountants (Isr.)
A member firm of PricewaterhouseCoopers International Limited