Stratasys Reports Record Second Quarter Financial Results

High End FDM System Revenue Increases 33%
MINNEAPOLIS--(Business Wire)--
Stratasys, Inc. (Nasdaq: SSYS) today announced record second
quarter revenue and earnings.

Total revenue rose to $31.3 million for the second quarter ended
June 30, 2008 over the $28.2 million reported for the same period in
2007, an increase of 11%. Revenue from proprietary products and
services for the second quarter increased by 13% over the same period
last year. System shipments totaled 540 units for the second quarter
of 2008, versus 564 for the same period last year.

GAAP net income increased 13% to $4.1 million for the second
quarter, or $0.19 per share, compared to GAAP net income of $3.6
million, or $0.17 per share, for the same period in 2007. The 2007
results have been adjusted to reflect the two-for-one stock split
completed in August, 2007.

Stock-based compensation expense required under Financial
Accounting Standard (SFAS) 123R was approximately $268,000 net of tax,
or $0.01 per share for the second quarter of 2008, and approximately
$131,000 net of tax, or $0.01 per share, for the same period in 2007.

Total revenue rose to $62.0 million for the six month period ended
June 30, 2008 over the $55.6 million reported for the same period in
2007, an increase of 12%. Revenue from proprietary products and
services for the six month period increased by 14% over the same
period last year. System shipments totaled 1,117 units for the six
month period, versus 1,112 for the same period last year.

GAAP net income increased 16% to $7.9 million for the six month
period, or $0.37 per share, compared to GAAP net income of $6.8
million, or $0.32 per share, for the same period in 2007.

Stock-based compensation expense required under SFAS 123R was
approximately $529,000 net of tax, or $0.02 per share for the six
month period of 2008, and approximately $343,000 net of tax, or $0.02
per share, for the same period in 2007.

"Our second quarter results were driven by the continued strength
in our high-end FDM system business, which grew by 33% over the same
period last year," said Scott Crump, chairman and chief executive
officer of Stratasys. "FDM system sales benefited from the ongoing
success of our recently introduced products, as customers are valuing
their improved functionality for making prototypes. More importantly,
they are increasingly using the new systems for making functional
parts, also known as direct digital manufacturing (DDM).

"Our success in targeting these new applications was highlighted
by the recent order for five of our largest additive fabrication
systems, the FDM 900mc, which will be used expressly by the customer
for DDM. We estimate that approximately one third of all our high end
systems sold during the second quarter will be utilized for DDM, in
some frequency. We remain excited about these emerging applications,
and as the second quarter reflects, we are generating significant
incremental business from these new opportunities.

"Within the 3D printing business, our direction over the past two
years has been a departure from our longer-term vision of driving
adoption through greater affordability. Our recent strategy has
included the introduction of higher-priced 3D printers that provide
customers with improved functionality. This has produced some
unanticipated results, as our resellers have focused their efforts on
these new systems, resulting in a disproportionately higher level of
sales for our full-feature 3D printers compared to the lower-priced
units.

"While the strong sales of higher-priced 3D printers have
positively impacted our average printer prices and margins, total 3D
printer unit volume lagged our expectations during the second quarter.
We believe this trend reflects the difficulty in selling a relatively
new technology to domestic customers that are contending with a
weakening environment for manufacturing, and are less inclined to make
innovative investments. We believe new initiatives planned for 3D
printing over the coming quarters will improve the performance of the
business.

"We continue to observe positive trends within our paid parts
business, as we have instituted organizational changes, and are making
improvements to our sales and marketing efforts. Total paid parts
revenue increased 5% year-over-year in the second quarter following
the 12% decline in year-over-year revenue in the first quarter of this
year. In addition, paid parts revenue was up 25% sequentially for the
second quarter. Total registrations on our RedEyeRPM.com web site
during the second quarter increased by 43%, and the number of
first-time customer orders increased by 53% compared to last year.

"We were pleased to announce the installation of our 10,000th
system in June to Peugeot Citroen, which purchased a high-precision
FDM 400mc for the automaker's engineering facility. We have now sold
more systems in the past three years than in our company's prior
fifteen-year history. This expanding base of systems is contributing
to growth in our proprietary consumable and maintenance revenue, which
both increased by 17% during the second quarter versus last year.

"We are pleased with our second quarter results, but have adjusted
our revenue and earnings projections for the balance of 2008 based on
the recent trends we have observed in 3D printing. However, we
continue to project strong profit growth for the balance of the year.
Longer-term, we remain optimistic given our planned initiatives within
3D printing that should accelerate unit growth, and given the strong
growth we continue to observe for high-end systems sales and
proprietary consumable revenue. We remain excited about our numerous
opportunities," Crump concluded.

Stratasys provided the following information regarding its
financial guidance for the fiscal year ending December 31, 2008:

-- Lowering revenue guidance to $125 million to $130 million,
from the previous guidance of $130 million to $136 million.

-- Lowering non-GAAP earnings guidance, which excludes
stock-based compensation expenses required under SFAS 123R, to
$0.79 to $0.84 per share, from the previous guidance of $0.81
to $0.89 per share.

-- Lowering GAAP earnings guidance to $0.75 to $0.80 per share,
from the previous guidance of $0.77 to $0.85 per share.

-- Stock-based compensation expenses required under SFAS 123R
estimated at $0.04 to $0.05 per share.

The revenue guidance adjustment reflects a reduction in 3D printer
system revenue for fiscal 2008, compared to previous projections.
Earnings per share adjustments reflect the lower revenue projection,
offset partially by a reduction in operating expenses compared to
previous projections.

Appropriate reconciliations between non-GAAP and GAAP financial
measures are provided in a table at the end of this press release.

The Company will hold a conference call to discuss its second
quarter financial results on Thursday, July 31, 2008 at 8:30 a.m.
(EDT). The investor conference call will be available via live webcast
on the Stratasys web site at www.stratasys.com under the "Investors"
tab. To participate by telephone, the domestic dial-in number is
888-679-8033 and the international dial-in is 617-213-4846. The access
code is 24869428. Investors are advised to dial into the call at least
ten minutes prior to the call to register.

Participants may pre-register for the call at
www.theconferencingservice.com/prereg/key.process?key=PPHRK3BW8.

Pre-registrants will be issued a pin number to use when dialing
into the live call which will provide quick access to the conference
by bypassing the operator upon connection.

The webcast will be available for 90 days on the "Investors" page
of the Stratasys website.

Stratasys, Inc., Minneapolis, manufactures office-based rapid
prototyping and direct digital manufacturing systems, 3D printers and
offers rapid prototyping and manufacturing parts services. According
to Wohlers Report 2008, Stratasys supplied 44 percent of all systems
installed worldwide in 2007, making it the unit market leader, for the
sixth consecutive year. Stratasys developed the rapid prototyping
process known as fused deposition modeling (FDM). The process creates
functional models and end-use parts directly from any 3D CAD program
using ABS plastic, polycarbonate, PPSF, and blends. The company holds
over 180 granted or pending rapid prototyping patents globally.
Stratasys products are used in the aerospace, defense, automotive,
medical, education, electronic, architecture and consumer product
industries. For more information on the company, go to
www.Stratasys.com; www.DimensionPrinting.com; or www.RedEyeRPM.com

Forward Looking Statements

All statements herein that are not historical facts or that
include such words as "expects", "anticipates", "projects",
"estimates", "vision", "planning" or "believes" or similar words are
forward-looking statements that we deem to be covered by and to
qualify for the safe harbor protection covered by the Private
Securities Litigation Reform Act of 1995. Our belief that we have the
largest part-building service is based on the number of dedicated
machines. Except for the historical information herein, the matters
discussed in this news release are forward-looking statements that
involve risks and uncertainties; these include the continued market
acceptance and growth of our Dimension (TM) 3D printer and our FDM
200mc(TM) , 360mc(TM) , 400mc(TM) , 900mc(TM), Maxum(TM), Titan(TM),
and Vantage(TM) productivity lines; the size of the 3D printing
market; our ability to penetrate the 3D printing market; our ability
to maintain the growth rates experienced in this and preceding
quarters; our ability to introduce and market new materials such as
ABS-Plus and ABS-M30; and the market acceptance of these and other
materials; the impact of competitive products and pricing; the timely
development and acceptance of new products and materials; the success
of our recent R&D initiative to expand the direct digital
manufacturing capabilities of our core FDM technology; the success of
our RedEyeRPM(TM) and other paid parts services; and the other risks
detailed from time to time in our SEC Reports, including the our
quarterly reports to be filed on Form 10-Q throughout 2008; and our
annual report on Form 10-K filed for the year ended December 31, 2007.

Non-GAAP Discussion

The information discussed within this release includes financial
results and forward-looking financial guidance that are in accordance
with U.S. generally accepted accounting principles (GAAP). In
addition, certain non-GAAP financial measures and guidance have been
included that excludes certain expenses. The non-GAAP financial
measures are provided in an effort to give information that investors
may deem relevant to the company's operations and comparative
performance, primarily the identification and exclusion of expenses
associated with stock-based compensation required under SFAS 123R. In
addition, the company uses these non-GAAP financial measures for
evaluating comparable financial performance against prior periods.

This release is also available on the Stratasys Web site at
www.Stratasys.com.

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STRATASYS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

----------------------------------------------------------------------
Three Months Ended Six Months Ended
June 30, June 30,
---------------------------------------------------
2008 2007 2008 2007
(unaudited) (unaudited) (unaudited) (unaudited)
-------------------------------------------- -------------------------

Net Sales
Product $24,846,032 $22,198,715 $49,953,572 $43,888,970
Services $ 6,428,890 $ 6,024,779 $12,029,039 $11,679,384
------------------------- -------------------------
$31,274,922 $28,223,494 $61,982,611 $55,568,354
------------------------- -------------------------

Cost of goods sold
Product $11,721,570 $ 9,692,932 $22,463,924 $19,358,201
Services $ 2,244,982 $ 2,929,973 $ 4,846,440 $ 5,903,544
------------------------- -------------------------
$13,966,552 $12,622,905 $27,310,364 $25,261,745
------------------------- -------------------------

Gross profit $17,308,370 $15,600,589 $34,672,247 $30,306,609
------------------------- -------------------------

Costs and expenses
Research and
development $ 2,572,764 $ 1,804,574 $ 4,741,473 $ 3,606,635
Selling,
general and
administrative $ 8,897,955 $ 8,759,067 $18,588,823 $17,231,915
------------------------- -------------------------
$11,470,719 $10,563,641 $23,330,296 $20,838,550
------------------------- -------------------------

Operating income $ 5,837,651 $ 5,036,948 $11,341,951 $ 9,468,059
------------------------- -------------------------

Other income
(expense)
Interest
income, net $ 546,833 $ 610,366 $ 1,147,899 $ 1,101,659
Foreign
currency
transaction
losses $ (187,658) $ (127,415) $ (215,826) $ (245,269)
Other $ 22,747 $ 41,604 $ (253,032) $ 37,982
------------------------- -------------------------
$ 381,922 $ 524,555 $ 679,041 $ 894,372
------------------------- -------------------------

Income before
income taxes $ 6,219,573 $ 5,561,503 $12,020,992 $10,362,431

Income taxes $ 2,123,517 $ 1,927,944 $ 4,126,366 $ 3,571,434
------------------------- -------------------------

Net income $ 4,096,056 $ 3,633,559 $ 7,894,626 $ 6,790,997
------------------------- -------------------------

Earnings per
common share
Basic $ 0.20 $ 0.18 $ 0.38 $ 0.33
------------------------- -------------------------
Diluted $ 0.19 $ 0.17 $ 0.37 $ 0.32
------------------------- -------------------------

Weighted average
number of common
shares outstanding
Basic 20,878,049 20,742,794 20,934,889 20,568,492
------------------------- -------------------------
Diluted 21,491,704 21,616,908 21,470,288 21,341,528
------------------------- -------------------------
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STRATASYS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

----------------------------------------------------------------------
June 30, December 31,
2008 2007
(unaudited)
----------------------------------------------------------------------

ASSETS

Current assets
Cash and cash equivalents $ 21,532,951 $ 16,211,771
Short-term investments $ 7,179,424 $ 27,257,592
Accounts receivable, less allowance for
returns and doubtful accounts of
$1,259,973 in 2008 and $1,205,621 in
2007 $ 34,471,168 $ 26,307,053
Inventories $ 18,450,306 $ 12,771,235
Net investment in sales-type leases $ 4,702,911 $ 3,256,953
Prepaid expenses $ 3,395,580 $ 2,507,316
Deferred income taxes $ 711,000 $ 711,000
---------------------------
Total current assets $ 90,443,340 $ 89,022,920
---------------------------

Property and equipment, net $ 28,094,175 $ 26,577,362
---------------------------

Other assets
Intangible assets, net $ 8,286,936 $ 8,063,319
Net investment in sales-type leases $ 3,093,663 $ 4,101,682
Deferred income taxes $ 786,000 $ 719,000
Long-term investments - Available for
sale securities $ 1,990,000 $ -
Long-term investments $ 17,997,626 $ 17,965,489
Other $ 1,620,720 $ 2,307,250
---------------------------
Total other assets $ 33,774,945 $ 33,156,740
---------------------------

$152,312,460 $148,757,022
---------------------------

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities
Accounts payable and other current
liabilities $ 9,918,165 $ 13,959,022
Unearned revenues $ 11,923,009 $ 10,964,471
---------------------------
Total current liabilities $ 21,841,174 $ 24,923,493
---------------------------

Stockholders' equity
Common stock, $.01 par value, authorized
30,000,000 shares, issued 25,822,803
shares in 2008 and 25,610,654 shares in
2007 $ 258,228 $ 256,108
Capital in excess of par value $ 89,617,488 $ 87,023,541
Retained earnings $ 64,178,807 $ 56,284,182
Accumulated other comprehensive loss $ 271,625 $ 172,073
Less cost of treasury stock, 4,821,155
shares in 2008 and 4,600,056 shares in
2007 $(23,854,862) $(19,902,375)
---------------------------
Total stockholders' equity $130,471,286 $123,833,529
---------------------------

$152,312,460 $148,757,022
---------------------------
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STRATASYS, INC.

RECONCILIATION OF NON-GAAP TO GAAP RESULTS OF OPERATIONS

----------------------------------------------------------------------
Three Months Ended June 30,
---------------------------------------
2008 2008
(unaudited) Non-GAAP (unaudited)
As Reported Adjustments (1) Non-GAAP
----------------------------------------------------------------------

Selling, general and
administrative expenses $ 8,897,955 $(319,823) $ 8,578,132
---------------------------------------

Total operating expenses 11,470,719 (319,823) 11,150,896
---------------------------------------

Operating income 5,837,651 319,823 6,157,474
---------------------------------------

Income before income taxes 6,219,573 319,823 6,539,396
Income taxes 2,123,517 52,218 2,175,735
---------------------------------------

Net income $ 4,096,056 $ 267,605 $ 4,363,661

Earnings per common share
Basic $ 0.20 $ 0.01 $ 0.21
---------------------------------------
Diluted $ 0.19 $ 0.01 $ 0.20
---------------------------------------

Weighted average number of
common shares outstanding
Basic 20,878,049 20,878,049
---------------------------------------
Diluted 21,491,704 21,491,704
---------------------------------------

----------------------------------------------------------------------
Three Months Ended June 30,
----------------------------------------
2007 2007
(unaudited) Non-GAAP (unaudited)
As Reported Adjustments (1) Non-GAAP
----------------------------------------------------------------------

Selling, general and
administrative expenses $ 8,759,067 $(178,949) $ 8,580,118
---------------------------------------

Total operating expenses 10,563,641 (178,949) 10,384,692
---------------------------------------

Operating income 5,036,948 178,949 5,215,897
---------------------------------------

Income before income taxes 5,561,503 178,949 5,740,452
Income taxes 1,927,944 47,546 1,975,490
---------------------------------------

Net income $ 3,633,559 $ 131,403 $ 3,764,962

Earnings per common share
Basic $ 0.18 $ 0.01 $ 0.19
---------------------------------------
Diluted $ 0.17 $ 0.01 $ 0.18
---------------------------------------

Weighted average number of
common shares outstanding
Basic 20,742,794 20,742,794
---------------------------------------
Diluted 21,616,908 21,616,908
---------------------------------------

Six Months Ended June 30,
---------------------------------------
2008 2008
(unaudited) Non-GAAP (unaudited)
As Reported Adjustments (1) Non-GAAP
----------------------------------------------------------------------

Selling, general and
administrative $18,588,823 $(635,218) $17,953,605
---------------------------------------

Total operating expenses $23,330,296 $(635,218) $22,695,078
---------------------------------------

Operating income $11,341,951 $ 635,218 $11,977,169
---------------------------------------

Income before income taxes $12,020,992 $ 635,218 $12,656,210
Income taxes $ 4,126,366 $ 106,218 $ 4,232,584
---------------------------------------

Net income $ 7,894,626 $ 529,000 $ 8,423,626

Earnings per common share
Basic $ 0.38 $ 0.03 $ 0.41
---------------------------------------
Diluted $ 0.37 $ 0.02 $ 0.39
---------------------------------------

Weighted average number of
common shares outstanding
Basic 20,934,889 20,934,889
---------------------------------------
Diluted 21,470,288 21,470,288
---------------------------------------

Six Months Ended June 30,
---------------------------------------
2007 2007
(unaudited) Non-GAAP (unaudited)
As Reported Adjustments (1) Non-GAAP
----------------------------------------------------------------------

Selling, general and
administrative $17,231,915 $(482,000) $16,749,915
---------------------------------------

Total operating expenses $20,838,550 $(482,000) $20,356,550
---------------------------------------

Operating income $ 9,468,059 $ 482,000 $ 9,950,059
---------------------------------------

Income before income taxes $10,362,431 $ 482,000 $10,844,431
Income taxes $ 3,571,434 $ 138,688 $ 3,710,122
---------------------------------------

Net income $ 6,790,997 $ 343,312 $ 7,134,309

Earnings per common share
Basic $ 0.33 $ 0.02 $ 0.35
---------------------------------------
Diluted $ 0.32 $ 0.02 $ 0.34
---------------------------------------

Weighted average number of
common shares outstanding
Basic 20,568,492 20,568,492
---------------------------------------
Diluted 21,341,528 21,341,528
---------------------------------------
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(1) These adjustments reconcile the Company's GAAP results of
operations to its non-GAAP results of operations. The Company believes
that presentation of results excluding non-cash stock-based
compensation provides meaningful supplemental information to both
management and investors that is indicative of the Company's core
operating results and facilitates comparison of operating results
across reporting periods. The Company uses these non-GAAP measures
when evaluating its financial results as well as for internal planning
and forecasting purposes. These non-GAAP measures should not be viewed
as a substitute for the Company's GAAP results.

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STRATASYS, INC.

FISCAL YEAR 2008
RECONCILIATION OF NON-GAAP FORWARD LOOKING GUIDANCE

Earnings Per Diluted Share Range
----------------------------------------------------------------------

U.S. GAAP measure $0.75 to $0.80

Adjustments to exclude the effects
of expenses related to stock-based
compensation under SFAS 123R $0.04 - $0.05

Non-GAAP estimates $0.79 to $0.84
*T

Stratasys, Inc.
Shane Glenn, 952-294-3416
Director of Investor Relations
sglenn@stratasys.com

Copyright Business Wire 2008