Stratasys Ltd. (SSYS) Q4 2011 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the Fourth Quarter 2011 Stratasys’ Earnings Conference Call. My name is Sinead, and I will be your operator for today. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes. I would now like to turn the conference over to your host for today, Mr. Shane Glenn, Director of Investor Relations at Stratasys. Please proceed.

Good morning, and welcome to the Stratasys’ conference call to discuss our fourth quarter and full year financial results. Representing Stratasys’ executive management on the conference call today is the Chairman and CEO of Stratasys, Scott Crump; and CFO, Bob Gallagher. A quick reminder that today's conference call is being transmitted over the web and can be accessed through the Investor section of our website at www.stratasys.com or directly by accessing the link provided in our press release. We will begin with the Safe Harbor statement. All statements herein that are not historical facts or that includes such words as expects, anticipates, projects, estimates, vision, planning, could, plan, believes, desires, intends, assume or similar words, constitute forward-looking statements covered by the Safe Harbor protection of the Private Securities Litigation Reform Act of 1995. Except for the historical information herein, the matters discussed in this news release are forward-looking statements that involve risks and uncertainties. These include statements regarding projected revenue and income in future quarters; the size of the 3D printing market; our objectives for the marketing and sale of our Dimension and uPrint 3D printers, and our Fortus 3D Production Systems, particularly for the use in direct digital manufacturing; our agreement with HP to expand the distribution and sales of our 3D printers, our support removal system, the demand for our proprietary consumables; the expansion of our paid parts service and beliefs with respect to the growth and demand for our products. Other risks and uncertainties that may affect our business include 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, produce and market new materials such as ABS-ESD7 and the market acceptance of these and other materials; the impact of competitive products and pricing; our timely development of new products and materials, and market acceptance of those products and materials; the success of our recent R&D initiative to expand the DDM capabilities of our core FDM technology; our ability to successfully integrate and market Solidscape products; our ability to retain, and our ability to protect and defend intellectual property and the success of our RedEye On Demand and other paid parts services. The actual results may differ from those expressed or implied in our forward-looking statements. These statements represent beliefs and expectations only as of the date they were made. We may elect to update forward-looking statements, but we expressly disclaim any obligations to do so even if our beliefs and expectations change. In addition to the statements described above, such forward-looking statements include the risks and uncertainties described more fully in our reports filed or to be filed with the Securities and Exchange Commission, including our annual reports on Form 10-K and quarterly reports on Form 10-Q. The information discussed within this conference call includes financial results that are in accordance with US Generally Accepted Accounting Principles or GAAP. In addition, non-GAAP financial measures are included that exclude certain expenses and income. The non-GAAP financial measures are provided in an effort to give information that the investors may deem relevant to the company’s operations and comparative performance, primarily the identification and exclusion of expenses associated with impairment charges, restructuring expenses, expenses associated with stock-based compensation expense, and the amortization expense associated with acquired Solidscape intangibles. The company uses these non-GAAP financial measures for evaluating comparable financial performance against prior periods. The appropriate reconciliations between non-GAAP and GAAP financial measures are provided in a table at the end of our press release. Now I’d like to turn the call over to our CEO, Scott Crump.

Thank you for joining us to discuss our financial results. We are very pleased with our performance. The quarter and full year results represents record levels of both revenues and operating profit. Total revenue expanded to a record $43.6 million for the fourth quarter, an increase of 28% over last year. Operating profit outpaced revenue growth, expanding by 45% over last year in the fourth quarter. As we observed throughout the year, the fourth quarter benefited from strong sales of our higher margin Fortus 3D product systems, which grew by nearly 80% over last year. Our sales momentum within Fortus was particularly strong during the final weeks of the year, resulting in a record year-end backlog. This backlog includes over 12 million in system orders at the year-end. Consumable revenue continued to grow impressively during the fourth quarter, increasing by 25% over last year. The Fortus line is driving a higher amount of this growth, given the product lines rapidly growing installed based and relatively higher utilization rates driven by emerging DDM applications. We continue to observe a significant untapped sales potential within Dimension and uPrint 3D printer lines, and we remain committed to our distribution collaboration with HP in Europe. However, we have made progress on developing independent general strategies that will augment our HP collaboration. We believe these initiatives will position our 3D printing products for stronger growth in coming months. We believe that we are well positioned as we begin 2012. I will return later to update you on some of our initiatives, but first I would like to turn the call over to our CFO, Bob Gallagher, who will further highlight our fourth quarter results. Here is Bob.

As I begin, I want to remind everyone of the financial implications over our recent acquisition of Solidscape. We closed the acquisition in May of last year. Consequently, Solidscape’s results are included in our fourth quarter financial results for 2011. During our discussion today, we will provide you with certain pro forma financial metrics that exclude Solidscape. We believe this will provide you with a more appropriate comparison of our fourth quarter financial performance relative to last year. Also during the fourth quarter, we made a minor reclass of our customer reimburse rate to include it as both revenue and expense as opposed to netting it in our cost of sales. This re-classing increased 2011 fourth quarter and full year revenue by $259,000 and $1 million respectively. This compares to $194,000 and $745,000 for the comparable 2010 periods. Total revenue was a record $43.6 million for the fourth quarter, a 28% increase over the $34 million reported for the same period last year. Excluding Solidscape from our results, revenue would have still represented a record at $40.4 million, a 20% increase over the last year. Including Solidscape, the company shipped a total of 700 systems during the fourth quarter, versus 632 last year. Unit shipments of our Fortus 3D production systems were very stronger in the quarter, more than doubling the level sold during the same period last year. However, it is important to keep this performance in context, given the significant impact of our recently introduced Fortus 250mc, which was our best selling system during the fourth quarter. The 250mc has a build envelope similar to a Dimension 1200, and fills a void at the lower end of the Fortus product lineup. It is positioned very close to our Dimension 3D printer line within the marketplace. We believe the new product generated significant interest from customers that would have otherwise purchased a Dimension 3D printer. This likely skewed the resulting growth trends during the quarter, by favoring our higher end Fortus systems over our lower end 3D printers. The 250 likely will have an impact on unit sales mix over the coming quarters. Unit shipments of our Dimension, uPrint and HP 3D printers were down 18% during the fourth quarter over last year. For the reasons we just discussed and similar to last quarter, we believe that Fortus 250mc introduction had a significant impact on our 3D printer sales during the quarter. Approximately 60% of our resellers sell our entire product line and can upsell their customers to a Fortus system from a lower end 3D printer. As we have discussed in prior calls, our resellers have been very successful in up-selling the Fortus, given the positive momentum within the marketplace, created by the emerging direct digital manufacturing applications. This trend continued to be evident in the fourth quarter and reflects our need to develop a channel more focused on 3D printing. We continue to manufacture an HP-brand of 3D printer for distribution in Europe, and HP recently added 3 additional European countries to their network. We’re pleased to see the sales of HP-brand of 3D printers grow by 15% during the fourth quarter over last year, outpacing the growth of our Stratasys brand of 3D printers in non-HP countries. However, as we’ve mentioned in last quarter, our 3D printer channel remains underdeveloped, and the sales and marketing commitments have been inadequate to achieve the full potential of our products. Scott will provide some details later in the call on our initiatives to expand our 3D printer sales, independent of our collaboration with HP. Fourth quarter product revenue was $36.2 million; an increase of 32% over the last year. Excluding Solidscape, fourth quarter product revenue was $33.1 million, a 21% increase over the $27.4 million for the same period last year. Two factors drove our product revenue growth during the quarter. First, Fortus system revenue increased by 79%, when compared to the same period last year. As we mentioned earlier, Fortus sales have continued their strong positive momentum, driven by their successful introduction of the 250mc, the successful up-selling trends within our channel, as well as a rise in demand from customers using their systems for new DDM applications. 3D printer system revenue was down 26% during the fourth quarter over last year, for the reasons we discussed earlier. The second factor driving product revenue growth in the fourth quarter was at 25% increase in consumable revenue over last year, which was up 18% when you exclude the impact of Solidscape. Consumable revenue in the fourth quarter was the highest in our company’s history. The biggest driver behind consumable revenue growth has been a rapidly growing Fortus line, which typically uses more consumables. Fourth quarter service revenue was $7.4 million. Excluding Solidscape, fourth quarter service revenue was $7.3 million, which is up 11% when compared to the same period last year. Our maintenance revenue increased by 12% for the fourth quarter over last year, or 10% when you exclude the impact of Solidscape. Our maintenance revenue is benefiting from our strong Fortus system sales given Fortus systems generally have higher attachment rates for maintenance contracts relative to our 3D printers. Revenue in our RedEye paid parts business increased by 17% in the fourth quarter over last year; representing a record sales quarter for the business. Our RedEye business continues to benefit from customers accessing our significant capacity, as well as our ability to produce large parts made of high-grade thermoplastics. Excluding Solidscape, domestic sales grew by 22% during the fourth quarter over last year, and represented $22.1 million or 55% of total revenue. Excluding Solidscape, international sales grew sales by 15% to $18.3 million, representing 45% of total revenue. Despite global concerns over Europe, sales in the region were up 16% over last year, when you exclude the impact of Solidscape. Gross profit was $22.9 million for the fourth quarter or 52.5% of sales. Excluding the Solidscape acquisition, gross profit was $21.4 million for the fourth quarter, a 24% increase over the $17.2 million reported for the same period last year. This pro forma gross margin was 53% of sales, versus 50.6% for the same period last year. The strong growth in our higher margin products, especially Fortus systems and consumables, contributed to the significant improvements in gross margins. The most notable impact on gross margin in the fourth quarter was the strong sales of our recently introduced Fortus 250mc, the highest margin system we sell. In addition, sales of our lower margin 3D printers have been below our expectations; which is having a positive impact on the overall margin profile. Operating profit was $8.9 million for the fourth quarter or 20.4% of sales. This represents the highest operating profit in our company’s history. Excluding Solidscape, operating profit was $8.5 million for the fourth quarter, a 39% increase over the $6.2 million reported for the same period last year. This pro forma operating profit was 21.1% of sales versus 18.1% for the same period last year. Operating expenses increased by 27% in the fourth quarter over last year. The biggest impact on the operating expenses was the addition of Solidscape. Funds provided by our unnamed Fortune 500 partner to develop DDM applications for our Fortus line was $160,000 for the fourth quarter, versus 351,000 for the same period last year. This compares to $170,000 for the third quarter of 2011. We have recently agreed to continue this collaboration into 2012. Other income in the fourth quarter included an expense of $458,000 related to foreign currency exchange expense. This expense related to the significant appreciation of the US dollar relative the euro during the quarter. Net income was $5.8 million for the fourth quarter of 2011. Non-GAAP net income was $6.6 million for the fourth quarter or $0.31 per share, up 49% increase over the $4.4 million reported or $0.21 per share for the same period last year. The 2 expense items excluded in the calculating our non-GAAP net income during the fourth quarter were the expenses related to employee stock options, and the expenses related to the amortization of acquired Solidscape intangible assets. Stock-based compensation expense net of tax was $482,000 or $0.02 per share, compared to $144,000 net of tax or $0.01 per share for the same period last year. The amortization expense related to acquire Solidscape intangibles net of tax was $344,000 or $0.02 per share for the fourth quarter of 2011. We obviously had no expenses related to acquire Solidscape intangibles during the fourth quarter of 2010. A table provided within our press release provides itemized details surrounding all non-GAAP items incurred during both periods. We generated approximately $10 million in cash from operations during the fourth quarter, and finished the period with $67 million in cash and investments. Inventory balances were $22.8 million at the end of the fourth quarter, which is up modestly from the $22 million at the end of the third quarter. Inventories have risen due to the Solidscape acquisition, as well as to match the strong order flow for both Fortus systems and Consumables. Accounts receivable was $26.2 million at the end of the fourth quarter. Day sales outstanding or DSO was 55 days at the end of fourth quarter and remained unchanged from the level at the end of the third quarter. Overall, we are pleased with our financial performance during the fourth quarter. Our Fortus system and consumable revenue continued to grow impressively, both having sustained strong double-digit sales growth over the past several quarters. The growth of these businesses have been the primary contributors to our strong financial performance as revenue and profitability have reached record levels. Notably, our strong growth comes in spite of our underperforming 3D printing business. We recognize and acknowledge that the HP collaboration has not progressed as we have planned. However, we are taking independent steps to remedy the performance of our 3D printing business, which we believe will begin to demonstrate stronger growth in the coming quarters. Although we believe our recent results have been impressive, we are excited about the prospect of all our businesses operating at their fullest potential and the positive implications this has on our future financial performance. Now I would like to turn the call over to our Director of Investor Relations, Shane Glenn, for comments regarding our outlook.

Stratasys has reiterated the following information regarding financial guidance for fiscal year ending December 31, 2012. Revenue guidance of $175 million to $190 million, and GAAP earnings guidance of $1.02 to $1.13 per share. Our earnings estimates are reduced by the expenses related to employee stock options, as well as the expenses related to amortization of Solidscape intangibles. We estimate the stock-based compensation expense will amount to $2.1 million net of tax or $0.09 per share, and that the amortization of Solidscape intangibles will amount to $1.4 million net of tax or $0.06 per share in 2012. We’d also like to provide some additional details around the assumptions behind our 2012 guidance. We continue to observe a favorable market environment for our products, and we are assuming that will continue throughout 2012. However, we’re assuming that the growth in our Fortus system sales will moderate in the coming months relative to the very high levels we have recently observed. We are also assuming that our new initiatives within 3D printing will lead to higher sales of our 3D printers in 2012, which should lead to acceleration in system unit sales. This should bode well for future sales of our high margin in consumable revenue. Now I’d like to turn the call back to Scott Crump.

Again, we are very pleased with our record fourth quarter and full year performance. Our higher margin Fortus line retained strong positive sales momentum in the fourth quarter. This growth was a result of strong sales across our entire Fortus line. Direct digital manufacturing applications remains the primary driver behind our recent success in Fortus. Manufacturers increasingly recognized the value of our technology for end-use part production, including fixtures and assembly tools used in the manufacturing. In addition, the capabilities of our technology allow for the production of complex geometries that would be impossible to produce through conventional processes. Stratasys was recently awarded a contract from Air Force Research Labs to evaluate the FTM technology as a means to manufacturer, and reconfigure unmanned air vehicles or UAVs. This contract follows multiple orders of our systems from other US army bases for innovative manufacturing applications. The military often requires the manufacture of parts in low volumes that must maintain stringent material characteristics. We believe our Fortus systems are an ideal solution. By providing the military with a quick response platform for manufacturing, that can shorten repair times and reduce overall vehicle costs. Also within DDMs, we believe our recent acquisition of Solidscape, which was accretive during the fourth quarter will open up additional opportunities in the coming quarters, as we further develop this unique technology. We continue to observe a significant untapped sale potential for our Dimension and uPrint 3D printer products. As we have communicated last quarter, we believe additional channel development is required to continue growing this business. Although we continue to manufacture a HP-branded 3D printer for distribution in Europe, we are also making progress in expanding independent channel strategies that will augment our HP collaboration. We have initiated a program to recruit and train a significant number of new selling agents that will focus exclusively on selling our most affordable products. We have initiated this program in the US, and we are in the process of recruiting and training a total of 90 sales agents that will be in place by April of this year. We expect this initiative combined with other programs that we planned on, will drive incremental new volume beginning in the second quarter of this year. In addition to expanding our channel, we have increased the incentives for selling our most affordable 3D printers. The distribution margin for our uPrint line was increased beginning in the fourth quarter. We believe the new incentive structure will create greater focus and drive incremental sales of the uPrint line. And combined with the expansion of our sales channel bodes well for 3D printing business in coming months. A new initiative; we expect to introduce in the second quarter will significantly reduce the manufacturing cost of our most affordable 3D printers. We’re excited about this revolutionary new development, which is a result of significant investments made over the past 3 years. Most importantly, this development should help us sustain a favorable profit margin on our most affordable systems as we become more aggressive with our 3D printing go-to-market strategies. We’ll be providing additional details on this development over the coming months. We believe all these initiatives will allow us to better capitalize on a significantly under tapped market opportunity and profitably grow our 3D printing business in 2012. Well, new and innovative applications continue to emerge for our products. One of our Dimension 3D printers was recently used by Artem, a highly regarded producer of models and miniatures for the advertising industry. Artem used one of our 3D printers to help produce small, individually crafted models for a promotional video called Back To The Start. The video was made for the Chipotle Mexican Grill and highlights the restaurant’s efficacy for sustainable farming technique. Artem used top animation processes that rely on individually crafted models that tell a story of a farmer committed to quality ingredients. Our 3D printer helped Artem cut the time and the cost, compared to making models with traditional techniques. Models that would have taken weeks to produce were produced in only hours. I’d encourage you to read more about this application, and view the video by accessing the link provided on front page of our Stratasys website. Stratasys is also committed to helping educate and train the designer and engineers of tomorrow. The Department of Defense STARBASE program is an initiative that focuses on motivating elementary school students to explore science, technology, engineering and math. The program serves underprivileged and socio-economically disadvantaged children with a hands-on curriculum that encourages students to work through experimentation and team work. For example, using 3D CAD software, students design components for submarines, land rovers, UAVs, cars, and rockets, and then they use our 3D printers to produce them for its functional testing. We recently announced that the STARBASE program has placed a $1 million order with Stratasys for uPrint 3D printers. This order brings the total to more than a 100 Stratasys 3D printers used as classroom technology by the STARBASE program worldwide. We believe Stratasys was chosen as a vendor for this program, given the uPrint’s whole product characteristics and this includes the products affordability, ease of use, reliability and the classroom friendly operation. We hope to build on this program, and I believe the primary and secondary education markets remains significant market opportunities that we’ve only began to explore. Consumable revenue reached the highest level in our company’s history during the fourth quarter, growing by 25% over last year. Our expanding base of Fortus 3D production system and the higher usage rates generated by DDM applications is driving this growth. In addition, consumable usage is benefiting from a growing demand for our innovative new materials. Our ability to offer unique materials such as ULTEM as well as our recent introduction of our static free thermoplastic has opened up new previously untapped opportunities. We expect the growth trend of consumables to continue throughout 2012. Revenue within our RedEye paid parts business also represented a record level, by expanding 17% over the fourth quarter last year. Our RedEye business continues to benefit from customers accessing our significant capacity for large orders, as well as our ability to produce large parts made from strong, high grade thermal plastic. Okay, I’ll return with some closing comments, but first we’d like to address any questions that you might have. Operator, lets open up the call for questions.

[Operator Instructions] Your first question comes from the line of Jim Ricchiuti with Needham & Company.

My question concerns gross margins. I wonder if you could talk a little bit about the sequential movement in gross margins, with product gross margins coming down quarter-on-quarter and the increase in service gross margins, were there some specific issues there, Bob?

If you recall last quarter, we talked about, I made some comments because this came up last quarter, because of the strong margins that we had, and really we hit kind of a perfect wave in terms of product mixes that went in Q3 of 2011. If you look at Q3 relative to Q4, what you see sequentially we shipped 700 units versus 600 units in the quarter. Our 3D printing, while down year-over-year, was up substantially over the third quarter, and then if you look at the mix within our 3D printer, what we found within the mix is a -- it really favored our lower price printers as uPrint, and also our volume quarter-over-quarter was up substantially with HP, which is obviously our lowest margin piece to it. So we didn’t really think that last quarter that we were kind of at high end, not necessarily sustainable. I think this is a more reasonable margin profile for us.

Got it. With respect, Scott, to the program to expand the network of sales agents, 90 new sales agents I think you’re targeting by Q2. Those are primarily in North America, will those only be covering the uPrint or will they also be working on the Dimension products?

Just the uPrint, so we can grow our focus on that uPrint. As you mentioned, we’re starting in the US, but eventually we’ll expand that worldwide.

Your next question comes from the line of Troy Jensen with Piper.

To Scott, you alluded to new product coming out that significantly lowers the manufacturing cost. I guess, I’ve always been under the assumption that majority of the cost is the consumables that are used in those productions. Can you just kind of dive into that a little bit more, are we talking about lowering pricing on consumables for volume purchases or -- just to be a little more clear?

We’re significantly lowering our system product cost or I think you would say cost of goods sold. Of course all 3D printers and Fortus systems uses considerable amount of consumables, but the launch in the future will include primarily a significant reduction in our product cost to your question.

So it’s not the manufacturer, it’s from the users perspective, it’s the upfront purchase price versus the ongoing manufacturing cost?

That’s right, Troy. Our comments are related more to the cost of our systems.

Understood. And then just on the product backlog, I know it’s a big number. Could you just remind us maybe what was it prior record levels or last year so that we can compare.

Yes, it was about $8.6 million of product backlog last year. So on a year-over-year basis it’s up between 40% and 45%.

Your next question comes from the line of Andrea James with Dougherty & Company.

Just 2 questions, you’ve had a success with the Fortus 250mc, and I was wondering if the success there has changed your strategy or you’ve adapted it all? Obviously you’re going to come out with the low end and start selling that. Do you think more products in the mid-end or in the future as well?

We feel that the best for the customer is to provide a wide range of offerings, which include of course features, benefits, as well as price ranges. As you saw last year we had a very successful launch of our 250, which is, as you’ve pointed out, more in the midrange. We’re going to continue to grow our family of products with eventually lower prices, but also higher feature performance, higher prices over time. All with the goal to provide a one stop shop for our customers including our RedEye service. Much of our business of our RedEye service comes from providing customers that need additional capacity on a Monday, and by Tuesday or Wednesday, we’re getting parts to them. So it’s really more about the whole product offerings for our customers than anything else.

Okay. And then as far as the HP partnership, can you give us a sense of timing of what you have to communicate to them and when or when they communicate to you. Just how you’ve been in touch, and if you wanted to back out of it or if they did when that would have to be communicated. Just timing.

We are in regular communication with HP on an ongoing basis, and we share our marketing strategies that are being done throughout the different parts of the world. In terms of the mechanics of the contract, we have a contract that runs with HP through September 30, 2012 that involves the 2 products, which are equivalent to our uPrint or uPrint Plus for 8 European countries. We can discontinue the relationship by mutual agreement within 30 days, and more formally within the contract. If we want to terminate it prior to 9/30/2012, one party or the other would be required to give notice by March 31 of this year, otherwise, the contract is an evergreen contract where it automatically renews year-over-year.

However, we could expand into the U.S. and global within a 30-day period on a mutual basis.

Since you’ve me given the time, and I’d love to ask one more. Your guidance for this year, are you taking into assumption any acquisitions, obviously on your new selling strategy, just kind of what went into your guidance when you’re coming up with that with that?

The guidance is all organic growth, Andrea, and we did make some kind of a qualitative commentary surrounding the guidance in our prepared remarks and we will stick with that.

[Operator Instructions] Your next question comes from the line of Tim Mulrooney with William Blair.

Just a follow-up on the guidance questions real quick, that $0.15 in stock options and amortization, is that included in your guidance? In other words is your adjusted EPS number a more like 117 to 128?

That’s correct. You would have to add that back to the guidance numbers. If you want to get to a non-GAAP adjusted guidance, you would have to add that $0.15 back to the numbers provided in the press release.

As my follow-up on the HP partnership; sales were up 15% in the European region. Is that apples-to-apples on a year-over-year basis or does that include territories as well?

You would include all territories that they're in on a year-over-year basis.

Your next question comes from the line of Jim Ricchiuti with Needham & Company.

With respect to operating expense for 2012, I was wondering if you could talk a little bit about that. Do you anticipate higher levels of R&D expense earlier in the year, particular as you move towards driving down manufacturing costs, and then also with respect to SG&A expense, the impact possibly on that line item, as you expand the dealer channel?

Jim, I think we talked last quarter that we would expect to see some higher SG&A expenses as it relates to our channel development programs. But at the same time, we still are maintaining an indirect channel, so there is obviously cost that are borne by the channel itself. So yes, we factor that into our guidance, and I think that the R&D expenses, yes we’re going to see some higher R&D expenses in the year and we factor that into our guidance as it relates to some of our new initiatives.

Would you expend R&D to grow in line with revenues or would you expect it to grow below, say the midpoint of your revenues? I’m just trying to get a sense if we’re going to see potentially a bigger spike in R&D just given what you have on your planning?

No. If you look at it year-over-year, what we did is you really saw a spike in our planning in 2011 compared to 2010, and I expect that to moderate more in 2012 as it relates to revenue.

[Operator Instructions] Your next question comes from the line of Jim Gentrup with Discovery Investment Research.

I just want to get your comments on the Z Corp acquisition by 3D Systems; and just on a competitive basis where you see that -- how so you see that affecting you?

Well, Z Corp has been a competitor within the marketplace for many, many years and their products have a niche within the marketplace, and I don’t think we see a dramatic change relative to it being acquired from 3D Systems in terms of a competitive positioning for us.

What’s the market share again of Z Corp in their 3D printer systems, could you remind me?

What we’ve found is on our sales cost, we really don’t run into Z Corp head to head very often, expect maybe within the educational channel.

Your next question comes from the line of Andy Schopick, private investor.

Bob, I wonder if you can give a little color to the Solidscape business, in terms of its revenue breakdown between domestic and international?

That’s fairly granular for the call; I don’t have those numbers sitting in front of me. I think what we’re seeing is it’s about a 60-40 split in terms of domestic versus international, but that’s a guesstimate as opposed to an accurate number, because I don’t have that in front of me right now.

Scott, a question for you to kind of follow up here; the prospects for your future M&A in the business, clearly we’re seeing consolidation occurring led by yourself and 3D Systems. There are still a few other players that are out there in the market; one that comes to mind immediately is Object, which you did have that relationship with at one time. Are there many other players or opportunities that you see for a possible future M&A activity in the business?

Shane, why don’t you take that one.

Yes, no. I think as we stated before, Andy, that we will be opportunistic and look at opportunities where we feel we can acquire a platform that’s complementary to what we are doing or complementary to honor our strategies within the 3D printing or the direct digital manufacturing. As you know, this industry is fairly tight as far as the number of players that exit out there, we’re aware of them, they are aware of us; and as opportunities arise we’ll take a look at that and if it makes sense and we can make a nice investment for our shareholders, we’ll do that. But we're not feeling the need -- we don’t feel we are being pushed into M&A opportunities given some of the consolidation that has been going on within the industry.

Yes, we guess some wonderful organic growth as we’ve laid out in the conference call here.

Just to follow-up, but I want to be clear on the guidance with respect to the non-GAAP measures for 2012. I believe you mentioned amortization anticipated or estimated at $1.4 million, is that net of tax?

Yes.

And the stock-based comp, I think you indicated that would equal about $0.09 of the $0.15 of the non-GAAP measure. Again, could you just clarify what that number is on an after-tax basis?

That is the net of tax number.

And in dollar amounts?

Stock-based compensation is $2.1 million net of tax, and the Solidscape amortization is $1.4 million net of tax.

Your next question comes from the line of Jim Ricchiuti with Needham & Company.

Did you say that Europe x Solidscape was up 16% in the quarter?

Yes.

Just given the concern of the people have about Europe, is there any additional color that you can provide just in terms of how the demand progressed through the quarter. Was it fairly linear, were there any bumps just given the concerns people have had?

Jim, we have been answering questions probably relative to Europe now for about of the past 6 months, and we keep giving a similar answer that we have seen strength within Europe. And in terms of linearity, we saw strength throughout the quarter, probably uncharacteristically. It’s usually a lot of our business comes at that backend of the quarter and what we really saw in Q4 was more of a linear quarter from Europe’s standpoint.

Any color that you could provide on Asia? I don’t know if you broke out, can you break out what Europe represents and maybe again just talking a little bit about what’s you are seeing in Asia?

Asia, on a year-over-year basis the Far East grew about 10% rate. What we are seeing in Asia is they are not quite as quick at adopting some of our DDM applications. So I think that’s impacting the growth on year-over-year basis.

Yes, Jim, domestic was about 55% of sales during the quarter. Europe was about 31%; this is excluding Solidscape. So 55% domestic, 31% Europe, Far East was around 13%.

At this time there are no further questions. I would now like to turn the call back over to Mr. Scott Crump for any closing remarks.

In summary, we entered 2012 with significant positive momentum in our Fortus product line. In addition, our consumable business continues to benefit from our growing installed base of Fortus system and high utilization trends provided by DDM applications. We remain excited about our recent acquisition of Solidscape, which was accretive in 2011, and has provided an additional technology platform that we plan to expand into new applications. Finally, we are working very hard on several new initiatives within 3D printing that we believe will position our productions for a stronger growth in the future. We look forward to a strong 2012, and like to thank you for your interest in Stratasys. We look forward to speaking with you again next quarter. Goodbye.

Ladies and gentlemen that concludes today’s conference. Thank you for your participation. You may now disconnect. Have a great day.