Comments on Press Release Issued by 3D Systems

MINNEAPOLIS & REHOVOT, Israel — (BUSINESS WIRE) — September 12, 2023 — Stratasys Ltd. (Nasdaq: SSYS) (“Stratasys” or the “Company”), a leader in polymer 3D printing solutions, today confirmed that the Stratasys Board of Directors (the “Board”) received on September 6, 2023 a revised proposal from 3D Systems Corporation (NYSE: DDD) (“3D Systems”) to acquire Stratasys for $7.00 in cash and 1.6387 newly issued shares of 3D Systems common stock per ordinary share of Stratasys, representing a value of $15.26 per share for Stratasys, and a premium of only 3% to the unaffected closing stock price of Stratasys ordinary shares as of May 24, 2023.

After consultation with its outside financial and legal advisors, and following an extensive due diligence review of 3D Systems, the Stratasys Board unanimously determined that the revised proposal from 3D Systems continues to significantly undervalue Stratasys and does not constitute a “Superior Proposal” as defined in Stratasys’ merger agreement with Desktop Metal, Inc. (NYSE: DM) (“Desktop Metal”). Accordingly, the Stratasys Board has terminated discussions with 3D Systems. The Stratasys Board reaffirms its unanimous support of the pending combination with Desktop Metal.

The Company issued the following statement:

3D Systems’ most recent proposal, received on September 6, 2023, to acquire Stratasys for $7.00 in cash and 1.6387 newly issued shares of 3D Systems common stock per ordinary share of Stratasys significantly undervalues Stratasys. The proposal by 3D Systems comprises consideration with a nominal value of $15.26 per Stratasys ordinary share as of September 11, 2023, representing a premium of only 15% to the closing stock price of Stratasys ordinary shares as of such date and a premium of only 3% to the unaffected closing stock price of Stratasys ordinary shares as of May 24, 2023. In fact, the consideration for Stratasys ordinary shares implied by 3D Systems’ most recent proposal is 35% lower than the value implied by 3D Systems’ July 13, 2023 proposal to acquire Stratasys for $7.50 in cash and 1.5444 newly issued shares of 3D Systems common stock per ordinary share of Stratasys (a nominal value at that time of $23.64 per Stratasys ordinary share).

In addition, the most recent proposal by 3D Systems carries several significant risks. In conducting mutual due diligence, Stratasys uncovered a significant number of material issues with respect to a proposed transaction with 3D Systems, including:

• Serious concerns about 3D Systems’ short- to medium-term growth prospects:
  • 3D Systems reported Q2 results on August 9, 2023, missing its own guidance as well as street expectations, and significantly guiding down 2023 fiscal estimates. 3D Systems is now expecting revenue to decline one percent at mid-point guidance over 2022, versus four percent revenue growth mid-point guidance, prior to Q2 earnings.
  • Revenue from Align Technology, Inc. (“Align”), which represents 23% of 3D Systems revenues, will be expected to create severe growth challenges for 3D Systems. We believe Align is likely to transition to multiple-source printing technology over time. We had previously raised concerns that Align was likely to migrate away from 3D Systems’ stereolithography technology towards DLP technology for both indirect and direct printing of appliances and other source suppliers. Align’s recently announced acquisition of Cubicure GmbH, with its strength in direct 3D printing of appliances, reaffirmed our concerns. At this stage, it is highly uncertain at what market share and margins 3D Systems’ business can operate in the future as Align ramps up its own solutions and additional alternatives continue to grow. The impact could be highly material and calls into question whether the market currently reflects the true intrinsic value of 3D Systems' business.

• Structural challenges to a path to attractive profitability:
  • 3D Systems’ portfolio already operates at gross margins that are significantly below the gross margins of Stratasys: 3D Systems is at 39%, while Stratasys is at 49%. Consensus 2023 estimates for 3D Systems’ EBITDA remain negative. If 3D Systems’ dental business declines due to Align shifting its sourcing, 3D Systems’ profitability could fall even further and weigh down the margins of a combined company. We believe that this would make it extremely difficult to achieve attractive long-term operating margins for a combined company.

• Net synergy potential is materially lower than what 3D Systems is broadcasting:
  • 3D Systems was unable to furnish any credible support backing its claim of cost synergies of more than $110 million. Based on independent analysis performed by a leading consulting firm, we estimate annual cost synergies to be $74 to $88 million associated with the merger.
  • In addition to this gap in realizable cost synergies, based on detailed work performed by Stratasys management and independent advisors, there will be approximately $50 million of annual negative revenue synergies. Even 3D Systems has acknowledged that this portion of the business would be lost as a result of a potential transaction.

• Significant regulatory consummation risks and extended timeline to closing of 9 to 18 months:
  • Based on detailed joint analysis by Stratasys and 3D Systems, a combination of the two companies would likely require a lengthy and extensive regulatory review process, an extended duration to closing and significant costs to obtain the required regulatory approvals.
  • This extended timeline to closing creates significant risks of employee attrition. Additionally, despite our repeated requests, 3D Systems has not provided any operational or integration plan, preventing us from assessing which of Stratasys’ employees would be critical for a combined company to execute on its business plan.

• Serious concerns regarding the ability of 3D Systems’ management team to run a combined company:
  • 3D Systems’ management team has repeatedly missed its own cost reduction targets, adding to our concerns regarding its ability to achieve its target cost synergies.
  • Stratasys’ management team, in contrast, has delivered superior performance:
    • From 2021 to 2023, based on mid-point guidance of each company, 3D Systems’ revenue declined by one percent, adjusting for divestitures, while Stratasys’ revenue grew by six percent, adjusting for divestitures.
    • 3D Systems’ business operates at a 39% gross margin, significantly below a 49% gross margin for Stratasys. Given its short- to mid-term growth challenges, a decline in 3D Systems’ business may widen the gap.
    • Based on street consensus estimates, 3D Systems is expected to generate operating loss of $41 million, while Stratasys is expected to generate operating profit of $19 million in 2023.
  • Of the last 12 quarters, 3D Systems missed street estimates for either or both of earnings and revenues for 7 quarters, while Stratasys management has met or surpassed such estimates for EVERY quarter.

Therefore, the Stratasys Board, after careful review and consultation with its outside financial and legal advisors, has determined that 3D Systems’ most recent revised proposal does not constitute a “Superior Proposal,” as defined in Stratasys’ merger agreement with Desktop Metal. Accordingly, Stratasys has terminated discussions with 3D Systems.

In response to 3D Systems’ press release dated September 11, 2023, we would like to clarify the following:

• Our request for more stock and less cash: This request was driven by our concerns that a combined company would be operating with significantly less cash, potentially leading to an inability to continue to invest in the business or to further dilution from a need to raise significant cash amounts, especially given that the timeline to closing would be expected to run as long as 9 to 18 months, which would deplete additional cash from 3D Systems’ own balance sheet.

• Management of the combined company: We were very clear with 3D Systems that we were NOT concerned about the proposed composition of a new board despite Stratasys shareholders’ large ownership; however, we insisted upon having an appropriate management structure to ensure that the benefits of the combination would be achieved, including realization of the synergies, and that key employees would be retained during an extensive regulatory review process.