Stratasys, Inc.

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Stratasys, Inc.

14950 Martin Drive
Eden Prairie, Minnesota 55344-2020
U.S.A.
Telephone: (952) 937-3000
Toll Free: (888) 0480-3548
Fax: (952) 937-0070
Web site: http://www.stratasys.com

Public Company Incorporated: 1989
Employees: 229
Sales: $50.9 million (2003)
Stock Exchanges: NASDAQ
Ticker Symbol: SSYS
NAIC: 334119 Other Computer Peripheral Equipment Manufacturing

Based in Eden Prairie, Minnesota, Stratasys, Inc. manufactures rapid prototyping (RP) machines that produce physical models from computer designs using the company's patented fused deposition modeling (FDM) technology. Although engineers and designers have benefited greatly from the introduction of computer-aided design (CAD), they still need a physical copy in order to check the viability of their ideas. Thus designers would have to devote days, and sometimes weeks, making models by hand, often out of wood. With the introduction of RP machines, such as those made by Stratasys, CAD designs could be turned into a prototype in a matter of hours, available in a variety of materials. FDM technology relies on a high-speed robotic arm and an extruding head, in effect a glue gun, to spray melted thermoplastic filament. Relying on CAD coding, the gun moves over a platform, plotting small dots of plastic to create a model from the bottom up in a thermally controlled modeling chamber. Early RP machines were expensive and had a limited market. Although Stratasys continues to make high-end products, the company has enjoyed success with RP machines, billed as 3-D printers, that cost less than $25,000, making the technology available to a much wider range of customers, including schools. Because the machines require no special venting or chemical post-processing they are also suitable for office use. Moreover, they require little monitoring, allowing designers to accomplish other tasks while a prototype is created. Stratasys offers a variety of modeling material, including ABS (acrylonitrile, butadiene, and styrene), which is strong and thermal-resistant and used in commercial products such as toys and cell phones; ABSi, a translucent, higher-grade ABS; polycarbonate, a durable thermoplastic material; PC-ISO, a translucent polycarbonate appropriate for a number of medical applications; and polyphenylsufone, a thermoplastic material used to produce prototype parts for the automotive, aerospace, and chemical handling industries. Stratasys is a public company trading on the NASDAQ.

Company Origins Dating to the Late 1980s

Stratasys was founded by the husband and wife team of S. Scott Crump and Lisa H. Crump. He grew up in Connecticut, the son of a chemical engineer who was also a successful entrepreneur. Like his father, Crump was interested in both technology and business, and because of his father's belief that the children should make their own way in the world he became involved in business at an early age. When he was just 14 he traded for a broken-down car that he fixed up for his mother so she could drive him on his newspaper route. He then bought several Volkswagens that he refurbished and resold as a way to earn pocket money. He studied mechanical engineering at Washington State University and then in 1982 moved to Minneapolis to help found IDEA, Inc., which manufactured force, load, and pressure transducers. Ever the tinkerer, Crump in 1988 decided to make a toy frog for his young daughter using a glue gun loaded with a mixture of polyethylene and candle wax. His idea was to create the shape layer by layer. He then thought of a way to automate the process, spent $10,000 on digital-plotting equipment, and devoted countless weekend hours on the project. In 1989 he patented Fused Deposition Modeling technology. Along the way, his wife insisted that he either turn his obsession into a business or give it up. The couple founded the company in 1988 and in August of the following year they incorporated Stratasys in Delaware.

From the start Stratasys attracted attention because of its relatively low-cost product, offering a 3-D modeler for $130,000 ($178,000 with a Silicon Graphics workstation). The company found no buyers for this early product and now looked to develop larger RP machines suited to the marketplace, selling to major corporate customers such as General Motors, 3M, and Pratt & Whitney who could afford a hefty price tag. To build five of these machines, roughly the size of a refrigerator, Crump raised $264,000 by liquidating family assets and sold a 35 percent stake in Stratasys in exchange for $1.2 million in venture capital. In April 1992 Stratasys sold its first product, the 3D Modeler. A year later, in June 1993, the company introduced its second product, the Benchtop.

To raise more capital, Stratasys went public in October 1994. With Jersey City, New Jersey-based M.H. Meyerson & Co., Inc. acting as the sole underwriter, the company sold 1.38 million shares of common stock at $5 per share, netting approximately $5.7 million. The funds were earmarked to expand the company's engineering capabilities in order to add features and applications to its RP products, as well as for marketing and sales.

IBM Co-Development Deal in the Mid-1980s

The cash, and the availability of stock, also came in handy a few months later when Stratasys paid $500,000 and issued 500,000 shares of stock to IBM for its RP technology. IBM had been developing a small 3-D printer that relied on an extrusion system very similar to Crump's patented FDM technology. The only major difference was the feeding system, which relied on plastic wafers. Because taking on IBM in court over patent violations would be expensive and counterproductive, Stratasys instead offered to co-develop a 3-D printer, which led to the January 1995 purchase of IBM technology. Moreover, with IBM owning a stake, Stratasys hoped to significantly increase its business opportunities.

The result of the co-development deal with IBM was the 1996 introduction of the Genisys 3-D printer. Priced around $50,000, it was the first RP machine costing less than $100,000. The product found a receptive market and enjoyed strong demand in the first year, but a number of problems with the system soon became apparent and sales dried up. One problem was contaminated wafers that did not melt properly, leaving pebbles that jammed the nozzle on the extruder. A change in suppliers corrected the problem, but Genisys also had difficulties with the wafer loader jamming and the modeling platform colliding with the nozzle. Models as they cooled also had a tendency to curl along the edges. After selling 150 units, Stratasys halted production of the Genisys in 1998. Major problems were corrected and the product returned to the market in April 1999 as GenisysXs. In the meantime the company also would begin a $10 million effort to completely redesign its benchtop modeler.

On other fronts, in November 1997 Stratasys received clearance from the Food and Drug Administration for its MedModeler system, which served the medical market by producing anatomical parts from MRI and CT scans. In January 1998 Stratasys introduced its next product. Rather than a benchtop modeler like Genisys, the company now offered a large envelope RP system, the FDM Quantum, the second largest in the industry. It was the size of a small shed, measuring 84×76×39 inches. But like Genisys, Quantum could be networked and used by a number of users, and operated unattended. It also featured a new motion system, MagnaDrive, that moved the extrusion tip on an air cushion and controlled it by an electromagnetic homing device. Not only was the system more accurate, it also involved less moving parts and required less maintenance.

Stratasys acquired new RP technology in December 1998 from a private research and development company at a cost of $6.5 million in cash and stock. Stratasys also was spending far more than the industry average on its own R&D efforts. One of its innovations was WaterWorks, part of the 1999 launch of the FDM 3000 system. WaterWorks allowed completed models to be immersed in a water-based solution to remove supports. The need for post-processing work was eliminated and designers were presented with a cleaned prototype.

Stratasys enjoyed strong growth in the mid-1990s, with revenues growing from $10.3 million in 1995 to $29.6 million in 1997, but problems with Genisys and slumping sales in Europe blunted the company's momentum for the next few years. Revenues reached $37.6 million in 1999 and stalled. Sales totaled $35.6 million in 2000, $37.6 million in 2001, and $39.8 million in 2002. Net income during this period ranged from $988,000 in 2000 to $3.1 million in 2002. But a series of new product offerings was starting to have a positive impact on the company's fortunes.

In 2000 Stratasys introduced Prodigy, a modeler that filled a market niche, both in terms of price and performance, situated between the Genisys and the high-end machines. Like other Stratasys products, it could be networked and used nontoxic materials which required no special venting. Capable of making prototypes 8×8×12 inches, Prodigy also offered three different layer thicknesses. Late in 2000 Stratasys released FDM Maxum, a big envelope modeler that used the company's MagnaDrive technology as well as the WaterWorks support system, and was 50 percent faster than the company's previous products. It also relied on Insight, a new preprocessing software developed by Stratasys to replace the QuickSlice software the company had been using since 1993. Insight saved time as well as material and was capable of building more than one smaller model simultaneously. It also provided status updates on elapsed time, time remaining, and the amount of material used. Users could be paged or notified by email when a job was interrupted or completed.

Company Perspectives:

Our Goal: To provide design engineers with cost effective, environmentally safe, in-office rapid modeling and prototyping solutions.

Responding to customer input, in 2001 Stratasys introduced Titan, a system that created prototypes from polycarbonate to create a functional prototype. In addition, Titan could use two other high-performance materials: polyphenylsulfone and ABS plastic. These materials were high-impact-strength manufacturing-grade plastic, resistant to high temperatures, fire retardant, possessed sterilization capabilities, and were resistant to oil, gasoline, chemicals, and acid. As a result, the models produced by Titan could be subjected to rigorous real-world testing.

Introducing Dimension in 2002

In February 2002, the money and time invested in reengineering Genisys led to the introduction of Dimension and the retirement of the older benchtop modeler. The IBM wafer system was replaced by a spool of plastic filament that was fed through a heated rod before reaching the nozzle. A number of expensive parts were eliminated by adopting this simple mechanism, which also greatly enhanced reliability. Moreover, Stratasys was able to price Dimension at less than $30,000, the least expensive product in the RP and 3D printing markets. In addition to being small, easy to use, and capable of being networked, Dimension used ABS plastic, making the models it produced functional and suitable for testing. As a result of its low price and capabilities, Dimension brought RP technology to a new and much larger base of customers, from small companies to high schools, who previously could not even have thought about in-house modeling.

With the launch of Dimension, Stratasys regained the momentum it had lost from its last attempt at bringing a benchtop modeler to the market. Investors took notice and bought shares of Stratasys stock, significantly bidding up its price. In November 2003 the company implemented a three-for-two stock split, a move that increased the number of outstanding shares to 10.2 million. The company's R&D efforts also continued to pay off as other new and enhanced products were introduced. A month after the release of Dimension, the company introduced Prodigy Plus, which brought WaterWorks and the InSight software to the Prodigy platform. In 2003 Stratasys introduced FDM Vantage, which extended the Titan design platform by adding polycarbonate and ABS as modeling materials. Also in 2003 the company joined forces with New Jersey-based Objet Geometries Ltd. to distribute that company's Eden333 RP system in North America. This system relied on an inkjet technology to create UV-cured resin to build ultra high-resolution models. Although not durable enough for functional testing, these prototypes were suitable for fit and form evaluation. The introduction of Eden333 further expanded the market for RP systems in North America and gave the Stratasys distribution channel a wider range of capabilities to offer customers.

Improvements on Titan also were offered in 2003, with build speeds increasing by 50 percent. Sales were strong that year, improving by more than 20 percent over 2002 to $50.9 million. Net income almost doubled, from $3.1 million to slightly less than $6.2 million. According to statistics prepared by Wohlers Associates Inc., Stratasys, with its focus on low-end systems, became the market leader in the RP industry in 2003, shipping nearly half of all RP systems. In addition, for the first time Stratasys accounted for the largest installed base of RP systems worldwide.

In 2004 Stratasys introduced Dimension SST, which added an enhanced automatic soluble support system and also was capable of producing more complex models and prototypes. It was priced at $34,900, and the price on Dimension was lowered to $24,900, bringing RP technology to even more potential customers. The company continued to serve the higher-end of the RP market as well. In 2004 it introduced three variations of its Vantage system, ranging in price from $99,000 to $195,000. But it was clear that the future of the company lay with the low-end machines. A unit intended to crack the $20,000 barrier was in development, a move that made the idea of desktop 3-D printers accompanying CAD design stations seem almost as commonplace as desktop inkjet and laser printers bundled with personal computers.