Good day, ladies and gentlemen, and welcome to the fourth quarter 2007 Stratasys earnings conference call. (Operator Instructions) I would now like to turn the presentation over to your host for today’s call Mr. Shane Glenn, Director of Investor Relations with Stratasys.

Good morning and welcome to the Stratasys conference call to discuss fourth quarter and full year fiscal 2007 financial results. Representing Stratasys executive management on the conference call today is Chairman and CEO of Stratasys, Scott Crump; Chief Financial Officer, Bob Gallagher. A quick reminder that today’s conference call is being transmitted over the web and can be accessed through our “Investors” section of our website at www.stratasys.com. We will begin with the Safe Harbor statement. All statements herein that are not historical facts or that include such words as expects, anticipates, projects, estimates, vision, planning, 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 Reforms 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: the continued market acceptance and growth of our Dimension 3D printer line, FDM 200mc, 360mc, 400mc, 900mc, Maxum, Titan, and Vantage product 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 ABSplus 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 RedEye RPM and other paid parts services. I believe that we have largest part-building service based on the number of dedicated machines, and the other risks detailed from time to time in our SEC reports, including the annual report on Form 10-K for the year ended December 31, 2006, our quarterly reports filed on Form 10-Q throughout 2007, and our annual report on Form 10-K to be filed for the year ended December 31, 2007. The information discussed within this conference call includes financial results and forward-looking financial guidance that are in accordance with U.S. Generally Accepted Accounting Principles or GAAP. In addition, non-GAAP financial guidance is included and 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 expense required under SFAS 123R. We’d like to confirm the date of our first quarter earnings release and conference call. Stratasys’ first quarter results will be released on or before morning of May 1, 2008 call by a conference call on the date of the release. We will release the conference call’s time and details about two weeks further that date. Now I’d like to turn the call over to our CEO, Scott Crump.

Good morning, thank you for joining us. We just released our record fourth quarter and record full year financial results. Revenues grew a strong 20% for our proprietary products and services in the fourth quarter and 25% for the full year. Our proprietary high-end FDM sales increased by 25% during the fourth quarter. This follows our successful transition to focusing on proprietary high-end products, as well as our successful launch of multiple new systems over the past year. We are proud of our FDM group’s nimble transition out of $16 million of distributed Eden related sales into double-digit FDM proprietary system growth. Our Dimension 3D printer system revenue grew by 21% for the fourth quarter as our higher price systems continue to be our most popular products with our commercial Dimension customers. Our proprietary consumables grew by an impressive 27% in Q4 approximately proportional to the expansion of our active installed base of systems. Operating profit growth was impacted by product mix and higher short-term spending levels as we accelerated marketing and new product development programs, which benefit 2008 and beyond. Total unit systems sales grew by 21% during the fiscal 2007. We now have seven new products that have been introduced over the past 13 months, a first in our history, and we remained confident that we can generate strong growth throughout the year and beyond. Okay, I will return later to discuss some of our strategic initiatives, but first, I would like to turn the call over to our CFO, Bob Gallagher, who will further highlight our fourth quarter and full year results.

Prior to discussing the details of our financial results, we would like to outline the items that negatively impacted our performance during the fourth quarter relative to our previous expectations as well as outline the relative financial impact of discontinuing our distribution agreements of non-proprietary products. First, from our product mix standpoint, the fourth quarter was negatively impacted by the sale of two Arcam systems, which represented approximately $1.4 million in revenue, but generated only 13% gross profit. We had previously announced our disappointment with the Arcam distribution initiative and our plan to discontinue distribution at the end of fiscal 2007. Our forecasts for 2008 have no additional Arcam system sales. Secondly, we continued to underestimate the demand of our higher price Dimension Elite 3D printer, as bookings for the system exceeded our forecast and production schedule for the quarter. Consequently, we finished the period with a substantial number of Elites in our backlog. We continue to try and improve upon our forecasting processes so as to more accurately match our sales mix with our production schedule. Given the timing of orders, and lead time and part delivery, we don’t always have the visibility we would like on orders. Our order flow is toward the later part of the quarter and this makes it difficult to accurately predict the flow in mix. This quarter we are implementing system changes to have daily visibility to what’s shipped and what is in backlog along with promised delivery dates. We work with the salesmen and channel managers in advance to estimate the mix, but customers change their mind. This is a fact we can’t change. This quarter, a large number of orders we typically get toward the end of the quarter came in differently than expected and without enough lead time to react…

Stratasys provide the following financial guidance for the fiscal year ending December 31, 2008 as follows. Revenue guidance of $130 million to $136 million or 16% to 21% growth over the fiscal 2007, however if you exclude the approximate $4 million in distributed product revenue we recognized during 2007 this represents growth of 20% to 26%. Our revenue growth estimate for 2008 is fully organic. The operating guidance of $0.77 to $0.85 per diluted share which if you exclude the $0.04 per share of state tax credits recognized in 2007 represents growth of 24% to 37% over 2007. Non-GAAP earnings guidance of $0.81 to $0.89 per share, which excludes the impact of stock-based compensation expense required under SFAS 123R. Reconciliation between non-GAAP and GAAP financial projections is provided in a table in our press release. We’re providing non-GAAP financial estimates for those analysts and shareholders who want to use that information to evaluate our performance. I would like to provide some additional information regarding our spending trends in 2008. Our vision remains to move down to the price elasticity curve, and target opportunities are developing within the direct digital manufacturing markets. Both of these initiatives will require continuous investment in product quality and development. Consequently, in 2008 we planned to invest approximately $2 million of our current run rate to addressing these future opportunities. A portion of these expenditures will be recouping costs savings. Approximately $1 million or half of these investments will be incurred through increased R&D expenditures. All of these costs are incorporated into our 2008 guidance. Now, I’d like to turn the call back over to Scott Crump.

Our core businesses continued to grow impressively during the fourth quarter. Our new product initiatives continued to produce positive results within our Dimension 3D printer business as well as our high-end FDM system business and our RedEye paid parts service. The growth in our high-end proprietary system business is especially pleasing given the historical trends within that group. The growth in our high-end system business partially resulted from our improved focus on the sales of proprietary products as well as our introduction of two new systems last year the 200mc and the 400mc, which have been major contributors to this growth. The 400mc has allowed Stratasys to expand into new applications for the manufacturer of end use parts or in other words DDM, direct digital manufacturing. This system produces parts with better accuracy and improved parts strength. This product also allows us to continue to grow at our successful based business of rapid prototyping. Building on this success, we made our most significant new high-end product introduction ever with the new FDM 900mc at the big EuroMold Show in December. The 900mc represents the most advanced FDM system in our company’s history, exhibiting additional improvements and speed, build accuracy, and part quality. Most notable is the new system size, which has a build chamber about nine times larger than our 400mc. This commercial of that system can build the biggest part in the world having the capability to build a part over a four and a half feet long on the diagonal. We began commercial manufacturing of the 900mc in the first quarter and we will begin limited shipments, gradually ramping to full production by the end of the third quarter this year. Our new high-end mc products have all been very well received and we have established a strong…

(Operator Instructions) Your first question comes from the line of Troy Jensen - Piper Jaffray.

On the backlog, two quarters in a row now you have had some struggles with properly forecasting demand mix, and it has kind of impacted your revenue recognition in the quarter. So, I am curious to know what you are doing try to fix that. Bob, I think we spoke last quarter; you want to put a couple of million bucks of your cash balance in inventory, so you guys don’t have these issues here with predicting the mix.

Yes, Troy, as I mentioned in my comments, we’ve created visibility; we have a daily indication of what shipped. We have everything in our backlog with promise-to-ship date, but the reality is of course a lot of orders come in late in the quarter and our visibility to that is low. We work with our salesmen and our channel managers and try to predict what that mix is and they are also directly with customers but the customers change their mind. And from the way we do our business when we look at the lead-time for our parts etc., we haven’t been able to react quickly enough to that. Given our size today, we could build additional units and build them up, but we don’t think that that’s a good long-term strategy. So, we made a conscious decision not to build units outside of our forecast. It’s a fair question, but long-term, I don’t think that’s a good strategy and we are suffering from it in the short-term right now.

Scott, I think I’ve been following you for four years and I think that in all four years you are using 5 million 3-CAD seats as the addressable market. Why is that number not changing, because you listen to the Autodesk and the CAD resellers you are talking about pretty substantial growth in 3D? So I mean, is it higher than that? And then we just don’t know exactly what the numbers are? Or you just kind of help explain why that number has been so consistent?

Yes, it needs to be applied to rapid prototyping. So the best source that we have is through the Wohlers Report. And last time he reported it was for the year 2006 where we’re showing two million commercial seats that applied to rapid prototyping and three million in education. Obviously, adding up to the 5 million in that total. And about two thirds of our business goes to the commercial for the 3D printer and about a third goes to the education. So yes we are about maybe one, and depending how we will look at, one to two years behind on the number, but I don’t know that is the point. The point is that there is only about 30,000 output devices from five million the total CAD seats showing very under penetrated market, but there could be very well be a larger number than the 5 million. But we believe that there are at least 5 million seats that exist around the world that are operating.

Troy, it would be with the lack of some really solid researching number. It’s our tendency to be conservative with that estimate.

Your next question comes from the line of Jeff Rosenberg - William Blair & Company.

Bob, could you talk a little bit to differentiate between the shortfalls you talked about in gross profit versus gross margin. Is the Arcam mix, which my quick calculation was it’s about 200 basis points of gross margin, really the primary gross margin issue? And so how should we think about gross margin going forward? Is that sort of 54% to 55% range a pretty good number to think about as we look forward?

Yes, there was the two components to it I would say, Jeff, in the quarter. Certainly, Arcam was a component to it but also our paid parts business, while it grew 14% during the quarter and 30% for the year, the fourth quarter was lower expectations and that’s a strong margin business for us. Given the mix between consumables, paid parts and our systems, I would probably broaden that range from 53% to 56% in terms of what I think about.

How should we think about the sort of normal seasonality you typically see in Q1 relative to the delinquencies and the strength in the backlog? And then maybe also you could comment on the timing of your reseller meeting this year and how that might impact things relative to history?

Jeff, one thing that we tried to point out in the conference call as it relates to the 900mc, we’ve obviously taken orders for that product. As Scott’s comments suggest, it’s a gradual ramp up in the production here. We’re not going to be able to ship all of the orders that we currently have for the 900mc in the first quarter and we don’t expect to get caught up there until the third quarter. As it relates to the reseller meetings, if you look at the introduction of the 1200es that became public today, that was already kind of released privately to our owners of our reseller network so they were aware of the product line. They have already placed orders for that product and we will begin shipping the 1200es in the first quarter. So, if you look at what we have done historically, obviously there’s been a lot of focus on the timing of the introduction of new products in the reseller meeting. This kind of matches up, somewhat similar to what we did last year, when we introduced the Elite, I believe it was in January and started shipping. We are introducing the 1200es in February and we are beginning shipment in the first quarter.

And do you think that the Elite backlog is something that would be different than, relative to the patterns we have seen in the past?

Not sure that it would be significantly different from the historical pattern.

Your next question comes from the line of Eric Martinuzzi - Craig-Hallum.

I just wanted to go back over the four points you talked about, the shortfall in the quarter. The Arcam machines, were they in the forecast coming out of Q3?

We had one of the two machines in the forecast coming out of Q3.

So, given that these things, we are talking about a roughly $700k price point. If you hadn’t sold the second, we would have come in even lighter. I am looking at the Dimension Elite and this is kind of the back of the envelope, but if I am 40 short on Dimension Elites because I didn’t have them there to ship, that is roughly $1 million bucks, $0.5 million or so of gross profit. Then I’ve got RedEye weakness. I am trying to figure out, it just seems like there is something else missing on the top line that doesn’t explain the shortfall, unless my estimate on the Elites is off.

Without getting into specific numbers, Eric, the Elite is, at least prior to this morning was our highest price 3D printer and our highest margin 3D printer. And the margins on that system are significantly higher than our corporate average. So, without giving you a specific number on the impact as it relates to the, I believe, $600,000 that we identified on the gross margin, a portion of that was driven by several Elites that could have been shipped during the quarter.

Also Eric, as it is relates to the paid parts business, once you cover the overhead portion of that business, because all of your depreciation on your machines is fixed, really what we are talking about to produce the parts there is the actual consumable usage itself. So incrementally shortfalls in paid parts have a significant impact on the overall gross profit.

And then further on the leverage, what was your comment regarding the sales expense, was it that the absolute dollar or that the percent for 2008 was going to be less than ‘07, what was that comment?

Yes. I mentioned on the commission expenses and I was talking about, our forecast concludes the absolute dollars for commission expense to be lower irrespective of the significant increase in the overall revenue. That’s just on the commission fees itself. As I said, going into 2007 without any new products and the loss of Objet, we have worked hard to maintain our sales staff and going into 2008 we have got all new products and we’ve got confidence of the team and we will do well with that group in 2008.

Your next question comes from the line of [Ryan Thibodeaux] - Maple Leaf Partners. [Ryan Thibodeaux] - Maple Leaf Partners : On the inventory, you ended the quarter it looks like inventory growth was about six times the rate of sales growth. Yet you said you were sold out of the Elite. So, I am just trying to understand where the inventory is coming from?

Yes, I think it was three components. I made a comment as it related to inventory. One, while we didn’t install the Elites, based on our forecast, we built other units in the Dimension product line, so we had a fair number of finished goods related to other units. That doesn’t give us concerns because that will flush out in Q1. Secondly, with the number of new product introductions, we are just introducing the 900. We just introduced the 1200es, so we have inventory to support our new product introductions. Also we have a fair number of consumable inventory on hand at the end of the year to support our increasing installed base. [Ryan Thibodeaux] - Maple Leaf Partners : So there is some legacy Dimension 1200s that are in the ending inventory that you are going to have to basically flush out?

No, we were anticipating the introduction of the 1200es. We are talking about more the 768 models.

Yes Ryan, we’ve been building the 1200es now for at least a couple weeks and we haven’t been able to ship any of those systems until today.

But, we hadn’t planned to. [Ryan Thibodeaux] - Maple Leaf Partners : Are there any of the 1200es’s in the ending inventory in the fourth quarter?

Yes, I think Ryan there was a few in there but as you’ll notice with our announcement of the es, the conversion to a legacy system is actually quite simple. We are selling the upgrade enhancement packages to existing holders. If we need to, it’s quite easy to do that with the systems that we currently have on hand. [Ryan Thibodeaux] - Maple Leaf Partners : How will the upgrade, would that be counted as a unit sold or where will we see that on the income statement or I guess in the segment breakdown?

It won’t be in our system unit count, when we discuss the number of units but we will include it as part of our product revenue. [Ryan Thibodeaux] - Maple Leaf Partners : So we might end up seeing a little bit of skew on the ASP then if you’re including it in revenue but not in units, right?

Yes, we will probably get some visibility to that as we go throughout 2008. [Ryan Thibodeaux] - Maple Leaf Partners : And then could you just walk through once again on the SG&A for ‘08, you talked about, I think you said $2 million more run rate for the year, and then you said I think about a $1 million increased run rate in R&D. Was that $2 million total or was that $2 million for SG&A and then $1 million for R&D?

No that was $2 million total. [Ryan Thibodeaux] - Maple Leaf Partners : So of the $2 million, $1 million would be in R&D?

That’s correct.

Your next question comes from the line of Graham [Raine] - Bear [Stearns] Capital. Graham [Raine] - Bear [Stearns] Capital : In the past, you have mentioned that paid parts kind of serves as a leading indicator for DDM. Can you just provide a little bit more detail on where that weakness is coming from in the fourth quarter and just what you’re seeing in that area of the business?

It sounds like you have two questions there. Let me start with the DDM. There are two fundamental applications that we’re targeting. One is jigs and fixtures for IDM that are used in manufacturing of our products, and we’re seeing good strong growth trends there both in our RedEye, as well as the use of the systems for those applications. And we are also seeing a good trend within RedEye for continued growth within the parts for end-use parts, which is the DDM. It’s a 30% growth year-over-year but was a shortfall to our internal budgeted plan within RedEye. We just overall had some execution problems. During the year, we have added both sales people as well as management within the group, but not at a fast enough rate to get leads to hit the numbers. Graham [Raine] - Bear [Stearns] Capital : And as far as international exposure goes, do you break out your international sales versus domestic? I’m trying to an idea of what that rough spilt might be?

I think it’s best to look at that, if we look at the proprietary products without the distributed products in there, it’s kind of a 50%-50% mix for the quarter and 51%-49% for the year. If you look at the relative strength, I think our domestic market on proprietary products grew at about a 24% rate and international we had about a 27% rate. So we saw good strength growth in both domestically as well as internationally. And I think that helps reinforce the fact that we think awareness as opposed to pricing is a factor. Because with the weak dollar you would have expected international to be a higher growth component between the years but they were very close in the overall growth between the years for our proprietary products.

Your next question comes from the line of Jeff Evanson - Dougherty & Company. Jeff Evanson - Dougherty & Company: Bob, I don’t understand how domestic can grow 24%, international can grow 27%. But both those rates combined are lower than your proprietary growth rate. I’m confused. What did those rates mean that you just gave us for domestic and international?

I gave that is overall. So, I included consumables, maintenance that is the full sales component, it’s not just products. Jeff Evanson - Dougherty & Company: You talked a little about incremental spending for advertising and new distributor programs. Could you tell us what types of distributor programs you are planning on? This was in your opening comments regarding why you expected higher operating expenses in 2008?

Yes, my opening comments were pertaining to the fourth quarter of 2007. We held some programs related around to the launch of the 900. We did some other programs within the 3D printers within the fourth quarter in anticipation of the 1200es launch and we had advertising surrounding the 900 product line. What we talked about in 2008 is we talked about an increased incremental spending level as it relates to R&D and to some quality initiatives, in order to take advantage of both the DDM market and as we move down the price elasticity curve on the 3D printers. We believe both the DDM market on the high end will require higher reliability and repeatability, as we get closer to a larger and larger market there, as well as higher reliability as we move down the price elasticity curve on the 3D printer market. And so to take advantage of those initiatives, we’ve will increase our spending in 2008 related to initiatives surrounding those things. Jeff Evanson - Dougherty & Company: I guess you are not anticipating any significant distributor programs in 2008?

Not outside of our current normal run rates. Jeff Evanson - Dougherty & Company: Does it make sense or are you telling us you are going to be changing your commission structure so you can add more visibility into that?

Well, what I said is I think we haven’t changed what we did in our commission structure in 2007, in terms of what we set for our commission structure, without having any new products on board on the high-end for the past 18 months and the loss of Objet with $16.4 million in sales. We had a very nervous sales team in 2007 and it was unclear what was the appropriate level of quotas to set for them given the loss of Objet and the commission percentage. And we wanted to make sure we maintain those people because we have a really good sales team. So, in essence, I think we gave fairly low targets for those people relative to what their performance was and again geographic dispersion of that, you have people that exceed their quotas and some people tended to be under their quotas. And we have accelerators, once you go over the quarters, which will skew the commission expense relative to the overall sales dollars.

But that was very appropriate for 2007. Jeff Evanson - Dougherty & Company: I guess what I’m wondering is does it make sense to change the commission structures so you have more visibility I understand the challenge of knowing who all achieve quota. And this is the second time this has happened and in the past year.

I won’t say that the second time it has happened in the past year. It certainly happened in the company’s history before. Jeff, all that I can say is that given the number of new product introductions that we’ve had we’ve got a full rebound high-end product line and we feel confident in the product line and where we’ve set our structure for 2008.

Your next question comes from the line of [Amit Kamat] -Capital Investment Service. [Amit Kamat] -Capital Investment Service : My first question relates to Arcam, looking back at your past comments over the last several quarters and the optimizing that you expressed both for the technology as well as the distribution opportunity. What was it that ultimately drove the decision to discontinue the agreement?

First of all Stratasys in Arcam, we are interested in merging. And part of the distribution process was to understand a complicated technology, a good technology but a complicated one, for some very targeted but complicated applications, one in medical and one in aerospace. And over a two-year period, I will say an assessment period; we are only able to sell eight systems to early adopters. And not get into the early majority with multiple systems per site and of course the corresponding low amount of revenue and the assessment for 2008 and 2009 were that it was going to continue to be, actually not just in the US but worldwide a sale to early adopters which is different from what we had anticipated when we went into the agreement. So we logically pulled out of that, believing that we would not sell a significant amount of systems or better way of saying is customers would not buy a significant amount of systems. Very typical of early adopter or you know a technology S-curves that take a while for adoption. I do believe that long-term, there is a significant direct digital manufacturing application for the Arcam technology. But I guess we’re not willing to wait for that as a distributor.

One other component to that in May of 2007, Arcam introduced a new system, the A2, and the average price point for the A2 was approximately $200,000 higher than their 400 with [inaudible] system before. And people liked the functionality that came with the A2 but and so it really quelled some of the interest in the 400 because they like the technology for the A2 but most people were finding not willing to pay that price point to date for that product.

Which accelerated our decision. [Amit Kamat] -Capital Investment Service : My second question relates to your reseller distribution network there. A few companies involved in what I would consider adjacent spaces for you and they’ve commented that they are seeing some consolidation among resellers. Are you seeing any consolidation out there within your network of resellers?

And both the reseller dealer networks have always been dynamic. I was a reseller for SGI and Stratasys was a reseller for SGI and it’s a constant, not maybe for quarter but for year. But within our reseller locations around the world, we continue to grow that and we are not seeing that, well let’s say a negative dynamic, I guess we are seeing a positive dynamic by dealing with only pickup new resellers globally but then also train them. But the nature of a reseller is more dynamic than typically a direct sales force. But we think it applies for the type of growth that that we won it on a global basis, because we are selling in and servicing in, I believe, 71 countries now.

But the shorter answer is we haven’t seen much consolidation in our reseller network.

Your final question comes from the line of Clinton Morrison - Feltl & Company. Clinton Morrison - Feltl & Company : Back to the reseller meeting didn’t find out when it was going to be relative to last year. We are obviously kind of trying to figure out when that sort of bulge comes through for the deal you offer?

Yes, Clint, I think we’ve indicated that we had a quiet principals only meeting earlier in the month where in each region the 1200es was introduced to them and we took orders for that system. Clinton Morrison - Feltl & Company : So essentially that positive effect of the reseller meeting has already occurred.

We would actually expect to have a full-blown or typical reseller meeting in the later part of the year.

That meeting is for all, it’s a much wider meeting. We wanted to get the product out there and introduce that to a smaller group and that’s what we did in February. Clinton Morrison - Feltl & Company : So, what I’m trying to get at is the impact of the offering on the extended terms has already been put forth for you reseller group. That’s what I want to know. And then secondly, absolute commissions are going down, I assume your sales force isn’t decreasing, so essentially they have all taken a pay cut on average this year?

Well, no not at all. Their overall volume having to the whole corporation seven products, their potential has gone up significantly and we’re well positioned for 2008. So they all should do very, very well. To the comment on 2007, we are in a position of transition and so we increased things like our accelerators for those that got above the quota point, in terms of commission, but that was adjusted back down to a more normal level for 2008.

They had a boom year in 2007-08. Clinton Morrison - Feltl & Company : So the bonus in 2007, but their overall compensation will be lower in 2008.

Right, yes, it will still be extremely lucrative for them. Clinton Morrison - Feltl & Company : Final question, tax rate for the year?

There is a question coming out of the shoot of whether the R&D credit will be around in 2008 or not at least initially in the year. I would estimate 33% to 35%.

Ladies and gentlemen this concludes all the time we have for questions. I will now turn the call back to Mr. Scott Crump for closing remarks.

In closing we believe, we are in the early stages of a tremendous growth opportunity. When you include the two new 3D printers introduced today, we now have seven new systems, more new systems than any other time of our company’s history. We look to maintain the positive momentum in our core businesses including 3D printing, high-end systems, and RedEye paid parts and expect the strong growth in our high margin proprietary consumable business to continue with our growing installed base of active systems. In addition, we are excited about our new product offerings and strategic initiatives that should provide incremental growth opportunities. I would like to thank you for your interest in Stratasys, and we look forward to speaking with you again in May. Thank you.