Q1 2020 Earnings Call

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Greetings and welcome to Stratasys first quarter Twentytwenty financial results call.

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A question answer session will follow the formal presentation.

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I would now like turn the conference over to your host Yonah Lloyd Vice President Investor Relations.

Thank you brought good morning, everyone and thanks for joining us to discuss our Twentytwenty first quarter financial results on the call with let's say, our CEO Yobs <unk> and our CFO Wheelock Payorski I remind you that access to today's call, including the prepared slide presentation is available online at the web address provided.

In our press release. In addition, a replay of today's call, including access to the slide presentation, well also be available and can be accessed through the investor Relations section of our website.

Please note that some of the information you will hear during our discussion today will consist of forward looking statements, including without limitation those regarding our expectations as to our future revenue gross margin operating expenses taxes, and other future financial performance and our expectations for our business outlook.

Statements that speak to future performance, that's expectations or resolve our forward looking statements actual results or trends could differ materially from our forecast.

Risks that could cause actual results to be materially different from those set forth in forward looking statements. Please refer to the risk factors discussed or reference in Hey, Stratasys is annual report on form 20-F for the 2019 year as well as in B. Our reports on form 6K that we're furnishing to this FCC today.

Polluting the related press release concerning our earnings for the first quarter 2020, and our operating and financial review and prospects, which are attached as exhibits to those reports on form 6K, Stratasys assumes no obligation to update any forward looking statements or information, which speak as of the their respective dates.

As in previous quarters today's call will include GAAP and non-GAAP financial measures Nongaap financial measures should be ready combination with our GAAP metrics to evaluate our performance.

Certain non-GAAP to GAAP reconciliations are provided in the tables contained in our slide presentation and entered days press release.

Now I would like to turn the call over to our CEO you alongside you off.

Thank you Donna.

Good morning, everyone.

And thank you for joining todays call.

So first and foremost I hope that you wouldn't go families. Okay I can't see.

We are all experiencing.

President of global funding.

I don't go out to those that have been impacted I would like to extend our deepest wreckage. There many hero they've got a working hard to keep people say during these difficult time.

Hi, good a few everywhere and threed printing and playing an important even critical role during this crisis.

The medical community Makena steady supply personal protective equipment.

I think swap anymore.

I could not be problem. There this drop in Houston and now we have responded to the situation.

I don't priority, the when being up almost body, but oh.

Oh employees worldwide.

We began an ongoing communication China's here as soon as the new Big entry can go in areas February do we have a company wide emailed regarding Robert <unk> and I've tried to be ahead of the Q.

For a possible.

Implemented walk from all options here early and show that what I can be made it wouldn't be met for remote activity and set up into running for real time update and I think you.

<unk> operated is an essential it'd be a glut in all key U.S. locations.

Did you not age job team have been providing round the clock simple and we have increased their frequency I'll follow management update because or corporate and regional teams.

We can you review practices and procedures to meet the card specific challenges.

I want to recognize the f. all of them Dias processing salmon.

Those who made the sweet and effective adjustments locally remotely suppose that would be good there's really no continue coming into buckets that the lab and production facilities walking gotten to associated be sensing and safety conditions.

Keep out production plant open at our product shipping Oh people have demonstrated relentless bashing to keep out gives us strong and actually.

On behalf of the leadership deep.

On the African leadership team, we greatly appreciate your extra ordinary resilient these challenging.

Oh, good business, we are committed to transparently sharing what we're seeing today extent possible.

Yeah, I predictability of so many doctoral it's played on a global scale, it's created an atmosphere of uncertainty on many levels.

Oh the ways, we are being built for active and adopting it needed wasting focuses on maintaining our business pumping you would be in coming out of these pandemic stronger and poised for growth. We do believe the default is slowly and that it's being stabilized our visibility.

True in the coming to a month.

Let me start by saying that our business seems healthy.

We believe.

If we are well prepared to manage the current down there, we just strong balance sheet, what focusing on cost control and it gets generation.

We have over 325 million in cash and equivalents and know that Oh engagement level, we don't customary remains high and the demand for it seems to be strong.

Unfortunately due to the coffee 19, our business in Asia was already affected earlier in the <unk>.

Followed by Europe, and then the U.S.

This event, where unfolding we recognize how our technology can take a major go to support the healthcare community and we responded immediately I'd like to show some of what we have experience, including actions, we took well funded pandemic.

Dementia, we are taking to address the business operationally and how we see their pocket playing out in fact.

And we certainly Scott in some way.

We may America's funniest situation in an even better position for the long damn than before.

We'd over 30 years of experience.

I think the three D printing industry. This we have.

So I can see well position to Mobileye, what we believe the largest any piedmont affecting network into war.

No bid with peak in the fight against Koby 19, we leveraged our application expertise Oh in China and partner network, no cope with wide resources.

To help get the variety freedom to about.

To the global medical community.

Initially in consolidation, we customarily like Medtronics and Mayo clinic, we identified faced she is it the first application and fastest way to match, what what desperately needed with what could be produced.

We did the coalition of 400 company.

It could be Medtronics, born and raised on the degree to use their strive to see Seaspan and are therefore these airports.

Good day over 100000, cheap and related I tend to have been delivered good.

You can make that most of them via the cloud using our new Grabcad show walk management software.

[laughter].

Got them, though.

Our responded as well that's it snows in general the told me and bear.

It's been it doesn't mean amazing to watch the smoking nation, our OEM people. So weekly we didn't need highlighting key benefit of threed printing older conventional methods.

The versatility, it's simply go from making appeared that or Taillights TPP E and event delayed talk to you.

In Parried, H.P.H.B., then I'll get off to be Doug system in Europe.

Installed and began running 60, AFFO FDM pinedale literally 48 hours from ordinary to making jokes asked you.

This provides them with their rapid response system to address moved people protective equipment and medical device Nate its when it's better control over the supply of Threed deeper into football.

In the U.S., we had been all think the Koeppen 19 challenge.

You know a draft got community.

Through the off he said well 15, well if I missed the geology resins that physicians from Massachusetts General Hospital.

We have already received over 200 entries from old then that hints countries around the war. The goal is to design a rapidly deployed but no cost mechanical ventilation or.

It's trying to tease application engineers have been seven finally themed develop walking prototype.

You know a lot this month.

Additionally.

We recently announced an agreement with Orange and San Francisco additive manufacturing company to de lever to healthcare provided.

And testing center have to 1.3 million testing swaps every week, we have already facilitated old. Therefore, if you haven't thousands units.

Here in Israel, the government implemented or bought the coffee maker investing sees them.

Going back up to 3000 test for the.

Before the program could launch the system sustained irreversible damage to exclude containers and it would have taken weeks or longer to get the exact season and replacement parts from the vendor in the far east.

You can go appointed technology, we biocompatible material that we were able to weekly branded spot. So the testing would continue.

[laughter] and globally in order to address the unique shortage of providing support at least on four seven printed such as our new JCP five Oh, it's everything I've been in I think that towards the videos and remote device management piece. Then you know that can provide better did you thought it in real time support.

Installation and troubleshooting.

[laughter].

So just few examples.

A fourq is truly any granted but display of commitment growth worldwide network of maker.

Led by threatening disease and peer companies throughout the entire everything on a factor industry to conduct koby 19.

We have no doubt did all of these efforts have showcasing our industry in it bothers people like educating the market.

[laughter] and significantly increasing the awareness.

Many value proposition if anything it's a reminder, some of those key benefits include greater freedom of design speed and cost efficiency.

Product integration and the flexibility to produce a wide range of products from it seem to keep it on.

Only three D printing can provide localized production in proximity to the end market through digital inventory NGL production flow on that slide four factor in jigs and fixtures and as demonstrating during this crises and elevate the prototype of supply chain Crunch, we believe.

As a result.

The way our industry and step up you wouldn't be Stein more and more companies and government. We got sent their supply chain and implement she's going to drive increased demand for Threed printing is a strategic imperative leading to incremental business opportunity. Once we have managed from the current situation.

[noise], then decline Q1 thing and the soft and we're seeing now in Q2.

Clearly due to a meaningful portion of our customer base being effectively shut down.

So we're purchasing and consumption perspective, as a reminder, our revenue cadence tend to be back end loaded. We just significant portion of business coming to find a few weeks of the pulled him.

So the impact on our reside wasn't more notable Furthermore, the unusually low 48.4% mugging wasn't enough to you to special discount.

Well my fear on ASP reduction, where there is based on the lower proportion of hardware on consumer but out of the total revenue need we strongly believe that margins will come back into our usual.

[laughter].

Oh, no, 50% when demand for environment recover.

Meanwhile, sweated mitigate the impact we began to implement cost control manager at the end of February and continue to closely manage them. All employees were effectively reduced to a full day week last month.

<unk> Institute and non essential to hiring freeze and we have adjusted.

Cost base and production plan accordingly.

As a reminder, when he 19, we'd be the inventory in both ROIC.

Enfinitas groups to anybody to meet demand you know more efficient way and prepare for new product launches.

Why do it uses our operational cash generation last year, it's proved to be an even why is that moved their anticipated and we had more finished good now that are located in their respective region. Why do we are facing some me about supply issues for our new product, we are less exposed for out because it.

And one.

Additionally, our plant operation and we continue production to secure our inventory level to meet demand and yet even though that business environment right. Now we know we're encouraged by the discussion we are happy and the opportunities as we come like the situation Beth.

As an example of the high level of paid for it.

Single many of you attended our digital launch event, featuring the new Polyjet, Jay 55, and exciting and highly innovative seaspan, that's bringing more feature phone premium party just technology right into the off these quite yet it's both for new and patent.

Good turntable former.

Thousands of people they tended to event, including many fortune 500 company strong indication of interest.

[laughter], our new product development plan of continuing and to date, we have not reduced our spending for these programs.

We had originally planned to launch new products in the back half of this year primarily in Q4.

The current situation, it's clear that they return on investment of marketing Rachel habit and other expenses needed to launch we'd be severely limited in a temporary spending environment in order to maximize the impact into avoid any potential supply chain issue.

I believe it makes much more sense to wait and see the first off of Twentytwenty one.

We are excited about addition to our product and technology portfolio and look forward to sharing more at the appropriate time.

I would like to now [laughter] tend to quote overdraft CFO not by all ski we reviewed the details of our financial results you left.

Thank you you are in good morning, everyone.

I haven't you indifferent portal was 132.9 million compared to 155 point Threemillion 40 cents year last year.

Constant currency basis total revenue declined 17.9%.

GAAP operating loss for the quarter was 19.9 million compared to an operating loss of three point Threemillion for the same to you last year.

Non-GAAP operating loss for the quarter was 8.4 million compared to operating income of 6.8 million 47 deals last year.

GAAP net loss for the quarter was 21.7 million or 40 cents per diluted share compared to a net loss of two point Threemillion Ofone centsper diluted shares for the same period last year.

Non-GAAP net net loss for the quarter was 10.6 million or 19 cents failed to get to chair compared to non-GAAP net income of 5.7 million or 10 cents per diluted share they probably for the same period last year.

Well, that's why didn't you want it first quarter was 83.2 million decreased old 20.9% compared to the same period last year, all 20.3% on a constant currency basis.

Within product revenue.

System revenue decreased.

The 9.5 to send compared to December last year and decreased 39.2% on a constant currency basis.

Consumable revenue decreased by 5.8% compared to the same period last year and between 5.1% on a constant currency basis.

Service revenue was 49.7 million increase of 0.9% compelling disempowered last year and decreased 0.6% on a constant currency basis.

We do tablets revenue, that's unless the Baltic venue increased by 2.2% compared to the same period last year in interest, 2.9% on a constant currency basis.

Gotcha Gotcha, managing was 45% for the quarter compared to 49.2% for the same period last year non-GAAP gross nalgene was 48.4% for the quarter compared to 52% for the same period last year.

And.

Maybe cladding got smoking is due primarily to the lower proportion of hardware I'm concerned about out of that doesn't have anything unique we feel confident that up lots neurology, where we tend to their usual range once installation path.

GAAP operating expenses was 79.8 million relatively flat compared to the same period last year.

Non-GAAP operating expenses decreased by 1.6% to 72.7 million for the quarter as compared to December period last year, driven by cost cutting measures in energy any.

Please note that R&D spending this quarter was higher than Q1 off last year as we remain committed to our long term strategy and we continue to invest in developing new products. They wouldn't believe will meaningfully expand out addressable luck.

The company generated 11.3 million enough cash from operation during the first quarter as compared to 4.6 million of cash generated in the same quarter last year.

We ended the quarter, we see has made.

25.5 million in cash and cash in Cleveland and Showtime people, the compared to 321.8 million at the end of the fourth quarter of 2019.

We believe this we are well prepared to manage the coffee, making situation with the strong balance sheet and no debt, while focusing on cost control and cash generation.

The company join me 2020 financial guidance for life annual GAAP and non-GAAP net income in EPA non-GAAP operating margin in capital expenditure due to the high level of economy economic uncertainty and be stops you called bank coffee 19.

Let me conciliation between GAAP, and non-GAAP and actually made their nature Apple they didn't even the table at the end of four points released in slide presentation with itemized details concerning didn't nongaap financial measures.

We'd like to turn the call back to you on for closing remarks, yeah.

Thank you really like Oh.

Oh communication, we did Shannon.

And keep customer remain highly active and we have continued to do business. During this time.

But to be the U.S. and audio market still effectively close your blood telling indication regarding the pace of recovery. Therefore, we believe there's too much uncertainty at this point to provide a reasonable estimate.

The full year financial impact related to Cook 19.

[noise] Directionally speaking, we expect that.

Many if not most of our count them and we continue to keep their spending through a minimum in Q2.

And given that there will be a full quarter is more of coffee 19 impact. We currently expect sequential revenue decline of 5% to 10%.

As for how I think look we have marriage and begin to recover it's clear that these prices have generates significant awareness. The three D printing is becoming essential for accelerating and improving design speeding up time to market and production and creating that depend.

Then in more recent email global supply chain, including localized did you thought inventory and distribute isn't enough secretary.

We haven't hair fast pen for my hope customers.

That executive are asking their engineering team more questions about what three D printing can do for them.

You should think both in because optimizing value from additive manufacturing is a strategic exercise as tried to say, it's particularly suited to bring their all strategic entity, Bob now for our customer.

If economic recovery begins to kick.

In doing age too we would expect to see a gradual improvement and we could see every 10 to sequential growth in the big off of the year. Additionally, we believe different wouldn't be able to capitalize on the improved perspective of many businesses and government.

Because of these prices are recognizing the when including the weak link in their current production flow. That's we proved can be addressed by incorporating anything about affecting.

Meanwhile, we are being proactive in managing outperformance. During these challenging time, we've built inventory last year to improve efficiencies and limited disruption, we have reprioritize spending to ensure adequate resources to address both coping 19 related items and builds greedy code for us but did you.

Growth.

And we continue to morning toward the industry for opportunities.

Hi, John High performing theme is everything got persevere through eat and he didn't seem to variously preparing to seize that bought opportunities.

To support an exciting growth period, as we or recover from the current situation.

It's part of my first hundred days CEO I have been directing a deep dive diagnostic and strategic review of the company.

Later in the year I tend to share more extensive you folks drug disease, we look as we lead our industry forward weeks strong and sustainable growth for many years to come.

[noise] [noise] right operator, please turn the call over for questions.

At this time will be conducting a question and answer session. If he would like to ask a question. Please press star one on your telephone keypad.

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Our first question today is from Greg Palm of Craig Hallum Capital Group. Please proceed with your question.

Yeah.

Thanks.

Taking the questions I guess I first wanted to clarify one of the statements from the prepared so if I heard right.

In assuming a gradual macro recovery that sequential growth could return in the second how does that mean second half over first half or is that a Q3 comment and I guess you know is or is your expectation right now that Q3 could could follow normal seasonality trends and be down.

Sequentially again from Q2, just wanted to clarify that please.

[noise], Greg Greg. Thanks for the question, Yes, right. Thank you for the question Yeah. So our expectation if everything will go away with the coffee they've been going away in Q3 in Q4, and which definitely I think at that point a lot about can know for sure.

And we do expect a growth compared to the first part of the here in and specifically to Q3, we expected it would be a higher into Q2.

Got it okay.

And I mean as it relates to the broader macro environment I'm, just curious what what would you be watching.

Listen into from your customers that might give you more confidence in a recovery and obviously a pickup in demand I mean, I guess you have any sense for for sort of the capacity and timelines for investments on behalf of your customers at this point.

Hi, Greg you off.

Great question, Oh, we are in constant interaction, we talked about reset as and and partner and they are on their market. We are ready to go the moment that would be a recovery. We are there and we watch it you know we watch it carefully we are working well.

But it's kind of thing there. So the arrow. They also we see already dog are coming back a gradually wall some plants here and there and.

We have the inventory play the positive in place everybody's ready.

Watching carefully though the bucpapa at the moment there will be backed walk we can be leveraged supply.

Okay.

That's helpful. I guess last one if youre thinking about trends are themes, you know that might accelerate as we all emerged from from what's going on.

It's been amazing to see some of that you know additive technology or technology, specifically help.

Addressed some of the your shoes. So so that's that's great to see but what's your thought on you know just the accelerated adoption for digital manufacturing and you know really curious to see or hear how stratasys might fit into that a longer term.

[noise] Greg. This is this a fantastic they said that the you know this is the lighting is set up here in a sense.

We are.

I think a constant discussion as you know in New York covering this area Chinese the status quo of tradition of on factoring. This is the biggest challenge because we have to technology. We have the machine. We can combine them together, we that traditionally manufacturing line.

But the status quo evolving and suddenly in this type of period when people needs a even though I just container for the robot or the differentiated and you can do it they like the 24 hours you just get the five and you don't need inventories just say than even though you're fine.

We see more and more discussion around it and we believe it would be also part of the government along to have them.

The next question is from Troy Jensen a paper Sandler. Please proceed with your question.

Alright, Thanks for taking my questions and also thinks failure efforts here with us so that.

First off for U.S. could you talk I remind us a vertical exposure.

Just be curious to know what you guys in customer exposure is with respect to auto versus arrow.

You know dental elective health care, you know and whatnot.

I guess.

Hey drugs.

No. We are the leaders in taking a three D to I'm going to factoring.

And.

So when our customers shutting down so we are being impacted and mainly the arrow and auto.

And some of those dent, a leading or some of the dental leading customer that of course education, which no is a waterfall made verticals and not only made very pick up without a main spend there in Q2.

So those are the main ones they see no they're more than Dalbec, we owe Vic.

Yep, Okay understood. It how about for lots can you just talk a little bit mine on the cost controls I'd just be curious on an absolute basis I think you get spent about.

72, NASS million in the March quarter.

And she was asking to go down sequentially can you kind of quantify by how much you think you know we could see sequential changes in the opex on a dollar basis.

Yes.

Good morning choice.

Yeah, so cost control like we did implementing several cost control already stopping they may end of February. These as we see the situation south coming but it will be no notable and we get into late Q and the second quarter, then we'll see a much more significant impact our ability to embark cost control in Q1.

Well, a little bit limited in terms of the timeframe.

We definitely aim.

I mean, it's significantly a implemented significant measure it first of all the travel a around the world. So we'll see some cost controls on that working from home. So it's also impact our overall, a maintenance costs nonessential hiring freeze effectively 20% salary reduction.

And so all of our employees, an executive and we're staying with they say provision a probably full almost the entire they second quarter. A so these would be significantly but also on the army spending less than a we held back they Mary can raise it for the year and they we adjusted cost base then.

Production plan, so we definitely low on all the whenever we can to to address any variable spending as Renaissance a fixed got spending you know to address a the situation. It significantly focused also on operational.

They make sure to minimize the operational efficiency whenever we can.

The next question is from Shannon Cross of Cross Research. Please proceed with your question.

Thank you very much for taking my question I wanted to understand a little bit more in the pushed out a product launches I I get the wisdom of of doing it given you know trade shows and costs or not but I'm curious where there any delays you were seen in the actual development, our R&D cycles or is it purely just because of the current environment.

I have a follow up thank you.

Hi, Shannon.

So.

First and most importantly, we are not reduced R&D spending to date for the Npis. Like this is a this is our growth engine going forward and we want to maximizing the bottom line.

Yeah, Yeah, Jay Finks, if I could we launched already we made all the spending that we launching and created a great.

But looking forward to didn't you products.

We originally planned to launch them at age to primarily in Q4 end of year and to create kind of a end of year.

Momentum when we look currently on the business.

It doesn't make sense when you put the number two no pen to paper it doesn't make sense because those are significant new products New line, we want to create momentum.

And ER, we don't believe that they should the right way to go.

Oh in terms of Ah I would tell you. The timeline we are more at the same timeline around Q4, but we believe that are pushing them forward more letting the same period like the coffee 19 impact few months several months will create a much better impact and return to him.

Testament to our marketing push but also the whole company gearing the old company to a new momentum next year.

Thank you and then I'm curious about working capital as we go through the year I'm clearly accounts receivables source of cash I assume we will stay the same thing some inventory. So how should we think about working capital you know as you look out through the years, you're managing your overall cash flow and cash back.

Thank you.

Good morning Shannon.

So first of all the things that we are well positioned to overcome these prices into capital faint make a few months given our cash balance high cash balance 325, and no debt. So we feel comfortable about going through these classes for sure is what do we actually generated 11.3 million.

Cash and we change definitely help us as well, we do aim and looking careful on topics management and capital expenditures, but we will be need to a continuing fast in or a facility. We have some commitments on our facility that needs to continue DC.

For the coming me a few months.

Again, if we are 80, specifically looking at Q3 Q2 is probably going to be also Q3, we wouldn't have any negative a cash flow position given that oh no revenue level in Q1 in probably low lately any revenue level in Q2 was it.

Significantly our ability to collect and all right. They basically balance to collect so we all a focus on that back at same time, we are focusing on reducing expenses. It matches began a we aim.

Hey, also managing well inventory they make sure that we have the advocate inventory level not increasing now even told me level more than what we need and make sure that we all know taking too much let me to maintain from all material and these aspect and we do see some challenges on.

Accounts receivable and keeping that customers are effectively shopping down and any small how to collect specifically now in at the end of March and knowing everything back. We also focusing only on collection has been out cost and also had to not have to not to go through these say challenger.

But all in on a like I mentioned Q O Q2 in Q3, probably going to be a negative operating cash flow.

Hey, we say they hope to come back to two business as we recover from the situation.

The next question is from Masimong of Bank of America Merrill Lynch. Please proceed with your question.

Yes. Thank you good morning.

Lucky can you just talk a little bit about how much of the revenue comes from SMB type customers versus larger customers. I think you mentioned just now that there were some issues around receivables.

Was wondering if you can be a little more specific around.

What what customers are asking other asking for extensions that you're helping out with or and what what percentage of the receivables portfolio or you are you currently worried about another follow up.

Yeah.

Thank you.

We do not provide breakdown of a customer between small business say customers and allowed one thing we definitely dominated by a lot of cloud drying focused saifun for fall two a fortune 500 customers. So we are well positioned in that aspect and we also have a relatively very good coverage.

Hmm insurance.

So we are not too worried about that.

It back at the same time, we do see some challenges they sometimes Matt maybe more from.

A reseller and they talk to pay down depending on their customers a bad eight we have a we worked very closely with them and we believe it it would be able to overcome those challenges a in the next day couple of phase three months.

Okay. Thank you and.

Hi, I appreciate all the efforts that you alluded to around the cost side that you guys are taking action. Some says quite proactively when you look at the Opex leverage in the quarter, though and I realize that you know you had more revenue impact in the quarter and you didn't have as much time to respond.

Yeah in Q1.

If you look at Q2, though where you too I mean, if it's down 5% to 10% sequentially in revenues.

Likely you will see some gross margin continued de leverage you you all to the load alluded to sort of.

Negative cash flows. So is Q2 like what's the magnitude of cost take out that you think is reasonable are you going to still be a multiple of.

You know the revenue decline in terms of the de leveraging from quarter on quarter. It feels like Opex should go down much more materially in Q2, but just trying to get some idea of sizing, especially because you're continuing down the R&D investments. Thank you.

Yes, good question.

And so first I want to address the gorse managing given the fact that next quarter, we're gonna see a probably a decline of five to say 10%.

As compared to Q1.

As mentioned also wanted to screamed Hey, we would that was going to see it falling back Oh say, oh, probably linking during Q2, which mainly dominated by a reduction most notably the reduction consumable and I would expect that.

Also on hardware and consumable revenue stream proportion out of the overall revenue will impact also be gloves, managing and maybe going to impact even a deep bear the gross margin than what we see no. Okay. Hey, So this is something that was managing perspective.

And we also going to be impact they probably in some extensible no question and efficiency because we do have some fixed dose at our ability to advice, though in a in a very short period of time, even though we are very much focusing on addressing that the wasn't algae next quarter. It probably go.

Maybe a even lower than they did we sell now now having said that we own focus like I mentioned before on significant cost cutting measures across the company into glass mountain that doesn't it's why do you think that opex spending.

Hmm and internal notable why is it really reducing and all the organization to 80% a a walk a world class and any I mean, no hiring freeze no married a significant days a a reduction in no on a non npis Steve.

So we all focus that our ability to overcome the show sort of to revenue and the sharpening the gross margin due to the to detect that I just mentioned, probably not will not be able to overcome the entire a decline. Okay. So it's important to understand that.

The next question is from Brian Drab of William Blair. Please proceed with your question.

Hi, Thanks for taking my questions.

So the.

This question about Opex has been been asked twice now and I'm not asking a third time, because I still I'm, just having trouble figuring out what to.

But in the model for the second quarter I don't know if you had opex or is your NAV.

Yes, 48, and a half million adjusted in the first corridor.

And I mean can that go down 5 million <unk> and I'm really hoping that we can get you know more help in terms of quantifying. It I think weve really laid out very clearly that directionally, it's going down and you have nice slide.

Explaining that but I don't know if I should model 47, and I ask for if I should models, you know 42, but still.

Yeah.

And Brian Hi, good morning.

Good morning aim, yes, I do believe that to get back on or.

I mean, what's happening measure we can influence the opex next quarter significantly.

If you think about that the decade, maybe 15% of 6% or even more oh, a spending is a relatively related to babble and we are going down 80% to 80% is gonna be significant okay.

Getting now in specific number okay, but it can be significant impact in Q2.

So you are.

Everyone, even salaried employees like engineers and executives are taking 20% Hey, Todd is is that how am I understanding.

Hey, Brian Yeah, everyone, No exception leadership Reengineered salespeople that coffee everyone. You know we already know it in a challenging time and everybody you need to put these shoulder and to have we therefore.

Next question is from Jim Ricchiuti of Needham and company. Please proceed with your question.

Hi, Thanks for the additional commentary on gross margins.

I'm wondering in Q2, if we see some of the disruption lifting from the customer base why potentially you wouldn't see.

Perhaps a better utilization of equipment in the field and maybe that helps a your consumables business a bit or do you just see that this low utilization continuing to impact.

Heavily on gross margins in Q2, and then I also had a follow up just as it relates to to the overall product gross margins you say you indicate that it it's it hasn't necessarily been a a function of discounting, but how how much is mix played into your hardware gross margins.

Good.

And Jim Thanks for the other question. So the first question about consumables in Q2 and added or they can talk more Simon will get into afterwards, yeah. Yeah. Yeah. So we like I mentioned before we accepted deeper declined in Q2, a full consumable than Q1.

Even if one full quarter or say in that and they it's mainly significantly given day a reduction in utilization, so effectively customer shopping down they and they closed their friends. The globe their production facility closed their R&D center and everything and education.

Machine down it's what we do see a significant reduction in utilization, we take impact the entire quarter, probably it's really depends when the coffee 19 weeks coming back and we it customers.

A nice and willing to take more a stocking of consumable keeping the uncertainty of coming back and due to a show a shelf life off some of our consumable product.

They easily might remember that we have allowed installed base.

So the main impact of day reduction consumable it either because look at utilization not because of consumable that attached to hardware sales. Obviously, when we have lower hardware. So we have lowered it lower consumer something that that they may impact is really the fact that installed base is basically shocking down.

Effectively now specifically about a divorce nalgene eight the impact Oh had been hardware and conceivable together proportionately out of the total revenue.

It's now deepwater is about 63% out of the total revenue and if you look back maybe even a eight quarter back. It was more than 65 60, a 67 6800, 70% out of the total revenue. If you do that matches in that you can see that they dominated effect to our board.

Gene is really did decline in don't a stream.

And this is what we expect to see in Q2 as well.

Okay and then let's follow question is there any any potential read through that you can't get from looking at the business geographically and I recognize Asia is a smaller part of your business, but is there any sense as to how that region has started to come back and potentially even.

Some parts of Europe.

Is there any any read through that gives you some indication of how.

We might see the business start to recover as some of the disruption and temporary shutdowns are lifted.

Yes, Sir please standby.

The operator, I will be establishing the connection to the speaker cat one moment. Please.

Okay that we should be back on the line Jimmy still are you hearing us.

I I hear you find I don't know if you heard my follow up question wishes relates to decking.

Can you repeatedly thing there's certainly a I'm just wondering geographically if there's any read through that you have and again recognizing Asia is a smaller part of your business, but as we've seen parts of Asia start to to come back with shut downs being lifted if and you can potentially some parts is.

Of Europe is there any read through that you see that could give some indication as to how the business in North America could begin to change as he shutdowns are lifted.

So it's a if you are right.

So we see some recovery, but very very moderate one mainly we see some oh orders that were no held by the customer.

Q1, and Oh, that's starting to and onto a except deliveries by the way also in the U.S. So some are.

I'm at a significant purchase order that we had at the end of March that two adult like a overnight, we see them, they're coming back and we deliver them, though but its gradual and it's on off so even in Korea, where we see assault on a improvement then there are there is another kind of.

Break you see some or.

All the people are holding some at all there in China, we see some recovery, but we still have to improve our position. There. So we see some some light, but it's due to moderate and as I said also the U.S., we see some significant old is being taken by those customer that came back to.

Work.

The next question is from an end up or all of it loop capital markets. Please proceed with your question.

Hi, I appreciate you guys, taking the questions I have a couple of I couldn't I jumped on a I jumped on after the call started so I apologize if I ask something that was stayed in the prepared remarks.

Do you could you talk to you or have you talk to what the month of March and end the month of April.

Year over year run rates were for both the.

The hardware and ER and the consumables business and if you haven't could you give us some sense of what that might have looked like they have a follow up thanks.

Hi, Linda.

I'm not provide a pack the morning to you and we do not provide their specific information of the gap on a monthly basis, but we do know to say that they typically revenue almost a back end loaded.

So definitely this is why were most impacted by coughing thinking in Q1 Amen Amen.

And in Q2, we've got so many going to see a the full impact of 12 in 19 as company actually shutting down and closed their premises in anyway.

Hey machines are a closed in the consumable gonna be down, but specifically about I agree. It's probably like you have mentioned now and we see some good sign coming in North America, we ever to capitalize on some and pipeline from Q1, and it's actually not the right now in Q2, but it's probably too early in the into.

Quarter to to provide any indication.

And and a lot did you I heard it makes for a couple of times after I jumped on a gene quarter sales declines of 5% to 10%.

Sequentially is that is that a is that a guide mark that you guys are providing.

Does that sort of an official Stratasys guide, Mike I heard that mentioned a couple itself. Yes, yes. It is it's included in Oakland effect yet.

[noise] [noise] there are no additional questions at this time.

Turning to call back to two Johan <unk> for closing remarks.

So thank you. Thank you for joining us stay safe and healthy.

For two are busy in you again next quarter. Thank you.

[noise]. This concludes todays conference you may disconnect your lines at this time. Thank you for your participation.

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