Q4 2020 Stratasys Ltd Earnings Call

Good day, ladies and gentlemen, and welcome to today's conference call to discuss Stratasys fourth quarter and full year 2020 financial results. My name is Jesse and I'm. Your operator for today's call. At this time all participants are in a listen only mode.

<unk> and answer session will follow the formal presentation, if anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.

As a reminder, this conference is being recorded and now I'd like to hand, the call over to you and avoid Chief Communications Officer, and Vice President of Investor Relations for Stratasys. Mr. Lloyd. Please go ahead.

Good morning, everyone and thank you for joining us to discuss our 'twenty and 'twenty fourth quarter financial results on the call with US today are our CEO your life and our CFO, we lost payoffs ski.

I remind you that access to today's call, including the 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 will also be available and can be accessed through the investor Relations section of our website.

Please note that some of the information you'll 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.

All statements that speak to future performance events expectations or results are forward looking statements.

Actual results or trends could differ materially from our forecast for.

And for risks that could cause actual results to be materially different from those set forth and forward looking statements. Please refer to the risk factors discussed or referenced and Stratasys is annual report on form 20-F for the 2020 year, which we are filing with the SEC today.

Please also refer to our operating and financial review and prospects, which appears as the item five in that annual report as well as the press release that announces our earnings for the fourth quarter of 2020, which is attached as an exhibit to our report on form 6K that we furnished to the SEC today.

In order to obtain updated information throughout the year concerning our quarterly results of operations and the risks and other factors that most impact those results. Please see the quarterly earnings press releases, and our quarterly operating and financial review and prospects each of which are attached as exhibits.

The reports on form 6K that we furnished to the SEC on a quarterly basis over the course of the year.

Stratasys assumes no obligation to update any forward looking statements or information, which speak as of their respective dates.

As in previous quarters today's call will include GAAP and non-GAAP financial measures. The non-GAAP financial measures should be read and combination with our GAAP metrics to evaluate our performance non-GAAP to GAAP reconciliations are provided and tables and our slide presentation and today's press release now.

Now I would like to turn the call over to our CEO <unk> Zeiss.

Love.

Thank you Dana good morning, everyone and thank you for joining us.

This is an exciting time to be a leader and the three D printing industry.

Both our industry and our company.

And I would expect it to enter and meaningful and sustained trajectory of unprecedented growth in the years ahead.

And within manufacturing is experiencing increased demand for multiple sectors and the global economy, driven by secular change from industrial technology automotive health care and many other markets and.

300, <unk> project forward five years CAGR in excess of 20% will continue and strong growth well into the end of the decade.

Turning to our results for the fourth quarter, we again delivered sequential quarterly improvement in both revenue up over 11% and operating cash flow, which was $23 7 million.

Our highest level since the first quarter of 2018.

These are positive indication.

We are in the early phases for recovery from the impact of the COVID-19 pandemic.

And as we look ahead, we expect to be able to build on this momentum.

And throughout the season, we are well positioned to grow we have a strong balance sheet with no debt and he set to support future growth, we believe that prudently investing capital back into the business will result in meaningful accelerated revenue earnings and cash flow and three years ahead.

In August we share that and your strategy to lead the polymath really printing market by delivering the most innovative next generation technologies that address the fastest growing and manufacturing applications.

And while leveraging the strong and go to market infrastructure and our industry. We are confident this is the right approach to position us to drive sustained revenue and profitability growth.

For a fixture and he is by far the largest addressable market.

We know firsthand from our existing business with manufacturing applications.

Typically have higher utilization rate and prototyping application manufacturing drive increased recurring revenue from consumables, which results in a higher value opportunity force processes.

We have several key advantages that will help us successfully deliver and our strategy and a non shareholders' value.

These include the.

The broadest offering with the most advanced.

<unk> best in class technologies for every step and the customers' product lifecycle from concept through them and our factoring.

And I unmatched market access to a network of over 200 and channel partners, the largest and most experienced in the industry.

Deep application engineering expertise that helps drive innovation.

And resilient business model designed to scale.

And a growing software partner ecosystem to bring the important and adds value to our customer base.

Turning to 'twenty and 'twenty I want to recognize the hard work and dedication of the entire processes team as we have walked through the COVID-19 pandemic. Our resilient team continues to meet each challenge head on and to create opportunities.

Become a catalyst for change as well.

And we navigate through the challenging economic environment, we are emerging as an even stronger company.

And I assumed the role of Chief Executive Officer, one year ago, and since that time, we have achieved several important accomplishments.

Moving then.

Implementation of our new strategy around pulling them, which is the biggest profit opportunity and three D printing and our view.

Physically we aligned our business around delivering the most comprehensive solution for manufacturing application debt.

Acquisition of origin, and the best in class Photopolymer solution for production oriented applications that we believe will be a key growth driver and.

And with people to manufacturing solution and enhance our target market.

And as we've previously communicated why do we plan to deliver the first sales through our channels. Later this year already and it's going to be a more meaningful revenue growth driver starting in 'twenty and 'twenty, two and is expected to generate up to 200 million and new annual business.

By 2025, we are excited about the opportunities that this platform can deliver to the market and the positive impact it should bring to our business.

Day enhancing of the company's operating model to be application and century, which creates photos and allow us to better leverage synergies.

Cost rationalization that resulted in $30 million of annual run rate savings, enabling us to reinvest in higher profit areas of the business and finally, the reconstitution of the management team.

And board of director and to strengthen our leadership and oversight.

The opportunity to increase the share of manufacturing within our overall revenue from the production of end use part is significant.

This is a multi trillion dollar market and we believe three D printing penetration is and the low single digit today, we are just getting started.

Based on our estimates in 'twenty and 'twenty, we generated more than 25% of our revenue for manufacturing solutions.

We believe the day shelf our revenue for manufacturing, we expand in the coming years as we begin offering a new manufacturing focused products. Later this year that include Photopolymerization and powder bed fusion. We also expect wed updated version of our high and if D M system and health care.

And then the application solution, we expect this to drive low double digit growth in manufacturing revenue this year and over 20% annually in the medium to long term.

And look forward to updating you annually on this metric.

Looking at some of the milestones over the fourth quarter. In addition to acquiring and Oregon in December 2020, We also advanced the development of a powder bed fusion platform to our joint venture with zone, which we continue to expect to launch in 2021.

We expect the system to provide us entry into an extended set of manufacturing applications beyond what is available with our current system and we look forward to providing more details soon.

We have also made great strides, creating software ecosystem that will help scale editing and manufacturing and integrate with our customer's industry for point O initiatives.

For example, Anthropologie is helping both F D M and origin customers design part for advanced manufacturing quickly in ways not possible through traditional manufacturing.

Our integration with key should ease now helping accelerate adoption of full color multi material poly jet three D printing.

And our grass Scout SDK enables our F D and system to fully participate in the smart integrated factory floor.

Yeah.

Two weeks ago, we acquired Rps and U K based company with top quality stereolithography product line that complements our current portfolio. This technology is used for multiple applications, including tooling jigs and fixtures investment casting dental and line.

<unk> medical modeling and design engineering, we aim to be the first choice for polymer additive manufacturing offering a full suite of solution that can support the entire product lifecycle from concept to production without the SAP system and our portfolio, we are able to take advantage of new opportunities.

And you also more solution to our customer and we expect our acquisition of Rps to be slightly accretive to revenue and earnings by year end.

We also recently announced the addition of carbon fibre to the materials available on our award winning F 1233, and two series.

This offering delivery of the strength.

And light weight advantages of copper and fiber for tooling and other applications and Kennedy and excellent replacement for heavier and more expensive metal parts.

Now in the more accessible F 123 platform.

In 10 customers are continuing to express their confidence and processes.

For example, and automotive as we announced in November there folks for again is driving innovation within new vehicle design.

Thanks to our J 850, printers, and consumer electronics, Google anything similar benefit for with Jacquard wearable platform.

And aerospace.

And recently qualified our pic based and thorough 800, and a thermal plastic so theres high temperature F D and material can now be used on flight for.

It is the first material from Stratasys qualified by Boeing for using applications with elevated chemical resistance or fatigue requirement.

These ongoing investments.

And partnerships help reinforce stratasys is it.

Neither in the industry and position us to growth for many years to come.

To sum up.

We begin 2021, the pandemic continues to pressure the industry and our business. However, we expect pent up demand to begin a marriage and in the back half of the year.

And we share through 'twenty and 'twenty.

Clothing of our customers' offices and factories slowed the utilization of our system directly impacting the rate of consumable usage and services, but based on the past two quarters of growth, especially in consumer growth. We are cautiously optimistic that this recovery will come.

And as we move through 'twenty and 'twenty one.

I'll now turn the call over to Leila will share the financial results of the pool to the low.

Thank you.

And good morning, everyone.

We are pleased to have deliver and sequentially casualty in the back half of 'twenty and 'twenty.

And with crossing and ICU gross margin improvement and.

Cash generation and.

Along with the inventory reduction.

And good signs that we are experiencing and economic recovery in the wake of the COVID-19, pandemic and we look forward to the future as the macro economy, we build in the coming years.

For the fourth quarter total revenue was $142 4 million.

And 11, 3% sequential increase from the third quarter based on and initial rebound in both systems and consumables across all regions.

This compares to one had weighted at $60 2 million for the same period last year and a decline of 11, 1% primarily due to the impact of lip and damage on.

On a constant currency basis.

Sales revenue declined 12, 6% they'll set the fourth quarter of 2019.

What are the revenue and the first quarter was 19 nine from 2 million a decrease of 9% compared to the same period last year.

And 7% on a constant currency basis.

Within product revenue system revenue decreased $8 three per cent compared to the same period last year and decreased nine four and 8% on a constant currency basis.

Consumable revenue decreased by $9 six per cent compared to the same period last year and decreased 11, 6% on a constant currency basis.

Services revenue as well.

$43 2 million and decrease of $15 six per cent compared to the same period last year.

On a constant currency basis service revenues declined $16 six per cent.

We think San Francis revenue customer support revenue decreased by three 7% compared to the same period last year and decreased five 6% on a constant currency basis.

GAAP gross margin was $46 four per cent for the for sale compared to 40 911 per cent for the same period last year.

Non-GAAP gross margin was $49 five per cent for the quarter compared to 52 four per cent for the same.

Period last year.

GAAP gross margin improved sequentially from Q3 by 750 basis points.

Non-GAAP gross margin improved by 270 basis points, primarily due to higher and mode of systems and consumables in the sales mix.

GAAP operating expenses were $68 and fast median.

And improvement of $13 4 million or 16, four three per cent compared to the same period last year.

Non-GAAP operating expenses were $62 2 million and improvement of $11 6 million or $15 seven per cent compared to the same period last year.

Non-GAAP operating expense was 43, 7% of revenue for the quarter.

Compared to $46 one per cent for the same period last year.

And the improvement in operating expenses.

Was due primarily to the proactive resizing measures, we took and the second quarter of 'twenty and 'twenty.

We also continued the cost mitigation efforts related to the 10 day make through the balance of 2020.

With the entire company walking and effective for the day work week.

From early perspective.

GAAP operating loss for the quarter for its $2 5 million compared to a loss of $3 3 million for the same period last year and.

Non-GAAP operating income for the quarter was $8 3 million compared to $10 2 million for the same period last year.

GAAP net income for the quarter was 11 million or 20 cents per diluted share compared to a net loss of two 8 million or five cents per diluted share for the same period last year.

Non-GAAP net income for the quarter was 7 million or 13 cents per diluted share compared to $10 million or 18%.

Adjusted share in the same period last year.

We generated $23 7 million of cash from operation during the first quarter the highest amount since the first quarter of 2018 as compared to using three and 4 million of cash in the same quarter last year. This was driven by strong collections and reduction in spending and.

Inventory levels.

We ended the quarter with $299 1 million and cash cash equivalents and short term deposits compared to $308 2 million a day.

And of the third quarter of 2000 and 'twenty.

We achieved this despite the cash portion of approximately 30 million related to the other gene and acquisition.

We believe we are well positioned to effectively navigate the pandemic and to capitalize on value and 19 months net opportunity given our strong balance sheet with no debt, while focusing on cost controls and cash generation.

Given the business dynamic and the uncertainty surrounding.

The timing and the extent of and anticipate the recovery from the pandemic, we are providing the following information.

And our outlook.

We are and college with Alcon quarter East dropping relatively similar to the first quarter of 'twenty and 'twenty with multiple positive growth in system sales.

Unlike the negative impact of the pandemic on system sales that we sell and the first quarter of 'twenty and 'twenty.

Maintaining relatively flat sales even without meaningful.

Participation from key sectors, like automotive and commercial aerospace drives our confidence in potential upside as we move through the year.

And those two industries capital spending has not yet returned to pre COVID-19 levels.

And the utilization rate of our consumables in general across the entire business are still lagging due to coffee.

Looking ahead, I assume and corn consumption trends continue and the impact of the pandemic persist we expect our second quarter two truck growth in the mid teens.

Compared to the second quarter of last year.

We expect to provide updated revenue guidance later in the year as we get more clarity around evolving economic condition.

Yeah.

Turning to operating expenses, we made a strategic decision to invest for both the near term and the future by bringing back our team to a full time schedule and starting January 1st.

And corn cost ahead of revenue growth expected to be generated from both the recovery of our corn business and the launch of our new technologies.

With our employee back for the time.

That's okay, it's expensive operating the business to support our girlfriend if also returned.

This plus the impact of acquisition and low.

And with resource allocation decisions made to help offset some of these incremental costs will support our future growth and genes will result in 25 million to 30 million and incrementally higher operating costs as compared to 2020, but seen below two.

And 19 costs.

We believe that these strategic investments will indeed material growth and the new technologies for Lee.

If we're right in the market, which will lead to significant operating leverage.

In closing 2021 will be year of investment for growth the combination of these organic investments.

Along with our recent strategic acquisition and specifically the focus on manufacturing positions.

Rather to deliver substantial revenue and profitability growth in the future.

We also expect that most of these future growth will come from manufacturing application.

With that let me turn the call back over to Johan for closing remark you up.

Thank you Leila.

I will conclude today's call by noting that we believe the additive manufacturing industry is poised for a period of exceptional growth and we expect strength of food to lead the way and polymer three D printing.

And internal reorganization, coupled with organic airports and strategic acquisition like origin and position us to further broaden our leadership and to outperform over the long term, we did let's open it up for questions operator.

Thank you at this time, we will be conducting the question and answer session. We ask that you. Please limit yourself to one question and one follow up if you would like to ask a question and please press star one on your telephone keypad, a confirmation tone will indicate that your line is from question queue. You May press star two and if he would like to remove your question from the queue for.

And she can speak our equipment and may be necessary to pick up your handset before pressing the star keys.

Our first question is coming from the line of Shannon Cross with Cross Research. Please proceed with your question.

Thank you very much I was curious if you can give us a bit more color into what you're hearing from your customers that makes you comfortable about a second half recovery and specifically I'm curious and you know you've got three new platforms launching this year with without a lot of trade shows for who knows.

How this is going to work.

How confident are you that and.

There will be a pick up that that supports it and then as a follow up thank you.

No.

Sure.

Thank you for the question.

Bob.

We feel confident.

Because there was kind of a bottleneck over the last year, we are engaging with our customers and we all deal with them, we have constant interaction with them.

Once the recovery is there and and we starting day light at the end of the standard is like a whole set of projects that they would like to run.

Of course, it's coming also with the impact of their end markets, but we are optimistic on this one based on what we received from them and based on the list of projects that they have and the way we look at it and now we're looking at and linear growth quarter over quarter.

Through the year linear.

Yeah.

Okay, and and is there any particular segment or geography, where you're seeing the most opportunity for improvement.

We see improvement across the board.

Of course health care is much stronger and we see already with the recovery and in some cases, even higher than our initial trip and they make sales.

Okay.

And okay, we see improvement going forward and our strongest segments, which are our aerospace and automotive education.

Yeah.

And and geographically and then finish with my questions.

I would say that Oh, we see recovery on all fronts across different territories, but and then.

And we already mentioned last year Asia, then Europe, and then the U S.

More or less this is the sequence.

Okay. Thank you very much.

Thank you. Our next question comes from Ananda Baruah with loop capital markets. Please proceed with your question.

Hi, Good morning, guys. Appreciate you guys, taking the question and congrats on the on the solid results and good start to the year.

You have to just a follow up to Ken's question could you provide any additional context.

And what the growth trajectory as we move into the second half of the year could look like I know, it's a long ways away, but any context, you could help us frame. How you guys are thinking about it would be helpful. And then I have a follow up.

You know you already mentioned it I'm happy to repeat.

The way we look at it.

Q1, relatively flat Q2, mid teen and then H to where we are our.

Planning to launch the new platform.

At age two we see sequential growth.

And quite solid sequential growth.

Quite solid sequential and that's all.

And then.

As we think about those remarks and the in the in the press release just around.

You know sort of let and growth accelerating in 'twenty two and beyond.

And you gave the metric about sort of longer term manufacturing growth north of 20 per cent.

Could you give us any other context around how and how when you say accelerating 'twenty, two and beyond how you'd like us to come to <unk>.

And to understand that.

Yeah, and salaries that need for manufacturer and greater than the 20 per cent and.

And what about the rest of the business just any context, there would be really helpful. Given the language and the press release.

So.

We are doing our best to.

Focus ourself as a company, but also to be sure that we are aligned with the market and this is why we can't we just new metrics.

Which is our share of sales to manufacturing and we are currently over 25 per cent and.

And we'd be the main growth generator going forward.

So we see it this year growing this year growing and the low double digits and then above 20 per cent.

Ear and you add to eat the whole market that is growing also we have the strongest in the market and prototyping and that's created really very clear strong growth engine for the future.

At least our growth will not affect drink is leading the way.

Okay and manufacturing and as you know it's the the DLP the new origin portfolio, which is best in class and sales of quality of fog and suitability for manufacturing and design and a three D platform.

And they platform. So those are the growth engine and we built on our infrastructure.

And paved the way of the industry and if you want a fixed rate.

Okay.

Okay. Thank you.

Thank you. Our next question comes from Jim Ricchiuti with Needham and company. Please proceed with your question.

Hi, Thank you and thanks for that metric on manufacturing and.

Terms of the contribution last year, what was what would that have looked like in 2019. The percentage of your revenue that you were deriving from and etcetera.

Okay.

So.

This metric we are following and we built a methodology to follow going forward. So we are not sharing anything a backward looking but the only forward looking but we think it's a very important from entry for the entire industry as a whole as well.

Great. Okay. Thank you just with respect to.

The acquisition of B S. L. A side how would you.

Maybe.

Contrasting D O product that they have with your own.

650, it sounds like is your your existing that's L. A printer.

Is that mainly for prototyping is there a bigger opportunity with this acquisition to perhaps get into some more and use manufacturing applications.

We are just complementing our offering we havent strategy, we are falling and following our strategy our strategy to be the first choice for them their manufacturing for everyone across the whole product lifecycle and since this is our strategy.

L a and Rps, which is an amazing line of product offering and also.

Suitable for our strategy and volume there we is complete our offering and our it has both.

Large prototyping application, but a lot of also and useful tool and manufacturing.

Like you know and liners line.

Like investment casting and also significant applications and health care.

Health care like medical modeling for example for large Bob and I think and materials. So it's a full completion of our product line and we have a clear roadmap, which application, which machine where we're going.

And thank you.

Thank you. The next question is coming from Noelle Dilts with Stifel. Please proceed with your question.

And Bob Congratulations on a good quarter and a possible on it and my first question I was hoping you could just expand on how you're thinking about M&A moving forward and just touch on.

The pipeline of opportunities and where you see some opportunity to further complement your your current offering thanks.

Okay.

Yeah.

<unk>.

We have a strategy.

And part of the strategy is inorganic growth.

We are very clear criteria, what we're looking for and how to invest in and want to invest and we'll keep evaluating potential investments debt.

We will maximize the value maximizing value both for the company and for our shareholders.

We are very attractive.

Startups with disruptive technologies, because we are bringing the platform and we are bringing the go to market and we have the unique ability to show them their time to market and this is an actor.

Ah you rarely find in our industry, because we have all of those.

Amazing network globally.

With experts across the globe and when we are approaching startup it's not only about the money it's not the only about the cash it's a lot about the prospect that we are bringing in with us.

And we also built a hole.

Operating model that will allow us and allowing us right now to integrate those stop them.

Thank you and then secondly, I understand you know that.

Higher jump in operating expenses as we look at 'twenty 'twenty, one and then things normalized could you speak to how youre thinking about some of that leverage moving in 'twenty, two and beyond that you referenced it there.

You know sort of a goal or a model that you're looking for it's hard but in terms of leverage on operating expenses for chemotherapy.

Yes.

Yes.

Okay.

Okay.

Good money with one of them and win.

And it is definitely a good question and we all come from there to what you have mentioned that we have a strong infrastructure from corporate perspective, as well and go to market perspective, and it can be easily absorbed new technologies and new businesses.

And we definitely planning to leverage and this and leverage and May take adventures of scale as we move forward in 2021, and you're not necessarily can see that yes, because uncles and revenue line and he's not in the level that we see expected due to COVID-19, but as we go and.

And beyond 'twenty, one 'twenty, two 'twenty, three and Y a production application.

He has and you will go will be able to leverage that and we are not providing any specific cash metrics, but we do expect to see much more for stability and going forward.

Okay. Thanks very much.

Thank you. The next question comes from Greg Palm with Craig Hallum Capital Group. Please proceed with your question.

Yeah, great. Thanks.

It's just starting.

The guidance commentary is very helpful, but specifically for Q2.

It implies just slight revenue growth over Q1 normally you see a much bigger jump sequentially from Q1 to Q2, and I guess I would think this year based on your commentary it might be disproportionately high just sort of given where we are and and recovery. So I don't know maybe it's just timing related.

Your thoughts about the second half being stronger, but can you just help us understand why youre not expecting better growth sequentially in Q2.

Good morning, Craig.

The numbers.

And at present and relatively a low sequentially compared to Q1 and.

And we a but we are definitely and college.

The sequential growth at least two and we saw in Q4 and the strong and he bundles hardware.

See in the Q1 and.

And what we expect also and in the second quarter is continue to see the school reminds you that coffee D C. Here.

Okay, and it's not that we actually pulled back with all of its market.

And the industry that are much more effective these day auto and then commercial aerospace. So we're cautiously optimistic and we got in the future and that's why we believe that to be and a cautiously optimistic now is provide mid teens and for next year and for next day and for.

The second quarter as compared to last year, but as and the economic recover we would come back and provide a better projection.

Yeah, Okay understood and.

And maybe just a little bit more commentary on origin would be helpful and just kind of curious what the what the feedbacks been from kind of the customer base from sort of the resellers and if we look ahead I mean, if you were successful in generating the the $200 million of annual.

Business, what's the cadence of that contribution look like you know maybe starting next year up until 25, which I think is the time line you provided so far.

Okay.

Great question. Thank you.

The first thing that happened after we announced.

About the origin acquisition I.

I opened my email box and I received two emails from two important customer.

Complementing us for the acquisition and asking for a call.

I know, it's an anecdote, but this is a reflection of what's going out there.

We are going to manufacturing.

Oregon is already being perceived as a leading next generation DLP.

Platform focusing on manufacturing they have installed base they have.

Machines out there for clothing manufacturing with an ecosystem of material and the moment, they joined forces with thrive disease and other infrastructure.

Our customers and also new logos and what we call all perceive it as a big opportunity for advancement of victory. So this is the overall perspective.

In terms of revenues, we are going to launch the platform and the second half of the year and we are very optimistic.

Yeah.

Okay, all right I'll hop back in queue. Thanks.

Thank you. Our next question is coming from will Masimo Han with Bank of America Merrill Lynch. Please proceed with your question.

Hi, yes. Thank you.

Oh, you, you're saying that the industry is entering an inflection point and typically and and in tech markets.

Inflection is driven by you know some change in technology or other at a speed or quality or availability of materials.

And what actually is changing and what your customers are doing and that's giving you this confidence and surge and manufacturing them and you noted origin portfolios, where he good with DLP, but D. L. P. As are being around for a long time to have and install base. So what is it that do you thing is this more about distribution of technology from your perspective, where do you think.

And that there's something more fundamental especially if this is an industry call and on you know how and how there is such a such a large inflection and growth rates for manufacturing applications and I have a follow up.

Yes.

I would say that it's a combination.

We are and it.

Flexion point, because a few very important factors one the technology today is not simulators for to do the technology five years ago also and DLP there'll be the Great example, when you get into the details of the technology, the speed and accuracy and maintenance and material, it's a different volume.

A great example, but it's relevant for the entire industry.

Technology is ready to start stepping into them on a fixture.

That's a big change and the second one is the realism of so many manufacturer out there.

Post pandemic.

We need to create the versatility, we need localization, we need to make sure that we have flexibility and first response and ability really to face where there a crisis pandemic.

And the ability to localize seem not to have inventory. So this.

Bromine is currently brought to life. So this is the second change and we are engaging with it and it's very very tangible and.

And every discussion that I have with the customer.

And thirdly.

There is this issue of shifting into new.

For all docs, you're offering for example, and electric vehicle you need to wait.

Debt, reducing weight is critical.

For the range of the battery for everything there.

And.

The manufacturers' are looking for.

New ways of producing fault.

And you can produce for suite and.

Manufacturing geometries, and mechanical appropriate these et cetera debt will not possible and the path for example, moving from metal to carbon fiber and composites.

For the sake of weight. So if you take those three and there are many others, but if you take those three strong gear.

And much better technology.

With that.

Yeah.

Frank.

Realism that supply chain can be broken and.

And we need to react plus the tech changes all over the world.

Net required new parts, new geometries, and new way of thinking about the physical aspects of product.

And that create together and inflection point.

Okay. Thanks appreciate the color there and if I'm a follow up and there are some of your competitors out there that claim that manufacturing is really much more centered around and metals vs. What you just spoke about the shift to two for carbon fiber and say.

And your and your best guess on sort of what the addressable market splits are for a manufacturing how much would you say is manufacturing and that would be subsumed by the metals additive manufacturing versus vs polymer and and thanks for giving the split of the 25 per cent of revenue for a matter of.

Factoring how does that split between product materials and services. Thank you.

Oh yeah.

We are not analysts here on this one and we are focusing on polymeric and I can be very sure of course I can quote many analysts and many different studies that are addressed your question, but if you can read it better than me.

In general today.

When you look at Agua and for sure and also going forward, we are talking about 70% around 70% for.

All in there.

And 30 per cent.

Meta this is in terms of revenue hardware. So for example.

Going forward.

Volume there is expected to grow a bit faster than metals.

Which was not the case and the last five years, because many people experience Smith them, but there is one clear trend.

And Paul I'll being replaced with volume of Bob and not vice versa.

Okay.

Thank you.

Thank you. Our next question comes from Troy Jensen with Lake Street Capital. Please proceed with your question.

Hey, I congrats on the great results I just wanted to follow up on Jim's question from earlier regarding the vs 650, or excuse me. The you know the Rps acquisition the element and how it relates to Vuzix 50, I think that strategy and V-six 50 was and open platform and materials I'm, just curious with Rps and element are gonna be closed proprietary and.

How much of the materials that they generate or that they use our internally manufactured versus partnered.

Okay.

And it's really.

Good to hear from you and.

And yes very.

Simple answer it's going to be and open platform, but we are going to develop new materials.

Unique materials in partnership with third parties, we're actually the largest material companies and the world. We are working on it and it's going to be and open and material system are what we call hybrid material model.

Okay understood and then just to follow up I know you're launching three new platforms. Here is our element of Rps can you just talk about organic product development and you know historically, you've shown a and aluminum product and.

You know you had other kind of and development, but you know can we expect to see some internally developed products from Stratasys also.

Yes for sure.

Well keep investing and our business we.

We are building and lifeline.

Sorry, you wanted to ask something I was just going to say new tech new platforms are just enhancements of existing platforms. Both both both.

For for example, and Paula Jeff We just launched the day 55, but this is a platform. So you will see shortly extension for this product line for different segments.

We get.

And this is an amazing machine.

In terms of reliability in terms of quality of printing and Sam's off a meantime between failure.

Its really unique best in class with our features and value to the customers and growing head and we keep investing and this platform and you'll see extension.

Big gears small there are different segments et cetera.

Yeah.

We are going for manufacturing.

This is the core strength of Stratasys. This is.

And all our core position and manufacturing is and that's D. M and we are leveraging this position because we understand they need we understand that easily we understand the regulation and we understand the reliability the service and we are building a.

The other teammates manufacturing machine.

And F D M for and useful and we are investing in it and you will see and the future.

Good luck this year.

Thank you. Our next question is coming from Brian Drab with William Blair. Please proceed with your question.

Hi, Thank you for taking my questions I may have missed this because I was forced to join late today, but did you define.

Exactly what we're talking about when we say manufacturing revenue and does that include.

Fixtures tooling and and other things used within the manufacturing environment as well as end use parts and if you. If you are talking about end use parts did.

Did you give any specific examples of other types of parts, we're talking about.

Yeah.

The answer is yes, it's including.

Everything which can be under the umbrella and use box tool and is something people are using so and.

And the.

Everything like.

Power for Rowboats, then Todd and.

And everything that is being used and it's not a prototype from our perspective.

And is not a victory.

So you know you can take any example for arrow cabin path or are there thoughts for arrow automotive electric vehicle power.

Tooling for our robots.

Carbon fiber for any heavy duty towards the jigs and fixtures.

And medical modeling that we're doing with our poly jets, we have the most unique capabilities of multi material multi color to simulate real Oregon.

And with all adopt these children atomic printing. This is also and used boat so our definition and use both.

Got it yeah, that's helpful and then.

And I just wanted to clarify I didn't fully understand the answer or didn't follow but specifically for origin.

Will that be maintained as and open materials or hybrid materials model as well as RP.

Right.

Yes hybrid model like we announced in.

In December.

Moving to be a hybrid and material model, combining our material partners and material and also the ability to use the machines for research and development of new materials.

Okay. Thank you very much.

Yeah.

Thank you we have reached the end of our question and answer session. So I'd like to turn the floor back over to Gil for any additional closing comments.

Okay.

Thank you for joining us stay safe and healthy looking forward to updating you again next quarter.

For you.

Thank you ladies and gentlemen, this does conclude today's teleconference and webcast. We thank you for your participation and you may disconnect. Your lines at this time.

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Okay.

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