Q1 2021 Stratasys Ltd Earnings Call

[music].

Hello, and welcome to the Stratasys Q1, 2021 conference call and webcast.

This time, all participants are in a listen only mode.

If anyone should require operator assistance. Please press star zero on your telephone keypad.

A question and answer session will follow the formal presentation.

As a reminder, this conference is being recorded.

And my pleasure to turn the call over to Euro Lloyd Vice President Investor Relations. Please go ahead.

Good morning, everyone and thank you for joining us to discuss our 2021 first quarter financial results on the call with US today are our Chief Executive Officer, Dr. Jan <unk>, and our Chief Financial Officer Lee lost hierarchy.

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. Our results are forward looking statements actual results or trends could differ materially from our forecast 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 the annual report on form.

From 20-F for the 2020 year, which we filed with the SEC on March one 2021. Please.

Please also refer to as our operating and financial review and prospects for the first quarter of 2021 as well as be the press release that announces our earnings for the first quarter of 2021, which were attached as exhibits to two separate reports on form 6K that we are furnishing 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 to reports on form 6K that we furnished to the SEC on a quarterly.

This 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 and 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 in our slide presentation and today's press release.

Now I would like to turn the call over to our Chief Executive Officer, Dr. Yao of Zeiss you off.

Thank you Donna and good.

And everyone and thank you for joining us.

Good day, I will touch on the highlights of the first full there and share insights from it very exciting global event, we held last week.

Strategies, we are committed to being at the forefront of the polymeric three D printing market.

Producing and delivering the most innovative next generation technologies that address the fastest growing manufacturing applications.

<unk> printing is migrating from being primarily a prototyping tool to providing full scale digital manufacturing platforms its mass production level.

<unk> is leading this transformation with manufacturing applications and <unk>, which we believe is a higher value opportunity and meta.

This year has gotten off to an exciting starts force to try to.

And last week, we hosted and unprecedented online event attendance.

And over 4500 customers resellers and partners.

At the event, we provided detail on three new manufacturing focused product offering.

It will play an integral role and our future growth.

Continue to be energized by the tremendous potential that our business and our industry has.

Especially and end use parts manufacturing, we expect this demand driver to produce compound annual growth of over 20% starting next year.

We believe that our leadership position and three D printing we strengthen.

Execute on delivering current product line.

And expanding and launching additional new products.

Turning to our results for the first quarter.

Our revenues of $134 $2 million were in line with our previously stated outlook, we saw particular strength with nearly 41% growth and system revenue.

Which should drive future recurring revenue from consumables, our operating cash flow was $22.8 million.

Following last quarter's $23 7 million.

During the first quarter we.

We achieved several important milestones to drive our strategy.

We continued our focus on expanding the gross cut software platform with the launch of the grab cuts software partner program.

This is an ecosystem of software provider and integrating the offerings with stratasys to provide our customer with and two and additive manufacturing solutions. The program will enable customers to extend their prototyping and manufacturing workflows.

To better address the opportunities for three D printing.

We also released the gross cut connectivity software development kit SDK.

This will enable developers and customers to integrate our technology in their factories and make them industry four <unk> compatible.

Our connectivity SDK is a sophisticated two way communication platform our customers can monitor their fleet of Stratasys printers, and also use enterprise software applications like <unk> or <unk>.

And <unk> to communicate book.

In addition, we added the industry standard LTE connect communication protocol to more systems to support that exchange between manufacturing software application used for monitoring and analytics. This recent software releases and support our customer.

There is increasing.

Deployment of our additive manufacturing products to the production floor.

We introduced our day five Delta jet <unk> to serve the growing demand for dental solutions.

It is the only multi color multi material <unk> printer, enabling technicians to load mixed race of dental pulp. It can produce five times more dental targets on a single mixed rate than any of our competitors offering.

And a compact off the strength and size.

We have already started to see excellent customer traction such as new lab in Massachusetts, We serve 3000, orthodontics and dental clinics across the U S.

Customers are impressed by the J five ease of use multiple modules and one three and minimal post processing and the fact that as modest go from concept to production faster than ever.

The dental industry has been and early adopter of additive manufacturing flow through production parts and.

And is currently over $1 billion of opportunity for <unk>.

We also introduced a new carbon fiber material for our award winning if 123 serious three D. Printers that is specifically formulated for application such as tooling jigs and fixtures.

Strength.

And light weight of carbon fiber and make it and excellent replacement for metal across many applications.

We acquired the Rps.

Adding a top quality product line of industrial thorough lithography system.

Complementing our portfolio to give us a full.

Sweet of Fortinet, three D printing solutions across the product lifecycle from concept and design to and useful.

We continue to expect the acquisition to be slightly accurately to revenue and non-GAAP earnings per share by the end of 2021.

Our customers continue to validate our innovation and technological advances.

As evidenced by the recently signed contract extension and expansion with Airbus.

The agreement significantly increases the range of cabin interior components.

And other part.

This is a perfect example of our practices execute and land and expense strategy.

The original agreement signed over five years ago, only focus on part for the Airbus <unk> hundred 50 as an alternative.

Relative to traditionally manufacture pulse and <unk>.

<unk> supply chain flexibility.

And as Airbus started printing power with our <unk> technology.

And as shown progress from a small number of alternate parts to using the technology for serial production, it's a much larger scale.

We were also able to provide on demand parts and service through our strategies direct service Bureau.

GAAP data agreements increases the range of aircraft type to also include the eight 300, <unk> hundred 20, <unk> hundred 30, and <unk> hundred 40, <unk> as well as replacement and sales staff to MRO applications our.

Our additive manufacturing is now part of the typical interactions with procurement from standard supplier channel and is there.

The regular course of business.

As I mentioned earlier last week at our manufacturing launch event, we announced three new product updates, which will strengthen our market leading offerings and value potential that we bring to customers.

The strategy is Oregon one.

Best in class Photopolymer, three day printer that received it top to bottom optimization and upgrade to improve service ability performance and utilization.

Key use cases include medical device components, automotive aerospace and defense consumer goods and dental applications, such as plains bridges and liners and ventures.

Also shared some great insights from Oregon customers.

Pacifically, we highlighted Te connectivity, a leader in connectors and central products.

They are now printing thousands of parts using origin Petri technology.

Including the first ever three D printed aerospace production connector, we plan to begin shipping this upgraded version and the fourth quarter of this year.

The 850 powered by selective absorbed and fusion or sub technology.

And built for truth thermoplastic mass production of consistently accurate and used cars.

And our strategies direct service Bureau, as well as others in Europe have already started producing parts on the <unk> hundred 50 is better users for customers and automotive consumer goods and health care.

We also introduced a renewable bio based.

And material that is derived from sustainable cash flow oil, which has superior thermal resistance and is less brittle.

And as well.

This is the first of many new polymer materials for the eight series.

And the eighth Street 50 <unk>.

Even if one customer.

It doesn't pop on the system, we're actually printed with <unk> technology, we plan to start shipping the <unk> hundred 50 in the second half of the year.

Okay.

The F 770 <unk>.

Signed with the longest fully EBITDA build chamber and SDN.

It is a large addition to our F 123 product line, we did 30 and cubic foot build volume.

Despite its size.

It's designed to be a simple to use as our other popular F 123 printers.

And these price and.

$100000.

In addition to the either build chamber.

<unk> support is another important differentiator from most other large format printer.

This will save customers time, and enable them to make more complex pilots we plan to begin shipping in late June.

We are on track to enter this next phase of product launches, which combined with our multiple competitive advantages will advance our position as the leading provider of polymer three D printing solutions.

Our world class customer base.

We have the broadest and most advanced polymer technologies.

And the full product lifecycle from concept to and pulse.

And I apologize and <unk> system has been the best selling units and Delta.

And we have introduced new system for both technologies this year with more to come.

Our recent Rps acquisition.

<unk> multi purpose thoroughly geography systems to our portfolio and.

And we are now entering through mass production with Peachtree and soft technologies.

No other companies both the range and.

And the best in class innovation that <unk> can.

And can deliver to our end markets.

Our software strategy.

Discussed earlier.

On the customer centric dynamic of working closely with many OEM across the industry.

We offer a unifying and comprehensive platform across our technologies that is built to interface with the top standard enterprise system.

Good day grab cut is 36000 application users and $8 8 million community members.

More than any other platform and fits kind.

And how.

Half of our cloud based strategy and growing software ecosystem that includes partnership with Siemens and topology identified three D link three D T shirts and others.

Supporting our product we have the leading global channel that can market sale and maintain our system for our customer.

Over the years, we have built and Arden matched sales and service infrastructure with market access across our network of over 200 Channel partners. This is the largest and most experienced channel and the industry.

Yeah.

The success of this system and technology relies on the talented teams that build manage and maintain them.

These are the expert application engineers that educate the market and continue to push the innovation envelope. Each day is the work with customers to address and ever expanding universe of applications.

Throughout Texas has the largest team of engineers and.

And customers supporting our industry.

And they have deep multidisciplinary experience.

Specialty and quality and process simplification, which is critical for success and aerospace automotive healthcare and other sectors.

And we have a proven resilient business model.

<unk> signed two scale across a range of macroeconomic conditions.

Including our successful navigation of the COVID-19 pandemic.

We believe that as our revenue growth accelerates and we can leverage our model.

And deliver increasing profit while continuing to generate cash.

These key advantages.

Combined with the new technologies that will launch in the future position strategy to deliver on our growth strategy.

We expect that as our customers return to their production facilities will benefit from the pent up demand.

I will now turn the call over to Leila will share the financial results of the quarter the luck.

Thank you Anne and good morning, everyone.

We are pleased to have delivered on our stated goals this quarter the.

The revenue growth, especially the 49% gross in our system sales.

And along with our strong cash generation, it's about cautious optimism around the continuing economic recovery from COVID-19.

For the first quarter total revenue was $134 2 million in line with our previously disclosed outlook on a constant currency basis total revenue declined 1%.

Most of the first quarter of 2020.

Product revenue in the first quarter was $90 3 million and interest of eight 6% compared to the same period last year or six 1% on a constant currency basis within product revenue system revenue increased 42.

9% compared to the same period last year and increased 37, 6% on a constant currency basis.

This growth rate demonstrates signs of and market recovery compared to 2020, where system sales were lower in the first quarter.

This was due to the impact of COVID-19, starting in the back half of the quarter when our sales are typically strongest.

System sales began to improve by the end of Q2 last year.

So while we expect system growth to continue throughout 2021, the comparable percentage rate will naturally come down over the course of the year.

As we noted on our last call consumable utilization is subject to the impact of COVID-19.

This quarter consumable revenue was off by 8% comp.

Compared to the same period last year and was down 10, 2% on a constant currency basis.

As the market recovers from COVID-19 and usage rates of our assistance increase we expect to see sequential growth in consumables.

As we move through the balance of the year.

Service revenue was $43 9 million down 11, 8%.

Compared to $49 7 million.

At the same period last year and.

Constant currency basis service revenue was up 13%.

Within service revenue customer support revenue was 27, four and 6 million a two 2% decline compared to $28 3 million.

Same period last year and.

And decrease of four 3% on a constant currency basis.

We continued to see softness in our past service Bureau business SDN, which is notable exposure to commercial aerospace where probably the recovery has been slower than for other industry, such as healthcare and education.

Yes.

GAAP gross margin was 41, 4% for the quarter compared to 45 per cent for the same period last year and non-GAAP gross margin was 46, 7% for the quarter compared to 48, four and 4% for the same period last year.

And <unk>.

The pressure on gross margin is due primarily to the lower proportion of consumable interest logistic costs and.

And lower SDM contribution.

As a reminder.

<unk> has a relatively high percentages of fixed costs.

So the lower revenue is and impact on gross margin.

We believe the impact from the logistic issue, a well known global situation as well as the slower COVID-19 recovery impact on consumables will remain for the near future.

Given the ongoing uncertainty of these issues, we expect gross margin to remain at similar level throughout the year.

GAAP operating expenses were $73 9 million and improvement of $5 9 million or seven 3% compared to the same period last year.

Non-GAAP operating expenses were 65 from $2 million and improvement of $7 5 million.

10, 3% for the quarter as compared to the same period last year and.

Non-GAAP operating expenses was 48, 6% of revenue for the quarter compared to 54, 7% for the same period last year.

The improvement in operating expenses was due primarily to the proactive re sizing measures. We took in the second quarter of 2020.

From an admin perspective.

GAAP operating loss for the quarter was $18 4 million compared to a loss of $19 9 million for the same period last year and.

Non-GAAP operating loss for the quarter was $2 6 million compared to a loss of $8 4 million for the same period last year.

GAAP net loss for the quarter was $18 9 million or 32 cents per diluted share compared to net loss of $21 7 million or 40 cents per diluted share for the same period last year.

Non-GAAP net loss for the quarter was $3 8 million or six cents per diluted share compared to net loss of $10 6 million or 19%.

You did share in the same period last year.

We generate 22 $8 million of cash from operations.

During the first quarter as compared to generating $11 3 million of cash in the same quarter last year.

This was driven by strong collections and reduction in spending and inventory levels.

During the quarter, we successfully raised gross capital of $230 million of gross profit.

And and ended the quarter with $534 million in cash cash equivalents and short term deposits.

<unk> $299 1 million at the end of 2020.

We have recently made strategic investments via acquisitions of other gene and Lps to help build out our product portfolio and we continue to evaluate additional opportunities that will further accelerate our time to market and other piece.

Strategic initiatives.

Last quarter, we provided our outlook for revenue growth in the second quarter and operating expenses for the full year and we are reaffirming both.

For revenue, we still expect mid teens percent growth for Q2, and we expect to see sequential growth in the back half of the year with the fourth quarter being the strongest.

Opex for the full year include an increase of $25 million to $30 million compared to 2020 likely closer to the high end of day range.

The increase is due primarily to the return to a five day work week and the cost associated with the recent acquisition.

Capital expenditures are projected to be in the range of 24 million to $30 million.

Looking ahead, we sell debt free.

<unk> balance sheet, we are well positioned to capitalize on value enhancing market opportunities.

We will continue to invest capital into strategic high growth area of our business, particularly around manufacturing.

We're increasing customer demand and a proven history of high utilization should support substantial upside in revenue and.

Earnings and cash flow in the coming years with that net metering.

The call back over to you and for closing remarks.

Thank you Leila.

Our company is executing on our strategy to expand our leadership position and polymer three D printing.

The investments we have made to drive organic growth, coupled with targeted and strategic acquisitions to enhance our end to end solution portfolio should result in value creation for our shareholders with that let's open it up for questions.

Operator.

Thank you well ill be conducting a question and answer session. We ask you. Please ask one question and one follow up if you'd like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is and the question queue. What's your net star once we place from the question queue and please ask.

One question and one follow up.

First question today is coming from Shannon Cross from Cross Research. Your line is now live.

Thank you very much I, just wanted to ask and I guess I'll ask both questions.

First is with regard to product sales.

System sales can you just provide a little more feedback to us on exactly.

Who are buying what what's coming in and how much of this was pent up demand versus.

New demand because of some of the products you've launched.

And then with regard to consumable sales given the mix of systems that you're selling can you give us an idea of how long it will take to see some of the follow on consumable sales and.

And and <unk>.

And your confidence level and maybe usage rates on on the products. Thank you.

Okay.

Good morning Shannon.

And from some flavor on system sales I will start with that and we.

Currently so hardware.

The strength was across all our platforms and region in the quarter. So there is no single product to a customer that drove the favorable result really seat.

Across all of a gross all our business.

And definitely this gross demonstrate signs of and market recovery compared to 2020, where system sales were lowest in the first quarter.

This was due a.

And so the impact of COVID-19, starting in the back half of the quarter, where all sales are typically the strongest so thats why basically you see a very strong and.

And this quarter demonstrate and recovery that we are happy to see here and.

And <unk>.

Important to know the system gross will be the ledger a lead driver for growth in the year with and the introduction of the new product consumable will follow and I would like to remind you that and new products will introduce small and the second part of the year and will make and more impact in Q4.

As opposed to the first part of the year, but we as I mentioned very encouraged with the recovery.

And recovery sign that we sell are already now and show that consumable will follow.

And other thing important to note that system and sales began to improve by the end of Q2 last year. So while we expect system gross to continue throughout 2021, the comparable percentage rate will naturally come down over the course of the year, but we do expect to see and multiple growth and <unk>.

During the year.

Now I will address the consumables.

The consumable we encouraged to see continued recovery as we saw also in Q4 and also we saw in Q in Q3, it's still below 2020 and 11 as a reminder, in Q1 2020 consumable and services or attract realm.

<unk> business and as usual since COVID-19 heat start to hit most of the end of the quarter. So substantially we had almost a full quarter as a comparison.

And unlike Q1 'twenty one.

Well COVID-19 still impact during the full quarter.

As we are looking ahead for the year, we expect consumable to grow sequentially based on the trajectory of day, a macroeconomic with day.

The expectation that aim consumptions will come back to pre COVID-19 level, probably at the beginning of 2020.

2020 to 22, sorry, maybe just to add hi, Shannon.

And maybe just to add overall definitely there is a pent up.

And definitely there is a pent up demand.

Uh huh.

Good to be and such a place because it's across all regions and platforms.

And of course, there are some different differences between different sector, so commercial aerospace and government of slower too.

And now to to raise.

Mainly because of the commercial aerospace situation and.

And the new administration and the U S, but we see the recovery coming in the next quarter on the government side and of course health care and then dialogue.

Discuss before or early to recover and what is new in Q1 was that education really joined.

The healthcare and Delta in terms of a fast recovery.

Great. Thank you.

Thank you next question today is coming from Troy Jensen from Lake Street Capital. Your line is now live.

Hi, Thanks for taking my question first one here for you.

And if you look at results yours.

Q1 was relatively in line and consensus Q2 guide seems to be in line with consensus is continue that and the second half you're going to have about 8% growth this year.

Some of Thats acquired from Rps and origin and some of that is going to come from the Saar partnership.

And for your marketing and slides that you usually talk about and the industry is growing 20%, 25%. So I'm just curious whats the real outlook here for FTE and the poly jet and why aren't you guys growing faster than the industry.

And what products are sustaining kind of that industry share and then youre, adding new technologies and two portfolio.

Alright, Thank you for the question.

As you know we are not guiding the year the overall year because of the uncertainty of the COVID-19 and we give just a very specific direction, where we can commit and where we see where we have good visibility. So I can just repeat it in general what we're seeing is sequential growth quarter over quarter, we see the pent.

Up demand as we mentioned, we know exactly where we would be in terms of the opex like Leila mentioned.

But overall when you look at our on our NPI status and we are delivering and we were with the <unk> 55, we launched the <unk> five dental with very good traction in the market. We launched the carbon fiber we are delivering we have restructured plan and we are delivering on it we launch.

New product, both on <unk> and poly Jeff.

Put it together with the pent up demand.

We see a good.

We'll take good.

Market.

Interest and those new products, which are really at the top of the line and the next generation, both and material jetting and and material extrusion, we are leading the industry in terms of the technology or there is no doubt and we hear it from our customers. So just take both into.

Our analysis and the fact that we have those new products, both oncologists and on SDM to the fact that we have three new technologies that we're introducing and the second half of the year and I guess you can do the net by yourself.

Okay, and just a follow up.

Would you agree that for us really hasnt had competition, specifically and old pump.

And do you view that as competition coming now given that the patents for the heat and build chamber.

Right.

No I had a call just to share a call with our customary cannot.

And reveal their name but like.

So.

Top five aerospace players in the world.

And they told me and I'm, quoting because I prepared and myself for this.

Call you said you have the best machine.

Oh, Dear and SDN, and just help us to make it and manufacturing machine and Thats. What we are doing in terms of software in terms of material you.

You mentioned all of them, it's clear that we have the best is the chamber and the market and also in terms of software material, but not less important and certification regulation allowable and all this full package that we are the only one who has it so even if someone is coming.

All of them.

Still many years.

Got it behind us in terms of certified into aerospace and automotive and we all keep walking.

Sure.

People are kept pushing on new patents.

On better hitter chambers on better processes on regulation and Airbus expansion is there and it's the perfect proof of it.

Alright, good luck and the second half.

Yes.

Thank you. Our next question today is coming from David Mizrahi from Baird. Your line is now live.

Hey, guys. So I understand the higher operating expenses and 21, but could you just speak to how youre thinking about some of that leverage moving in from 'twenty, two and half.

Goals, you'll talk talking to just with respect to those operating expenses.

Okay.

Hi, David Good morning.

So specifically, we are not providing a specific guidance and type of 'twenty to 'twenty, two but definitely I can speak with you and the overall.

And business model that we are anticipating and.

And it's important to remember that.

And as our revenue will grow with the new adoption of a new manufacturing base system, we expect to see higher profit higher profit and.

And as we're going to have a higher profit pool, and we are planning to leverage scale on our operating model. We have in place already the infrastructure incorporates and and go to market to capture new technology without adding significant costs in the long term and this is really our vision and this is this is our goal.

And.

And 22, and 22 and beyond and 2023, we definitely will be able to see this.

Leverage on the revenue.

Got it Okay and then can you just also comment on how the new printers will impact gross margins going forward. The HD 50. For example, I know it uses from the consumables. So I'm just really curious about gross margin and parts from new printers, and particularly from HD 15, its competitive advantages relative to H P.

These multi jet fusion for example, thanks.

Okay, David and so.

We are now not specifically addressing the new product and once we launch we will be.

And most of that but our vision and the end of the day that a.

Gross margin is a and we have a wide portfolio and definitely it's a it's a mix issue.

And so overall, it's a mix issue that and our manufacturing strategy revenue will be significantly higher driven by high consumption, which ultimately generates a higher profit even if consumable margin, maybe a lower and this model.

Yes, we have a design for cost initiatives in place for the new price and for the existing product that we will address and overtime in the future in the future as we roll out those new products focused on improving the cost as product will be more mature as part of the product lifecycle. This is something that we definitely.

And all actively addressing.

Maybe just to add to lock the systems are in line with our overall.

Profitability.

Living within our industry, although we are not giving gross margin guidelines as you know, but I want to relate to the question about <unk> hundred 50, we are very proud of the 350.

And it's really a step change in our industry in terms of mass manufacturing so of course I'm not going to.

Relate directly to HP, but I'm happy to share several advantages that this stuff.

Has the <unk> technology.

And do it very shortly we have a whole list of advantages, but in a nutshell.

I would say consistent accuracy and I mean that we have the highest consistency of part accuracy.

This is a must and manufacturing the second one second advantage is full control of the printing process environment too.

Which is super important because it enables fast certification of parts and materials, which is critical and manufacturing.

Everything gears and both manufacturing and the third advantage is really very good economics, because we are working with single fluid. We are having high powder reuse rate and we accept we have and exceptional messaging efficiency in terms of the load that you can do it.

And the cake, so really it's an amazing machine we have great.

Plans around it and we are going to reveal more and more material.

For this platform.

Also.

David as you and also I would add this as well because you talk about the ability to manage against competition and remember that we have a very large service Bureau.

And that's technology agnostic and it includes HP and includes yields and includes lots of systems from lots of companies. So as we're doing our own research and development for our own products, we're actually customers using other products and it really informs our ability to make decisions to develop the best in class compare.

<unk> systems out there.

Thank you guys.

Thank you. Our next question today is coming from Noelle Dilts from Stifel. Your line is now live.

Hi, Thanks, Good morning, I was hoping that you could expand a little bit on what the M&A pipeline looks like and specifically if you could speak to if theres been any.

And how youre thinking about valuations for target and obviously the multiples for a lot of the publicly listed companies have been volatile so.

And so far this year is that impacting target price itself.

And thank you for the questions.

I'll start and I'll take a step back and start with what is really important we have a laser focused strategy.

And everything that we're doing is subject to this strategy.

Focus focus focus and also M&A for US the strategy is polymer manufacturing and we are actively looking for I would say responsible M&A opportunities like we did and executing the path that will accelerate the implementation of this strategy.

And the title.

And if everything and there are many opportunities and we are very attractive to many of the startups out there.

You saw our acquisition of origin and also Rps because we.

We have the infrastructure and they want to succeed and they want to make that they have and they are growing their sales and they have the earn out in place and we can commit for it because we have the infrastructure and we have the machine.

To acquire and.

And to integrate it into our system.

So we are continuously looking for potential investments proactively and we want to maximize the value for our company and the shareholders.

And we look all over we have restructured unit.

The way we are working.

And this unit is going extremely well and scouting and.

And we are focusing on those.

Technologies and companies that will accelerate our strategy.

And each one of our technologies and.

And and we know exactly what is needed in the market, which is a great advantage compared to anyone else who is looking out there in terms of financial and.

Investment or <unk>.

And we will keep doing this and we will keep doing it and a very disciplined way.

And and create value through those acquisitions.

Okay, great and maybe just sticking with that theme.

Obviously still early days with origin, and Rps, but maybe could you expand upon how.

How things are progressing so far in terms of.

How how the market has received the deals, particularly origin and how things are trending relative to your initial expectations.

Okay.

Thank you great question.

It's growing really well.

I don't know if you had the chance to participate in our manufacturing and events more than 4500 high end customers and partners participated there.

A significant amount of them actually I would say.

Around two tiered.

Also participated in the breakout session of origin.

And all the guys who are there.

All day.

Important companies from Fortune 100, and also the top.

And similar Fortune 100, and Europe, and in Asia participated and Tesla and Nike Amazon Apple GM and Ford you name It Lockheed Martin and they were all there because they are interested and manufacturing and we have bringing the full package from manufacturing and that's why we created this team.

Together with origin together with Rps.

And if you participated just to close the loop.

All of those customers are fast as I just mentioned.

I don't know that the Tesla the effort to go get those customers where their way.

Waiting for the origin.

Machines to be all systems to be more precise.

For the 770 and for different and before the <unk> III 50 participating actively and.

And we're going to deliver them the full package for manufacturing.

So we expect strong demand on those machines.

And machines and for me as a CEO and most importantly, I was very proud to see and are both in our press conference and also in our event.

A D and.

We were one team origin.

<unk> hundred 50, dissolve joint venture and our FDA and you can see that this is a one team.

That is pushing forward, our industry and human effect.

Yeah.

Thanks very much.

Thank you and next question is coming from Greg Palm from Craig Hallum Capital Group. Your line is that line.

Yeah. Thanks, I guess a question on gross margin can you quantify the impact that you had from logistics and I'm just curious how that compares to what you just said about STM and mix overall and if I heard you right I don't think youre expecting any improvement this year, so EBIT as revenue increases.

And the second half gross margin stays at similar levels and so it almost implies that what youre seeing is worsening and because presumably there is some level of overhead absorption and second half. So just wanted to get a little more color there.

Okay.

Good morning, Craig.

Specifically on the logistic, yes, we were impacted by the global logistic issue and.

And that you saw overhaul and we are.

We are not the only company, who actually suffer from that and.

And.

It's probably fair to assume that it's about a 1% of our gross margin net impact.

Due to those and logistical.

And and.

And as we mentioned on the call. We expect gross margin to stay at this level through the balance of 2021, given the uncertainty around.

And the largest in a high logistic cost and and and the consumable and impacted by COVID-19 at the same time I would like to mention that we are analyzing and increasing our inventory level of raw material and finished goods to avoid delay increasing production level and prepare for C. O L.

In our planning process.

The most important things for us is the meetings and demand. We try we are evaluating a wider array of shipping option to ensure we can deliver goods with minimal business.

And cost impact is very very important plus and addressee and maybe I will just add to it.

Also some positive aspect and positive aspects to the logistics.

So just to put to sleep on the on the gross margin.

Gross margin is a combination of the logistics, the consumable mix and and SDN and.

And logistic was.

Quite quite a large crowd there and really you can.

So we do by yourself, but those are the those worked really impacted our gross margin and since there is uncertainty on the recovery on the consumable and the logistic there is more control and the DM side. That's why we are cautious with our projections on gross margin.

But what is the positive aspect of this what is the opportunity here.

Supply chain are fragile and it's not only because of COVID-19 there were fragile before COVID-19 because of the trade wars and because of some bare.

Barriers and looking forward with the UK Europe, Brexit, we'd see more trade issues and tax.

<unk> then you saw the Suez Canal Suez Canal blockage.

And the weather issues and so on and so forth so supply chains are fragile.

And are being disrupted so it's clear to everybody that we need more resilient.

Supply chain and by the way we are facing the same issues.

We are also receiving some pods and machines with the Swiss cannot and we and we were exposed to the congestion in force all over the world seven days, it's the average delay globally and in some port it could be 10 or 20 days.

No doubt everybody understand the future has to take into consideration digital inventory.

This is a great solution you have no shipping issues, no cost and no weather impact no nothing instead of delivering from a to b.

From the Atlantic you just deliver from a two way because you produce.

And the spot with digitally stored inventory.

It's also an opportunity that's what I'm trying to say.

And this is practically what we call industry four point, though.

Yeah no.

It's a good point and I guess, just as a follow up because I'm still not entirely clear because usually usually when you have a better volume and top line, you see better absorption and you'd see higher gross margins. So.

If the assumption is that that volume and top line revenue are going to increase solidly in the second half yet gross margins are going to stay at the same level as Q1. It implies that something is worse I mean from what you saw here and the most recent quarter. So are you assuming.

And net debt either mix or logistics or SDM worsens from here, just something just doesn't add up and I just want to make sure. We're all clear on that.

Okay.

Doug aim.

Okay.

And basically we are still conservative in terms of what we see currency non really really know what's going to happen with the logistic constraint that we have there is simple.

And fabrication and even say that maybe it will take us to the end of the year how severe it will be also nominal okay. So we see a prices that we knew in Q1 actually now even higher what we see and Q2. So prices will continue go high.

So we believe day logistic situation and challenge all over and will impact that significant rate point and also the prices went really up and more to the and.

Our prices of logistics from China and from.

Israel went up more at the end of the quarter. So we are being cautious, but I want to make one thing very very clear, it's all about mix as we mentioned and logistics and SDM, but overall Aps and.

In general stayed at the same level.

And this isn't Asps sorry Isps.

The average selling prices stayed more or less in general in the same.

The ballpark and the issue is not coming from there.

It's very important to mention.

Okay, great really helpful. Thanks, so much.

Thank you next question today is coming from Brian Drab from William Blair. Your line is now live.

Thanks, I was going to ask.

And that's kind of related to pricing as well, but just specifically.

Non consumables.

Down, 10% organically year over year and <unk>.

<unk> was.

And I would think customer activity would've increased materially year over year, given many of the service bureaus manufacturing design companies were shut down.

Or at least slowed down materially last March and also if you.

And you compare it with first quarter of 19, if you go back two years consumables revenues down about 15% and product gross margins down over 600 basis points since first quarter of 19, So I mean.

There are few things that can explain this I don't know is it lower utilization of your machines.

Even though machine sales have been soft theres more machines and the markets and there were two years ago.

Is it lower utilization of those machines going out to the market.

Or are you lowering price and consumables or.

Or what is it.

Thanks.

Okay.

Great question, Thank you and <unk>.

Just answer this is slower utilization definitely it's not that all of our customers of BEC.

And even if they are back they are not utilizing at the same level.

For a pandemic.

And to eat the fact that there are some segments that really.

We're heavily heated by the by the pandemic and are slow to recover mainly aerospace and within aerospace and.

Commercial aerospace and they'll start to recover also automotive and we are highly.

Focusing on those because those are the high and segments that are buying our high end machines. So this is manufacturing.

So we are more exposed, but I have no doubt that.

And I know in the in the future, we will see them coming back strongly the utilization will go up and.

And consumable as we said we'll grow sequentially throughout the year.

Okay and and.

And I guess is it the same dynamic that's playing out and the system sales because of it.

It's a great result that system sales are up 40%.

Year over year, but they were down 40% year over year last first quarter and going down 40% and then backup 40 means you are still on a two year stacked basis, Youre still down 15% and system sales from first COVID-19 levels.

Is that the same dynamic that you just that it's going to take another year, maybe to get back to 2019 levels.

In general, Yes, we don't know exactly when you know aerospace will be exactly in 2019, but what we can see is that hardware is as you see because of the deep.

Declining in Q1 that we had in some areas of the world, we see the spend demand and they spend demand is assigned for consumables because hardware is probably a phase of two phases before the consumable.

So you can use the hardware in order to predict.

The demand for consumables.

Okay. Thank you very much.

Yeah.

Thank you. Our next question today is coming from <unk> Mohan from Bank of America. Your line is now live.

Yes.

Yes. Thank you.

And at a capital raise last quarter, you're calling this is gross capital you, obviously already have a pretty strong balance sheet before that.

So how should we think about maybe pays off either M&A or investment and so this is going to be at some level of accelerated pace.

Worse as you know even the last few years or how should we think about the relative pace of investments and M&A. If you could share any color on that that'd be helpful.

Okay.

And we are we are we are sticking to our strategy and to the same concept that we mentioned.

Two quarters ago.

We have we have a strategy part of the strategy is a structured and.

M&A per octave.

Uh huh.

I would say proactive.

Counting and screening to make sure that we are bidding pipeline.

Four.

M&A.

In a way that will maximize shareholders value through synergies and the synergies are very clear here and there has to be some has to be something that accelerates the strategy.

It has to be something that.

Either accelerating through technology.

Technology.

Or go to market or material all software. So we work on their workflow, which is the software and other type of workflow.

Or <unk>.

Material.

Hardware technology.

And we'll keep doing it and a disciplined way, we build and M&A team internally.

And it's a very strong team.

We are not a rush to do anything, but we do it and a very disciplined way.

To accelerate this strategy.

Okay. Thanks shelf and you talk about this acceleration and revenue growth and 22 and beyond.

When you think about that in relation to maybe market growth.

Are you expecting to take share and grow in excess of Submarket and and maybe if you could just talk about that growth acceleration coming between.

Existing products, and and new products and try and isolate what is sort of a cyclical recovery that can drive an acceleration and 22 versus a more secular sustainable recovery and not and that growth. Thank you.

Okay.

We are going we are.

Leading but also in the future.

He will lead the polymer manufacturing.

Segment.

We are leading additive manufacturing and polymeric.

This is the strategy. This is the target and the way to do it is by making sure that we have the right match for every application. This is why we extended our portfolio to five technologies and each one of them. We believe we have the best in class technology, and you know him.

Already in this industry, almost a year and half now and I can tell you that it's.

Quite simple you need to have the best path and this is scientific and need to make sure that you have the best part.

Appropriate is and where our work on it and each one of the technologies we.

We leverage it through our channel partners and we are delivering.

To our customers.

With focus on manufacturing a full package of hardware software and material and services and we package all of it.

And the seamless.

And last fall of software is a big advantage. This is something we heard from our customers. They want to have one supplier and we would be this one supplier.

And polymer manufacturing and as we said last quarter.

We believe that our specific revenue will grow over 20% in this sector of additive manufacturing. So we are.

Currently as we said last quarter in 2012.

<unk> around 25%.

Our sales went through and you smile.

We are going to grow it and the mid teens this year and 20% from next year onwards.

Okay.

Okay.

Thank you and next question today is coming from <unk>.

And <unk>.

Uh-huh Biohazard.

Thank you and next question is coming from Ananda Baruah from loop capital markets. Your line is now live.

Hi, yes, thanks, guys for taking the questions.

I guess, just when you guys talk about when you talk about.

The revenue acceleration beyond the 20%.

Seemingly starting kind of in 'twenty, two going into 'twenty three.

Can you share with us.

Presumably that would be sort of through most of the pent up demand can could you sort of share with us. If that's the case do you really think at that point.

Production systems.

Are really driving the gross and then if they are do you do you yet have the qualifications and.

And the key verticals and air.

Aero and auto net you would that you would need for that.

And and if you don't have them what do you think the difficulty level to getting there and thanks a lot.

Okay.

Okay.

And then and thank you very much for the question.

So I want to be very clear and I want to separate short term catalyst and long term catalysts here and the market. So we said and again just to clarify the path in our sales that is going.

For manufacturing.

We defined it and use Bob will grow mid teens, this year and about 20% from 2022.

Oh and words. So this is the this is the statement why we believe and it because first of all there is some there are some catalysts and pent up demand and the short term because of the recovery from the COVID-19 because of supply chain pressure that people want to make sure that they are ensuring themself against it.

Because of the entire environment that we see and the macro and the macro economy. This is one.

And then which is more important.

Everybody is seeing the long term.

And if we are facing.

Which lead us to an inflection point and additive manufacturing and this is inflection point is underlined by as I said before by three very strong forces one.

Is the need.

To have responsive and versatile supply chain digital and unaffected cost so many times.

The second very strong trend is the fact that additive manufacturing technology reach.

I would say new levers in terms of their ability to really deliver and use Bob and mass production.

We were in the hundreds maybe thousands now we are and the dozens of thousands and maybe 100000 and you.

And you saw in the case of the nasal swabs that we even printed millions sorry.

So it's a different era in additive manufacturing and add to it that day or the very strong trend which is.

The old industry trends that you'll have those new segments.

Like electric vehicles, and new type of aerospace solution.

We're poorly mirror and composites are so important for the type of deposits for the complexity of the above but also for.

And the need for customization and short series of production. So it's a new era.

It leads us to manufacturing being and manufacturing, it's a whole new story, because and manufacturing units about new application. It's about new material, it's about very strong and solid service because you cannot allow us to have downtime.

And <unk>.

Not less important unique software.

And its software in order to be connected.

So the manufacturing system the EMEA.

ERP, the PL and you need to be there.

And you need to put all this in one package connected.

So connectivity is also very important.

And we have relationships with those blue chip customers Fortune 100 customers net.

And our leading this transformation and those Oems are working with us to transform the industry and.

And give us the confidence that we are on the right direction because at the and we are not working in a vacuum, but we are working with our customers to take this industry into one and fixture.

That's super helpful. Yale and I really appreciate Thats really great job by the way thanks for that and just a quick follow up to that it sounds like you have.

Like at least a good amount of the capability and pool is today you made so you just referenced your ability to do production parts of volume share and production parts of volume.

And I like that Youre sticking your neck out and giving giving the gross contacts.

Thanks for that.

This is fluid and how much of sort of the capability, you've mentioned software M&A et cetera, and workflow how much of the capability. He explained to you need to get to you know putting together and solution software services like you said putting into one package how channel.

<unk> is that over the next call it four to eight quarters.

To get to where you want it.

And your production and customers are saying they want you to be to be able to really inflect that growth I know, that's a lot, but I think the context would be helpful. Thank you and that's it from me.

Okay.

Another great question.

We have currently the internal capabilities to deliver our strategy.

Having said that it's also clear to us that we can accelerate it.

So the focus is on acceleration not only enabling.

Because we can do it.

But this is a great place to be when you are looking for M&A.

Because you are coming from a place where you have the certainty that you're good with alternative we are not depending on any one to execute our strategy.

We have many that can help us to accelerate.

Okay.

That's great. Thank you.

Thank you we've reached out of our question and answer session I would like to turn the floor back over to your for any further or closing comments.

Yes.

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

Thank you and that does conclude today's teleconference and webcast. You may disconnect. Your line at this time and have a wonderful day, we thank you for your participation today.