Q2 2021 Stratasys Ltd Earnings Call
[music].
Hello, and welcome to the Stratasys Q2, 2021 conference call and webcast at the time all participants are in a listen only mode.
You want you require operator assistance. Please press star zero on your telephone keypad.
Question and answer session will follow the formal presentation.
The thousand and 21 please.
Please also refer to our operating and financial review and prospects for the second quarter of 2021 as well as the press release that announces our earnings for the second quarter of 2021, which are attached as exhibits to 2 separate reports on form 6K that we are furnishing to the S. E C today and.
In order to obtain of dated 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 for them 6K that we were furnished to the.
The S E C 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 gap and non-GAAP financial measures. The non-GAAP financial measures should be read in combination with our GAAP metrics to evaluate our performance non.
Non-GAAP to GAAP reconciliations are provided and tables and a slide presentation and today's press release.
Now I would like to turn the call over to our Chief Executive Officer Doctor, You'll have life you off.
Thank you your honor.
Good morning, everyone and thank you for joining us today.
Today I will walk you through the highlight of the second water and some of the reason development.
Then discuss our ongoing for with the.
Spend our leadership position in the bully married really printing the mug.
Producing of delivering the most of the innovative next generation technologies that the address the fastest growing amount of Fixturing application.
The law, we then provide financial beat the for the quarter and given update on our outlook before we take your questions.
The second quote there continue to show accelerating growth for our company the.
The treaty printing industry is moving toward providing for scale digital amount of affect the cheering platforms at mass production level.
Rather than being primarily of prototyping tool.
Throughout the season is at the forefront of these cheat with our best in class solution for these high value market opportunity.
The company cause there was highlighted by 25% year over year revenue growth well above our previous the share the expectations and.
And driven by growth of 32% in hardware and 39% Inconsumable.
Of said by slower growth Bob business view.
<unk>, primarily to the relatively slow recovery of the aerospace market.
While we are pleased to have produced our sales consecutive quarter of sustained revenue growth. We know that it is critical to continue to invest in technology software material and talent to further enhance our leadership position and to drive future profitability.
Our business momentum and customers non effect during operation.
Of of nearing for recovery from the pandemic as evidenced by both consumer goods and services revenue.
Retailing to near the 2019 level.
We are seeing good reception to 3 recently launched system, the dent agenda and made the jet specifically.
Specifically for healthcare sector and the <unk>.
Fairly philography systems that we acquire the and Q1. We are also seeing excellent market's reaction to our new carbon fiber material for the F 123 series.
Importantly, we realized you over the years growth across all of our region and business line.
With no to the strength from EMEA and the American.
During the second quarter, we achieved several important milestones to drive our strategy.
As we mentioned on the hour prior earnings call. We all said our manufacturing experience event that was attended by over 4500 customer reseller in Bosnia and the.
The event, we provide the details on 3 new manufacturing focused product offering that will play an integral role in our future growth. This include the origin 1 of best in class photo quality mail through the printer that received it top to bottom optimization upgrade to improve the.
Visibility performance and utilization.
The age 350.
Followed by the selective absorption fusion or assess technology and bill for true channel plastic mass production of consistency accurate and used power.
And the F..7 7 design with the longest fully the bill chamber in SDM, but the simple to use as our other popular F 1233 interviews.
During the quarter, we also strengthened our healthcare offering with the launch of our 5 major medical <unk>. The printer. This printer meet the highest standards in sales of running biocompatible material.
Hence the realisation protocol.
Designed for anatomical warders surgical guide and any production power in of medical environment, such as tooling. It is 5.
10-K, approve with leading medical segmentation software and multi material capability.
On the 10th of site due to our latest technology expansion. We are now the only company with the for.
Technology portfolio for.
For this yet.
The 3 by Oregon and thoroughly geography.
Enable us to address and develop the most suitable solutions across the dental industry.
These allow us to best match, the right solution for each customer type.
Fully jet offers molten material.
And mixed race printing, allowing for different dental part of the same free.
The 3 offers industrial scale.
And the wide materials system, all of our providing better cost per Paul.
And in fact, the day 5 Delta jet printer launching Q1 is already performing very willing the market.
The system collectively expand our reach into healthcare.
As utilization of 3 the printing in the medical and dental communities accelerate.
Mass customization is the key benefit of really printing.
So it is ideal for providing personalized healthcare.
Given the range of products, we of bringing to the market. We view healthcare is the key growth component of our portfolio going forward.
This quarter also saw make great strides announcing our ESG initiatives to the printing has some inherent sustainability benefit over traditional manufacturing.
And during the quarter, we created and ESG leadership team to guide our strategy. We recently became.
The founding board member of the entity manufacturing Green Trade Association the.
The leading organization focused on our industry and in a few weeks, we look forward to announcing more details related to our ESG plan.
In software, we expanded our partner program to 6 companies in the first 6 months of 2021 with the addition of date on simulation, which uses our new grab cat designed for editing manufacturing for defense software development.
To help customers improve the reliability of editing manufacturing built.
This is another example of using our leadership position and 3 the printing to build ecosystem of partners across software materials and post processing to provide the superior solutions for customers.
Our software business has seen great progress over the first half of 2021 and.
And we have started monetizing are offering into paid subscriptions.
The first example is grabbed the chalk which provides customers with an all in 1 tool that the health team communicate through the printing needs.
Fulfill internal tree the printing willpower.
And monitor all 3 of the printing job progress grabbed.
Grasp the shull improved over the air with regular updates to meet customers, new and growing needs.
To date.
Dr. Shaw is being used by several large customers from around the world, including Schneider Electric Mclaren, Virginia Tech and many more.
We will grow our monetization strategy to the sale of annual run time license subscriptions, which enables customers to connect the of Stratasys printer to a third party posner sort of cement linked to the D identified 3 D and others.
In Maine, we launch of our customer of up and use digital ordering platform for partners and customers to help make us not only the best but also the easiest read the printing company with whom to do business.
Over $25 million in older.
Place globally and Q2.
With all regions were represented and we already have over 2000, new accounts activation.
In addition to giving them a complete dashboards view of their portfolio of Stratasys 3 of the printer users find it to be of fast and convenient way.
2 older from Ah, particularly for SDM in foliage of materials.
With a pile of the combination of our next phase of product launches moving ahead and our multiple competitive advantages. We will further advance our position as the leading provider of volume out 3 the printing solution.
For a world class customer base I'd like to remind you of those competitive advantages.
We have the broad the most advanced volume of technologies that span the full product lifecycle from concept to and use Paul.
Our customer centric dynamic the software strategy continue to evolve from the clothes of also relationship we have with many Oems across the industry.
This approach provide a unified comprehensive platform across our technologies that it has been to interface with the top standup enterprise system.
Supporting our product we of the leading global channel with over 200 partner the tin market sale and maintains system for our customers.
We have the largest team of engineers and customer support in our industry and we have approval and resilient business model designed to scale of <unk>.
Cross the range of macroeconomic conditions.
The scared vintages combined with the new technologies that we launched primarily in the fourth quarter and beyond position Stratasys to continue delivering on our growth strategy.
Our improved results in the past few quarters demonstrate the renewed strength of the company ended our strategy is on the right track.
This is the only the beginning of what we believe will be an accelerated pattern of growth in the coming years.
We'll now turn the call over to Iraq will share the financial results of the quarter Lila.
Thank you.
And good morning is the 1 we.
We are pleased to has exceeded unsteady target in the second quarter.
The 25% total revenue growth compared to the corresponding quarter of 2020, especially the 35.8% growth in of.
Product sales along with some positive cash generation, so part of growing optimism and continuing economic recovery from COVID-19, and a unique position to lead the market.
For the quarter total revenue was 147 million up 25% versus the prior year quarter and in access of a previous outlook of mid teens growth the.
This was primarily due to stronger than expected fulfillment in Europe.
A substantive increased in a conceivable sales to almost free COVID-19 level.
The customer support revenues exceeding 2019, and the successful launch of the Lps the resin based system.
Customer reception to LTA has been sullied demonstrate our ability to leverage our go to market access to customer that helps to accelerate sales.
On a constant currency bases total.
Revenue grew 22.4% versus the second quarter of 2020.
For the revenue, who almost 36% in the second quarter to $100.3 million compared to the same period last year of 32.6% on a constant currency basis.
Within for that revenue system revenue growth, 32% to 45 from $6 million compared to the same period last year and increased 29, 2% on of constant currency basis.
This growth bolstered by the introduction of the new system, we discussed earlier, including the Rps and the new healthcare printer the.
The rate of growth clearly demonstrates the day and markedly casualty is well underway compared to the corresponding quarter of 2020, which was fully impacted by the pandemic.
The total also so improved conceivable utilization showing strength after the COVID-19 slowdown.
Consumable revenue losses, $39, 1% to $54.7 million compared to the same period last year and was app, 35.5% on a constant currency basis.
The relatively to the 2019 quarter conceivable improved to the point of being of only $3 for percent showing the nearly complete reversal of of the impact of the pandemic is our customers increased utilization of our system.
You may recall that the earlier this year, we announced the launch of our carbon fiber of material for the F 123 theories we.
We believe it is the best of its kind in the market for the benefit of both strength and model geometric freedom, while the stainless lightweight.
The material continues to perform well and importantly, it has also been a meaningful catalyst for sales of R. F 370 system.
Service revenue was $46.7 million at 6.8% compared to the same period last year.
On the constant currency basis service revenue, who 5.3%.
With instead of this revenue customer support revenue increased 10% to do.
Do any $8.3 million, an increase of 8.2% on a constant currency basis and at 1.4% cash.
2 Q2 of 2019, which was free COVID-19 and other good indication of markedly casualty and increased system utilization.
Turning to margin capitalist margin was 33% for the quarter compared to 37 for 2% for the same period last year.
Capitalist margin was 47.5% for the quarter compared to $45 for percent for the same period last year.
Given the increase in how to end conceivable growth of the wall sales margin benefited from the change of mix.
This was partially offset bank interest global cost for a share of let included the logistics and the raw materials inflation, which were both of those costly this quarter than Q1, and the ramp up production for for new product introduction of.
At this point, it's look like these issues will continue to be a negative impact for the back half of this year.
Due to the ongoing uncertainty of these macro issues along with the introduction in the second half of new systems and anticipated associate the affluent margin pressure, we expect gross margin for the balance of the year to remain similar to what we sell in.
You too.
Gap operating expenses were $86 million, an increase of 13 million of 17 for an 8% compared to the same period last year non-GAAP operating expenses were $72.5 million, an increase of 11 million of 18% for the quarter as compared to the same.
Period last year non.
Non-GAAP operating expenses were 49, 3% of revenue for the quarter compared to 52% for the same period last year.
Operating expenses were are primarily due to the return to of 5 days work. The week first COVID-19 expenses as the market started opening nap and commission due to more revenue.
We also incurred additional operating costs associated with the inclusion of for a new acquisition the.
This cost were funded by the <unk> and plan implemented in May 2020, which allowed us to allocate resources to area, where we believe we will generate stronger growth.
From an admin perspective, GAAP operating loss for the quarter was $22.7 million compared to the loss of $29.3 million for the same period last year non.
Non-GAAP operating loss for the quarter was $2.6 million compared to the loss of $8.1 million for the same period last year.
Net loss for the quarter was $20.2 million of 31 cents per diluted shares compared to net loss of 28 million of 51 cent per diluted chairs for the same period last year.
Non-GAAP net loss for the quarter was 1.6 million or 2 cent sales diluted shares compared to net loss of 7.4 million of 13 cent sales diluted shares in the same period last year.
We produced cash of $5.6 million from operations during the second quarter as compared to use the $9.7 million of cash in the same quarter of last year the.
Total $52.1 million generate in the last 3 quarter of an excellent achievement. Despite the impact of the pandemic.
We are pleased to have generated this level of cash flow given our second half plain to continue investing to accelerate the growth of our business. We ended the quarter with $522.7 million in cash and cash equivalent in short term deposit compared to 530.
For a million dollars at the end of the first quarter of 2021.
The end of strategic investments we of recently made to help expand on product portfolio. We continue to evaluate additional opportunity that will further strengthen how leadership position as we execute on a strategic initiative.
Now turn into our outlook for the balance of the ear as.
As we previously stated the revenue growth will be sequentially linear we expect Q3 to be approximately 70% to 18% higher than Q3 of last year in queue for will be sequentially higher.
We continue to expect Opex for all of 2021 to be approximately 30 million higher than 2022, primarily to return to a 5 day, 12th week and operating costs as the market and gradually opening post coughing.
We continue to expect on capital expenditure for all of 2021, 2 and between 24 million to $30 million.
We have a strong balance sheet that will support the ongoing growth both internally through strategic investment in high gloss area of of business that focus on manufacturing and externally when additional growth opportunities emerge in.
In the coming the year as the 3 the printing industry expand and shipped to mass production from prototyping, we're committed to not only maintain a leadership position, but too boring.
With that let me turn the call back over to you of for closing remark Johan.
Thank you Lila the second quarter wasn't exciting 1 for strategies as we soaked growth across all platforms accelerated we expect that our existing markets, leading offerings and our new platforms. This will begin to ship in the fourth quarter will provide incremental growth.
The truth contribute to revenues cash flow and earning in the coming years.
The older pipeline for this new system is solid and we look forward to updating you further after the launch we are executing on our strategy to enhance our leadership position and pulling them out of treaty printing and with our strengthened balance sheet. We are in the past.
Vision to create long term value for all of our stakeholders with that let's open it up for questions operator.
Thank you without the conducting of question and answer session, if you'd like to replace some of the question queue. Please press star 1 of your telephone keypad a confirmation.
<unk> tones of indicated regardless of the question Q human Crestar to repeat electric of of your question from the queue for participant choosing speaker equipment may be necessary to pick up the handset before pressing star 1.1 moment. Please while we pull for questions. Our first question today is coming from Shannon Cross from Cross research provided for now.
Of.
Alright, Thank you very much I appreciate it and good afternoon.
I wanted to take a little bit more in Q1 of <unk>.
Here's to be somewhat of an inflection point.
And clearly year revenue growth of.
The revenue trajectory that also I'm curious from an industry perspective.
If you could talk a bit more about what you're hearing from the our customers about.
Why they're buying the product what they're looking at using the product for.
Essentially I'm trying to understand how much of the growth is.
Sustainable past the.
The rebound following COVID-19.
So anything you can you can provide to us and the helpful. Thank you.
Hi, Shannon good morning.
Great question.
Because we are definitely at an inflection going for the entire industry.
And the.
We benefit from this the inflection point because we are the leader.
In pulling mirror for the printing, but we also work very hard to make sure that we are supporting it and delivering the expectations of our customers.
So and.
In a nutshell.
No beds and whistles here to be honest a lot of hard work to deliver constant growth for Ah.
Dressing the customer's needs and of it sounds likely share, but it is what it is and it's all about delivering the best of good economics.
Reliability, all within a package of material in software and service.
The support the world for manufacturing and can really be something that the customer can lean on in terms of adopting 3 of the printing and this is what we're doing the day after day and.
And it's it's the journey both of them happy to say that we see.
The start of getting there and.
Those manufacturers our customers. This huge installed base that we have the leading companies in the world the.
Updating their factories plan the are updating.
The.
I would say division that would they have each 1 of them as the specific team that looked at the plant of the future and free the printing is part of it.
For the printing is definitely part of it in the long term and we are there and we'll keep supporting them.
I guess.
How does the conversation changed maybe in the last 3 to 6 months.
You've been talking to customers because again.
It seems like you said this is sort of an inflection point for the industry or or do you think it's something that's been building for quite a long period of time and it's just starting to happen now.
I will take the there are 2 on the line for this year.
1 is the Covid as we said in many early cause of the last year opened the eyes of.
Of the.
Leaving manufacturer through the benefit of free the printing supply chain. So instead of having the distribute the supply chain letter of digital inventories, let's shift from low income lines of manufacturing of production and 2 of 5 and the machine which is supported by.
The whole system, we are providing the very strong force that we are it's a different level of engagement and the second force is what we're doing here within Stratasys. So we are working on addressing those needs. So we have the benefit of having the direct interaction with our customers.
And we all tailoring what we are doing so we are great. Examples of <unk> connectivity and we are leveraging the relationship to tailor our solution that has to be manufacturing great. So we have material we of software software is critical and.
Manufacturing we of service as I said, the the beginning nobody's business with severe a lot of hard work to make sure that we are counting with manufacturing researched.
The transfer market that star 1 free place from the question queue. Now. Please ask 1 question and 1 follow up.
Our next question is coming from 1 of them all from Bank of America, the wireless in our life.
Thank you and we're outside of the quarter.
In your press release Saint longer from the company continues to expect signify of leverage better.
That of fits from its investments as revenue growth from start to accelerate in 2022 and beyond the nose.
I was curious what what is your base line of for which you are saying acceleration clearly 2021 has got.
You are showing very strong growth in this past quarter of you're projecting quite strong royalty of and for the next quarter.
But it's coming off of.
All very tough of year.
So when you're speaking about acceleration in 22 of harsher harsher. The investors think about the magnitude of of revenue growth of what is the relative base over what you were expecting to accelerate the lower follow up.
Thank you. Thank you Andrea who to hear from you.
Sure.
I would say in of technically in the lead.
The.
Add some comments after is technically we are we are looking at 2 diamond Verizon So we need to be better than last year.
It's not forget Covid you sit here okay.
But we are doing well on this front and we need to make sure that we are improving against 2019 and that sort of what you see of in our.
An hour.
Script, so it's very clear what the baseline where we need to improve but this the technical what is more important.
And more meaningful is both of those catalysts that will take us forward that we can say that we feel comfortable with.
Continuously showing growth and accelerated going forward and in 1 word it's manufacturing.
We have.
Very clear strategy, we stick to the strategy. We added 3 new technologies. This year Stratasys is no more of the company of 2 technologies, where company of biotechnology and we made sure that the in each 1 of those technologies we have.
Don't want to be too here and not too arrogant, but we have the best.
Solution.
In terms of the print quality.
Its manufacturing we need to deliver the pump the delivered the expectation of the amount of fixture we add 3 new technologies will start introducing them in queue for and then 2022 will be the first year, where we have really full.
Coverage of every cruel blended any manufacturer of volume mirrors can have so we're not coming with 1 or 2 were coming to solve the so the program of our customers.
The.
That makes us feel very comfortable in terms of the top line next year.
Because we all.
Coming and leverage income with 3 new technologies of leveraged growth. We have we have the infrastructure. We of the network. We have the Ah software system, we have the materials and now we just push for.
3 more of technologies into the mall.
Clumsy good morning for me.
Hello.
The 1 did you want me to so from us.
So from a timing perspective interest I would like to remind you that we actually coming in between new technology in 2 of them actually at the second part of the year most of us to queue for all of this year. So we are expecting to see a meaningful growth and the full on the impact of of these a adding this new.
New technology during 2022 and.
And this is the main accelerator factor for them.
Okay. Thanks for that and if I have a follow up.
I think it will worry clear on sort of gross margin impact on cost pressures continuing to persist and you are you just said that.
Call. It is still here is there a revenue headwind that you're factoring in.
As well in Europe guidance here and.
And the next quarter and beyond.
That that could be coming because of component issues of supply chain issues outside of cost, but more from a demand our revenue standpoint. Thank you.
So.
We are always managing the day to day in the day to day is also delivering products every day in the developing products. The every day.
We have a solid pipeline.
As we rode we have a very solid pipeline for the new technologies.
We manage the supplies.
On a daily basis, we restructure though isn't of course.
The to make sure that we are on top of the issues.
We.
Gave our operations.
Hi degrees of freedom to increase inventories.
Every every company in our next door in the high tech of facing the same issues.
Currently it seems that we are on top of the challenges, but definitely there is uncertainty.
And I'll, let the.
And.
It looks good I cannot say that it doesn't exist out there it's the daily struggle.
The next question is coming from Brian dropped from William Blurry line of in our lives.
Hi, Thanks for taking my questions.
So the.
Obviously the revenue growth.
Improving and things of recovering.
My question is.
How how expensive is this growth going to be longer term.
You mentioned in the prepared remarks leverage on.
Non costs going forward, but.
If you look historically over the last the <unk>.
Many years.
Axes averaged about 50% of sales.
It looks like it'll be about that this year.
What what sort of targets for you have in mind, even just roughly for.
For where do you, where you think opex can be as a percentage of sales because.
Thank you.
A lot of lot of capital equipment type of company similar companies wood.
Be on the 25% range.
It's been been elevated for a long time here.
Good morning, Brian.
So at this stage, we are not providing specific a long term guidance, but as we discussed previously a regarding the hour scale, we do anticipated to lever significantly us of skill position, we have day, a imported infrastructure from the go to the market perspective and cooperate.
To address a 3 new technology on top of the 2.1 that we have so practically will have fast technology on the same infrastructure. It's true that in in 2021, you don't see that leverage that match I would like to remind you of that we are still in a COVID-19 related the ear right and we increased cost.
I'm in back a.
The the organization to 5 days, a week and we had the aim to acquisition the definitely when we look at the higher than in the future. We anticipated significant day accelerated growth of the revenue and be able to lead the head of the infrastructure without any meaningful a additional cost too of course.
At that point I cannot specifically.
Sure of the specific of percentage, but definitely this is the direction.
Maybe I just the.
Okay.
In general we re sides of the company last year to make sure that we're releasing.
Resources to invest in our growth.
And that's exactly what we are doing we are in an investment mode.
The long term.
We are leveraging go scale.
We are our intent is not to deliver only on.
On the top line growth, but also gradually to improve profitability. It's very clear we know exactly what we're doing and.
And we are leveraging growth, we have and we have a great company and great people here.
Thanks and I.
I just need to follow up on 1 of these questions because every analyst.
Buy side and sell side can be looking for a clue as to what's happening in 2022 and.
You gave guidance for this year that.
For sequential growth that.
Is going to lead us to.
The model somewhere in the range of 12% to 14% year over year growth in 2021.
And then.
And you're in the opening of your press release. It you say you will accelerate.
Revenue growth in 2022 of them and just by definition of the means of faster growth rate.
But the.
What you answered.
1 is the worst was.
Led me to believe that you are not necessarily saying that 2022 revenue growth will be.
Greater than 2021.
Is that.
Are you not not forecasting faster growth in 2022 and 21.
Hi, Brian we actually not for valued guidance for.
2022, right now, but the cost will come and we know what the out of the driver for the course.
As I mentioned a to a 1 of the.
We are introducing 2 new technology in the second part of the use of queue for so we are planning to AC meaningful growth coming for the technology. In 2022, we believe the horse will come at the end and the right time, we will also going to share the specific expectation for the ghostly.
Thank you for the next question today is coming from the World built from Steve for your lines of our lives.
Hi, guys and congratulations on a nice quarter.
I was hoping you could just.
Kind of give us an update 1 on on how.
You do the.
So far how things are progressing with the recent.
Recent acquisitions, Oregon in Rps, and generally how 'bout, the compared to here and the shall expectations and then also if you could just comment on how you are thinking about M&A moving forward and what you are seeing in terms of opportunities in the market valuation of if there's been any change that relative to the last quarter. Thanks.
Good morning.
It's goodwill.
It's going well.
We are.
Acquired really good companies.
Leaving technologies Okay.
Strapped of technologies in terms of their specific area. So you look at the origins in there.
The LP solution is a completely different DLP solution than any other in the market.
Completely different.
OLED zone is on track.
The.
This is better than originally we thought for Q2 so.
So we are doing better than we expected.
The Emily as I said the in many other caused the before it's all about the accelerating the strategy we are becoming.
More attractive.
For startup.
And for some established company because we have the infrastructure.
Becoming the too many of the leading and most innovative and disruptive companies out there in our industry. The 1 thing today of mistake is this infrastructure and we can provide this infrastructure and that's why we had.
Win win situation with the origin and the joined Donathan 2 day part of Stratasys.
An integral part of strategies, we are on track and we would introduce completely.
Completely new.
Upgraded the.
The machine in queue for.
Great. Thanks, and then a.
Couple of of.
Somewhat related question care. So first just given the number of the technology upgrades and new product introductions of had this year.
We didn't have wrap add our form next.
The last year, how important are these events moving back to live events I am going to be for for you in terms of of getting folks comfortable with these products and second uhm.
<unk> had a lot of introductions this year, how should we think about kind of of the pace of.
Technological and a new product rollout since 1 of its next year. Thanks.
The British Christian.
So.
We on engaging with our customers by the way I'm very excited.
Really it's exciting to engage again live with our customers currently in the U S for a long time and.
I stopped meeting for a customer face to face, which is really exciting.
I wouldn't say back to normality, but it's exciting and we are going to participate in rapid.
And inform next to introduce a whole package of high quality, because we have 5 technologies reported by ecosystem of software and material and we are going to introduce.
Having said that.
We didn't stop interacting and engaging with our customer.
All the time, we found the.
Different alternative solutions. So we have a track that is growing all over the U S. We were the first the on to do it and we have.
In some cases in 1 location we of more than 100 leaves of the <unk> engineers, because they are coming through the parking lot to see all of <unk> and a new solution and it works and it works well and.
In other alternative that we doubled down on April the whole beachy interaction and engaging which will be announced it works really well so I can say.
We are not sharing those numbers, but we are better pipeline.
And so we found the alternatives we found the identity and I want just to be clear, we're talking about the new technologies that we are doing where the with the current technologies as well. So the current technologies are growing we are innovating with what we have because no 1 else, but the FTM, Alberta prologist material.
Getting the enough we have new.
The system and poorly just I just mentioned the the messages and the date of jet, which targeted very lucrative market, we have a fantastic unique.
New machines below hundreds of Android Kay.
In the Sdm's stays the F 770, and all of them of doing better than expectations. If we put all of our effort on the new technologies to make sure. We have solutions instead of just technologies, but also the existing technologies will keep innovating originally well under.
Thank you for next question today is coming from Paul from from J P. Morgan your larger than the alive.
Hi, Thanks for taking my questions. So.
For the origin of just the follow up on the origin.
Mention kind of incremental 200 million.
Over 5 years from the product when you you know.
Acquired.
I know, it's ramping in queue for in its early but kind of.
An initial customer feedback heavier.
Of your views changed at all since your.
Acquired the asset either of magnitude or kind of timeline of how that ramps and what are your expectations for margin on on the product and for.
Of the system and can smuggle sir and of the fall.
As you said nothing changed then.
Nothing changed from the perspective is where we are confident in our focus.
And as you know we are not updating gross margin by product.
But railcar free then it should be even more confident because we are into the details of the technology. It's not any more of your diligence or are we just the benchmark we are into the details of it we are engaging with customer.
We have some large customers the.
Very.
Interested in this.
New technology and just maybe.
Kind of flavor of around it.
It's generating for many with weaker new logos.
Which is really exciting.
Because it's so unique because it's expanding our.
Then in terms of technology the solution.
We keep the.
Forecast that we have in the past.
And we are very happy with the subdivision.
Okay, great. Thanks for that and then just solid cash flow can you talk about the.
Working cap.
The dynamics should we expect.
Some inventory Bill ahead of product launches and in the second half and.
Possibly the bigger track of this year and inventory on the higher component costs relative to the last year, where you saw of nice funding source there.
If you could talk about those dynamics and then.
Given the strong sorts of of the year can you be in positive territory for.
Cash from operations in for the year. Thank you.
Good morning, Paul.
So.
Following to what you mentioned the most important things for US is obviously meeting the customer demand and specifically in manufacturing and make sure that the system are not in downtown.
So make sure that we of inventory in place and the region and the time is critical so we will do everything that we can in order to overcome those shortages and and this is what we are doing it may also impact our inventory level. So we are ramping the empire map.
Now the infantile the level as well as a because of the new product introduction, we are ramping up the inventory maintenance. So we do expect that the second part of the year.
The 2 C inventory level growing up and it may impact.
The cash flow in.
A level.
With that we believe that this is the right thing to do for the company and for the business.
Where the growth is common as we look for the second half of the 21, we are not providing specific guidance.
A we expect the majority of the growth of also of the revenue to a COVID-19 in the second half of the year. So much of the cash flow benefit will come in 2022 and beyond.
And as I mentioned that the preparation for day to the launch of the 3 significant NPR recently introduced coupled with the safety stop we are building to mitigate the raw materials shelters is expected to increase the inventory level and a payment in the coming quarter.
Thank you.
Thank you for.
The next question today is coming from Troy Jensen from the Street capital market. Your line of my life.
Okay. Good morning, now thanks, and congrats on the root of an actual results here a quick question for all of them.
8.350, hoping we can spend all the time on that.
I guess my thoughts are that's probably going to be the most production focused product you launch an error.
Also the material sales could be pretty significant for today can you just talk about how much.
And of clothes or customers use their training materials or how much of material consumption on each of the 52 days since you guys can capture.
Alright for this morning.
Thank you for highlighting the age 350, yes. This is the amount of Fixturing machine no dope and we have the big expectations for me at the you know we build it for us together with the inventor.
We believe we have a very strong offering.
For mass production entry the free thing.
And just to to highlight the most important thing. This is a fantastic machine, but in general we believe that we will deliver the best consistent accuracy.
The I would say better control of the whole for.
<unk>, but mainly around.
Thermal control, which allow easier certification of material an easier development of material and I'll get the 3 and.
It also better Phenomics, because we are using only 1 agent.
1 engagement.
Which allow us to have better recycling ratio and better density within the cake. So.
Where we are talking about better control. It means that we will be able to introduce small materials because the control allow you to certify material to develop the thirty-five material in an easier and faster way.
So bottom line. This is the the strap.
Strategy with the <unk> hundred 50 to go out there to develop the hybrid material that we discussed many times the hybrid material with of our material the power.
All of these materials and different levels of cooperation, which will allow us to come with the most.
Okay wide mono fixturing.
Powders.
So that's that's the nutshell the the strategy and we are optimistic on the age for 50 debaters ongoing.
Looking really good and customers are happy and we are producing and used spot.
Alright, perfect how about the second question would be on.
You guys had good traction here with your carbon fiber with the of 123 have you looked at all it continuous carbon fiber of I'm. Assuming you guys are mainly just chopped.
The first question real growth thank.
Thank you.
So we all the.
Being good direction for our new carbon fiber for the of 123 series.
And.
We have huge advantage in terms of how about the quality with carbon fiber. We just took it from our high end machines and to the to also our floor.
Oh, I would say entry level series, which works really well and so.
And designs.
Many customers to adult this.
Type of printers, and we see also new logos. There. So this is of great direction.
Here in Minnesota, we of knowledge about carbon fiber of for years and we reached the.
I would say the largest size of material with carbon fiber in the industry because of of our beat the chamber's capabilities and knowledge on.
On the SDM side.
Some of those thoughts are being used as and used filed in.
The.
Mainly in aerospace, but also in some cases in automotive. So this knowledge will help us to develop the next generation, but as you know we don't talk about development. We are not sharing here our development plan with our competition with our competitors, but we have the.
Base the knowledge the experience too.
To be the end to lead the carbon fiber.
Market.
And you know what the benefit of slide there. This is the whole idea of behind us.
Focusing on volume is because we believe that the slider than Mr stronger could be stronger allow some geometric freedom that we leverage all of this to make sure that we combine our experience and knowledge and IP together with our vision.
To replace the metal and we will be there with and used with composites.
The next question is from home gym or shooting from the company of the line is that lives.
Hi question I have again is going back to the acceleration that you're seeing in the business. So certainly queue to stronger than expected cute 3 Ah nice acceleration. So my question is how much of this are you seeing is potentially.
Potentially some share of games, but but how much of this is just catch up from abnormally low levels of demand and equipment utilization and really that the.
Ties into my follow up question about 22, which we're all struggling with is does that begin to normalize in 22, and then you overlay the new products.
Is that the way, we should be thinking about your growth.
Hygiene good morning.
So.
Hi, good morning so.
So it's basically combination so we definitely see the casually at all and market for sure Okay and the.
A we happy to see that we see companies of coming back specifically inconsumable incumbent companies are coming back to all staff utilize the systems and <unk>.
See dose on services to remind you in systems, we are a very a like nearly 2019 level in the utilization of consumables in in San Francisco, we actually even more than 2019 level pre COVID-19. So we'll definitely happy about that.
The the market is open up and companies are coming back of the same time, we out of seeing a also a a new trend like for example in EMEA, a very strong EMEA manufacturing a application a demand for a product we see companies we see.
The government a providing funding.
Funding for the industry and this is rare a 3 day printing actually and out of the currency has the benefit and we led the raging. This aptitude demand as company understand the adventures of additive manufacturing. We also introduced a new machines in health care systems.
All of the a new dentelle jet as well as the May Degette. These also contribute to the strong growth that we see this quarter as well as the aim customer.
Deception to all out the.
For that it was excellent even more than what we expect and this is definitely a desktop mainly to what we believe in the future. We will have been we have the best go to the market and the infrastructure and as we introduced more and more technology on the same installed base and the same goes to market we definitely can.
Enjoys from accelerated growth.
Just to add to it it's the combination very hard to draw the line of ear, but it's the combination between.
Returning to growth and this is also the assumption going forward.
Can predict the future, but we assume that.
The world is coming back to growth, but not less important.
We are introducing new product, we are improving the execution of this company, we are having a better relationship with our customers and on top of all of this will of origin of years and stuff.
So that's why we feel.
Confident.
When we're talking about the future.
Sure My follow up is just.
With respect your gross margins.
Similar gross margins over the balance of the year that you were talking about that you saw Q too with the new products that you are bringing out later this year is there any.
Things that we need to consider about your gross margins at.
At least in the early part of next year.
Hygiene.
At that point, we are not providing specific guidance on gross margin for next year and obviously a gross margin is.
We have the wide portfolio and it ultimately each of mix issue. So if we think about manufacturing strategy, an overwhelming sexual and up the application. We expect revenue to be significantly higher a bigger profit all of a which will derive consumed consumption app will generate.
The higher higher profit at that point, we have not providing.
Any specific detail in terms of how this will will play, but we do believe that it will have an impact the now a gross margin of.
On the same time, we also have content designed for cost initiatives for the new product.
And as we introduced new product, usually does India highest the goal stage in their life and as with their material from also consulting perspective, as well as from design perspective.
Are anticipated seed the call. The cost is done so we also working on these and other initiatives.
And as we noted earlier of specifically.
And the.
You have mentioned it about the fact that we are ramping up the monetization of for software business and over time, we plan to see some thought it a positive impact of these margin on the business as well.
Thanks, a lot.
Thank you. Our next question today is coming from a non the brewer from Luke capital of the line is our life.
Hi, yes, good I guess get good afternoon, the easy guys to you guys. Congrats on the south quarter of thanks for taking.
The question I have 2 though I'll ask them at the same time of day is the answer is navy related.
The first part of the day, you guys sort of.
The.
The the degree of strength of above what your expectations are you of any context.
You can share the discerned as to what the drivers of that strength wise and then the second part of that is I.
I guess and the Orient you are of this call. So you are disconnected sorry for cutting you can you. Please repeat the question we had some medicine.
Certainly think so.
Do you have any contact the visibility around what the what the drivers of the strength of above your expectations were for the corner and it really feels like it's for the second half of the year here.
And then the second part of the question is.
Any any kind of take you can share around.
The shifts the of year revenue mix towards production.
Kind of currently away from the classic credit type of business would be would be helpful. As well, thanks Sundays too.
Good morning Amanda.
So we.
We are definitely we're happy to see a higher revenue right.
2 what we previously salt and there was a couple of the.
Element the drove the say the of the strength.
First of all is the consumption of the consumable it's really depends also on the market's recovery and we happy to see the the market's recoveries actually is going better than what we saw.
And the utilization of our system is going up as companies are coming back having said that we all know the public system here a bat, we definitely see a good sign and if you compare it to last day to pre Covid, we are nearly free COVID-19 level, so desk percentages.
It is the good time that a priest that contribute to the interest of revenue above for what we expected as well as we see a on EMEA side.
The significant.
Impact from Gaza remains funding of customers.
And the industry's of specifically in Italy, and the UK a manufacturing application. So we see this trend and we hope to see this trend also moving forward.
As well as the introduction of our health care system, including the new jet dental jet and Medici.
We just launched in margin in May and we sell a very very good the reception to this product and the last thing is the the Lps product of it we just acquired a in Q1 and we immediately launching within the hour installed base and we see a very very.
Good reception and we've seen our go to market and our customer and this is again the testimony of our scale of strategy.
With the new technologies.
Going through metal that's true.
Yeah, that's okay I'll relate to the manufacturing and prototyping question.
No.
As you know we shared we were the first company in the industry to share the ratio of for our sales going to manufacturing we are measuring it and we've promised and we'll do it to review it once a year on an annual basis every.
First quarter, we will announce it so.
So we are measuring it and we are following it.
We are optimistic.
As I said at the beginning of this call.
Leaving the manufacturers in the world.
The sizes that the plant of the future.
Of include the additive manufacturing.
This is the effect.
And when they are growing there.
The value.
All of our establishment.
They want to do with with Stratasys.
It's very clear and we can see it on a daily basis bits of Jeremy but.
But we are leaving these Jeremy we all shifting this industry on the prototype on the of pulling their side from rapid prototyping to manufacturing.
And just to remind you we just launched resistant focused on manufacturing.
So it also give more confidence to our customers that we are committed to the journey. We launches we announced that we would have on the origins and on the staff of hybrid.
Period of mobile.
We are building of software platform to support it.
So we're building the full package and put yourself in the in the seat of someone in the.
Fortune 100, when they are taking those.
Huge decisions because they are challenging the status quo and changing the way they are on the fixture.
Product they want to make sure the day of the rights Posner on their site.
And we are the right partner.
Thank you.
Thank you for the next question today is coming from Greg Palm from Craig how long the wireless of our lives.
Yeah. Thank saw you mentioned this sort of continued headwind in origin input and logistics costs I guess I'm curious if you saw any supply chain challenges that may be impacted your ability to fulfill orders in are you able to quantify at least what sort of the rising important logistic cost says is that of.
The 100 basis point impact 1 of our bases point of impact gross margin of little bit more call will be helpful.
Good morning, Greg.
As we discussed earlier in the call we definitely.
Prioritize getting the product to our customer of on time and despite the challenges of global shipping the issues, where minimally impacted to the guardian on time delivery. The most important things a specifically as we sales manufactured an application the customers.
Not half of downtown and system will walk all the time. So this is our focus of the main focus having said that we are definitely a walking and we analyze the increasing our infant of the level of for materials and finished school to avoid any delay increasing production level and preparing for.
<unk> and are delay in the plenty of the process we of evaluating the wide array of shipping option to ensure that we can deliver goods of with minimal business impact for.
8 from the cost perspective, it does impact of of cost base and what we saw this quarter that we actually had a they're a more significant cost even compared to Q1. Since this is tuition is worsening any free healthier limit to quantify it it's about 2% of the all between logistical.
As well as inflation and the.
And hire a whole material coast overblown.
Okay. That's helpful and knowing that I mean, how are you thinking about pricing and I don't know if that's changed at all but curious as price. However, you can pull to offset some of these rising costs or is that not something that you are looking at necessarily.
Yeah of course.
Since engaged we are on top of it on a daily basis, and we are adjusting worries needed.
Okay fair enough, thanks, and the best of luck on for.
Thank you very much I appreciate it.
So the week.
Please go ahead.
For it or not.
We reach out of our question and answer session with 1 of us for the for back over to you for any further of closing comments.
So thank you for joining us stay safe and healthy looking forward to updating view again next quarter. Thank you.
Okay. The Doctor and thanks for everyone that does conclude today's teleconference of the webcast. You may disconnect provided at this time and have a wonderful day. We thank you for your participation today.