Q3 2021 Stratasys Ltd Earnings Call
Greetings and welcome to the Stratasys third quarter 2021 conference call and webcast at this time all participants are in a listen only mode.
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It is now my pleasure to introduce he unalloyed Vice President of Investor Relations. Thank you it may be again.
Good morning, everyone and thank you for joining us to discuss our 2021 third quarter financial results on.
On the call with US today are are Chief Executive Officer Doctor, you'll have dive and our Chief Financial Officer, We lost power ski I.
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 and.
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 web site.
Please note that some of the information you will hear during our discussion today will consist of forward looking statements, including without limitation those regarding our expectations adds to our future revenue gross margin operating expenses taxes, and other future financial performance and our expectations for our business outlook all statements that speed.
To future performance events expectations or results are forward looking statements.
Actual results or trends could differ materially from our forecast for risks that could cause the actual results to be materially different from those set forth and forward looking statements. Please refer to the risk factors discussed or referenced in Stratasys is annual report on form 20-F for the 2020 year, which we filed with the S. E C. On.
March 120 21 please.
Please also refer to our operating and financial review and prospects for the third quarter of 2021 as well as the press release that announces our earnings for the third quarter of 2021, which are attached as exhibits to two separate reports on form 6K, they were furnishing to the S. E C. 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 S E C on them.
Lee 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 gap to gap reconciliations are provided and tables and our slide presentation and today's press release.
Now I would like to turn the call over to our Chief Executive Officer, Dr. Yellow unsafe.
[laughter].
[laughter]. Thank you your honor good morning, everyone and thank you for joining guy too.
Today editing manufacturing and strategies are at an inflection point industries around the world better understand the benefit and are increasingly adding three D printing to their production plan.
Easiest thing to a number of improvements such as increased roof with capacity a growing range of high performance materials and consistent path quality.
Additionally, there are compelling economic and sustainability advantages and software work flow solution that can support the shift from prototyping manufacturing that is happening across industries.
Fox can be light, they're equally strong less expensive and personalised.
And when considering the supply chain challenges in the work today, our customers are increasingly looking flexible distributed edited manufacturing to overcome the logistics disruption we are witnessing around the globe in short edited manufacturing is not a viable for production.
A wide range of and use it.
It's volume scaled for global distribution.
The investments we are making gets tried to see along with the strategic initiatives. We have undertaken a steadily driving revenue growth just over a year ago I laid out a strategy to become the first choice for parliamentary D. Printing, we just focus on the biggest addressable market monitor.
Victory. This warfare, we truly accelerated execution of our strategy, we science laugh can deal for manufacturing system.
We completed our acquisition of that Treaty and we expected to see incremental upside as we prepare to launch two new mass production offering the origin, one and the eight 350.
I will not walk you through the highlights of deep water and some exciting reasons achievement.
Laugh will then provide financial details for the call is there and give an update on out.
The third quarter delivered revenue growth in all business line enriches results were highlighted by top line improvement of 24% year over year.
This was driven.
By growth of approximately 35% consistent and 27% Inconsumable.
I was prophecies direct service Bureau is not yet at 2019 level, but was up over 25% from Q3 last year and is expected to continue growing and.
And importantly system saves grew nearly 7% over Q3 of 2019, thanks in part while Miller Fixturing focus system.
System says typically lead to increased consumer goods and services generate profitable revenue is customary ramp up their utilization.
One of the many highlight of the quota was our participation at the end you at a rapid plus ECT, Rachel where I was on there to deliver the opening address.
We secured significantly more leads.
Then the 2019 event, even though there were less people at the show this year, we especially strong interest for our origin sister in.
In less than two weeks, we will be attending phonics, our industry's largest Rachel where we look forward to sharing more for exciting new innovations across our portfolio of system materials and are open software platform.
During the quarter hour focused on manufacturing gain additional attraction is we signed to major and used spot manufacturing when the.
The U S Navy with patches up to 25 F 900 system materials and support services over five years for a total consideration of 20 million. They have 900 is our largest FDIC sir.
Featuring the widest range of premium materials. We believe this is the biggest government entity manufacturing deal of its kind.
This purchase advance at the U S Department of defensive dated strategy for increasing its use additive manufacturing. It allows the navy to produce mission critical pop closer to their point of need and demonstrates the ability to use distributed manufacturing we digital inventory.
And global deployment.
The system will be used for producing and used pop tooling and training eight and will be part of the Navy's aircraft maintenance program.
The second major contracts or suffer multiple F. 900 system is Ah repeat purchase from a leading global brand name Oh Yeah.
It is also a multi million dollar multi year award and we expect to share in more detail at a later date.
These two notable manufacturing awards demonstrate our outstanding reputation for excellence in both technology and service.
Just as importantly, it showed the continuing deep penetration by throughout the season with leading manufacturers that are tending to our technology for through production of and use both.
We believe there are many similar opportunities for scared entity manufacturing being considered across industries worldwide.
[noise] to further strengthen our manufacturing focused we acquire the remaining 55% share of Zhao Treaty, giving us complete management of soft product development.
South technology is a major leap forward for powder bed manufacturing and he's a significant improvement over other powder bad system. We are excited to welcome to Zachary the teams to strategy.
We have already deployed 850 system at better sites, including service bureaus. The feedback from our customer has been outstanding with these early installation already printing and used spot at volume escape the.
The age 350 can also print many of its own power, enabling more efficient production capacity support.
Healthcare has been an increase in growth driver and has grown faster than any other and the market for us over the past two years.
It's really printing brings keep benefits such as personalization for medical needs and mass customization for dental applications.
During the quarter, we further our expansion into dental, particularly through strong sales are found new dental jet system.
We continue to add new customers to our installed base is they appreciate our unique advanced features such as the ability to print a mix of both on a single tree, which I attended operation.
On the medical side, our journey toward making our technology accessible at point of care started with the launch of our Medi jet system last quarter, and we continued to expand outreach through partnerships.
For example.
We recently started walking with Rico three D to provide anatomical models at the point of care for hospital across the U S. With the help of integrated IBM, what's on health technology.
This collaboration help clinicians see inside anatomy for greater visibility into patients needs.
It offers both clinical and economic benefit reducing barriers to entry that health care provider can encounter when setting up it's really printing facility.
Privacies J 750, digital anatomy, and maybe jet printers create lifelike anatomical models.
Reflect the pathology of the patient and can be physically manipulated like human tissue.
Hospitals can use our HIPAA compliant state of the art technology on site or through an all demand pilot service. They can deliver more personalised care to better surgical preparation and patient education and can also improve medical training.
And we have a similar agreement in Europe with born Treaty to provide the hospitals with onsite access to treaty printing through there also be factory project.
Our privacies direct business recently added anatomical modeling to each services with our J 750 digital anatomy printers.
Demand by medical device manufacturers and health care providers has been strong well over 1000 models already printed.
The opportunities in healthcare will continue to expand and we are often reminded how our advances Dodge and change People's lives.
A few months ago, one year old twin girls were conjoined at the back of their heads underwent a successful operation to separate them.
Stratasys technology was used extensively preparing both the medical team and the families, which presurgical modeling to help ensure the positive outcome and reduce the time of the operation.
We continue to develop other exciting healthcare use cases that we believe will have a significant impact and look forward to sharing more in the future.
I would now like to update you on our software initiatives.
We have been actively developing our software solution with several exciting milestone in the past few months, we introduced in your data security solution called protect a M to enhance the security of editing manufacturing as its role in government and defense application.
Grew larger and more essential this solution is the first and additive manufacturing to walk with Red Hat Enterprise Linux The awards, leading enterprise Linux platform and the platform preferred by the U S government.
This is a great example of being killed in to a specific vertical needs. In this case, the U S government and tailoring our solutions accordingly.
We also recently announced the grab cat additive manufacturing platform. The world is increasingly turning to software to epps scale edit amount of victory and a recent report research firm small take analyses.
Forecasted that the total global entity manufacturing software market will reach $3.3 billion by 2026.
Up from less than $500 million in 2020.
We believe strategies can be a catalyst for this growth.
Our new platform provides us with the opportunity to strengthen our leadership position in the additive manufacturing industry through this growing addressable market for a number of reasons fast that we are able to leverage our deep additive manufacturing expertise an existing relationship with many of the world's leading manufacturers.
Second we build our platform to be the best solution in the industry. It is enterprise ready with the capability to integrate the entire digital trade from design to manufacturing and Ted. It is also open we are open to a broad set of editing manufacturing partner applications.
Giving our customer the freedom to use a wide range of software applications two hour grab cat Sdk's and yes, we are open to integration with many non Stratus's treaty printers, leading manufacturers Taylor they want strategies to be their primary at the platform for industry.
4.0, recognizing our leadership position and open approach as a result, we anticipate software will be an increasing part of our revenues and profits dream.
Driven by recurring software license subscriptions and SDK licenses from partners and customers is a key part of our overall rapid growth plan for our manufacturing business.
Finally in the area of software design, we recently announced a collaboration with Adobe to make full color printing easy inaccessible for their large user base of Adobe substance three D paint here.
With no third party software or tools needed, which had previously been required.
Our multiple competitive advantages when coupled with our new product offerings will further advanced our position as a leading provider parliament really printing solutions.
We have the broadest most advanced fully met technology portfolio, a comprehensive enterprise ready software platform to scale additive manufacturing for production.
The leading global channel with over 20, Bosnia the largest team of engineers and customer support in our industry and the approval resilient business model designed to scale.
We expect strong purchasing cycle to gain momentum as we bring new system to market generating increased consumer goods service contract and software to drive recurring revenues and long term profitability I will now turn the call over to relax will share the financial results of.
Quarter Ila.
Thank you and good morning, everyone.
We are pleased with the third quarter results. The demonstrate I'll continue strength in a growing our markets like also generating operating profit and cash.
The revenue growth driven by 33% growth in a product sales is indicative of the inflection point we are experiencing.
For the quarter total revenue was 159 million at 24.3% versus the prior.
Quarter.
We sell increased performance of course, all revenue stream and particularly encouraging system goals of six 7% of a Q3 of 2019.
Improvement in the pace of all conceivable sales was another key contributor.
There was also strong performance from a manufacturing business in particular improvement from automotive and industrial in Europe.
Additionally, both the new Rps system, and our strategies direct service Bureau delivered more than originally expected I would also note.
That health care continues to be.
Our fastest growing business, driven primarily by increasing dental opportunities.
On a constant currency basis total revenue go 23, 28%.
<unk> third quarter last year.
Product revenue go 33% in the third quarter to $108 9 million compared to the same period last year or 29.7% on a constant currency basis.
We feel product revenue system revenue go 34.7% to $52.3 million compared to the same period last year and steady 4% on a constant currency basis.
There was a particularly notable growth from Ah manufacturing systems like F 900 F 770.
373.
Driven by the new carbon fiber material and the new dental checked.
A quarter also so improved conceivable utilization as revenue world, 26.6% to $56.6 million compared to the same period last year and up 25.9% on a constant currency basis.
Relative to the 2019 quarter consumable off by only 1.3% shiner nearly complete reversal of the impact of the pandemic as our customers increase utilization of our system.
Service revenue was 51 million up 13% compared to the same period last year.
And 12.8% on a constant currency based.
We've been service revenue customer support Avenue in case of a Q3 of 2020 by 7.2% to $29.5 million flat on constant currency basis.
Importantly, it was up 5.7% compared to Creed three of 2019.
Our strategy direct service Bureau.
Also continues to rebound up 25.4% of a Q3 of 2020.
These are good indication of market recovery twin.
Turn into mounting gap gross margin was 42.9% for the quarter compared to 38, 9% for the same period last year.
Gap gross margin was 48.2% for the quarter compared to 46.8% for the same period last year.
We are pleased to see the positive impact on margins of our product sales, both sequentially and relative to last year.
We are carefully monitoring the ongoing medical issues of high global logistical.
An inflationary pricing of all material.
Which have pressure margie.
Our top priority is to deliver our product in a timely manner to help ensure D. We have increased production level, two opposite C and as delays in our planning process.
We continue to evaluate a wide area of shipping option to ensure we can deliver good with a minimal business impact.
Given the situation, we expect gross margin for the first quarter to be similar to the third quarter.
GAAP operating expenses were $91 million, a decrease of $364 million, all 82% compared to the same period last year, where we recorded goodwill impairment.
GAAP operating expenses, excluding goodwill impairment was 56.7% of revenue for the quarter compared to 53.1% for the same period last year.
Non-GAAP operating expenses were 74 $9 million, an increase of $14 million or 23.1% for the quarter as compared to the same period last year.
Non-GAAP operating expenses improve 247.1% of revenue for the quarter compared to 47, 6% for the same period last year and 49% for the first half of this year.
2021 has been a year of investment and of course.
Equally with the costs associated to return to a five days work week and the acquisition of origin and Rps together with strong increase in revenue Opex wind up in total term, but is lower as a percentage of revenue.
From an alien perspective, GAAP operating loss for the quarter was $21.9 million compared to a loss of $404.3 million for the same period last year.
Non-GAAP operating income for the quarter was $1.8 million compared to a loss of $1 million for the same period last year.
GAAP net loss for the quarter was $18 and $12 million or 28 cents per diluted shares compared to net loss of $405.1 million or $7 35 per diluted shares for the same period last year.
Non-GAAP net income for the quarter was zero point $5 million or one cent per diluted share compared to a net loss of 3 million Oh five cents per diluted shares in the same period last year.
We generate cash of $3 million from operation during the third quarter as compared to generate in 2.6 million of cash in the same quarter last year. This represent five consecutive quarters of positive cash flow from operation totalling 57 7 million.
An excellent achievement considering broader economic conditions.
We ended the quarter with 519 $90 million in cash cash equivalent in short term deposit compared to $522.7 million at the end of the second quarter of 2021.
We are constantly reviewing opportunity that will accelerate our growth strategy and strengthen our.
Leadership position.
Get into our outlook for the fourth quarter.
Based on current market conditions, and assuming that the impact related to pandemic of global supply chain constrain.
Do not impair the economic environment further the company is reiterating an update in its outlook as follows.
We expect Q for revenue to be approximately 16% higher than Q4 of last year driven.
Driven by continued to call in system relative to Q full of both 2020 and 2019.
We expect our Opex for 2021 to be approximately $36 million higher than 2020, due primarily to now fully owning that treaty in line with our investment strategy, along with higher operating cost relative to a higher revenues.
As we have said throughout the year, we are in investment mode.
One of our main differentiator is that our business model infrastructure is bill to leverage as we scale. So.
So the cost we are allocating today will drive increased revenue and profit in the future.
We continue to expect our capital expenditure for all of 2021 to range between $24 million to $30 million.
Battersea he's in healthy position, we are executing on our strategy and our revenue are shifting from prototyping to manufacturing.
This is expected to drive strong top line growth with small favorable mix of sales Ah call assistance material software and services enhancing profits in the coming years.
Our balance sheet together with our resilience business model with the poverty investment's needed along the way.
With that let me turn the call back over to you are for closing remarks, you have thank you Lola.
Last month, Gartner predicted that by 2025 over 50% of all discrete manufacturers will be using three D printer for the product the sale or service up from 10% in 2019.
That's why Stratasys is laser focused on being the leader in polymer additive manufacturing is the industry continued to ship to additive manufacturing for and used parts production.
To achieve that mission, we now have solutions for every step in the product lifecycle chain design prototyping tooling molds, all the way to and used production at scale.
There is no single comprehensive solution for every manufacturing application. Therefore, it is important to use the best technology for each specific manufacturing challenge.
But manufacturers also looking for efficiencies with system can be interface and network with each other as well as with their existing infrastructure.
All these strategies provides the full range of best in class technologies for putting that really printing offering our customers the ability to choose the best fit for their applications.
Our exceptional portfolio of hardware and materials software platforms and partnership ecosystem together with industry, leading global expertise six as a pop and allowed our customers to achieve a powerful and efficient production environment.
As I said earlier Stratasys is truly at an inflection point and we're quite excited for the coming years. The investment we are making coupled with our forecast balance sheet position is to build long term value for all of our stakeholders with that let's open it up for.
Questions operator.
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We ask that you. Please let me yourself to one question and one follow up question. One moment. Please while we pull for your questions.
Our first questions come from the line of Greg pump with Craig Hallum. Please proceed with your questions.
Great. Thanks for taking the questions and congrats on the good results here.
Thank you.
I wanted to maybe start with the revenue guide.
Specific number and you know.
Are pretty uncertain environment. So.
Maybe help us understand some of the assumptions behind that are you expecting that some of that contract with the U S. Navy. The I think the first aid of those were may be expected to ship in queue for so is that included but.
Whoa, just maybe a few assumptions behind the actual revenue got it would be helpful.
Hi, good morning, Craig.
Yes, I will be happy to share with you some of the assumptions that you have a first of all you touch about the U S. Navy a yes. Some of the youth may be followed the backlog at any part of the expectation for Q3 eight four Q for that.
Has been made discussed this is a multiyear deal and we're going to see some of the impact in the age to aid what what we provided for queue for it basically 16% higher than last year, and specifically, we anticipated a nice growth in our systems relatively too.
Q Fulton last year as well as they Q14 2019.
So we basically expected to see growth almost in all all all of our dreams all of our platform.
The continued shrek the strong transitory, we sell ethylene secretary a platforms and offering we also expect it to see growth coming from the consumable as we see consumable pace picking up a compared to last year as well as compared to 2019.
We add expect that most of the growth will come steal from organic a goal and this is why we definitely encouraged by that to remind you that the R. P. Three a platform as well SaaS.
I will introduce a becoming.
A few months and we impact 2021, Jeff.
And a little bit and the majority of the impact will be in 2022.
Okay. That's that's that's really helpful and that was going to be the my my follow up which was.
Diving into contribution from from new products. So it doesn't sound like you have or you lose your expecting significant contribution from Rps origin is 350 in this year. So is that is that the sense and we should really be thinking about the ramp up happening over calendar.
22 [noise].
Okay.
Hi, Craig.
Thank you for the question and thank you for investing so much in studying this industry.
Yes. The answer is yes, we would not have significant impact of the two new technologies, we have one technology out there already there Rps SMA, which have really really good traction as for the other two we are going to.
Have some sales.
Practically you will have the.
South outside they're both of them are in better stage self is already a few months into better and we're going to have it outside.
At the end of this year and we are now shipping an extensive.
Program for the P. Three and we are very very optimistic about it but the significant impact will come definitely in 2022 and of course, we're looking forward to share more about those two exciting technologies.
Interesting, okay I'll leave it there thanks.
Thank you. Our next question comes from the line of Troy Johnson with Lake Street Capital markets. Please proceed with your questions.
Well first of all congrats on just a great quarter.
I guess my first question is going to go to.
Specifically in the is 250.
It's our belief that HB discontinued their 50 to accumulate 545 80 product line and they'll just go on with the production model T 200 going forward. So.
So I guess I'd love to hear your thoughts just on the opportunity in the mid range for high speed Cinerin do you guys need to have a larger format. One in the market to to to compete Morgan's with each piece doing that with the 52 and then also post processing. That's one thing that I hear about that seems like HP may Astana better so far.
High speed Tonight, but go ahead please.
10-Q thriller is always great question, So first of all.
We have our own program and the 850 is not only differs a machine or system and a line of products. So let me be very clear here. We are very optimistic we think that.
The south technology.
It's.
And though it's a transformation. The all ages says is transforming farther bit fusion practically because it gets us closer into real manufacturing and we see it every day because already our better sight of producing and you've failed to end customers and they are very happy now if I will relate specifically.
To the HP announcement, I think it's a good announcement for us overall because.
There is a segment that.
We'd be very happy to adopt our new technology, the south technology and the fact that we will be in this kind of mid range will give us a lot of points on top of it we are good enough I want.
To be here also very clear we are good enough in terms of course build power quality of the path accuracy to compete also with the largest system also will have in the future.
Alright, perfect and this is my follow up to get talked about this other leading global.
Winning mcwhorter immune sound like it was a repeat customer is this the same customer those announced like a year and a half ago, the email and it will be to the order also.
We cannot share the name.
I am sure you understand it.
Can only share that this is what we dream of.
To be honest.
The amendment.
Yes, please and the name is Brittany this impairments the same day.
I cannot I cannot relate to it I can only say that this is what we dream of because when we are talking about manufacturing it's about this.
Relationship and partnership with a major Oems well can we really can.
Rollout glue.
Global distributed manufacturing with the same practices with a playbook and this is exactly what we're doing and I think this would be a great.
Example, for many other oriented with.
And the fact that it's a repeating it's a repeating purchase it just proven our point that those large OEM are looking for an established player that can deliver that has a certification and can support them globally and.
Yeah, we.
Trying to be humble, but this is strategy.
I completely agree congrats good luck to in for it and I'll see you in June.
Thank you. Our next question has come from the line of charity mainland with Ehrenberg capital markets. Please proceed with your questions.
Hey, good morning, guys and most of executed during the quarter.
First question for me you guys made some some group moves last year or so.
To expand the number of the.
Technologies and processes that you offer so.
So from here I am wondering kind of is your plan to buckle down and focused on developing and scaling those technologies and the consumables for those technologies or do you think there are some more room to go for uttering.
Additional processes and technologies in the near to mid term.
Hi, Gary.
Thank you for the question.
We have 500 more than $500 million in the bank, we're very clear strategy, we know where we're going it's a growth strategy and.
In order to accelerate the growth well first of all make sure the dose technology.
Best in class and leading each one of the segments. We are competing for this is number one priority.
Then we would use our cash to accelerate and to have some technological shortcuts.
Which.
Densify many of those and we believe that we will be able to accelerate growth strategy on top of it of course.
This is the whole essence of what we are doing we are bringing to our customer the full package in the full bucket include the technology the system.
The material that we invest a lot in material and will develop many many more material in many different ways and also we are expanding our service.
Two feet auto manufacturer expect from us and on top of it will make sure that all these.
Is being connected through what we called our debates. The foundation is our software platform, we tie everything through the software platform and we believe that will kind of.
Make that.
Offering.
Perfect suitable beneficial for our manufacturing customers. So this is the strategy.
And we will combine it with very extensive R&D and each one of the.
Groups that are developing this technology class extension through material and software and service some of them organic and some of them okay.
Got it thanks and then.
There was a service Bureau.
Sort of reported.
Disappointing results last week may attributed the largely to supply constraints, particularly around labor and logistics.
So I'm wondering.
Given that they're they're big additive business did you go see similar headwinds across the business and then, particularly SDM did you see the same wherever and logistics headwinds there.
Okay.
So let me relate first.
February and I'll remember that I didn't ask that question about.
About post processing in Asia.
We are.
Developing it thoroughly and we are going to introduce it in the coming.
Year. So it's it's there we are investing related.
Integral part of our workflow now back to your question authority.
SDM.
Definitely we are seeing an improvement there.
And meaningful improvement.
A year over year growth of over 25%.
In Q3 2021 versus Q3 2020, we have a very we have the highest hand off the service Bureau industry, we are walking with salt customers, mainly in aerospace and automotive.
And yes.
We are seeing progress over the last.
Few months versus a very big hit that we experienced during the pandemic.
About headwind for SDM of logistical supplied cab it was not meaningful in SDM in our service Bureau, but we are definitely have like any other.
Industrial company on Earth, we have challenges of logistics and supply chain in our overall business.
It's a daily fight I want to thank my operations team for really doing amazing things. So creative and we are successfully delivery. We didn't have any deliver issue, but every day is a challenge and definitely there is uncertainty there.
Having said that we are one of those.
Privileged industry. There are that are not only suffering from the supply chain challenges, but also enjoying it long term because this is what brings to life.
They all essence and the power of additive manufacturing you want no more offshoring you want to have digital inventory you want to produce near the customer and we see it every day and the level of engagement, we have with the largest OEM on Earth.
So we fight every day, but we see the light and we see that the world of manufacturing is going to change and be much more digitalized than what we see now.
Please.
Thank you our next questions come from the line of Shannon Cross with Cross Research. Please proceed with your questions.
Alright. Thank you very much I wanted to take a little bit more into the conversation that you had with with customers that rapid I know you mentioned that you signed more it definitely seemed to us like the people who.
To bother to show up in Chicago were ones that were really really interested in three D printing, but I'm I'm wondering have you seen any change in the timing that they have in in terms of the intensity of what they're looking at the projects that they're they're focused on because it does seem like there's an inflection going on for.
Are your company as well as for the industry. So I'm just kind of curious as to what what you heard thank you.
Okay. Thank you Shannon and thank you for coming to a booth in.
In rapid.
Great.
So.
Right.
Yeah. It was a great opportunity to meet many.
Manufacturers.
Get on the stand really reading the global map and understand that they need to move forward and go ahead with Chad and we see a completely different level of engagement.
I would say that it is.
It's being reflected in to kind of tool rises and one is the timeline.
And and you can see it here with our Navy deal for example, with our OEM deal.
Suddenly people.
The cycle.
His shoulder, it's still long, but it shoulder.
Because we're talking about long view that involve service in software and material and support and but it's shorter definitely the timeline is shorter fill longboat charter and the second.
Big difference is the level of engagement, so new used to engage weeks.
The conditions.
Engineers.
Those champions that drive change all the change agents within within organizations.
Following the rapid DCD.
Meetings I had.
A whole visit and aerospace hub in Denver.
And the level of.
People that I met in within the organization CEO C suite executive it's completely different than what we used to have in the past, which.
Means that we have more challenges because we need to make sure that we are delivering.
Value.
And on time, but it means that.
Much more those organizations are much more serious about three D painting.
Which is great for an office visit.
Thank you that's helpful and then I guess the the other question I have from an inventory of perspective can you talk a bit about any backlogs challenges you have I mean, clearly your inventory continues to come down.
Just a.
Where where are you sort of sat at the end of the quarter and maybe if you saw linearity during the quarter as well in terms of demand and bookings in signing thank you.
Yeah a good.
Good morning, Shannon cellphone inventory perspective.
And there's a OEM and the manufacturers, we do suffer from all material shortage for sure.
That the most important thing is really meeting the customer demand. So we are constantly increasing our inventory level of until you see that at the end of the quarter is actually went down compared to last last quarter that we are proactively taking steps in in bagenholm material for six O 911, 12 months ahead a tumor.
Make sure that we're going to meet customer demand and to meet the app up demand that we see a so we walk in.
A very intensively in make it happen.
Of course, we have a try to mitigate the issues all say see in a SEC and al delays in our planning process.
And we continue with that will evaluate a wider area of shipping option to ensure we can deliver good in a meaningful business impact it may come with costs associated with that but the objective is clear meeting the customer demand. We happy to report that so far we were able to do that and we had a good backup going.
Two Q fall and we do everything we can in order to meet the demand.
Great. Thank you very much.
Thank you. Our next question is coming from the line of Paul chunk with J P. Morgan. Please proceed with your questions.
Hi, Thanks for taking my questions and great quarter. So just on margins can you quantify the component of inflation and kind of free cost hitting three keune for too.
Just wanted to get a sense for how your normalized gross margins as we head into 22 can you kind of rebound back to the.
Fiscal year 19 levels in the low fifties next year.
Hi, Paul Good morning, so.
So yeah I'll gross margin have been pressured by the global Logisticare constrain as well as the old material first of all we are definitely very happy to see the sequential improvement over the quarters, Okay and we believe that this trend will continue as we are going to continue to see how to run consumable intermix, we said.
We sold is impacting this quarter and also as compared to last year.
If you compared to 2019.
The impact of logistical as well as they are all material is probably a closer to the two percentage.
Different.
The same time, we are still not in a full capacity in some production level, we still have the shortage enroll material. So this is also impact on a level of production as well as investing in ramp up of our production line addressing the new platform. So we still have the gap obviously compared to other.
Four 2019, we believe that a when the market recovery, but it's not going to be a short term in terms of untangling back from logistics and raw material shortage no unexpected next photo. This is what's going to be the picture is going to be probably for the coming a few quarter, we will be able to lessen his age.
Worst margin as as the global economic a improved at the same time as we are walking ulcer on improving our aim costs on our new platform is part of the product lifecycle.
And at that point, we haven't yet to provide guidance for 2022 in terms of our gross margin.
With that we believe that four cube for specifically.
Of golf Margie level, please stay relatively similar to what we sell in Q3.
Gotcha, and then just on a quarterly opex.
You can see a step up to the 80 million you run right moving forward.
So is that the right way to think about quarterly Opex move forward and then assume czar revenue contribution is minimal, but how do we think about how that business skills over time as well.
Can you. Please repeat your question please.
[noise] yeah. So just on the quarterly Opex levels. You know we saw we're gonna see a step up to 80 million kind of D is that the new run rate moving forward is that the right way to think about it.
Yeah. So.
We are increasing alpex say in queue for and definitely compared to last year.
This is basically because of the return to five days work week.
The higher expenses as the markets can cover a we see a higher commission due to higher revenue and we also includes the day in in cold additional operating costs associated with the inclusion of a new business, a rps origin and now in queue filed we also adding.
This is all part of a puppy.
P G a investment going forward.
I just want to remind you that 2021. It is eight years of investment. It is also investment and we are they believe we are continuing to invest but we are committed to show improvement in profitability a in the near future.
Great and then lastly on cash flow you've been positive for last five course, a very good job. There. So can we and fiscal year 21, and kind of in positive territory. Now are there any working cap things, we need to see like inventory investments or maybe reversals accounts payable that my.
Way on four Q. Thank you.
Yeah.
As we look to the fourth quarter of 2021, we are not providing guidance on the operating cash flow back in 2021, we have stated that we expect that the majority of our growth to occur in the second half of the year and this is what we are delivering so much of the cash flow benefits will come in 2022 and beyond.
The proportion of for the launch of the three significant NPI recently introduced coupled with the state is talk we are building to mitigate the raw material shortage is expected to increase of inventory level and related payment in the next few quarter, which will increase cell operating cash outflow, which doesn't lead.
In a caching so from collection after we started attending.
Alright, Thank you have an outlook.
Okay.
I just wanted to point out that nothing out of the ordinary expected for Q4.
Thank you. Our next question has come from the line of clumsy Mohan with Bank of America. Please proceed with your questions.
Hello. Thank you for taking my question. This is John on behalf of <unk>.
I just wanted to come back to the guide you mentioned acceleration in revenue in 22 and beyond could you just provide more color regarding maybe like the magnitude of the key drivers, whether it's coming from products services or even its or an end markets and.
From that guide you know how much it is predicated on the economic recovery.
Okay. Thank you. Thank you John in February Gov Ramsey.
We are still working under the same assumption, suggesting an accelerated mode.
So we have the same underlines very strong driver that boost III. The printing forward like the one that we already mentioned in the supply chain issues, but really this is this is the perfect storm for us in terms of engagement like I mentioned to Shannon. The fact that people are changing the way they are.
Manufacture in terms of geometries, and new technologies out there that we can provide those new parts of new products that are needed there like moving from metal to composite for example, that's a very very strong trend that we see out there and the last one is the one.
Move into manufacturing, which is more customized and more personalized and just to share with you an anecdote about those drivers I met the customer lately in the aerospace.
And I spend like half a day, there and I ask them, Okay, you're using R. F. 900. This is the one by the way that we sold in the Navy and they are using it for and use both.
Very high and customize one of the customer use it for any restart another four jigs and fixtures for aerospace for space to be more precise and I asked them what is the Ah Roy.
An hour after 900 and they told me between four to six months.
I know and I'm buying here and strategies equipment for production you take US we are happy with four to five years and this is four to six months I think this is the biggest.
Example, or a reflection of what we are experiencing now.
And our customer.
So advanced much more advanced than us in many cases in some applications to take this forward and we practically business strategy that address exactly those needs 121.
For each application you need a different technology, we have all the needed technologies that will fit those challenges in parliament done then they need a variety of materials. We have those variety of materials and we are all can get it and we certified we make sure that it believes.
The promise.
Then the last thing you'd software we need those the software that will carry.
The user wrong, they're designed to early design and the conceptual design to the manufacturing in the production through this all tread through a software platform. Those are the growth engine. We have torenia technology, we have the basic core technologies of MTM and fully just the best in the World We have software.
And we have material and you put all this with service.
That we can support 24, seven because we have such a big service.
Organization and this is the catalyst and we will see this really coming to light next year.
The details of course this is a high level the details would be happy to share in our next call.
Got it thank you and if I could squeeze in a quick follow up so in regards to the new products coming into market. In 22, just wondering if we were to think about the contribution from these products relative to Ah.
2021, how much growth do you expect them to contribute thank you.
Great question, but you know that our policy is not to share these type of details.
In 2021, where you get to the coding 2000, 2000 2000 to early 2022 of them be happy to discuss it.
Got it thank you.
Thank you. Our next question is coming from the line of Jim Machete with Needham and company. Please proceed with your questions.
Good afternoon graduations on the on the corner and maybe just this just as a follow up to the prior question and you may not be able to answer it but if we think about the the newer products the age to reset the the P. Three and I realize you can't you'd be you'd be granular, but can you tell us.
If if you anticipate those products rampey in the earlier part.
22 or is this is the expectation that your optimism of the scale up in that takes place more in the second half.
We are now in the process of closing our budget for.
For next year, so even if I want to give you the exact numbers I don't know them yet.
You'll be very authentic on this one.
We have better sites.
Many beta site with 850, we are on the verge of launching it.
The better sides are very happy they are producing.
And useful to end customers very large Oems by the way.
We get very good feedback from the end user so far the automotive company frog.
Consumer good company from the aerospace companies that are using our Bob. This is very encouraging we are going to launch it we ramp it up next year and I believe it will be a significant rare.
Revenue stream next year and definitely is a product line in the next five six years.
[noise] that's helpful.
If I could just on the.
Status is direct business, you're you're seeing what appears to be a nice recovery there and presumably some of that is just the industry recovery, but I'm wondering if you're also.
Yeah, potentially taking some sure there or is this just a case of a broader industry recovery that you're benefiting from.
First of all it's really a very nice recovery, 25% year over year and also we see very good booking.
Better.
Which is great in terms of where we gaming chair or not I believe it.
Ooh, it's less gaming chairs because we are in a very unique high end luxury I would say in a metaphor you think about performing the luxury good of this state of this industry, we are working with.
Highest quality 35.
Not many we are not in the quick filed business so not many.
Service bureaus out there are really competing with us. So we are very dependent on the aerospace automotive I and when they are growing up we have our fair share anymore.
So the key drivers you are are aerospace space and auto.
Just your strong position in those keep verticals with the advanced equipment does that a way to think about what's happening there.
Yes.
Thank you.
Thank you. Our next question has come from the line of Brian's Rapid. Please proceed with your questions.
Hi, Thanks for taking my questions I had.
Just wanted to ask about Opex again, and see if you could give I don't know how to ask this question in a way that youll.
The answer it but.
For.
2022 I'm just wondering can you give any any guidance around directionally around Opex. You know you you've mentioned what 2021.
It's an investment year.
But I would assume 2022 continues to be an investment year and then more trade shows more.
You know travel and entertainment or et cetera type of expenses coming back. So I'm. Just want you know that the street is now modeling up like 6% growth in Opex for 2022, and I'm just having.
Flashbacks from like 2013 2014 when.
Things were starting it really seemed like they were going well and everything is picking up and then opex was up like 100 million plus the next year.
So can you just give us some comfort that.
You know is opex going to grow in line with like an expected revenue growth or does opex grow slower than revenue in 2022.
80 million the right kind of run rate to think about or is it higher than that like in any any sense for that because this I think is the biggest variable in the <unk>.
Model right now.
Yeah, Good morning, Brian.
Definitely can appreciate at this stage of it.
You probably can appreciate that at this stage, we have not specifically provided guidance on 2022 when we will come back.
At the end of February to address it but for sure I can share we can in terms of Directionally. The way we view our business model, we definitely looking to see a opex as a percentage of a revenue is going down we already demonstrated even in this quarter. Okay.
And definitely this is directionally. This is what we are planning into we are committed to steadily improve our profitability and we will see the impact over time in terms of how much of that will be in 'twenty, two and how much would be a move in the long term. It's mall further to a a too detailed it is true that D. C O 2020.
One was a year of investment we include three new M. A platform is volatile fall.
He brought in a portfolio and we're planning to invest and broaden those technology also in the future, but all along we are planning to see a leverage model as part of our business model.
Okay.
Okay. Thank you.
And then I don't know if you said this weekend.
How much did acquisitions within the last 12 months contribute to revenue in the in the third quarter, whether it's our Rps and origin etcetera.
Granite is they come in before eight in Q3, all in the last three quarter, we didn't see yet the impact of three three and Seth We don't we we had some impact definitely a very nice impact of Rps, we're very encouraged.
And by the reception of this product in our marketing our customers. If it's open for us a new market new application.
We are not providing specifics on each of the in on the specific numbers on this opportunity, but definitely it was a growth driver as well as it is a like I say the adult opening.
So you can almost start you can't give a collective sorry, a little what you can't collectively they'll give the contribution from acquisitions. Just so we can maybe a foreign exchange just so we can have an organic revenue growth number to put in the model.
Yeah.
You know that I'm, asking just like the dollars from total rent from acquisitions dollars from you know swing from FX. Just so we can get the exact organic revenue growth, which I'm sure. It was a nice number I'm just trying to get to the number.
So we're not providing the specific dollar value associated with our acquisition.
Yeah.
Okay.
Was it was a good day traction and in the most important thing is it's out from just the how much in this specific quarter I think the most important thing to take away to take from Rps is how it's actually opened flex market and and the opportunity and the demand and the discussion that we're having around this product is so significant.
This is what is the essence of what one needs to be focused on if you ask me specifically about ethics you definitely can see the numbers are so the impact compared to 2020, it's about $2 8 million between Q3 'twenty wants to Q3 'twenty.
It is a positive you mean.
Added to revenue.
Yes.
Yes. It is.
Yeah.
Thank you. Our next question is come from the line of Greg Palm with Craig Hallum. Please proceed with your questions.
Alright, I'm just going to ask you know one more follow up and just try to take a stab I know you're not guiding for fiscal 'twenty, two but yeah.
I guess, if we think about guidance for this year, which you've said includes no very little contribution from the three new products. You know it assumes revenues down about 5% from the 20th 19 levels right. So 605 million versus the 636, So I guess, what I'm trying to figure out.
It is based on your visibility into next year would you expect your core business. So you know mostly F. T M. Poly jets. So excluding the contribution from the three new products, what would that have increased to pre COVID-19 or 2019 revenue levels.
Next year, if you're if you're following the thought pattern there.
Okay.
All right Greg.
Simple answer yes, we expect it to grow and you can see it over three years most of our growth came from the core businesses. We enter new application. We came with the full solution approach and it works and we took them through manufacturing and we'll keep doing it.
Yeah.
Okay. So so that would get you to do at least 5% growth and then if we layer on you know whatever we think is contribution from new products. I mean, my assumption is you would probably be disappointed if you weren't growing somewhere in the double digits next year or is that at least a fair characterization.
And even though you know that we are not providing guidelines now.
We are optimistic we are growing with all business starting with the core we'd acquisition and we didn't do it.
Really put into the market the new two most promising technologies that we have so I'm optimistic we keep walking out gifts, where it isn't going to make sure that we would be the leader in parliamentary different thing with a food packaging solution.
Alright fair enough totally understand I thought I'd take a stab anyway, thanks and good luck.
Thank you there are no further questions at this time I would like to turn the call back over to management for any closing comments.
Okay.
Thank you for joining us today and looking forward to speaking again next quarter.
Yeah.
Thank you for your participation. This does conclude today's teleconference. You may disconnect your lines at this time.
Great day.