Q2 2022 Stratasys Ltd Earnings Call
Hello, and welcome to the Stratasys Q2, 2022 conference call and webcast. At this time all participants are any listen only mode. A question and answer session will follow the formal presentation. We ask you. Please ask one question and one follow up then return to the queue. If anyone should require operator assistance. Please press star zero on your telephone keypad.
As a reminder, this conference is being recorded its now my pleasure to turn the call over to you and avoid C E O and Vice President of Investor Relations. Please go ahead Sir.
Good morning, everyone and thank you for joining us to discuss our 2022 second quarter financial results on the call with US today are our CEO , Dr. Yao of Jive and our C. F O eight times up here.
I would like to 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 website.
Please note that some of the information you'll hear during our discussion today will consist of forward looking statements, including without limitation those regarding our expectations as to our future revenue gross margin operating expenses taxes, and other future financial performance and our expectations for our business outlook.
All statements that speak to future performance events expectations or results are forward looking statements.
Actual results or trends could differ materially from our forecast for risks that could cause actual results to be materially different from those set forth in forward looking statements. Please refer to the risk factors discussed or referenced in Stratasys is the annual report on form 20-F for the 2021 year. Please also refer to our operating and financial review and prospects.
For the 2021 year and for the second quarter of 2022, which are included is item five of that annual report and in exhibit 90 922 to the report on form 6K that we are furnishing to the SEC today, respectively.
Please also see the press release that announces our earnings for the second quarter of 2022, which is attached as exhibit 99, one to a separate report on form 6K that we are furnishing to the SEC today.
In order to obtain updated information throughout the year concerning our quarterly results of operations and the risks and other factors that most impact those results. Please see the quarterly earnings press releases, and our quarterly operating and financial review and prospects each of which will be attached as an exhibit to our report on form 6K that we will furnish to the SEC.
On a quarterly basis over the course of the year.
<unk> assumes no obligation to update any forward looking statements or information, which speak as of their respective dates.
As in previous quarters today's call will include GAAP and non-GAAP financial measures. The non-GAAP financial measures should be read in combination with our GAAP metrics to evaluate our performance non-GAAP to GAAP reconciliations are provided in the tables in our slide presentation and today's press release.
I will now turn the call over to our Chief Executive Officer, Dr yards ice you off.
Thank you.
Good morning, everyone and thank you for joining.
Our second quarter results.
A continuation of our ongoing business momentum I am proud of the strategy.
And we delivered our strongest second quarter before you.
Revenue of 166, 6 million were up 33% versus the right.
16.
16, 4%.
FX is wavecom and ahead sequentially over fiscal <unk>.
These metrics are.
In line with our prior outlook.
We saw particular strength in system revenue.
Which grew by over 29% compared to the second quarter of <unk>.
2021.
Year over year.
All three of Dell Technologies, Inc.
Fortunately our balance sheet and.
<unk> position with 441 5 million of cash and equivalents and no debt. We are operating in an environment of supply chain constraints.
Global economic uncertainty around deflation.
With interest rates and slowing GDP and.
We face these challenges.
Ongoing laser focus on execution of the business plan continues to help us deliver a positive financial result, and.
And provide progress.
Our stated goal of growing our leadership position in polymer additive manufacturing.
The first half 2022.
So as to advance our strategy on several fronts.
We continue expanding our penetration into applications.
For aerospace automotive healthcare and fashion, we payload industry specific solution for customers like Pepsi Cola, Toyota and Rod Children's Hospital in San Diego.
As noted on our last call. We have launched two new composites, Randy three D printers in Q2.
Along with the new Tech side freezer for the fashion industry. In addition, we launched Grub CAD software or the origin lie with three D printers, and introduced a growth era of new months a year ago.
This breadth of manufacturing expertise is leading to new business opportunity.
We recently made two exciting announcements in the auto racing industry.
Specifically thrive.
So I think this was named and NASCAR competitive posture.
Well, we are dealing with NASCAR to provide the first.
We printed part.
To be used on all of their next generation car.
Bob utilized right with this high.
11 material derived from sustainable sources.
And dominant fixture it strikes us is direct you.
Using the 15th really briefly.
Other parts are produced by NASCAR on our focus for 50 M C system.
We also became the Fisher three D printing partner.
Without racing developing.
Oh, it's we printed part will be used in the Toyota GR 86 vehicle for competition in 2020 three.
Strive to see every seven and the new FTB 70 C. O system are expected to be utilized is about this partnership.
And similar to the NASCAR relationship.
Auto racing development will also utilize struggle direct to print a 11th.
On the HBC.
Auto racing is an excellent development proving ground.
Ultimately lead to mainstream production run for millions of consumer and commercial vehicles.
We have demonstrated the suitability of the age 50, using our staff technology for producing a wide variety of automotive power. These can include that wrong read.
Side Mirror electric cable an electrical connector among many others.
As we execute our materials ecosystem strategy, we will be opening up even more of a multi use cases.
We are seeing similar momentum in either area.
And then we continue to see rent in the J D.
Dan subject line that we launched last year in Q2, we released an updated bearish.
That's been the throughput without sacrificing quality.
Next improvement in RASM consumption, we use it both usage and waste and increases the number of the customer can place.
On the periphery.
And on the medical side in early July we released radio metric for our digital album printer, which uniquely led healthcare professionals and medical device company visualize three D printed models.
X Ray and city scheme in unique ways.
This attention to the need of escaped profession is helping us grow our presence in the market for instance, we recently shared how do University hospital of South of Tenable went from a single material insulate Greenberg.
They must give you fourth calendar J five medi jet printer and now they're sturgeon.
They no longer want to do surgical procedure.
Without really greenfield.
I'd also like I bet, you that we are progressing on the marriage of Makerbot, we do want to make them and we expect it to close during the third.
As we previously announced once the transaction closes we will hold approximately 45, 6% of the combined company both merit and.
And we will account for the combined company via the equity method rather than by consolidated within our own results. This change is not expected to have a material impact on our consolidated revenue.
I'll now turn the call over to our CFO <unk> to share the financial results and update our outlook for the rest of wins with two data.
Thank you.
And good morning, everyone.
We are pleased to have built upon the strong strong we saw for 2022.
Revenues were driven by a 29, 2% growth in our system.
For the second quarter of 2021, continuing the strong trend that is expected to increase sales of recurring consumables and services in the future.
And we saw ongoing operating leverage does reflect the strength.
Well, if our business model.
In general we see continued strength in our business performance as revenue growth drive improved margin and earnings result.
For the second quarter total revenue grew by 13, 3% to $166 6 million.
From the prior year period.
On a constant currency basis total revenue increased 16, 4% versus the prior year quarter.
Product revenue in the second quarter Rose by 16, 4% to $115 7 million compared to the same period last year.
Or by 19, 4% on a constant currency basis.
Within product revenue.
System revenue grew by 29, 2%.
$258 9 million compared to the same period last year.
<unk> increased by 33, 5%.
On a constant currency basis.
System sales reflected the highest second quarter total in four years.
Right.
By the continuing ramp of the origin won an H Street 50 mass production system.
Consumables revenue was up by three 9% to $56 9 million compared to the same period last year.
And grew by seven 5% on a constant currency basis.
Service revenue was $50 9 million an increase of 9%.
First with the same period last year.
And up by 10, 9% on a constant currency basis.
Within service revenue customer support revenue grew nine 1% compared to the same period last year and increased by 12, 9% on a constant currency basis.
Now turning to gross margin.
GAAP gross margin was 45% for the quarter compared to 43% for the same period last year.
non-GAAP gross margin was 47, 6% for the quarter compared to 47, 5% for the same quarter last year.
Our system and consumable revenue and raised pricing.
Along with operational efficiencies hubs.
Perhaps to offset the growth in logistics.
Material costs.
Which were mostly attributable to global inflation.
GAAP operating expenses were $19 9 million compared to 86 million during the same period last year.
non-GAAP operating expenses were $77 4 million.
Compared to $72 5 million during the same period last year.
non-GAAP operating expenses were 46, 4% revenue for the quarter compared to 49, 3% for the same period last year as we continued to focus on operational efficiency improvement.
The $4 9 million year over year increase in operating expenses on an absolute basis.
Was driven primarily by the impact of the Saar to be the acquisition as well as decreased travel and trade show activity and higher commissions based on higher revenue.
Last quarter, we noted that the incremental cost was only 35%.
This quarter, we are pleased to note and improved efficiency of our model, whereas the additional operating expenses reflected only 25% incremental cost instead of the historical range in the mid to high 40%.
Regarding earnings.
GAAP operating loss for the quarter.
It was $23 5 million compared to a loss of $22 7 million for the same period last year.
non-GAAP operating income for the quarter.
It was $1 9 million compared to a loss of $2 6 million for the same period last year.
The difference.
Reflect our business accountability and improve operational efficiencies, which resulted in modest gross margin growth and improved operating margin.
GAAP net loss for the quarter as.
Was $24 4 million or.
Our 37 cents per diluted share comp.
Compared to a net loss of $20 2 million or 31 cents per diluted share for the same period last year.
non-GAAP net income for the quarter was $1 2 million or two cents per diluted share compared to a loss of $1 6 million or two cents per diluted share.
In the same period last year.
Adjusted EBITDA for <unk>.
$7 4 million compared to $3 5 million in the same period last year, reflecting our improved profitability levels.
We used $22 8 million of cash in operations during the second quarter.
Compared to generating $5 6 million of cash from operations in the same quarter last year.
The use of cash was primarily driven by deliberately increased inventory purchases of over 20 million.
We ended the quarter with $441 5 million in cash cash equivalents and short term deposits compared to $475 6 million at the end of the first quarter of 2022.
With our fortress balance sheet and strong cash generation profile, we remain well funded and well positioned to capitalize on value enhancing market opportunity is.
And as they are identified.
Now, let me turn to our outlook for 2022.
I would note that our guidance continues to include full year anticipated contribution from Makerbot.
The announced merger with Wuxi maker has not yet closed.
Since our last update currency exchange rates have continued to decline across a number of our key foreign currencies.
In fact your outlook for revenues for the second half of the year by $10 million.
We expect the timing of such impact to be relatively even across the third and fourth quarter.
And as a result are adjusting our full year revenue guidance accordingly.
We now expect revenue.
In a range of 675 million to 685 million and for revenue to continue growing sequentially throughout the remainder of the year.
Revenue growth for the second half of the year.
<unk> to be approximately 6% to 7% higher than the second half of 2021.
The fourth quarter anticipated to grow at a higher rate than the third.
As I noted earlier the change in full year revenue outlook is due to a decline in currency rates.
From a gross margin perspective, we continue to expect full year 2020 to be flat to slightly higher as compared to 2021 with a second half stronger than the first half based primarily on higher revenue.
We expect the third quarter to be relatively flat compared to the third quarter of last year.
As a reminder, we view the current gross margin situation as temporary.
One headwind.
Caused by macro logistic and material issues path and we continue to execute on our long term plan, we expect our margin to hand, it back over 50%.
In 2022, we now expect our operating expenses to be approximately $18 million to $23 million higher.
And then 2021 primarily due to the impact of owning large review for the full year highest cost that result from higher sales and investments in new growth drivers such as origin won in health care.
And despite the higher absolute dollar value year over year, we expect our operating expenses as a percentage of revenue to continue improving by decreasing throughout the year.
We continue to expect non-GAAP operating margin to be slightly above 2% for the full year.
Longer term, we expect non-GAAP operating margin to achieve double digit.
Our growth plan unfolds.
We now anticipate a GAAP net loss of 70 869 million.
One dollar and 17 cents to $1.04 per diluted share and non-GAAP net income of 10 to 13 million or 14 to 19.
Per diluted share.
Adjusted EBITDA is still expected to be in the range of 38 million to 41 million and capital expenditures in a range between 20 to 25 million.
While we are encouraged by the level of engagement with our customers.
We remain confident in our growth potential we continue to monitor global issue.
That can have anemia.
With that.
Let me turn the call back over to you all for closing remarks.
Yeah.
Thank you as well.
We are pleased with our strong first half results.
And how they position.
To execute our plan.
We have aligned our business expectation based on the current global macroeconomic condition importantly, three D printing is uniquely positioned to help our customers.
Dresses and overcome many of the concern.
Right in time like this.
With our expanding portfolio, we should continue to capture market share on the factory floor, a fortune 500 companies around the world is irrelevant and adoption of three D printing growth.
And as we build on our leadership position right.
And improved profitability, we expect to outperform and create long term shareholder value.
With that let's open it up for questions operator.
Thank you well now be conducting a question and answer session. As a reminder, please ask one question. One follow up then return to the queue. If he like to be placed in the question queue. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May press star two if he'd like to remove your question.
From the queue for participants using speaker equipment may be necessary to pick up your handset before pressing star one and once again. That's one question. One follow up then return to the Q1 moment. Please while we poll for questions. Our first question today is coming from Greg Palm from Craig Hallum. Your line is now live.
Yeah. Thanks, This is actually Danny <unk> on for on for Greg today, Thanks for taking the questions.
I guess, just starting off maybe any further color on what youre seeing in the broader demand you know broader demand trends given the current macro and maybe if you could even break that down further into other geographic markets that you serve.
Hi, Hey, Donnie and good morning.
Thank you for your question.
We are seeing.
A very nice level of engagements with our customers and we are focusing on the opportunity. The nice thing with that of course, we are operating in the same wall like anyone else, but in the last four years, we opened up for us new markets, we practically doubled our total addressable.
On the market so to speak.
The thing that's outside deal.
There is there are issues macro issues.
<unk> she was inflation.
We in the micro live has tried to things I think.
I've been the size of the market, which means that we have.
Very nice.
Face to grow to Willie.
And that's what we are doing but that's why we have.
A nice demand.
And you can see it also in our guidance.
Yeah.
Yeah. Thanks, I guess just off that are.
Are you surprised to the upside or downside on on any geographies in Europe , or the Americas or anything like that.
Yeah.
In general that things are going as planned and the nice thing we tried to see if we have a very diversified.
Diversified both in terms of product and geography.
So luckily enough.
A lot of luck, we play well.
We plan well.
And we are making all the numbers.
Yeah.
And then just moving onto some of the guidance still targeting you know double digit operating margins longer term anyway, you can go into more detail on that maybe the timeline or the level of revenue associated with that just being that it's a fairly significant jump from this current year estimate off of that too.
<unk>.
Okay.
Hey, Danielle and that's a very good question and then I'm not sure.
Sure.
Message I believe the last quarter.
The whole story or the main story here is just kind of basis right.
We have five technologies.
We're well positioned to grow long term and.
Double digit comp for the coming year.
With that double digit revenue growth the scalability the ability to bring opex in the very very low margin or much lower margin.
The story here and actually this quarter the second quarter, just Australia right. So if you compare Q2 2022, so Q2 2021.
And you look on all 20 million revenue increase that came with 5 million Opex, that's 25% opex on that incremental revenue right. So that's just kind of because that's the way to improve gross margin and opex as we get bigger bringing us to the double digit to help guide them.
Yeah.
The next question today is coming from Paul Chung from Jpmorgan. Your line is now live.
Hi, Thanks for taking my questions.
So just on cash flow, you're seeing a drag this year in the first half on <unk>.
Inventory investments and other kind of working cap investments, how do we think about cash flow generation in the second half and you know can you break even or positive for the year after heavy investments in the first half.
Yeah.
That's a very good question so.
So first thinking maybe it's taking you back.
For the last eight to nine quarters right. So after seven quarters.
With with a thickness.
Once again positive operating cash flow seven consecutive quarters isn't the second point is that we have negative operating.
Operating cash flow, but this is deliberately that's basically are focused on on the demand on Nissan RFID expectations. After my expectation keep in mind. If we are a global company with demand everywhere, we want to make sure that we have the inventory in place globally in a different location available work.
And for leverage.
Strong cash position with no debt to and and even if it means.
A couple of quarters.
Operating cash flow in order to meet our demands are there by the way also to improve our gross margin in the future because that will enable us to shift more to see versus air shipments in the future being having the right inventory that's the way we think about it.
They were very sensitive already caution to so casual but do you see this temporary deliberate action by the company.
And.
We can see that in the in the in the future and the later future we see ourselves, Okay again coming back to positive operating cash flow and positive free cash flow.
Gotcha.
Yeah.
Thanks for that and then just a follow up you know historically, it's been quite difficult to kind of break out beyond.
The $700 billion in revenues for the year, you're almost there in 'twenty two but you know as we think about 'twenty three expand on the confidence you have in the product portfolio and any other levers you want to call out why is it different this time around and you know you mentioned that 50% gross margin target, what's the expected timing of rebounding back.
To those levels and are you seeing some evidence of consumables demand kind of accelerating thank you.
Yeah.
Thank you.
Thank you for your question.
I will divide my 62.
First I would like to start off with the revenues. We are quite confident that we will pass the $700 million anymore, because we created a growth engine and we put them in place in the last two years. So we have the most innovative polymer technologies, we have a great.
More than great you know what.
Material platform that it's open now and we will keep a strengthening this material slide format, we'd see more revenues out of it.
We have a.
Very strong software platform.
And our survey that is much better plants use cases, if we go one by one and conquer with you. So we have a very clean your five year plan and we are very confident that.
That's what we'll be able to achieve it including passing to several hundred million dollar.
Shopping we the origin at the top in the Rps So we.
We havent Glenn.
Plenty of room to grow that's on the revenue side.
If I look at our profitability measure as we said before it will take us two to three years, but we'd be there.
Yeah.
Yeah.
Thank you. Your next question is coming from Troy Jensen from Lake Street Capital. Your line is not a lot.
Hey, gentlemen, congrats on the nice results here.
Thank you.
Hey, guys. So a when I look at second half guidance here, if you kind of do the math, you're talking about a $21 million increase over last year's second half. So you know I'm always curious to know if the base business is growing so with this $21 million increase how much of that is coming in I guess it won't tell me how much is coming from the new products.
What are you assuming that your base business. The U S. T M and colleagues yet will be growing in the second half over last year's second half.
Okay.
Hey, Charlie.
Sure.
You'll hear me throwing along please.
[laughter] all of it.
Growing.
In particular, the hardware the hardware is it.
Okay salaries does today.
The 9% practically and reached down 33% growth in hardware.
The driver for material that Sir.
And it goes across the different technologies, so as opposed to based technologies MTM in colleges and the newest technologies.
And for me the most people to think they had a boggy hardware. So we just see more recurring revenue from this growth.
Yeah.
Perfect Alright, now my follow up here is.
He provided us an update of your operating margin targets of double digits in long term yeah.
I'm curious to know if you guys will avoid doing dilutive acquisitions, while you guys strive for this higher level of profitability.
Hey, Thanks, that's a good question, so obviously and you know.
We're talking about you know two three years to get to the double digit operating income it will be a mix of both doing the right thing for the company, but I can tell you that I think I answered earlier, we really believe that our organic business today, let's say.
On the to create the technology and the value proposition.
This by themselves.
We grow and as we are.
Revenue continued to increase double digits in the next year will bring significant incremental operating profit and what will get us closer to the double digits.
Thank you next question is coming from Onesie Mohan from Bank of America. Your line is that a lot.
Yes. Thank you good morning.
Yeah.
It increased.
Increased Tam now and resiliency in demand you, obviously kept your guide sort of outside of FX.
And I'm curious to hear a little bit about maybe what your customers are doing with the install base in terms of usage metrics, maybe that can be a way to for us to gauge.
While the demand looks like of your installed base of systems. If you look at consumables growth.
There was some deceleration and I know some of the compares are our range. So maybe you didn't give us a sense what youre hearing from customers around.
Intention in the back half of this year in terms of usage metrics. So youre thinking they're going to remain relatively consistent are you anticipating that to to either increase or decrease in any significant fashion and I will follow up.
Thank you for the question.
Let's start with the long term because this is what is really important here.
It's really important that there is a shift from using a machine for prototyping with very limited use them.
In addition to using our machines for volume production.
If it's slow polio or personalize and you're spot, but it is really not a factory and we know the treatment effect shrink.
Machine cause Q4 to five times.
The theory of Dan a prototyping machine.
Which is the answers of everything that we are doing here and it's it's a it's a long journey.
We are adopting we are reporting on it as you know every first of all there and we are step by step.
Making it happen and making good use case by use case application by application so it doesn't matter.
Dan Joseph Raleigh region, or a pre surgical planning or that's for automotive or airplanes.
This is exactly what we are doing we identified the use cases.
Thanks, Ken.
From additive manufacturer and then we've kind of like the four solution.
And we open them.
Together with our customer.
Customer.
Anyway, well we.
We said, 20%, we committed 20% year over year growth of this.
Sure the profile of the business.
This is a big picture now when I'm looking at next.
Uh huh.
Who knows.
Exactly what we loved it but what we don't know that we have five technologies the largest installed base in the industry.
Very strong balance sheet, and we become more critical than two hours.
So when we look at it the interim stores, if we built it up.
Their needs and the fact that you have a feeling more material across five technology I don't see domestic but we are resilient and not for any market condition.
Okay. Thanks for that and then.
Maybe maybe one for Tom.
How much pressure are you currently experiencing from inflation on your gross margins, you're obviously seeing a lot.
Nice uptick in revenue you're signaling a lot of confidence in continued revenue growth and you're getting back to 50% gross margins is it right to think that you know.
You have obviously positive operating leverage as you're getting.
Increased volume on on your on your revenues.
But then the inflation pressures are more than offsetting that positive leverage.
In some ways and so if we think about the bridge to get to your 50%.
Are you absorbing like three.
Three or 400 basis points of gross margin headwind right now because of inflation or are you expecting other levers to get you or to 50.
Yeah.
Thank you I wanted to.
First of all I'll tell you I'm sure a lot of part of the question.
When we compared to Q2 2021.
We see a roughly.
A 300 basis point impact it will take okay. So 3% on a gross margin year over year.
However, as you noted there are a few things that we've done and to compensate for any of the.
The higher revenue.
Scalability walks on the gross margin as well.
Revenue improve our gross profit with the fixed cost and so on.
Second yeah.
We increased prices.
Several times over the last year or so when we compare ourselves to keep the 2020 one.
There was a price increase by up to them to mitigate to offset their logistics inflation.
Uh huh.
And there's also the operational efficiency, we are trying to be more efficient there.
Inventory the higher production levels come with it maybe makes it unique.
Or is there any.
And naturally lower and that's part of the scalability and Theres also the ethics.
There is some impact on our gross margin. So when you aggregate all of these together and we see we look one two or three years ahead.
He has kind of abated.
The higher revenue and the combination of what I've mentioned to get up to that.
Okay.
Thank you next question is coming from Jeremy came from Stifel. Your line is now live.
Okay. Thank you for taking my questions. My first question was on.
The slide on the Jay pipe.
Slide 10 suggests you mentioned that you're seeing.
Dental sales, particularly in EMEA I was wondering if you could provide any other color on.
Demand in the dental area.
Regions North America Europe .
Okay.
Hi, Karen Thank you for the question we all through.
Wrong again.
Dan has done a portfolio it has a similar picture.
And we can do it because we have five technologies.
Very strong portfolio of materials.
And deep knowledge and expertise.
<unk> done historically.
We are now leveraging it.
We have a portfolio of both in DLP and.
And being a quality check and the Polish.
It's disruptive.
The ability to freeze everything every different.
Applications are the same three.
Plus the ability to do it fast.
And with different material.
This is very unique and disruptive in the market. This is the policy that we have the DLP.
We believe the best.
Paul and the best accuracy in the business.
So either Rps, which is a fairly large format.
Help us to get into the liner business and are there dental application. So once we have a full listing and now is on building materials portfolio that will go with those three technologies supporting them with application engineering and unique service offering we started to build a unique service offering it's not.
Like our regular service and when you put everything together the speed the yields the quality that we would be able to provide to our customers.
We struck these solutions that you would've seen in the future.
Destructive solution that you always seem to future that we are working on it I believe it would it be a leading player in dental offering starting with dental.
Okay. Thank you and my follow up question was on.
On the slide on non-GAAP margins.
Martin So we're seeing you guys have seem to have very good improvement in service gross margin.
Sequentially and year over year.
Just kind of wondering if you could provide any color on what's really driving that improvement in the service gross margin.
Okay. Thank you.
Yeah.
The improvement on the gross margin.
In the Sally.
Yeah, Yeah. It was driven by price increase that we've had generated as well as.
And then.
Doug can with better gross margin, that's more and more.
It positively impacts our gross margin on services. These are the two main element that.
Improve the gross margin on the service.
Thank you. Your next question is coming from Brian Drab from William Blair. Your line is now live.
Hi, Thanks for taking my question I was wondering if you could maybe give a little more color on makerbot.
Just to help US model help everyone's model, you said immaterial impact on revenue.
I'm I'm just wondering if you know what what what is the definition of material in this case and.
You know you're going to see that revenue come out of the since reporting the equity method come out of your top topline.
Okay can you give us any more color on that and also what what does that do for profitability I imagine that has at least I guess, maybe its youre going to say its immaterial, but a small step up in margin after divesting or after the smoke.
Thank you Brian .
As we mentioned previously and we're waiting for the deal to close and the timing of the deal close well in fact, yeah. Sure you know our results are for the rest of the year. So.
But bear with US we'll get back to you after deal close and we'll update on the numbers. However is to one of your comments one of your points.
The Makerbot business.
The macro business will improve our margins.
For the rest of the year.
And then just irrespective of the timing of it you can't comment on how generally you know how.
This business is doing and the level of revenue.
Not at this time, but will take place.
Thank you. Our next question is coming from Ananda Baruah from loop capital. Your line is now live.
Hey, Thanks, guys for taking the question.
Just two quick ones if I could can you talk about where you're still seeing the supply constrained.
Malls.
And then I have a quick follow up thanks.
Thank you.
No nothing new here.
In China It seemed there some releases here or there a traffic jam.
Are you airports.
And overall, a shortage mainly in electronics and some raw material because of the war.
It's the usual suspects I would say.
And we are walking.
For all deal with our team I want to stick my operations team, we did a smith.
Our opinion is.
This call there despite the fact that.
It's a war out there and supply chain.
We are investing in increasing the inventory we are willing to pay.
The oldest reliever to leverage our strong balance sheet in order to deliver value all the time for our customers.
And ensure that we can supply that.
I believe it will really gradually because it spun off the cycle.
And would you consider that that's really helpful context.
Would you consider the supply like sort of collectively seems to be easing.
Easing at all yet.
Not yet, but our expectations by end of year, we'll see it's becoming easier and.
No I'm optimistic I haven't looked at mystic nature, it's good for anything manufacturer.
So look on the bright side.
Yeah.
Thank you we've reached end of our question and answer session I'd like to turn the floor back over for any further or closing comments.
So thank you for joining us looking forward to updating you again next quarter.
Yeah.
Thank you that does conclude today's teleconference and webcast you may disconnect. Your line at this time and have a wonderful day, we thank you for your participation today.