Q3 2022 3D Systems Corp Earnings Call
[music].
Good morning, and welcome to <unk> systems Conference call and audio webcast to discuss the results of the third quarter 2022. My name is Kevin and helped facilitate the audio portion of today's interactive broadcast.
Anyone should require operator assistance. Please press star zero on your telephone keypad at this time I'd like to turn the call over to Russell Johnson, Vice President Treasury and Investor Relations. Please go ahead.
Good morning, and welcome to <unk> Systems' third quarter 2022 conference call with me on today's call are Dr. Jeffrey Graves, President and Chief Executive Officer, Michael Turner, Executive Vice President and Chief Financial Officer, and Andrew Johnson, Executive Vice President and Chief Legal officer the.
The webcast portion of this call contains a slide presentation that we will refer to during the call. Those following along on the phone who wish to access the slide portion of this presentation may do so on the Investor Relations section of our website.
For those who have accessed the streaming portion of the webcast. Please be aware that there may be a few seconds delay and that you will not be able to post questions via the web.
Following discussions and responses to your questions reflect management's views as of today only and will include forward looking statements as described on this slide <unk>.
Actual results may differ materially additional information about factors that could potentially impact our financial results is included in last night's press release, and our filings with the SEC, including our most recent annual report on Form 10-K, and quarterly reports on Form 10-Q.
During this call we will discuss certain non-GAAP financial measures in our press release and slides accompanying this webcast, which are both available on our Investor Relations website, you will find additional disclosures regarding these non-GAAP measures, including reconciliations of these measures with comparable GAAP measures.
Finally, unless otherwise stated all comparisons in this call will be against our results for the comparable period of 2021.
With that I will turn the call over to our CEO , Jeff Graves for opening remarks.
Thanks, Russell and good morning, everyone.
I'll open this morning with a few comments on the current business climates are positioned in the markets and a summary of our Q3 performance.
After that I will turn the call over to our new CFO , Michael Turner for a more detailed review of our third quarter results I know that many of you are looking forward to hearing from Michael for the first time, having joined the company in September Michael has already proven to be an excellent leader of our finance organization and a valuable addition to our executive team. So welcome aboard Michael.
Reflecting on the year to date, the global economic and geopolitical backdrop has compounded existing supply chain disruptions created by the Covid pandemic.
While these macro headwinds are negatively impacting many companies the good news for our industry as our customers are increasingly adopting additive manufacturing in their production operations in order to reduce supply chain risks enhanced product design flexibility and reduced manufacturing costs.
This gives us an opportunity for growth even in a more cautious capital investment environment.
For <unk> system, specifically, we benefited this year from our prior efforts to focus and streamline the company, while significantly strengthening our balance sheet.
This has allowed us to make important investments in new technology platforms and in operational efficiency initiatives, which are already showing results.
Our customers are confident that once recession fears subside.
We will emerge from this period stronger than ever with a completely refreshed product lineup and efficient operational footprint and the scale needed to support their growth.
In the meantime, we're focusing intently on execution profitability and cash performance, which is what our customers and our shareholders expect from an industry leader.
On behalf of my nearly 2000 dedicated <unk> systems colleagues around the world.
As we finished out the year and look ahead to 2023 I can tell you that we're proud of our leadership role in the additive industry and very confident about the future.
Turning then to slide five reflecting on our on our third quarter. We delivered results that were basically in line with our internal expectations and in some areas exceeded them.
From an operating standpoint high inflation is impacting both purchase components and labor costs, we're taking pricing actions where possible to offset these pressures, but there's typically a lag effect that can put a drag on quarterly performance in.
In addition, the strength of the U S. Dollar has clearly impacted our financial performance.
Nick will shed more light on these factors in a few moments.
On the positive side supply chains are showing signs of initial stabilization and if no further disruptions occur we expect this trend to continue.
Our engineers have worked hard to increase our component supply base into design in our new products with more sourcing options in mind.
With regard to our in sourcing of manufacturing I'm very pleased with the progress we've made in our rock Hill, South Carolina production facility, which we took over mid quarter from a contract manufacturer.
This plant will suit produced over 40% of our polymer printing systems.
We expect that percentage to grow rapidly as our investments in people and technology gained momentum.
In the third quarter, we were pleased to see our production rates increase our productivity improve and our gross margins begin to expand as the workforce transitioned to <unk> systems management.
I want to give a sincere shout out to our new manufacturing colleagues in South Carolina. Your efforts are noticed and greatly appreciate it.
From a broader standpoint, inflations, taking a significant toll on global markets that are dependent upon discretionary consumer spending is.
As consumer spend more on daily necessities like food and gasoline they have less to spend on optional items for us this impacts our dental markets and particularly our orthodontic products.
This is still a great business that we're fully committed to key customers have slowed their spending which while largely anticipated in our previous guidance.
Can clearly be seen in our financials. Fortunately, we expect this business to strengthen once the economy normalizes, but this may take some time.
More to come on our market dynamics in a few moments, but for now I want to give you a clear understanding of our position in the industry and how our business model works in this volatile climate.
As an additive manufacturer.
As additive manufacturing and production environments becomes widespread we're very well positioned to enable rapid adoption across virtually all market verticals. The reasons are twofold.
First we have the greatest experience base to drawn with over 20000 production printers active in the field consuming almost 5000 tons of our proprietary materials each year, our customers produce over 1 million parts everyday using our technology. This output is greater than the entire rest of the industry combined.
Giving us unparalleled experience in the management of large fleets of printers, and and the integration of complex workflows and our customers' factories around the world.
Second over the last two and a half years, we've reorganized and restructured our company into two market facing business units industrial solutions in health care solutions. This enables us to focus on market specific applications developing with our customers. The most effective manufacturing workflows and then supporting the transfer of these technologies into there.
Factories once complete additional work closer than additive manufacturing capacity expanded to support their growth plans. This approach has proven highly effective and we believe it will drive exciting growth for our company in the years ahead.
This operational model is one that we increasingly see mimics by others around our industry, but the key to success is having a full complement of metal and product polymer printing technologies supported by software expertise and a wide range of production materials. It is the combination of these elements to address specific high value.
<unk> that our customers are looking for in a partner.
That is what sets our company apart from the competition and this gap continues to grow.
Today of three systems, our core technology spend not only the broadest range of metal and polymer systems in the industry.
But now also include the unique materials and printing systems that I broadly referred to as biologics.
These truly groundbreaking materials and printing technologies are essential in addressing biological applications within the human body.
And in the development of new methodologies for drug development.
When viewed in total this unique combination of technology and application expertise and a company with global scale allows us to assume a leadership position in the additive industry as we know and are true production environments.
With that introduction I'll now turn to slide six for a brief overview of the quarter.
For the consolidated company after adjusting for businesses that we divested during 2021 revenue for the third quarter decreased three 2% year over year. However, adjusting for the impact of foreign currency fluctuations consolidated revenue increased two 7% showing the significant negative impact of the strong U S. Dollar.
This growth rate is much lower than we would like we fully expect to meet our long term expectations of double digit organic growth in the years ahead as consumer spending rebounds in additive manufacturing takes hold in production environments across virtually all market segments.
Turning to our divestiture adjusted segment performance in the third quarter revenue for our industrial solutions segment was flat year over year, but increased nearly 9% in constant currency.
Revenue for our healthcare solutions segment decreased six 6% per year and decreased three 5% in constant currency driven by a substantial slowing of our dental segment due to softer consumer spending.
As we saw last quarter, the FX impact on our industrial solutions segment was most pronounced due to the segment's exposure to manufacturers and service Bureau customers in Europe and Asia Pacific.
That said the currency impact on health care solutions sales was also material.
In our industrial solutions business, we saw regional variations in the third quarter in Europe , The war in Ukraine, and uncertainty regarding recession in energy supplies continued to pressure our customers. This is impactful given our industrial solutions segments, historically strong market presence in Europe , and particularly in Germany.
On the positive side demand in the Americas remained robust during the third quarter and with strong SLA printer sales into the energy and commercial space vehicles.
We also saw solid demand for our recently acquired tightened printer platform among consumer goods and defense customers.
In our healthcare solutions business, the third quarter performance very sharply by markets.
In our medical and our medical devices business, we saw significant year over year growth in printer sales to customers, who manufacture orthopedic surgical instrumentation, and our industry, leading business of providing virtual surgical planning packages and other personalized healthcare solutions for doctors surgeons and hospitals had a strong quarter as well.
The broader story here is the demand for non non elective surgical procedures is holding up well despite economic uncertainty within that strong market <unk> system stands out for best in class suite of products strong regulatory infrastructure and our years of experience using additive manufacturing solutions to improve patient outcomes.
Yeah.
However, the biggest factor for our health care solutions business during the quarter was a significant year over year decline in dental and dental market sales, particularly in the orthopedic and orthodontic area.
As we communicated to our investors last quarter, we were aware that this decline was coming and our general results for the third quarter, while disappointing were roughly in line with our expectations.
It's difficult to gauge how long the softer demand might last because it's so dependent on how macroeconomic conditions evolve over the coming quarters. We expect this business to eventually recover and to be a strong contributor to our growth and profitability.
So despite these ups and downs, we believe we now have good visibility into our broad business performance for the remainder of this year. This is why as Michael will describe for you in a moment, we're updating our full year 2022 guidance to significantly tightened our revenue range, while improving the forecast for operating expenses to reflect strong execution and cost controls.
Turning to slide seven I'd like to highlight some advancements from the third quarter.
These are not only interesting in isolation, but they also provide valuable insights into the type of core activities that will drive our company's growth in the next five years.
As I described for you in our last quarter's call. We agreed during the third quarter to acquire DP polar the Germany based developer of the industry's first additive manufacturing system designed for true high speed mass production of customized components.
I am pleased to report that we closed this acquisition in early October ahead of schedule and integration efforts are well underway.
I can't emphasize enough the importance of bringing this revolutionary printer technology into the <unk> systems portfolio. The machines continuously rotating built platform can print jetted polymer parts up to five times faster than today's batch process systems, which represents a quantum leap towards true mass production of custom components.
Three using additive manufacturing.
We plan to move forward with this technology as fast as possible with a critical mass of BP polar machines moving into beta testing with key customers in 2023 and initial commercial sales targeted for 2024.
If any of you are planning to be at the upcoming <unk> trade show in November I strongly encourage you to visit the DP polo booths and see this exciting new system for yourself.
With our metal printing portfolio will continue to leverage the unique capabilities of our applications innovation group along with our strong lineup of metal printing technologies to drive solution sales to customers in both industrial and healthcare segments.
Our technological advantage is primarily in our atmosphere control system, which is the industry's best for the manufacturer of reactive metals, such as titanium nickel and refractory metal alloys, we have been very successful recently with customers and commercial space and medical devices, both of which are extremely well suited to our technology and the type of.
Patient focused customer specific printing solutions of which <unk> systems as long specialized.
During the third quarter, we also announced several significant additions to our materials portfolio on.
On the polymer side, we introduced two new production grade materials tough.
<unk> clear for our figure four projection based printing platforms and do reform packs black for SLS printer line. Both of these materials address critical applications with key customers across several market verticals.
On the metals front, we introduced new copper copper nickel alloy Cu Ni 30, which is now certified for use on all of our G&P metal printing solutions.
This copper nickel alloy was developed in close collaboration with Newport News Shipbuilding, which is a division of Huntington Ingalls industries and is the largest shipbuilding company United States copper.
Copper can be particularly challenging to <unk> due to its highly high reflective <unk>.
Sure, it's an ideal material for extremely demanding applications in marine systems chemical processing plants oil and gas and of course rocketry.
Turning to slide eight and before I hand off to Michael I want to highlight the tremendous progress we're making on one of my most important goals for <unk> systems.
Namely the creation of a world class regenerative medicine business.
As I've shared with you previously our efforts in this area are currently proceeding along three primary lines first through our longstanding partnership with our biotechnology partner United Therapeutics, We've achieved remarkable progress toward our goal of three D printing functional human organs for transplantation finished.
Initially targeting lungs, but now with an expanded scope, including livers and kidneys.
Our partner announced publicly this summer that our goal is to have printed organs in human trials within five years.
Second building on the Oregon programs technological progress we've expanded into the adjacent field of printing non Oregon human tissue for transplantation and surgical reconstruction applications more details regarding this exciting initiative will be announced in the months ahead.
But today I want to focus on the third initiative, which is summarized on chart eight in this case, we're leveraging our expertise in creating vascularized human tissue and combining this capability with our polymer printing expertise to develop and manufacture highly differentiated organs on chips for use in drug discovery and development.
Affirmed by the pharmaceutical industry.
During the third quarter, we marked a major milestone in this initiative with our announcement of the formation of a new wholly owned biotech company called systemic bio.
This subsidiary is being managed as an internal startup with its own dedicated management team and R&D staff with.
We've committed to support systemic bio with an initial seed investment of $15 million, which should sustain the company until it reaches a material level of revenue and profitability.
One point that I want to emphasize is a systemic bio as go to market strategy will differ from <unk> systems traditional business model.
Due to the unique value of the printed products themselves and the sensitivity of this novel technology platform.
<unk> bio will mast cell printers and materials, rather it will work with customers to develop Oregon and disease specific human models for Oregon's on ships and then we will market those chips directly to pharmaceutical and biotech companies engaged in drug discovery.
To support this business model systemic bio has invented a novel patent pending organ on a chip platform, which we call <unk>. This stands for human vascular Vascularized integrated organ system.
This platform is comprised of three D printed microfluidic components.
And bio printed Vascularized <unk> scaffolds.
Once printed these custom designed Vascularized scaffolds are then seeded with any desire a combination of healthy or disease cell types for Houston drug studies.
We're producing H VI chips daily at our state of the <unk> Laboratory in Houston, Texas, where they are being tested by our systemic bio's team of scientists to validate their used for modeling specific organ and disease functions in collaboration with key pharma customers.
As you can see in the images on slide eight virtually any desired vasculature architecture can be printed.
And then mass produced to develop the statistical data needed for drug studies.
Turning to slide nine let me emphasize with differentiate systemic bio's technological approach from those in the market today and therefore, why we're so excited about this new business.
The three D bio printed fully integrated vasculature contained within <unk> within systemic Bios <unk> chip can closely mimic human Oregon structures, allowing.
Allowing for active perfusion of blood through the tissue sample as shown in the lower left image, where you can see blood through flow through the printed structure.
This vasculature is critical for self survival as the blood flow is needed to bring nutrients to the implant itself and then remove waste products just as the process works within your body.
You can see the success of this approach in the lower right hand, an image on slide nine with the green regions being human cells that have thrived in this printed tissue sample for over 28 days.
This is unique in its the true magic of the <unk> system.
The cell types, comprising these tissues can be of any type.
For example on one into the chip can be human liver cells and on the other end can be cancer cells with the printed blood vessels connecting them together in a continuous circuit.
Developmental drugs can then be introduce to evaluate the interaction with both the healthy cells and the cancer cells in a continuous blood flow environment with.
With an ability to create virtually any combination of tissues at high volumes for evaluation using this technology, we believe that the drug development cycle can be shortened.
Access rates enhanced and the use of animal testing ultimately eliminated overtime.
From a financial standpoint, our goal is to establish key contracts with the pharmaceutical industry companies over the next year to affirm the technology and incorporate it into drug development protocols.
Needless to say I'm tremendously excited about the potential of this new business and are driving to see early customer validation of our technology.
Investors in our company should note that we believe systemic bio given its highly advanced bio printing and biomaterial capabilities and its business model of selling proprietary <unk> chips, rather than printing technology.
Has the potential to achieve profit margins more like a biotech company than a manufacturing technology supplier.
Based upon early customer feedback I believe systemic bio could be $100 million revenue company within five years.
I am confident that we will announce the first agreement with a major pharmaceutical company in the near future.
We'll look forward to sharing the progress with you.
Before I turn the call over to Michael I'd like to close my remarks by turning to slide 10 to highlight our software business.
<unk> systems has long been an innovator in three D printing software offering specialized applications such as to your magic <unk> Sprint <unk> expert.
We advanced that position significantly in late 2021 by acquiring often a leading provider of software solutions that utilize AI and machine learning to help manufacturers intelligence to automate their entire digital production workflows.
Since the acquisition of Austin, we've transformed our entire software go to market strategy.
All software operations are now under a single management structure that being often and we're integrating <unk> systems legacy standalone applications into the Ogden manufacturing OS.
The end result will be complete cloud based digital manufacturing solution that is hardware agnostic and technology neutral.
It will be able to seamlessly integrate the entire factory floor across multiple sites with a digital thread that provides complete control and traceability of every action in the manufacturing workflow from order to delivery.
The combined suite of Aten and <unk> system software provides by far the most complete and feature rich software offering in the additive industry today.
As shown in the comparison table on slide 10.
While customers themselves can put together point solutions for each feature at.
That approach, commonly called do it yourself or DIY, they're hesitant to do so given the cost and complexity of the approach.
The only alternatives to this approach are the leading CAD supplier as shown in the middle column or other <unk> equipment manufacturers, who are best have only a fraction of the capability spectrum the doctor and offers.
And we will continue to refine and add to the auction offering over time through both R&D investments and through commercial partnerships with leading players in the field of industrial automation.
As just one example of our development roadmap optimism partnership discussions with a major meeting with major manufacturing partners that would include joint development of new software functionality.
Hard identification e-commerce and cataloging.
Most importantly, the new integrated octave suite of applications not only leads the industry. It has the potential to become a key enabler of true serial scale additive manufacturing that can make an impact on our entire industry.
For this reason we have open auctions availability to the entire additive manufacturing industry. This includes all elements of the new auction platform, including the historical <unk> systems printing software as we believe we will have a tremendous impact from the acceptance of additive manufacturing broadly.
To facilitate industrywide adoption the aten business is run as a standalone operation with a high priority on protection of user sensitive data, including externally audited firewalls to assume to ensure security and confidentiality.
With this approach ottens, gaining traction everyday and now has customer wins in the automotive aerospace contract manufacturing healthcare and dental markets with growth potential ranging from double to triple digits. We're very excited about the future of this software platform.
And with that I'd like to turn the call over to Michael to review, our third quarter financial results, Michael Alright, great.
Great. Thanks, Jeff for the warm welcome I am excited to be here and I look forward to upcoming opportunities to meet our investor and analyst community directly.
Before I start I would like to remind everyone that <unk> systems made three significant divestitures in 2021 the.
The earnings release that we issued last night contains tables with non-GAAP measures relating to our 2021 results for which we excluded the impact of the 2021 divested businesses.
Likewise on today's call any reference that I make to our 2021 results will be on that same ex divestiture basis.
Appointed us adjustment is to make our 2022 results comparable to our 2021 results on an organic basis.
Starting out on slide 12 of the presentation.
As Jeff discussed our revenue results for the quarter were generally in line with our expectations with some bright spots in certain areas that we will highlight for you. This morning as.
As we saw last quarter, the overall business environment during the third quarter remained challenging due to continued FX headwinds inflationary pressures.
Cessionary fears persistent supply chain challenges and geopolitical tensions however, the biggest headwind we faced during the quarter, which we expected and called out in our revised <unk> guidance was a significant year over year decline in revenues from dental market customers.
Revenue for the third quarter was $132 3 million a decrease of 15, 3% versus the prior year, excluding divestitures and the unfavorable impact of FX revenue increased by two 7% compared with prior year.
This topline growth reflects continued solid demand in both our industrial and healthcare segments, partially offset by weakness in dental market sales, which as you know represents a significant portion of our overall business.
Just to quantify the impact on revenue from some of the factors I mentioned earlier, starting with FX.
We experienced headwinds of over $8 million related to the sharp appreciation of the U S. Dollar that occurred during the third quarter.
Which reduced the U S dollar value of our international sales made in foreign currencies.
Which typically represents roughly 40% of our total sales.
There may have also been some third quarter Internet international sales that did not materialize because in some cases, we price our overseas product offerings in U S dollars and in these cases, the customer has to convert more of their local currency earnings into U S dollars to pay us which represents a price increase for them and can therefore result in some lost sales.
On our second quarter earnings call. We highlighted two additional items that had an adverse impact on our year over year revenue growth.
One being the Russia, Ukraine conflict and the other being persistent supply chain disruptions.
Both of these items had less of an impact during the third quarter.
Regarding sales to Russia, while our second quarter of 2021 sales to Russia, where relatively material by the start of the third quarter of 2021, we have largely exited the Russian market and as a result, our year over year revenue comparisons for the third quarter were much less impacted than what we saw in Q2.
And on the supply chain front, you will recall that we commented on the impact of these disruptions, including component shortages as well as inefficiencies in portions of our contract manufacturing network that caused us to get behind on some further orders we estimate that the total impact of supply chain issues in Q2 resulted in approximately $9 million of <unk>.
<unk> orders that we cannot ship is planned during the current quarter. However, we were able to significantly catch up on many of these late shipments and as a result, we estimate that we had approximately $2 billion of firm customer orders that were unable to ship through the supply chain delays.
I am pleased to say that this was in large part attributable to our decision earlier last quarter to bring one of our major outsource printer manufacturing facilities back in house.
This has enabled us to significantly increase the rate of printer production at that facility and thereby work on our backlog of late customer orders, while also having a favorable impact on gross profit markets.
And lastly for consolidated year to date revenue looking back over the first nine months of the year, we grew revenue excluding divestitures and the unfavorable impacts of FX by seven 6%.
Despite a very challenging operating environment, we were able to achieve year over year revenue growth for the first nine months of the year in the high single digits.
Turning now to slide 13 for a review of segment revenues.
For our healthcare solutions segment revenue, excluding divestitures and the unfavorable impact of FX decreased by three 5% as compared to the third quarter of the prior year, while revenue, excluding divestitures and the unfavorable impact of FX in our industrial solutions segment increased by 9% year over year.
The biggest driver of the decline in health care solutions.
A sharp reduction in spending by certain key dental customers as the market for elective orthodontic procedures.
High inflation reduced consumer confidence and geopolitical factors are negatively impacting patient demand.
For such elective procedures, resulting in lower case loads.
At this time, we cannot say with confidence how long the weaker dental demand environment will last given that it is so heavily dependent on how macroeconomic and other factors evolve over the coming quarters, starting last quarter. We have incorporated this revised view into our 2022 revenue guidance and at this point, we do not foresee material improvement for the rest of 2020.
Two.
Outside of dental we saw healthy growth in some of the other major business lines within our healthcare solutions segment, including strong sales to customers at <unk> various types of medical devices, such as orthopedic implants and surgical guides. Additionally, our sales of virtual surgical planning and point of care.
<unk> the Doctor Surgeons in hospitals grew very nicely in the third quarter.
These business lines tend to serve patients needing surgical procedures that are lesser elective in nature. Therefore demand in this area has held up very well despite microeconomic.
Macroeconomic uncertainty.
As Jeff noted <unk> systems is recognized as a leader in the surgical planning filled with the ability to combine three D printing services.
Software and materials to create an integrated end to end surgical packaged in a way that our competitors cannot.
Turning now to our industrial solutions segment industrial revenue growth was driven by continued strength in precision micro casting applications and for production machines and energy and commercial space applications. Offsetting this were lower sales in automotive automotive applications, largely because of a tough year over year comparison provided by some large.
Deals in the third quarter of last year that did not repeat in the current year.
As Jeff noted we are starting to see good sales traction with our tightened family of printers, which we acquired in 2021.
Overall, both of our polymer metal printers continue to sell well across our industrial solutions segment.
Moving on to gross profit on slide 14, our gross profit margin was 39, 8% compared to 41, 2% in the prior year.
The decrease in margins is due to multiple factors, including 2021 divestitures of noncore asset inflationary impacts on input costs and freight and product product mix changes, mostly related to selling more printers and less materials and in the prior year I'd also like to note that while margins are down on a year over year basis.
We have seen some sequential improvement with 190 basis point increase from Q2, driven by the full run rate impact of price increases announced earlier in the year as well as the early benefit of bringing some of our outsource partner production back in house during the quarter.
Turning now to operating expenses on slide 15.
GAAP operating expenses increased 6% or $4 9 million to $86 4 million in the third quarter of 2022 compared to the same period a year ago. This includes a $9 million increase in legal and other settlement cost.
Partially offset by decreases in expenditures expenditures due to divestitures.
On a non-GAAP basis, which excludes nonrecurring charges and divestitures operating expenses were $58 3 million as compared to $49 3 million from the same period a year ago.
Higher non-GAAP operating expenses reflect spending in targeted areas to support future growth, including expenses from acquired businesses.
Search and development and investments in corporate infrastructure.
We did however, see some sequential improvement in operating expenses as compared to the second quarter of 2022, which reflects our efforts of heightened cost controls in response to the volatile demand conditions that we've experienced this year.
Moving now to slide 16, adjusted EBITDA, which is defined as non-GAAP op operating profit plus depreciation.
It was negative <unk> 3 million for the third quarter of 2022 compared to $11 6 million for the third quarter of 2021, a year over year decline in adjusted EBITDA reflects all the factors that we've previously discussed.
One call out I would like to mention here is regarding SG&A and R&D expenses from businesses that we've acquired over the last year and a half these acquisitions represent important investments by <unk> systems, and we expect to contribute significantly to our revenue growth over the coming years. However for the time being these acquired businesses.
As in aggregate have yet to generate meaningful revenue for us as a result, you should expect our adjusted EBITDA to run below our natural potential for a period of time due to the near term expense impact of recent acquisitions.
And for EPS in the third quarter, we had a fully diluted loss per share of <unk> <unk> compared to income per share of $2 34.
In the third quarter of 2021.
Excluding charges for stock based comp compensation expense and other nonrecurring items as detailed in the appendix of the earnings release that we posted last night, our non-GAAP loss per share in the third quarter was five.
Compared to non-GAAP earnings per share of <unk> in the third quarter of the prior year.
The year over year decline again reflects all the factors that we've previously discussed.
Now turning to slide 17 for balance sheet highlights.
We ended the quarter with $609 million of cash and short term investments on hand, our cash and short term investments declined approximately $180 million.
Since the end of 2021, driven primarily by 85 million paid for acquisitions and equity investments.
Cash used in operations of $52 million capital capital expenditures of $17 million and other cash used in financing activities of approximately $13 million.
We continue to have a strong balance sheet with sufficient cash to support organic growth.
As previously stated we regard 2022 as an investment year.
And which we will make additional targeted investments in high potential growth areas of our business and in our corporate infrastructure. This is part of our overall strategy to profitably grow revenue in both the industrial and healthcare segments.
As well as to enter new businesses, such as regenerative medicine.
While we are always willing to consider M&A opportunities as they arise. We are currently focused on integrating and growing the businesses that we've acquired over the last year and a half.
And finally I'll conclude my remarks on slide 18, with an update on our full year guidance for 2022.
As a reminder, we announced a reduction in our 2022 full year guidance during our second quarter earnings call. We took this step because we extended the challenging macroeconomic and geopolitical environment to put pressure on international industrial solution sales and because we believe that software demand for elective procedures would negatively impact our health care solutions.
Segment, particularly in the dental market.
Our third quarter results were in line with these revised expectations and at this point in the year, we now have improved visibility into our likely revenue and operating expenses during.
During the fourth quarter.
This improved visibility incorporates the impact of certain cost control measures that we've taken to better align our cost with the current revenue environment.
Based on these factors we are updating our full year guidance is significantly tightened our expected revenue range, while improving our outlook for non-GAAP operating expenses are.
Our full year gross profit margin guidance remains unchanged.
Pulling it all together our updated guidance for 2022 is is as follows.
We expect revenue to be within a range of $535 million to $545 million, we expect non-GAAP gross profit margins to remain unchanged and in the range of 39% or 41% and we expect non-GAAP operating expenses to be in the range of $240 million to $245 million.
Full year of 2022 guidance assumes no significant additional changes in the macroeconomic environment that can negatively impact business demand or disrupt our supply chain such as COVID-19 geopolitical events.
Or continued foreign exchange volatility.
That concludes my prepared remarks, operator, we are now ready to open up the line for questions.
Thank you, we'll now be conducting a question and answer session. If you'd like any places. 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 you'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 one moment, please while we poll for questions.
First question today is coming from Troy Jensen from Lake Street. Your line is now live.
Hey, gentlemen, thanks for taking my question here.
Mike I'll start with you just you talked about Opex being $2 40 to $2 $45 million for the year.
On a sequential basis that implies about a $5 million to $10 million.
Sequential increase in Opex.
So I'm just kind of curious is that onetime in nature or is it unlocks.
Do you think about Opex 20.
I explained that the sequential increase and then how do you think that the opex.
Growing or declining quarterly on an absolute basis beyond that.
Great question Troy.
So.
One driver of going from Q3 to Q4 is DP polar which we closed on in October as Jeff mentioned, So we will get the full run rate of their expenses going forward. We will also have slightly higher commission and sales commissions in Q4 is.
Related to higher sales demand.
And I.
I think you should think about our.
Kind of run rate Opex being the Q4 exit rate for now we will give you further guidance in 2023 as we as we get to that point.
Okay, perfect very helpful and Jeff how about for you with systemic <unk>.
Like carve out just fault business segment within our regenerative businesses.
What was so attractive on that Daddy Macquarie dependence on Standalone business versus everything else you're doing in regenerative.
Yes, Thanks choice, it's a good question.
A couple of reasons.
Two.
Kind of cultural reasons, if you will number one we wanted to drive a real startup mentality and that business because it is a new business new technology go to market. It is a different customer base than we've historically had these the customer base, there or the pharmaceutical companies largely and the companies that are testing new drugs for the pharma companies. So.
The sales model is different also Troy as I mentioned in passing that business model for the business is different than the rest of the company were selling in that case, we're setting ourselves up to sell these <unk> chips, the chips that come off the printer not the printers themselves.
Fundamentally that printing technology is just too valuable to be selling printers, we want to we want to really jealously guard that IP and know how to do that and sell the product that comes off of it. We think the product will be very valuable and we think it'll drive exciting not only revenue growth, but gross margin performance, we want real clarity on.
<unk>.
That business model works and that the technology is proven so the best way to do that in my mind was carve it out separately and look at it.
In fairness to our shareholders investors, we wanted to say how much we were going to spend on it. So we put that flag out there to say, we're going to invest $15 million in this business to get it to a material revenue contribution and profitability.
And.
We think we will hit those objectives, clearly, we want to be able to measure that and report out on it.
And beyond that.
It gives us optionality too.
To continue to invest ourselves or if we want to bring in outside parties to invest with us in that business. If the capital requirements exceed what we can comfortably do we want to allow it to grow in its own rights as fast as it can logically grow and.
The base plan is we will put that capital and ourselves based on the return we would estimate for it at the time if that business really requires because it is a revolutionary technology. If it requires additional capital we may at some point entertain outside investment in as well so for all those reasons, we wanted to set it up as a.
Standalone business. It is a wholly owned business and our default assumption is it will be part of the <unk> systems portfolio forever.
But it gives us optionality on how that goes in the future.
That makes sense.
It makes perfect sense and if I could ask just one last follow up.
Im assuming that the weakness in kind of product sales is more on the system side, but could you just delineate maybe material demand in the quarter existing machines being used the full extent there.
Just some some color on material amount of the growth.
Yeah, Troy as you might guess.
<unk>.
With the with everybody being concerned about where the economy's going capital spending is certainly.
I think being viewed by our customers are being more conservative in it.
Which translates to fewer printer sales broadly and we see some sales pushed off we see some some hesitation on customers. They want us to make sure. The demand is going to be there so and on the flip side. They are using their assets more heavily they are bringing <unk> printing in and actually using it more heavily in production so in that.
Scenario, you see materials going up new printer sales.
Declined the growth rate and a declining.
So that is that's a quarter to quarter variation in it very much depends on how customers are viewing the future and how much they need their cash Fortunately the people we sell to our.
Have really good balance sheets, so its not that they don't have the money to invest.
They're just mainly being prudent about how they spend their money given all the macro stuff going on.
Yes.
It has a direct impact on us each quarter and hard to predict where that goes but thats the current trend.
Alright, perfect guys, Thanks, and good luck going forward.
Thanks, Troy and thanks, so much.
Thank you. Your next question today is coming from Paul Chung from Jpmorgan. Your line is now live.
Hi, Thanks for taking my questions. So just a follow up on on Opex I think I heard you say the exit rate of maybe $66 million or so on a quarterly run rate business.
Basically it's kind of moving forward.
Kind of the pace of Opex.
Implied around high single digits for 'twenty three is that the right way to think about it.
So.
Thanks for the question Paul we're not prepared to comment yet on 2023, we'll give you that guidance as we as we get closer.
Maybe on our next call are definitely on our next call but.
Youre Directionally thinking about Q4.
Correctly.
So we hope to beat that number slightly what split you mentioned that will be in and around that ballpark.
Pull from Okay in the long run.
From a longer term perspective, Paul there were investments we needed to make this year to make sure that basically our back office infrastructure to support our future growth and do so efficiently that we would expect in future years to start gaining efficiencies in our in our G&A. If you will our back office infrastructure. So the idea was that's why.
We view this as an investment year not only in R&D, but in G&A. If you will to make those critical investments to gain efficiency in the future years to hit our scale and you just need to do that.
Great and then on gross margins Youre seeing some sequential improvement here.
Sure.
Trough in <unk>, how do we think about.
Margin expansion in 'twenty three it some.
Pie chain cost come down and get some pricing benefits.
And then what is the benefit from in sourcing I guess on the margin line and also.
Impact on Opex from influential.
So we'll give you we'll give you much better clarity on 2000 22023, because as much as any company can.
When the year finishes out Paul, but I would tell you all that all the trends you just mentioned are correct.
As we implement price increases it takes a little bit to take root and flow through some of them are tied to the introduction of new technology, new platforms that bring more value to customers. So that will if theres a lag between your costs going up in Cogs annual recovery in pricing. So we saw some pricing improvement in the quarter flow through.
We expect more of that to come as we go into 'twenty three we've been very careful about not getting out over our skis and advertising manufacturing cost reductions, which again shows up on the Cogs line.
But they are real and we saw the initial benefit as Michael mentioned in Q3, and we had only done it we had only in sourcing in about the mid quarter point and we already saw benefits from that so we expect our gross margins too to be consistently improving hopefully Q2 was the low point.
We expect it to be consistently improving but we can't give you specific guidance.
Until we get into 'twenty through up to see what the macro economic outlook is.
Got you and then last one on free cash how do we think about it.
In the year, it's been.
<unk> seen a usage here for the last four quarters, mostly on lower earnings but.
Can we start to see some.
Kind of rebound here and free cash as we exited the year and look forward to 'twenty three.
Maybe some moves to in sourcing helps I'm not sure just your general outlook.
Yes, Paul.
When people look at the details you'll notice a big tick up in inventory and inventory levels and working capital that was because of the in sourcing and manufacturing we had a pick up a lot of existing inventory from the from a supplier.
It's good inventory will burn it down over time and that'll be a cash source for us.
And we would expect operational improvements to continue to drive better operating cash flow as well.
So.
In terms of free cash flow, we're really not a very capital intensive business.
<unk> cash from operations, we get a nice flow through into into free cash flow because we don't spend a lot of capital inherently on organic growth, where we would spend it or on any kind of bolt on acquisitions or other infrastructure changes, but a lot of the infrastructure changes we've already made.
And we don't we wouldn't expect that to be a big cash usage going forward. So as Michael mentioned, we exited the quarter with over $600 million of cash we did close out the DP polar acquisition after the quarter closed.
But other than that we've got to we've got a strong balance sheet and we own the assets, we really need to own for the future. We just need to execute now and grow them yes.
I'd just add right. If you kind of look at Q3, we had roughly kind of in the range of $15 million to $20 million of outflows in cash related to the in sourcing and manufacturing <unk> strip that out and kind of strip out all the acquisition activity that we've done and you can see it on the face of our cash flow statement I think youll be kind of in the ballpark for what to expect.
Cash flow wise.
Great. Thank you so much.
Jim.
Thank you next question is coming from Tyler Hojo from William Blair. Your line is now live.
Good morning, Thanks for taking my questions.
Sure.
Just wanted to start off just on.
On healthcare I know you said that obviously growth is down I was wondering if you could quantify kind of any year to date numbers on how much denser was down year over year.
We didn't break out we didnt break out that number we didnt break out that number but it was meaning it was meaningful I mean, when you when you look at the <unk>.
Orthodontic business for Us if you will.
It had been growing strong double digits coming into this this inflationary environment and.
And clearly if you follow that segment of the market once more.
What manufacturers of those products have said as growth rates of decline from strong double digit performance to more single digits to more flattish performance all in a very rapid period of time.
And what they have attributed it to which I fully understand is that consumers are having to decide between.
Milk eggs and gas and straightening their teeth.
In that case crooked teeth are tolerable for awhile so.
I fully expect that market will rebound and that.
We've got great technology, great channels to market there.
But for right now it's in the doldrums and has really declined rapidly during the year.
Alright. Thanks.
And additional color on that.
And then I guess my follow up would just be on the pricing you said that kind of a lag in pricing when should we kind of see that effect.
And.
And then just like a long term not really 'twenty three guidance, but just getting back to your long term gross.
Gross margin of 50%.
Kind of where do you see that trajectory now.
So I'll start with your question on pricing.
I think that we've seen the full run rate of the price increase in Q3.
Price increases announced earlier in the year. So you can kind of expect that to.
Not change materially going forward into Q4.
2023, I mean, we're not going to.
Like I said, we're not going to comment on specifically, but I will just say that we'll continue to monitor input cost and make price adjustments, where we can.
But for now I think the run rate that Youre seeing in Q3 is indicative of where we are for that for the near term.
So if you look at what we've always said from the past and now is the pricing opportunity on existing products is always it's always a bit tricky.
To drive that because it is a usually a capital item for our customers at.
At least on the printer side.
Materials is a little more opex for customers. So.
An opportune time to look at pricing strategy is really when you introduce new products and we set out at the beginning of 'twenty two to refresh our entire product line over the next two years. So 'twenty two 'twenty three most of that will happen in 'twenty three and those are always the opportunity to to set new pricing points with new products hitting.
The market.
Okay. Thank you for the color on that.
That's it for me.
Thank you thanks Todd.
Thank you. Your next question is coming from <unk> Mohan from Bank of America. Your line is now live.
Yes, Thank you and good morning.
I was wondering if you can.
Can you help characterize perhaps.
<unk> systems is positioned going into a potential downturn here.
In terms of maybe revenue margin levers and cash flow.
Maybe if we take a hypothetical case seeing revenue oppression, 10% not unreasonable.
Decelerating environment.
I'm not saying, that's what's going to happen, but if it were to happen how should investors think about what would be the flow through of that whatsoever.
Leverage you'll have to Paul.
Although it's a little bit of a tough.
Tough question given that's not.
Maybe how things will play out but at the same time investors want to get some sense of comfort around where the trough and potentially margins and cash flows are so anything you can do to help us that would be living room.
Sure.
As a backdrop to that answer one thing I would tell you.
It's a marvelous time to have a strong balance sheet and we.
Because of our divestitures and our other actions in the capital markets in 'twenty. One we came into 'twenty two with an excellent cash position and we maintain that cash position largely in the year, we feel really good about our base foundation in terms of flexibility going forward yes.
Yes, you never know where the economy is going and what's going to happen on the top line and also with all the currency fluctuations hopefully the the dollar recently kind of plateauing, you will will be stable now for a while and that wont be an additional headwind the economy is anybody's guess.
A lot of our business is.
Is not discretionary business. So you would expect outside of dental.
And maybe a few procedures that are medically oriented unless the economy gets really bad those procedures don't get pushed out so in terms of revenue impact.
It's anybody's guess, but certainly there is some downside if the economy gets worse.
But probably a little bit more modest than many other many other industries on the cost side. We've got all the normal levers we've got labor costs I am pleased that supply chains are starting to at least stabilize and now hopefully improve.
The ones that you follow many industries.
Like computer chips, we are a real issue early in the year those have really moderated quite a lot.
So components are easier to buy we're even starting to be able to negotiate some pricing on componentry. So that's all a good thing in and of course, we have labor cost if volumes drop off. So so we have all the normal levers to pull.
And we will do that we've tried to maintain our initiatives in 2022 really hard. So you can view that as you know we've spent a lot of money on in 'twenty two but that's then all available to us if we need to cut back in 'twenty three.
Those are all things that can in the future be done so Michael I don't know if you have any other yes.
You hit all the all the right all of my comments I would just say just kind of double back on the on the strength of our balance sheet and capital structure. I mean, we do have enough liquidity to weather.
Certainly any near term storm.
Gabon with all the levers that you mentioned.
I think we're very well positioned in Swansea, it's interesting too.
Don't know if this was included in your question, but from a labor standpoint and we're.
Given that the company is healthy and we have a strong balance sheet, we've been able to attract really nice talent of the business. So availability of talent is not an issue how much labor you have is depending on how much business you have to do but in terms of attracting good labor. It's been a really good situation for us.
The issue that every company faces as labor costs have gone up a lot because of inflation and you have to be sensitive to employees needs on that front. So we tried to make adjustments in our in our.
Our pay scales. If you will to address that very hard to keep up on that so so those are that's kind of the challenge part of it.
But we've got all the normal levers to pull if times get harder and we will pull them all in by saying we are heavily focused on execution, we own the assets we need to own.
We now need to execute with those assets and we're focused on profitability and cash performance that is our priority. Okay. The topline growth. We hope will be there in these markets rebound, but our priority now is executing on what we've invested in and drive profitability and cash performance.
Okay very clear thank you so much.
Thank you.
Thank you as a reminder, that star one to be placed in the question queue. Our next.
Question is coming from Shannon Cross from Credit Suisse. Your line is now live.
Thank you very much I just had a question with regards to <unk>.
The comments you made about maybe losing some sales due to U S dollar strength.
To some extent plays into pricing, obviously, given how the currency impacts.
Some of the purchasing decisions overseeing so I'm wondering.
What led you to say that and how youre thinking about.
Pricing from the standpoint of International do you think you need to take it down to sort of offset currency pressure or.
The way you price in U S dollars or just in general what Youre thinking about in terms of elasticity of demand there.
Yes.
I think I would just say couple couple of general comments Shannon.
So number one we're always evaluating.
Perfect waste.
Rice and assessing.
Risk.
With regards to international sales.
Maybe maybe we.
Overstated, a little bit, but I would just say that in general we have some FX headwinds right in those FX headwinds can come in the form of.
Yes.
And to form dry <unk>.
Foreign denominated sales that you do make it translated to lower U S dollars and that the stuff that youre traditionally pricing in U S dollars overseas.
Generates a little more headwinds.
From may affect your pricing or it may impact that need losing sales, but it's going to happen.
Same kind of a net overall impact to us.
As a business.
Okay.
No.
That's okay I think we probably commented enough on a go ahead with your next question.
Okay.
I was just wondering can you talk a bit more about systemic.
Systemic because what I'm, what I was thinking is that those on the call, including myself are not in a biotech analyst. So I'm just wondering as we look forward what sort of both qualitative and quantitative milestones should we watch for.
To show that everything is trending in the right direction.
Yes, so so I would say, it's probably a little bit qualitative, but we will be as quantitative as we can in terms of contracts that we land. So we're we're in discussions with multiple pharmaceutical companies now about demonstrating the model make sure. The models work. This is not a brand new concept. What is new is the technology that we can offer with <unk>.
Printed vasculature inside the tissue, which allows sellers to live and if cells can live for say a month. Then you can do an effective drug study on those cells. So it's really attractive to pharma companies, we have to demonstrate the model works.
And you can do it with good statistics.
Externally what you should watch for our announcements of contracts wherever we can we're going to announce them, we're going to announce we've landed them wherever we can we're going to put numbers to those.
So over time, you want to see those growing.
How much financial.
<unk> some of it depends on how much work, we want to put into the actual margin reporting on the business. So I would think we can talk about revenue growth.
We will do as much on margins as we can because we want to be pretty transparent. These it's a different type of business that biotech is a different business I don't think anyone in this industry has really moved into it yet and we want for biotech investor we want to really advertised what that business is doing and what it could be worth to.
To make sure we get value for our shareholders for it so we'll be as transparent Shannon is we can first indicator would be announcement of contracts and then we will give you as much financial information about it as we possibly can.
And are you I'm just curious in your discussions with some of the pharmaceutical companies are you looking for strategic investments from those companies or margin.
Guaranteed contract that would lock in revenue.
From a funding perspective as described and so im wondering how youre thinking.
No we don't need any investments right now, we've we've committed $15 million to it that's fine to get us to.
Two a material scale, where we can show to internally and externally that this business is a good business and it's going to grow from there. So we've already had people wanting to come up and invest in it with us, but we don't want to take investment too early because I'm afraid, we will give away future value.
It depends a little bit on how demand grows and what capital requirements. There are if theyre really high we might look at somebody coming into to share the burden with us on the capital investment. If they are low enough. We may do it ourselves that will just be decided based on the magnitude and the return on investment, but we've set it up to give us give ourselves optionality.
On bringing in outside investment if we want it.
And that's the way we'll run the business right now I'm really excited to see the first contracts come in and this model demonstrated because truly Shannon.
Nobody else can do this in the world right now. These these these models have a chance to accelerate drug development and obviously reduce the amount of animal testing thats not just.
Just an advertisement for cruelty to animals.
It is a statement that animal physiology is not the same as humans and thats why the failure rate on drug just one reason why the failure rate on drug development is so high is you tested in mice, and sheep, and pigs, and and and and so forth to work your way up to scale to trustee go into humans and those physiologies or just not human.
Physiologies. So if we can if we can demonstrate this in a lab that it works with human cells.
As a chance to shorten the cycle increase the hit rate and reduce animal testing, which is a win for everybody. So that's the that is the value to shareholders that we talk about creating I want to see it come through in pharmaceutical contracts that we can talk about and show that the business model works.
Great. Thank you very much.
Yes.
Thank you. Your next question is coming from Alex <unk> from loop capital. Your line is now live.
Hey.
How's it going guys.
Good morning.
Good morning, My question is so.
So what's your view on macro impact on our customers' behavior.
And maybe maybe if you guys could provide deeper context I believe customers are gaining traction on the pacing of the actions as macro efficient manifest.
Well I'm not I'm not sure I picked up all of that question. So so running behind me.
I'll go a little slower we run it by me again.
Are you guys Michelle.
What's what's your view on macro impact on customer behavior and through 2020.
And then the second part of the question was maybe if you could provide a deeper context on how you believe customers are viewing their actions and the pacing of the actions as macro increasing manifest.
Yes.
I'll start off on yes. So.
So I think your question is really how customers are reacting to macroeconomic uncertainty.
I am not.
First of all.
Nobody fully knows what's going to happen in 2023, I mean, we are continuing to experience choppy supply chain environment.
Consumer spending is is moving in different directions.
People are kind of battening down the hatches, but.
Yes.
We're addressing that as best we can and I think I think as you saw in our in our prepared remarks right.
<unk> impacts.
<unk> systems. The primary impact is in the procedures that are more elective in our healthcare segment slip.
Within the orthodontic market.
But we do ask that will kind of recession proof or recession resistant areas of the business that are that are continuing to perform very strongly outside of the dental markets.
In our healthcare business was up pretty nicely year over year in our industrial solutions segment.
<unk> had 9% year over year growth and I think that was like the seventh consecutive quarter of year over year growth.
Im just trying to kind of lay that backdrop, and then let Jeff kind of fill in some of the blanks everything Michael said is absolutely true and the reason we you could still get growth I mean, this is an industry broad industry comment as additive manufacturing allows customers to bring in flexibility in their supply chain.
On top of which they can design more exotic parts for better performance.
You have got this tailwind if you will the headwinds the economy clearly and for us in the U S.
The strength of the dollar those are headwinds with the tailwind we all have in this industry and I think we're well positioned to leverage this is customers are.
All of them were stung by these extended supply chains and virtually every industry stunned by these extended supply chains into into Asia, and Eastern Europe , and things, where where we've had we've had pandemics. We've had wars. We've had all of this uncertainty. So most of our customers are saying boy if I.
I should look at additive and my factory, because I can bring it closer to home I can have flexibility so that if I need to make multiple types of parks I can do it on the fly I can do that and I can make parts of the performed better than my product.
So as the as as an industry and I think we've been leaders in this of introducing new materials for manufacturing production.
They say well I can make the parts I really want to make now with additive and that really helps us a lot in a recessionary environment because everybody remembers the pain of the pandemic is still exists and supply chains with China shutdowns open a newspaper and you see China shutting down periodically you still logistical issues getting parts.
<unk> around that around the world. So yes, there is a macro headwind from the economy, but there is a tailwind unique to our industry.
Of people adopting additive in production and I believe thats going to continue and accelerate particularly as the economy rebounds, and capital spending it loosens up more so it's a trade off which of those wins I have no idea.
The short term one month, two months, who knows but in the longer term.
These supply chain issues have opened a real opportunity for this industry that I believe is going to make it a permanent part of the production and supply chain in most companies, both industrial and health care around the world.
That's really helpful. Thank you very much.
Sure. Thank you. Thank you.
Thank you. Your next question is coming from Greg Palm from Craig Hallum Capital Group. Your line is now live.
Yeah, Hey, this is Danny acreage on for Greg today, I'll try and keep it short.
I guess just on the revenue guide.
Implies Q4, more or less in line with Q3, obviously dental sounds like remains pretty challenged but I guess more broadly across other end markets. What are you seeing through October .
In November here.
And maybe how youre expecting that project into the next few months.
It's kind of steady as you go we don't expect an.
Honestly as we sit here today and it can always happen we don't expect.
And unless throughout 15 caveat, it's unless theres a bigger war unless there is a new outbreak of the pandemic. We don't expect any major changes between now and the end of the year. That's why we can tighten our revenue range down we think that revenue range fully reflects the risk that we have today as we sit here.
And we're in mid November so between now and the end of the year unless some catastrophe happens in the world. We don't expect any significant changes I think everybody even on a personal level people are more cautious and that will continue there is also interest in 2023 and from our customers and.
Enhancing the reducing the risk of their supply chain. So as we end the year and go into next year, unless there's a major disruption I think it's kind of steady as you go right now and that may or may not be able to exciting environment, but that's what we see right now as we sit here.
Got it.
And then I guess just.
In light of that weaker demand environment.
All of our growth just how youre thinking about managing and balancing investments.
Well, that's the tricky part of it because we do believe this is an exciting growth industry and there is a minimum number of seeds, you gotta be planting and watering in order to fulfill that growth we want to be very prudent about it and that's why I want to be clear. We're focused right now the good news is we bought the assets are invested in the ASP.
So we really needed needed to have to live into that growth.
Theres not a lot of incremental investments, we need to be making we've got the broadest technology portfolio in the industry today, we need to run it well.
Do some incremental investing for organic.
Growth in capability.
Any external investments we make are purely opportunistic at this point, we don't need to need to do them, so and on top of it we've got $600 million in the bank. So we don't we're not in a position where we need to spend that money.
We just need to execute on what we own predominantly we're focused heavily on profitability and cash performance in spite of having a strong balance sheet, we're going to do that because.
Because we think it's prudent and at the same time, we want to bring those seeds that we've purchased and brought into the company to full Mighty Oaks. If you will that's what we want to see them happen over time, so why we stuck with our long term guidance of double digit growth.
And we hung out there being a $1 billion company in five years I still think that that's very possible.
Again, assuming no catastrophes in the world and things return to normal and economies over the next year or two I think there is no reason in the world, we can't see that kind of exciting growth ahead.
Alright ill leave it there thanks.
Thanks, So much thank you and Kevin with that I think we'll wrap up the Q&A and closeout.
Over to you for any further or closing comments out there.
Great. Thank you all for joining us today, it's been a pleasure talking to you and we look forward to updating you with our year end results on our next call. Thanks and have a good day bye bye.
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.