Q4 2022 Stratasys Ltd Earnings Call
Hello, and welcome to the Stratasys Q4, 2022 conference call and webcast. If anyone should require operator assistance. Please press star zero on your telephone keypad, a question and answer session will follow the formal presentation. We ask you. Please ask one question and one follow up as a reminder, this conference is being recorded.
It is now my pleasure to turn the call over to you on to Lloyd Chief Communications Officer, and Vice President of Investor Relations. Please go ahead, Sir good morning, everyone and thank you for joining us to discuss our 2022 fourth quarter and full year financial results on the call with US today are our CEO Doctor you off site and our.
F O <unk> zamir.
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. 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.
<unk> 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 annual report on form 20-F for the two.
21 year and for the 2022 year, which will be filed later today U S time with the S E C.
Please also refer to our operating and financial review and prospects for 2021 and 2022. Please.
Please also see the press release that announces our earnings for the fourth quarter of 2022, which is attached as exhibit 99, one to report on form 6K that we are furnishing to the SEC today Stratasys assumes no obligation to update any forward looking statements or information, which speak as of their respective dates.
As in previous quarters today's call will include GAAP and non-GAAP financial measures. 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 tables in our slide presentation and today's press release I will now turn the call over to our Chief Executive Officer Dr.
Youll have Jive you off.
Thank you Yana.
Good morning, everyone and thank you for joining us Oh, encouraging and profitable results this quarter demonstrate the resilience of our business.
The diversity of our offerings and the overall fiscal health throughout the season, as we performed well against a challenging environment for our entire industry and the broader economy that continues today.
Importantly, we deliver our sixth consecutive quarter of profitability on an adjusted basis.
Our strategy is focused on being the leading innovator and provider of polymer based additive manufacturing solutions.
We have a broad global diverse set of both organic and acquired technology offerings and unique go to market capabilities. We believe that the partnerships we have to date and expect to build in the future will drive the increase.
Duction and ultimately our overall financial results.
We remain laser focused on managing our operations to effectively execute sustained profitable growth for years to come.
Our full year results provide great clarity into the potential power of our business model with.
We generated top line growth of seven 3% versus 2021 and thinking into account the divestment of Makerbot.
This past September we grew 11, 4% on a constant currency basis, overcoming inflationary and other pressures that accelerated over the course of the year.
Our gross margin for the year, a major focus for the team was slightly higher. Despite these many headwinds as price increases helped offset cost pressures.
Our new technologies ramp and our operational efficiencies continue.
We expect gross margin will strengthen in the coming years.
For full year 2022, our revenues from manufacturing came in at 32, 5% of our total revenues demonstrated.
Demonstrating the ongoing transition from prototyping to manufacturing at scale, our customers are undergoing today.
I'm, particularly pleased.
We were also able to deliver 15 cents in adjusted EPS in 2022.
Furthermore.
We once again ended the quarter with a strong balance sheet that includes no debt.
This continues to provide stability through challenging times and <unk>.
<unk> to support our growth through organic investment as well as accretive acquisition opportunities.
That we uncover.
We spoke last quarter about the challenges our customers continue to face that are impacting their purchasing behavior. There are still inflationary pressures and concerns around the potential recession impacting capital spending decisions by our.
Customers.
This resulted in headwinds in the second half of 2022.
We still see today.
With longer sales cycles, and occasional deferral of all theyre continuing to impact our results.
And while these challenges are causing near term headwinds.
The benefits of three D printing such as improved production efficiency.
Better performing parts reduced logistics costs and faster time to market become even more apparent in times like these.
Our engagement with customers around all of our technologies.
<unk> strong and the results in our service business, we're the best in eight quarters.
It is not worthy.
That in 2022 rigs.
Recurring revenue increased meaningfully with consumables up seven 7% over 2021, excluding makerbot and customer support up 11% both at constant currency.
This reflects the fact that the hardware growth of our installed base in 2021, and 2022 is driving utilization, which should positively impact long term sales of higher margin consumables as initial supplies are exhausted.
2022 was the year of <unk>.
Both focused execution and investments.
Over the course of the year, we invested to position ourselves for growth in coming years.
We acquired driven and AI software company, which helps customers quickly create consistently accurate and use production fell at scale, we invested in axial <unk> a cloud based AI driven three D printing platform that enables healthcare providers to easily Sigma CDN MRI scans for anatomic.
Modest we plan to unlock new sales opportunities in materials highlighted by our announced covers throw a M acquisition expected to close in the second quarter.
And make a Boeing joined forces with all the makeup to form a leading desktop three D. Printing company. This move was immediately accretive to our margin and our large minority stake includes commercial rights to engage the customer as they move through their additive manufacturing journey.
We announced our first validated third party high performance materials for Stratasys SDM printers.
These materials along with open material license for F. D M and origin are expected to generate new business opportunities for Stratasys, such a service bureaus in the coming years.
We also continue to advance our own material. For example, we collaborated with Lockheed Martin on our Antero material that is space ready and published qualification data, enabling others in the industry to use it for aerospace parts.
And in healthcare, we created realistic anatomic modeling materials for use with Citi scans and other images.
As we expand our offering to support manufacturing across our entire three D printing technology portfolio software is critical to crossing the additive manufacturing chasm from early adopters to early majority.
This is evidenced by the fact that we have customers, who now use multiple threat assist technologies and are able to rely on the advantages of having a single software application platform grab cut across all of them, which is truly a differentiator for us.
In 2022, we expanded grab cuts integration with many of our offerings added new software partners to our <unk> platform.
And introduce graph cut print software for the <unk> III 50 origin won and the origin, one dental three D printers.
I'd like to spend a few minutes.
Giving added details on two of our key end markets in healthcare dental and medical.
The dental opportunity for Stratasys is one of the largest and most exciting growth avenues for us as a company.
Our focus remains on non elective dental parts, such as dental chairs crowns bridges and surgical guides the dental industry is an overall tam of well over $50 billion.
And produces the highest volume of end use parts in additive manufacturing today.
We believe the dental sector will become one of our strongest growth drivers in the future.
As we noted would happen on our last call.
We are very excited to have recently launched prudent and you're raising for using dentures through that was invented at Stratasys and is exclusively compatible with our <unk> dental check it enables labs to create permanent natural looking dentures.
Accurate tooth structure shade and Translucency.
On one continuous sprint it is our first FDA cleared medical device and is specifically for use in the fabrication of removable dentures and temporary crowns and regions.
According to a recent Ida study denture represents an over $5 billion opportunity.
Today of the $4 2 million dentures created annually in the U S. Only 5% are created digitally.
We believe it's prudent provide the leap in work flow efficiency required to move the majority of the industry from traditional dentures to three D printed ones.
In connections with Prudence, We also announced a partnership with reshape a leader in digital dental work flow reshape as integrated through then into the adventure design module.
Allowing dental five to seamlessly export to our graph that software.
Our customer will benefit with the most accurate parked possible created more quickly and affordably than other traditional milling or additive option.
On the market.
We also recently announced the launch of our newest printer the <unk> III dented, yet the <unk> III is an entry level multi material solution focused on implant models and surgical guides that we believe provides the very best accuracy in the market and is tailored towards small and medium.
<unk> left this represents two thirds of all labs in the dental industry.
We have timed these two significant announcements with two major dental trade shows in the U S and Germany.
M T Lab day last week and the Ids show later this month and we are meeting with top dental labs at the show.
The result is that we expect to start making measurable progress in 2023 on growing our presence in the large dental industry.
Another key growth area for the company is medical we formally launched our patient specific solution made possible by our Q4 investment in axial <unk>.
With this solution healthcare providers and medical device company.
Can use a cloud service to quickly go for medical scan to three D printed anatomical model.
Our cloud upfront capital expenses.
The solution uses.
Actually the three DS AI powered software to prepare medical files for three D printing.
Stratus is three D printers to provide visual or bio mechanically realistic models that are used for pre operative surgical planning and diagnostic purposes.
And fulfilled by Ricoh, using our digital or not to me Jay five Medi jet or origin won three D printers.
Most surgeons and radiologists are not yet using three D printed models and we believe this service offering can be a way to accelerate majority adoption.
Importantly, later this year, we plan to launch a prospective clinical study to prove the value of using patient specific anatomical models as a pre operative surgical planning tool.
<unk> will be the first three D printing manufacturer to run such a study positioning us to lead this exciting new area with evidence new service offerings, new marketing tools and a supportive pool of key opinion leaders that will be part of this trial, we believe that.
Using three D printed modest as part of pre operative planning.
Can result in a favorable clinical and economical results and we look forward to sharing more after we conclude this study.
I'll now turn the call over to our CFO <unk> to share the financial results and our initial outlook for 2023 <unk>.
Thank you and good morning, everyone.
We achieved solid results against an increasingly challenging environment in the quarter.
And for the full year.
Importantly, our OEM business grew three 2% in the fourth quarter of 2022.
On a constant currency basis as compared to the fourth quarter of 2021.
We are particularly proud of the reduction in opex as a percentage of revenues.
Lowest level in eight quarters.
Which shows the progress, we're making on driving efficiencies across the platform.
And we executed on our operating income guidance by meeting our promise to deliver higher than 2% as we continue to improve that metric.
In general our results demonstrate the resilience of our diversified offering provides which led to our sixth consecutive quarter of profitability.
Now, let me dive deeper into the numbers.
For the fourth quarter consolidated revenue of $1 $59 3 million was down four 6% and revenue adjusted for constant currency was down two 8% from the prior year period.
When adjusted for the Makerbot divestment revenue grew one 7% at constant currency.
For our OEM business.
Which would be backing out makerbot and SDM revenue was up three 2% at constant currency.
Product revenue in the fourth quarter.
By five 8% to $111 2 million compared to the same period last year.
But grew one 6% in the fourth quarter, excluding divestitures and on a constant currency basis.
Within product revenue systems revenue was down 11, 1% to $54 9 million compared to the same period last year.
Excluding divestitures.
Constant currency basis.
Fourth quarter system sales.
Were essentially flat year over year.
Consumables revenue.
Was essentially flat at $56 3 million in the fourth quarter compared to the same period last year.
Excluding divestitures and on a constant currency basis consumable in the fourth quarter grew four 4% year over year.
Service revenue was $48 1 million for the fourth quarter of 2022.
Down one 9% as compared to the same period last year.
And up by one 4%, excluding divestitures and on a constant currency basis.
Within service revenue customer support revenue grew one 9% compared to the same period last year and.
<unk> increased by nine 9%.
Excluding divestitures and on a constant currency basis.
For the full year 2022.
Consolidated revenue was up seven 3%.
Up nine 6% on a constant currency basis, and up 11, 4% at constant currency after backing out makerbot.
And for our core OEM business.
Taking out Makerbot and SDM growth was 12, 5%.
At constant currency.
Product revenue in 2022 grew by eight 3% compared to 2021.
And by 13, 7%, excluding divestitures and on a constant currency basis.
Within product revenue.
System revenue in 2022 increased by 12, 6% compared to 2021 and by 29%, excluding divestitures and a constant currency basis.
Consumable revenue was up by four 3% in 2022 compared to 2021 and by seven 7%, excluding divestitures and on a constant currency basis.
For the full year of 2022 service revenue grew by five 1% compared to 2021 and by seven 1% excluding divestitures.
On a constant currency basis.
Within service revenue customer support revenue in 2022 was up by six 3% compared to 2021 and by 11%, excluding divestitures and on a constant currency basis.
Now turning to gross margin.
GAAP gross margin was 43, 1% for the quarter compared to 43, 7% for the same period last year.
non-GAAP gross margin was 48, 4% for the quarter compared to 48, 7% for the same period last year.
The year over year, a slight decrease in gross margin was the result of the negative FX impact offset somewhat.
By the carve out of Makerbot.
For the full year 2022, gross margin was slightly higher year over year as price increases helped to offset cost increases.
A reminder, that our 2022 guidance planned for gross margins to be flat to slightly higher than 2021.
And given the increasingly difficult cost environment as the year progresses, we are proud to have been able to deliver on this commitment.
GAAP operating expenses were $67 1 million for the quarter compared to $89 2 million during the same period last year.
Reflecting the elimination of operating expenses of divested entities and further improved operating efficiencies.
non-GAAP operating expenses were $72 million for the quarter compared to $79 6 million during the same period last year.
non-GAAP operating expenses were 45, 2% of revenue for the quarter.
247, 7% for the same period last year.
As we continue to focus on operational efficiency improvement.
As I just mentioned Opex as a percentage of revenue was the lowest level in eight quarters.
For the full year non-GAAP operating expenses were 45, 9% of revenue.
An improvement of 220 basis points.
Regarding our consolidated earnings for the quarter.
GAAP operating income for the quarter was $1 6 million.
Compared to a loss of $16 2 million for the same period last year.
non-GAAP operating income for the quarter was $5 1 million.
Compared to $1 7 million for the same period last year.
The increase reflects our business capability and improved operational efficiencies.
GAAP net loss for the quarter.
It was $2 4 million.
Or <unk> <unk> per diluted.
Sure compared to a net loss of $4 8 million or seven cents per diluted share for the same period last year.
non-GAAP net income for the quarter was $4 6 million or <unk>.
Per diluted share compared to net income of <unk>.
$4 5 million or one cent per diluted share in the same period last year.
Adjusted EBITDA of $10 7 million for the quarter compared to $7 9 million in the same period last year.
Selected our improved profitability levels.
Regarding our consolidated earnings.
For the full year of 2022.
GAAP operating loss was $57 2 million compared to a loss of $79 2 million.
For 2021, reflecting operational efficiency.
non-GAAP operating income for the year.
$13 5 million compared to a loss of $1 7 million in 2021.
As with gross margins.
A reminder, that despite the increasing challenges as 2022 progress we achieved our non-GAAP operating margin guidance of slightly above 2% coming.
Coming.
At two 1%.
GAAP net loss for the year was 29 million or <unk> 44 cents per diluted share compared to a net loss of 62 million or <unk> 98 cents per diluted share for last year.
GAAP net loss included a $39 1 million gain from the deconsolidation of Makerbot.
non-GAAP net income for the year was $10 3 million or 15.
Diluted share.
Compared to a loss of $4 3 million or <unk> <unk> per diluted share last year.
Adjusted EBITDA of $36 1 million compared to $22 6 million in 2021 reflected our improved profitability levels.
We used $18 1 million of cash in our operations during the fourth quarter comp.
Compared to generating $4 4 million of cash from operations in the same quarter last year.
The use of cash was primarily driven by increased inventory purchases.
Going forward, we will shift from building inventory and returned to more normalized level.
While there may be a quarter or two lag effect. This change will contribute towards us returning to positive cash flow from operations for 2023.
We ended the quarter with $327 8 million in cash cash equivalents and short term deposits compared to $348 7 million at the end of the third quarter of 2022.
During the quarter, we used cash to make investments in companies that we believe will have further advanced our strategic goals.
Our balance sheet and cash generation profile remains strong.
And we are well funded and well positioned to weather near term challenges and capitalize on value enhancing market opportunities.
They are identified.
Now let me turn.
So our initial outlook for 2023.
For comparison purposes, 2022 revenue without Makerbot was approximately $625 million.
In the back half of last year, we started to see a reduced capex spending on hardware as many of our customers position for a potential recession and we expect this trend to continue in 2023.
Given that we expect 2023 revenue to be in the range of $620 million to 670 million subject to potential fluctuations in FX.
I'll remind you that our first quarter is typically our weakest.
The fourth quarter are strongest.
And we expect revenue to grow sequentially throughout the year.
We also expect the second half of the year to be notably stronger than the first primarily due to several new products that we're planning to launch.
The customer demand feedback for these products has been excellent.
And we look forward to sharing more details later in the year.
From a gross margin perspective full year 2023 is expected to improve modestly to a range of 48% to 49% with a second half stronger than the first half based primarily on higher revenue.
We expect gross margins to exceed 50% in the next few years, assuming market conditions improve and our newer technologies and materials ramp.
We will continue to invest in our growth engines to generate significant leverage benefit.
As we responsibly build a strong company for the long term.
In 2023, we expect our operating expenses to range between 290 million to $300 million.
We expect operating expenses as a percentage of total revenue to be slightly lower for the full year relative to 2022.
Improving long term profitability.
As an important objective for us.
And for 2023, we expect to see continued improvement in our earnings.
We expect non-GAAP operating margins to be in the range of two and a half to three 5% for the full year.
With improving profitability.
Through the year as we will benefit from anticipated revenue growth.
For 2023, we anticipate a GAAP net loss of 78 to <unk> $57 million.
Or $1.12 to <unk> 83 per diluted share.
And non-GAAP net income of 9 million to $17 million or 12 to 24 cents per diluted share.
I'd like to point out that our adjusted profitability has not seen a sequential decline for the past eight quarters.
And while we anticipate some pressure on this metric to start the year, we expect to produce sequential profitability growth as we move through 2023.
Adjusted EBITDA for 2023 is expected to be in the range of 35 million to $50 million.
We expect to see EBITDA reached 13% to 15% of our revenue longer term.
As our margins improve over time.
We expect our capital expenditure for 2023 to range between 20 million to $25 million.
Finally, we expect to deliver positive operating cash flow for the full year, primarily driven by the growth anticipated in the second half.
With that let.
Let me turn the call back over to you all for closing remarks.
You're right on.
Stratasys produced another year.
Our profitable growth, while sharpening our focus on our core OEM offerings.
As we have stated time and again the challenges our customers and our business phase II date in many ways highlights the benefits of additive manufacturing going forward.
Resulting in confidence for the years ahead, even as we navigate the current environment.
We have the balance sheet strength to continue investing in and expanding portfolio of hardware materials and software solutions to broaden our market presence is the relevance and adoption of three D printing grows.
Our management team bigger.
Began to forge our pet to make strategy is the leader in polymer three D printing solutions over two years ago.
And the actions we have taken every scenes reflect our ongoing execution.
Want to thank our global teams.
For raising to the challenge and helping drive continued profitability.
As our business grows.
Creating long term value for all of our shareholders.
With that let's open it up for questions operator.
Like can we know they conducting a question and answer session. As a reminder, please ask one question and one follow up if you'd like to be placed in the question queue. Please press star one at this time one moment. Please while we pull for questions. Our first question today is coming from Greg Halter from Craig I'm, sorry, Greg Palm from Craig Hallum. Your line is now live.
Yeah. Thanks, This is danny acreage on for Greg today.
I guess I'll just start off more broadly what you're seeing in the market right now specifically.
Specifically any end markets or geographies that you're seeing particular strength or weaknesses.
Okay.
Hi, Thank you for the question Josh.
We see more or less what you are seeing on the market it's microeconomic.
Slowdown no dialogue across the board.
Some geographies that are less sensitive.
Sensitive than the other but the overall it's across the board. The nice thing we want to see is that we are very highly diversified across geographies across verticals and across technologies, which put us in a good position to compensate for those.
Those are I would say this.
Frenchie aided behavior of different segments, that's I'll take aerospace for example, we see that.
You know after many quarters that we were suffering there we see that.
Coming up together and start growing post pandemic.
So this is a great example, where our leadership with SDM Big pod take us forward on the other.
And we see some out there a vertical line.
Like for example, our medical we're exploring but.
Less fast than the aerospace.
But the nice thing is that we are the largest player.
And this size and diversification allow us to compensate between the different segments and still to demonstrate growth.
Significant growth almost 10% growth year over year without adjustment.
And keep growing and we'll keep doing it also in the future and our profitable growth by the way.
Okay.
Yeah. That's good maybe just in terms of the guide.
Sounds like a lot of emphasis on more of the second half and and you said there should be some some product announcements there that should help that girls, but how good is your visibility levels that makes you confident you know in that in that heightened activity in the second half and maybe what could go right or wrong there.
Okay.
So yeah, we are in a macroeconomic challenge blocks, we have visibility we believe an age two and many things can go right, we have new products in the pipeline.
Since we have five technology and we are a tech leader, we out of the five technologies.
All of them, we are between one number one to number three so in our two policies, yet and and F. D. M. We are number one by far and then the other new technologies. We are between one between two to three position in the market.
So many things can go right like the new product across the different platforms. The COVID-19 impact that we anticipate to close the deal in Q2 and the <unk>.
And can you elaborate on the impact the dental offering. This is huge we are disrupting the dental.
Uh huh.
Alrighty market and I cannot be worried later about.
Our installed base.
The anti smoking is the largest in the industry and people can delay because of capex, but at the end are consuming spare parts and consumables and you can see that our consumable grew significantly year over year. Despite the situation.
Okay. That's good I will hop back in line. Thanks.
Thank you next question is coming from Paul Chung from Jpmorgan. Your line is now live.
Hi, Thanks for taking my questions. So just on the <unk> partnership talk about how that deal came about how to size that relationship potential for other kind of future collaborations globally, and then margin and revenue contributions we can expect over time in any.
Kind of.
Similar forays into different verticals that would be helpful.
Thank you Paul.
I think that's the.
The collaboration with recall.
Great example of how we are restructuring.
Some key applications of three D printing in end use part into end use parts space. So we're talking here about medical about anatomic models.
And market.
Huge prospects going forward.
But it stack and the high end of.
No.
And very high end.
Operation surgery, and we want to democratize it to bring it to <unk>.
Dozens of thousands of hospitals.
And so we need to build a network.
To make this solution really accessible and you will see that we would do it also in other type of applications. So how are you.
At work.
We collaborate and investing axial treaty, it's an AI.
I would say.
Probably the only AI in.
Transforming for example, C T O M I five.
By that you can free.
And they are the front end that are walking with the surgeon.
Allergies.
They transform without labor.
Just to check.
Domestically.
Slide into a three D printed five and we are building a network and recall is the first.
Our partner in this network, where they print on our unique solution.
The Polish at solution for anatomic models like our adapt in our Med D J.
Not only printing and we have the right software and we put everything together.
End to end solution.
Despite the market practically clinical signs and the successful but also for most of the hospitals.
And it offers a huge cost savings.
Compared to the current solution, where you need to offer too.
Practically to order the full Keith from third party.
Okay, great. Thanks for that and then.
Second on gross.
Can you talk about the progression there in the past.
You kind of get back to that 50%.
You know the 23 guide suggests a slight improvement here on on flattish revenues, but you know if if we think about 19 you were at 52% at similar run rate of revenues. Obviously this year, you're getting hit by this year.
The pasture by component inflation freight and others, but.
Those cost inputs ease expand on kind of the timing you're expecting efficiency gains to kind of get you back to back to you know 50%. Thank you.
Yes.
Hi, Paul Thanks for the question, it's a eight town so.
At the start you see the progress when you look on our last few quarter. Then you look at 2022 versus 2023 guidance you do see that we are.
We move towards the 50% plus that we are we believe we can achieve as we scale our business.
We are we have confidence together with our better operational efficiency.
We are we have inventory level that can support our business and help us to better manage D C versus air freight and obviously try.
Tried to improve our mix with more consumable and taking into consideration the eco vessel business that come with better gross margins, we still have some headwinds from FX in 2023 compared to 2022, so that's something that yeah.
Yeah, if you put aside FX could have been even better but we have we are very proud and very excited about the ability to improve and increase gross margins also in 2023.
Great. Thank you.
The next question today is coming from Jim Ricchiuti from Needham <unk> Company. Your line is now live.
Alright, thank you.
I'm wondering as you think about your full year guidance, obviously, you're making some assumptions as it relates to the macro environment looking out to the.
Particularly the second half of the year I'm wondering how you're.
Framing the opportunities and the legacy prototyping business versus manufacturing, where you continue to make some traction so.
What I'm trying to get to I think is is how you're feeling about that manufacturing portion of the business, which was a lot about a third of the revenues.
Okay.
Thank you.
That's exactly our strategy I.
Couldn't say it's better.
It's clear to us that we have great foundations and prototyping and by the way you can see it in our gross margin and in our recurring revenue. He thinks we are there. We are solid we have strong recurring revenues, but what is really driving our growth over the last three years is the penetration.
Into manufacturing and we are already we started below 20% of our overall sales and we are already in.
In three years and that's been for years, because we announced the strategy.
Two and a half years ago, we already and 32, 5% of sales going to manufacturing.
The amount of factoring floor, and we see their great application application by application.
And this transition.
Is something that's really transformed the company transform the way and we are putting many more machines out there its a full solution, but the basis of the machine and you can see by the way if you look at any market research.
<unk> grew significantly during 2022 at the end of 'twenty, one our hardware share of overall sales of the industry.
The strategy is working.
And we are focusing on building machines for manufacturing in all the five technologies take for example, SDM because you know we are just talking about the new technologies, but it too.
Core technologies or processes also transformed them into manufacturing because like SDM.
We did the FDA from a sector I just mentioned the aerospace.
Industry.
And we are painting machine.
<unk>.
Practically.
I don't want to say no one can do but rarely sometimes someone in the industry can be this quality of a well that accuracy with the profile of the policy and the quality of the boss and we already have hundreds of thousands of Pos.
In the air on that.
So this is just SDM and then if you go to college at what we are doing we are transforming it into an end use part machine I just mentioned the anatomic model, but delta. This is the Holy Grail and we are disrupting the market, we just launched our own debt.
And this is just the first launch.
There will be more in the next 12 to 24 months that would disrupt the way dentist.
Engaging with restorative treatments and dental.
And there.
It's not.
It's nothing like the whole solution, which again tears crown breaches is something nice to have it's a massive it's not discretionary.
Targeting the masthead.
And no one has to has a monolithic print.
<unk> and printer in the machine you take it out it's ready.
We don't need to Glu anything we don't need labor is a completely new age.
<unk>.
So we are very proud of it and this is exactly the shift from prototyping to manufacturing.
My follow up is.
As you get beyond that cause that's true.
Having said that.
Manufacturing business acquisition.
Q2, how are you thinking about every day.
Just a light in the current economic environment.
I think it's an opportunity to be honest.
Because we worked really hard over the last I really need to think thank my teams all over the globe, but we've been very strong foundation.
And foundation is what makes the difference now in tough times.
So we invested in materiality, we invested in work for all in pre processing and post processing. We are investing in software we can elaborate on.
Later on but this infrastructure, what we call the platform for profitable growth.
A very good position in the industry.
So a big part of any M&A activity.
Very attractive.
As someone that can take many companies.
So the global market.
And in a structured way create profitable growth.
Thank you.
Thank you next question is coming from Brian Drab from William Blair. Your line is now live.
Alright, thanks for taking my questions.
I was wondering if you could talk about what you're seeing in terms of equipment.
Equipment utilization, maybe through the lens of consumables growth or decline as you moved through 2022.
Just wondering if that that's begun to soften given some of the macro challenges.
Okay.
Thanks, Brian we.
We actually as you as we explained in earlier in the call. When you look on our actual actual 2022.
When you look on recurring revenue, which means consumable and services.
Consumables grew 2022 versus 2021 by seven 7%.
Adjusted for FX and they make about divestment.
And services actually grew double digit.
Excluding makerbot and FX. So I can be very proud of this journey very proud of the results of 2022, and we believe that 2023.
The addition of <unk> to our consumable offering and with the with our increased installed base also for a new platform. We're very excited and have confidence in our ability to grow this recurring revenue business even further.
Yeah.
Okay. Thanks, I did see that information in the slides just to be clear I don't know if you want to answer this directly but what I'm trying to see is.
Cause consumables growth was 7% for the year of 4% for the fourth quarter.
I'm just wondering what you saw from.
Really from the third quarter to the fourth quarter sequentially.
Consumables dollars were they up or down.
Thanks, a lot.
Okay.
So Q3 is the question in Q3 versus Q4 the picture in Q4 is actually better than the picture in Q3.
As far as is concerned with their results in 2022, and we believe that the 2023 quarter will show further improvement again due to the addition of cholesterol, but also due to the.
Installed base that we created for the new platform origin sauce and Rps.
Okay. Thanks very much.
Thank you next question is coming from Troy Jensen from Lake Street Capital markets. Your line is not a lot.
Hey, gentlemen, congrats on the nice results in our profitability this quarter.
Thank you for you you're very welcome so anytime maybe start with your first <unk>, we've talked about a few times on the call I just want to confirm that.
The guidance doesn't include anything from that acquisition until it closes and then you can can you remind us what type of contribution it will have far for 'twenty three.
Okay.
Troy for the questions. So.
It's actually very very good question and to clarify for everyone for everyone. So we anticipate core restaurants do close.
During Q2 as you have mentioned earlier.
<unk> historically had roughly $20 million of revenue annualized.
So we actually anticipate between $10 million to $15 million of contribution from <unk>. It is reflected in our numbers.
In particular in the high end.
And you have said historically, it's instantly accretive to both margins and profitability.
Correct.
Alright, perfect and how about that but Youll also hear my follow up.
Probably a year or so maybe a year and a half ago you guys started talking about open materials.
And I know, there's going to be a while before you launch but for some reason I thought it would in the second half of last year that you guys launched the materials. So I'm curious if you've seen traction with it and I guess I'm, specifically thinking about F. D M at origin.
So we launched it on the F 450, and we are in.
The end of last year.
Practically we are supply starting to supply now.
And on the 450, we see that many of.
High end manufacturing player are highly interested in this because it's completely changed the way they look at.
Additive manufacturing is not anymore, a close this thing where they don't have flexibility there.
They are willing to pay more because we are charging for the open material license you have to buy the license, but they're willing to pay more and we are shifting revenues from the materials to the software.
But we open up new applications for our customers because they can.
Developed by themself material. They can they have now a much broader portfolio of Athena, Jeff Hello, its first batch of.
Eight new material it would take us almost four years to develop those eight and a few years and we did it in one in one shot so a great attraction and I'm very optimistic about.
Awesome, Alright, guys keep up the good work.
Thank you.
Thank you next question is coming from Shannon Cross from Credit Suisse. Your line is now live.
Thank you very much I was just wondering if you could go into a bit more.
Now on your increased Opex and like what what is driving the decision.
Then more where you're spending it on how should we think about the opportunity for that to drive increased revenue in coming years.
And then I have a follow up.
Hi, Shannon.
Okay, Let me start with the actual of 2022, and then and then touch on day 28, and 23 Opex. So when you look for the full year of 2022.
We increased revenue by $44 million.
With an incremental opex of only six and a half million, which reflects 15% of opex as a percentage of revenue for the full year of 2022.
That's something that is part of our scale. That's something that is part of our plan and that's basically our ability to leverage our existing infrastructure with the new businesses that we acquired over the last few years now when you look on our guidance in particular on our high end and maybe if you do the mid range of the <unk>.
Guidance, we actually show on the high end 670 million of revenue.
With 300 million of Opex.
When you look on that this ratio, that's actually an improvement compared to 2022.
When you do the same exercise with the midrange, which takes 45 you actually also see an improvement of Opex as a percentage of revenue. So we continue with the same journey, we continue with our ability to scale our business. We do take into account certain elements that are beyond our control for example, FX impact.
Negatively or ethics can negatively impact our opex.
So that's something that.
It could actually be even better if ethics stabilized during the year, but overall as I mentioned Opex is actually improving also in 2023.
Okay. Thank you and then can.
Can you talk about working capital and inventory just you know how youre thinking about that as you do grow your business. Obviously you are.
You'll need incremental working capital, but then on the other side, maybe there's some room for optimization of inventory.
Okay.
Yes, so thanks Shannon we.
Were actually reaching inventory levels that can support our business our growth.
Going forward that inventory level also help us to improve our gross margin levels. It helped us for.
Shifting to our sea freight versus air freight, which is favorable to our gross margin and that's something that will also serve us in the next few quarters.
But we're reaching a point that it is a normalized it is it is in the level that we are that will serve our business in the future and that's why we are we have confidence in our ability to generate operating cash flow in 2023 mm due to that factor also.
Okay. Thanks, and then my final question is just I'm curious about the competitive landscape in Spain.
No it does.
Obviously, there's some pressure on that.
So I'm sorry, if I may a end market perspective, given macro.
And then you know there.
There's there's challenges for several of our the competitors in this space given liquidity and share prices are and all of that in the majority of business model.
Can you talk a bit about what you're seeing when you go into Rfps and you know maybe pricing and just positioning from a competitive standpoint. Thank you.
Okay.
Yeah. It's.
Definitely challenging times for everyone, but it's also an opportunity for us because we are shining in tough times. It happened to US also in the coffee and coffee time. It happens to US also now when we are competing so someone is putting its future in the hands of a company he would like to see a company like Stratasys.
A large player profitable for six consecutive quarter.
And Tech leader as I said, we are in five technologies into a number one in the other three are we are in the second or third position. We are leading the vertical for example, if we go for an RFP in aerospace and aerospace we have a proven track record of execution, which is highly appreciated by our customers.
We have number one service in the industry and this is not me judging it based on NPS scores and surveys and.
Our customers see that we are walking out with talks on went on in front of the customer and I'm promising a superior application fit and that I can solve your problem.
He genuinely believed me because I'm not telling you something that I have the whole five technologies and I'm focused on solving these problems on the spot with the best everything the industry with the best go to market and with a full solution and <unk>.
No one has a better material portfolio than us, especially after retro so all the hard work of building those platform.
It's great to our reputation and puts us in a really good place good things are happening and strategies and our customers.
Zero of it.
Thank you very much.
Thank you next question is coming from Ananda Baruah from loop capital. Your line is now live.
Hey, guys I appreciate it thanks for taking the question.
A couple of quick ones, if I could how do you guys think about long term revenue growth.
Even just contextually given that you are putting up pretty attractive revenue growth call. It mid to high single digit.
You know kind of macro challenges.
And you have all the new opportunities in front of you in including Grilling manufacturing as a percentage of sales and then I have a quick follow up thanks.
Q.
So.
We.
Work really in the trenches for the last three years to build the platform for profitable growth so at the moment.
The trigger.
It will be released in terms of the macro challenges we are positioned to capture significant growth because we have the growth that we have the five technologies the origin to stop the Rps that the Polish entity is going for end use parts like downtown and the FDA, maybe aerospace and automotive.
So this is very strong growth driver the hardware leadership that we have and you can see now our outerwear share quarter over quarter in every market research.
And then we have the materials.
Critical for growth and the software that we really build something unique based on our.
Loved it carries the largest installed base in the industry and we are leveraging this installed base to bring a fantastic solution to our customers and they are willing to pay for it and we see it in there.
Uh huh.
Open material license, if we started to sell so the growth drivers are in place the position in the verticals is in place which create for us the confidence that we can double the business in.
In the next three to five years.
Yeah.
And that Navy answers. My next question, which was I was going to ask me that is a commitment or a guide, but just philosophically.
Do you think there's lots of opportunity.
Over time, it normalizes the company could be a 15% to 20% organic revenue grower.
I think if you take what I said and calculate you aren't there yet.
But you are the analyst.
Appreciate it guys.
Thank you.
Thank you next question today is coming from Noelle Dilts from Stifel. Your line is now live.
Hi, Thanks, and again congrats on the good quarter.
I was hoping you could expand on some of your software initiatives and.
How youre thinking about the contribution from software over in 2023 and beyond.
So software thank.
Thank you for the question software is.
And when we are analyzing the different segments in our additive manufacturing there is no doubt.
Software is one of the at the top in terms of opportunities and growth rate and our.
Unique.
Strategy around software.
It's all about leveraging those unique positions that we have this large installed base that we have that is connected to us.
And the fact that it's critical.
The scale manufacturing.
So we go to our customers and we offer them.
We leverage our leading operating system rough cut if we transform into a platform that's unwanted had connected to that.
Machine to the printer note by the way could be in the future not only our greenhouse either because we have delivering SDK and eight.
Of connectivity and on the other end it is open platform to many partners.
That way, we put them on one platform across the five technologies and suddenly they don't need to use 10 different software they have only one screen.
Where they can have the best stimulation of the policy I think we are working on.
Or are way too good tags on pilots because we already have this feature Andy.
<unk> the entire.
Our digital thread.
Our platform.
And they're willing to pay for it.
We have two different offerings, one is free and for specific features we have oh.
I'm going to.
Request them to pay for it.
And it will be another addition to our recurring.
Revenues, that's already very strong in therapy and like yeah. That's it wouldn't be a great additional contribution and we will.
And at the right time, we'll explain exactly what our expectations are.
Oh, great. Thank you and then you've touched on this in some of the comments, but I guess, maybe trying to get a little bit more granular. When you look at your 2023 revenue guidance and sort of the organic element of that.
Is there a way to kind of think about how youre thinking about like base market growth.
Versus maybe what you would think that is a share gain or.
Or you know growth that's coming from that expanded addressable market that you're going to have.
Following the recent acquisitions and when you close cholesterol.
So I will divide my answer.
One.
We are growing.
Across all technologies.
This is amazing so in 2022, all our technologies.
Group one by one.
And that creates a lot of confidence as we thought so we are not bleeding on any technology, which was not dictating that.
And we have quite good.
Good visibility in the future because we.
We have those growth drivers that I've already mentioned.
And when I'm looking forward first we have the three new technologies that almost triple more than double our addressable market and we know exactly what is the share that we are expecting to gain there and our.
Go to market, our sales guys and our partner sales reps know exactly where and what they need to achieve.
Of course, it's getting a ramp up so this is a huge state.
For us to grow.
On top of it what we are doing is that for each one of the technology we are developing it.
And end to end solution for specific applications.
For example, the venture.
Sure.
Take for example, and this is just the first product that we launched now it's only the first step.
More to come in the next 12 to 24 months. So the application itself is a growth driver for us like for example, even the fashion.
Great.
Traction from the market the high end fashion market and we have more applications like adult week to an annualized 186 application and we prioritize them and we'd go one by one to deliver those solutions.
Across the five technologies. So there is like the direct selling more machines, because we are not there and then there is the full solution that only strategies can be safer.
We are very optimistic on this one as well.
Okay.
I. Thank you very much.
Thank you next question is coming from Jared <unk> from Bloomberg Your line is that right.
Hey, guys.
We've kind of touched on this in the past, but I just wanted to ask about it again since we're kind of on a quarter closer to.
It's becoming a real opportunity, but just not indenture. So you guys are obviously talking about some of your competitors are increasingly talking about talking about it I think you'd be crazy not to get in the order of magnitude of the opportunity.
Par or maybe even better than when things that have been great demand generators variety of like a liner.
Hearing AIDS.
So I'm just curious from your perspective, what are you guys seeing on.
Number.
Customers like you think there are to your address and we taught situation I guess.
Do you think the big opportunities are for you geographically.
Lastly, what's kind of left on the development side before you can go out and start to show some of the customers. What you are capable of and generate some meaningful revenues from that market.
Yeah.
So that carries over 5 billion dollar opportunity I do I think it's only in the U S. I'm not sure, but I think it's only in the U S.
Think of all the only debenture Carlin breaches.
Her whole area, where our technology our technology can address is almost 50 billion.
And we are bringing real.
Value for the dentist and to the dental lab because suddenly.
We reduced the numbers of visits.
The amount of time and labor you need to pull in order to produce a danger for example, and currently they chose the only I think digital adventure is around 5% of the overall market. So multiple 5% five 5 billion and then Ed Europe .
That's one of the things I didn't want to talk about it that's one of the things that you would see in the next 12 to 24 months because we are in the process. It's an FDA approved and I believe the best thing and probably would use it for marketing I saw a few.
Videos, we train station.
We've put in there about the new dentures.
And those are paid.
Patients that are using the traditional venture which are heavier by the way.
And I heard from them that it creates problems because of the friction.
And we have those new venture debt, a 100% because we scan.
And it's so easy to replace them because he's a friend there.
And it's really the subject we are changing the market no one has.
Our college of technology, and the ability to break that.
I would say the glass ceiling or a constraint.
Making a polygenic and end use parts machine.
It's shortfall to our teams.
They achieved something that no one achieved in our industry.
And those through death resin, we would keep developing them and you will see us.
Yeah.
The lead there in.
Those non discretionary and you'd start in dental.
Because we have the technology, we simply have the technology and we want to make people happier and make them Tonight.
I would do it.
Yeah, that's great and then just to clarify on that so I guess when you look at kind of concentration or Stratasys strategy of addressing this market do you guys look at this like you want to become the supplier of choice for a few big customers that you look at it is clear targets that can drive a lot of volume or is this more of a spread approach.
Dolby technology, and what the demand come from a big base of customers.
We are going in a few different genres of course, I'm not going to elaborate here, but we are going through different channels to the market.
And for US the most important things that as many people as possible, we'll be able to enjoy and not only in the developed world, but also in the developing world because we dramatically also reduce the costs.
So danger.
Got it thanks, and then just one follow up on the EBIT margin targets you guys mentioned that 13% to 15% is what what you think the business is trying to keep it more capable of on EBITDA. So I'm. Just curious you know if we look back I live industry as a whole since 2014, even before that as well.
Can you just kind of a normalized profitability has been a real challenge. So I'm. Just wondering are you guys just 13% to 15% targeted are you guys looking at this as we can out your estimate and you have a time in mind, where you can hit that or do you think that's a good way to look at the industry in perpetuity in 13% to 15% is what makes sense for additive long term.
Yeah.
Thanks, Joe for the question.
This is this target is is a it's a midterm target so probably two to three years to reach to the double digit operating income and 17.
17% to 15% EBITDA.
It's definitely not the end state we believe that we can continue to grow the business and grow profitability beyond that target as we continue with our journey and our scale.
Perfect. Thanks, guys and congrats on a nice quarter.
Thank you. Thank you. Thank you we reached end of our question and answer session I would like to turn the floor back over to management for any further or closing comments.
Thank you for joining us.
Forward to updating you again next quarter.
Thank you that does conclude today's teleconference and webcast you may disconnect. Your lines at this time and have a wonderful day, we thank you for your participation today.