Stratasys Ltd. Q1 2023 Earnings Call
Greetings and welcome to the Stratasys Ltd first quarter 2023 earnings call.
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A brief question and answer session will follow the formal presentation.
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It is now my pleasure to introduce your host you'll know Lloyd Chief Communications Officer, and Vice President of Investor Relations.
Thank you. Please go ahead.
Good morning, everyone and thank you for joining us to discuss our 2023 first quarter financial results on the call with US today are CEO , Dr. Jan <unk>, our CFO comes on here.
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 performance events expectations are.
Our results are forward looking statements.
Actual results or trends to 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 <unk> annual report on form 20-F for the 2022 year. Please also refer to our operating and financial review and prospects for 2022.
And for the first quarter of 2023, which are included is item five of our annual report on form 20-F for 2020 to exhibit.
99, two to the report on form 6K that we are furnishing to the SEC today, respectively.
Please also see the press release announcing our earnings for the first quarter of 2023, which is attached as exhibit 99, one to a separate report on form 6K that we are furnishing to the SEC today. Our reports on form 6K that we furnished to the SEC on a quarterly basis and throughout the year provide updated for information regarding our operating results.
Aerial developments concerning our company.
<unk> assumes no obligation to update any forward looking statements or information, which speak out 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.
Thank you your honor.
Good morning, everyone and thank you for joining us.
Before I discuss the business highlights I would like to comment briefly on the three unsolicited proposal we receive.
In recent months from nano dimension to acquire strategies initially.
Initially for $18.
<unk> 1955, and subsequently for $20 and five.
Per share in cash as previously announced.
Consistent with <unk>.
Fiduciary duties and in consultation with its independent financial and legal advisers. The Stratasys board carefully reviewed and evaluated each proposal.
Following each review the strategies board unanimously rejected all three proposals.
They eat substantially undervalued strategies in light of the company's Standalone prospects.
As we have articulated previously nano is in the midst of multiple lawsuits, we did shareholder involving the control and governance of the company.
And as a result serious questions remain about the legal legitimacy of the nano all fair.
The strength of his board and management team are committed to enhancing shareholder value and continue to successfully execute on the company's growth strategy.
We are making strong progress towards becoming a highly profitable $1 billion revenue company as part of its fiduciary duties. The board will review any bonus paid proposal for the company and weigh it against our Standalone plan.
We are not going to comment further on this matter today. We appreciate you keeping your questions focused on our results.
The focus of this call is our performance for the quarter.
Our excellent results for Q1 2023.
Resent another consecutive quarter of solid performance, despite an increasingly challenging macro backdrop, we continue to execute on our winning strategy driven by our broad global and diverse set of system materials and software solutions.
With our leadership position, our five key technologies.
Resilient business model and strong financial profile.
We believe we are positioned to accelerate growth and drive shareholder returns not only for today, but also for years to come.
Our confidence is reflected in the medium term focus we are announcing today.
<unk> will provide further details during his remarks, but we expect to surpass.
$1 billion in revenue in 2026 with substantial profitability.
In terms of our first quarter results, we are seeing stronger utilization by our customers than ever before which drove all time record revenues in both consumable and customer service.
As we have noted in the past few earnings calls.
Macro related pressure on capex budgets are causing longer sales cycle and occasion, the deferral of orders.
OEM revenue was relatively flat to the first quarter of last year.
Adjusted for FX and divestments.
Primarily due to the impact of those factors on how their purchases.
The manufacturing trends of onshoring.
The globalization and just in time production are driving opportunities for growth.
Strategy is positioned to take advantage of these opportunities.
Given our combination of proven market, leading system in SDM, and Paul Egypt, New technology offerings in Peachtree.
And stereolithography, the broadest set of polymer materials in the industry, a unified software platform across the portfolio and unmatched go to market capabilities.
With our robust balance sheet. This sets us apart and will enable us to sustain organic growth and expand our reach via the pursuit of external opportunities engagement with both our installed base and new customers remain strong.
We continue to expand our customer reach across our entire suite of technologies.
Particularly targeting manufacturing applications, we have demonstrated a resilience and recurring business model. The delivered gross margin this quarter were flat compared to the year ago period.
And also kept opex spending as a percentage of revenue nearly flat to the corresponding period last year.
Even with the reduction in revenues.
As a result of our airport and despite the headwind faced I'm proud that we delivered positive adjusted earnings per share for the seventh consecutive quarter.
Our vision for the future of additive manufacturing and in turn our ability to deliver greater return for our shareholders is more robust than ever.
We ended the quarter with a strong balance sheet that includes no debt and $288 million in cash and equivalents.
<unk> continued to support our growth through organic investments and accretive acquisition opportunities, including early stage, but highly compelling technology driven businesses, which we believe will improve results as we leverage our infrastructure and experience to strengthen operations.
Now, let me turn to the exciting achievements and milestones reached since the end of 2022.
In February we introduced the first monolithic multi colored three D printed dental solution through a prudent raising.
Our first ever FDA cleared medical device.
As a reminder, dental overall is a 50 billion Tom and these fast growing industry for additive manufacturing.
Through this solution enables labs to create permanent natural looking den chairs with accurate tooth structures Gan shade and translucency in one continuous print.
The resin is designed for exclusive use in our J <unk> dental jet printers, using rough cut print software and provide dental lab, the ability to scale manufacturing with simplified workflow and reduce processing time.
To deliver the best quality dentures available in the market today, we already have several new customers and many of the largest dental labs are actively evaluating the solution.
In February we launched our new <unk> printer opening up more opportunities to stratasys.
<unk> implants, and surgical guides for dental labs. It recently received an excellent reception at the dental industry's largest trade show our superior accuracy provides an entry point for customers ready to step up from lower quality solutions one of them.
Ward's largest dental lab.
It is to rebuild its daily production volume with a J three relative to the previous system.
Moving to our medical highlights in February we signed an agreement with Ricoh USA to provide on demand three D printed and ophthalmic model for clinical setting.
Our patient specific three D printed solutions combined our three D printing technology.
Based segmentation as a service solution from axial treaty and precision additive manufacturing service from Ricoh into one convenient solution. This represents an expansion of the relationship between Ricoh Treaty for healthcare and strategies.
After quarter end, we for the joint development and commercialization agreement with core plant biotechnology.
To transform health care with industrial scale bio printing of tissues and organs.
The initial focus of the relationship will be around development of bio printing solutions for coal plants regenerated.
<unk> implants.
At $2 6 billion opportunity further the combination of our <unk> technology based bio print. There. We there are H collagen based bio inks is also ideal for future innovation and production of additional human tissues and organs. Both companies agreed to cross pro.
Our respective by operating product.
On the industrial side in March we secured a multi system opportunity with goods machine for our mass production eight $3 50 printers.
Sales involved for additional system to add the German service Bureau meet growing demand for high quality end use parts get is already a valued partner that also deployed SDM in project based strategies printers.
In addition in early April we closed the acquisition of <unk> additive manufacturing materials business.
Which expands our differentiated three D printed material offering is sterile lithography DLP and powders to address more manufacturing industry applications.
<unk> is expected to be immediately accretive and includes R&D facilities global development and sales teams and a portfolio of 60 materials for additive manufacturing to get there we will be able to address more applications faster pushing the boundaries of what is poor.
First of all in additive manufacturing.
We are also growing our focus on adding value for customers, while increasing recurring revenue through significant software announcements.
Last month.
We introduced draft cut screened Pearl which provides a major productivity boost for our customer.
The initial rollout is for our SaaS and SDM system at.
Applicable for end use parts and production scale volumes tooling and prototypes, we plan to make this software update available across our other three technologies as well.
The annual subscription package includes quality management capabilities from our <unk> acquisition as well as added functionality from third party partners.
Three value add plaque in partners available in the initial release as we continue growing our ecosystem.
Cast store Alpha Star and cognitive design system. These advances in software are helping strategies integrated into scaled up industry four <unk> infrastructure.
In fact.
Vast manufacturing research center at the University of Sheffield has been able to successfully incorporate stratasys data into each factory plus architecture, right alongside CNC machines robot arms and other mainstream factory equipment.
In addition to.
Our attitude is expansion into software is helping drive opportunities with systems and materials.
Our previously announced open am software is now widely available to customers and we are seeing it help unlocked photos for 50 printer opportunities.
With manufacturing customers that are interested in FDA for end use part applications due to the greater flexibility. It provides in materials selection that is also a key driver of customers' interests in origin won printers as well.
Our technological innovation best in class sales channels and key partnership.
Our contributors.
To build on our meaningful foundation for growth that will drive our industry leadership for the long term.
I will now turn the call over to our CFO Athens EMEA to share the financial results update our outlook for the rest of 2023 and outline our medium term forecast data.
Thank you and.
And good morning, everyone.
As we have mentioned, we achieved solid results against the increasingly challenging macro backdrop in the quarter.
We are particularly proud of how we held the line on both growth and operating margin maintaining profitability in a challenging environment due to the right infrastructure and.
Tight Opex management.
We continue to drive efficiencies across the platform.
Our results demonstrate the resilience that our diversified offering provides.
Despite the expected slowdown in new printer sales, we saw continued utilization of our systems by our customers driving record recurring revenues from consumables and customer service.
Helping us deliver our seventh straight quarter of adjusted profitability.
Now, let me dive deeper into the numbers.
For the first quarter consolidated revenue of $149 4 million was down two 6% compared to Q1 2022.
Adjusted for divestitures and at constant currency and down eight 6% compared to the unadjusted revenues.
Revenue in our OEM business, which exclude makerbot as well as SDM was down <unk>, 9%.
At constant currency from the prior year period.
Product revenue in the first quarter declined by 10, 7% to $101 million compared to the same period last year.
Or by five 1% excluding divestitures.
On a constant currency basis.
Within product revenue system revenue declined 25, 8% to $45 million.
Compared to $54 5 million.
In the same period last year.
Excluding divestitures.
And on a constant currency basis revenue was down 19, 2%.
Consumables revenue.
Rose by three 3% to $60 5 million compared to the same period last year.
Rose by five 2% on a constant currency basis and grew by seven 5% in our OEM business at constant currency.
This represents a record level for Stratasys.
And signals.
That utilization rate of our systems, we have sold our strong.
Services revenue, including SDM was $48 4 million down three 9% as compared to the same period last year.
After backing out SDM it was up two 4% and up three 9% at constant currency.
And our customer service revenue was the highest ever a further testament.
To the growing utilization rates of our system.
Within service revenue customer support revenue grew four 9%.
<unk> to the same period last year and increased by six 4%.
On a constant currency basis.
Now turning to gross margins.
GAAP gross margin was 43, 8% for the quarter.
Compared to 42, 6% for the same period last year.
non-GAAP gross margin was 47, 3% for the quarter.
Flat compared to the same period last year.
Our ability to hold gross margin unchanged. Despite the decrease in revenue.
As a testament to our relentless focus on.
On cost savings across the platform.
Gross margin.
Also benefited from the divestment of Makerbot last year.
Partially offset by the FX impact.
GAAP operating expenses.
Were $82 2 million compared to $89 3 million during the same period last year.
non-GAAP operating expenses were $69 2 million compared to $75 3 million during the same period last year.
non-GAAP operating expenses were 46, 3% of revenue for the quarter compared to 46, 1% for the same period last year as we continued to focus on operational efficiency improvement.
We continued to efficiently manage our cost deliver.
Delivering relatively low opex, despite the lower revenue.
Reflecting the scalability of our model.
Regarding our consolidated earnings.
Operating loss for the quarter was $16 8 million compared to a loss of $19 6 million for the same period last year.
non-GAAP operating income for the quarter was $1 5 million compared to 2 million for the same period last year.
The change reflects the decline in overall revenue.
Offset somewhat by eight 2% improvement in non-GAAP Opex.
GAAP net loss for the quarter was $22 2 million.
Or <unk> 33.
Per diluted share.
Compared to a net loss of $20 9 million or 32 cents.
Per diluted share for the same period last year.
non-GAAP net income for the quarter was $1 1 million or <unk> <unk> per diluted share.
<unk> to net income of $1 2 million or <unk> <unk> per diluted share in the same period last year.
Then.
This was our seventh consecutive quarter of delivering positive net income on an adjusted basis.
Adjusted EBITDA was $7 million for the quarter compared to $8 1 million in the same period last year, which reflect a flat result year over year on a percentage of revenue basis.
We used $17 9 million of cash in our operations during the first quarter compared to the use of $16 1 million of cash for operations in the same quarter last year.
The use of cash was primarily driven by increased inventory purchases.
We expect our inventory levels to decline in the back half of the year contributing towards returning to positive cash flow from operations for 2023.
We ended the quarter.
With $287 6 million in cash cash equivalents and short term deposits compared to $327 8 million at the end of 2022.
Our balance sheet and cash generation remains strong.
Specifically, we are well capitalized and well positioned to capture value enhancing market opportunities.
They are identified.
Now, let me turn to our outlook for 2023.
And the medium term.
We expect the ongoing challenging macro backdrop to most likely persist for much of 2023.
Continuing to cause delayed purchases longer sales cycles, and overall inflationary and the recessionary concerns reflecting in buyers behavior.
Based on our first quarter results and current visibility of our end markets. We are updating our full year revenue guidance as follows.
We are raising the low end narrowing the range now expected to be between 630 to 670 million with sequential quarterly revenue growth.
While we are still experiencing continued softness in the second quarter, we expect that we will see notably higher growth in the second half.
From a gross margin perspective, we continue to expect full year 2023 to be in the range of 48% to 49% with improved year over year growth in the second half of 2023.
We expect our margins to get back over 50% next year.
In 2023, we expect our operating expenses to be in the range of approximately $290 million to $300 million.
We continue to expect non-GAAP operating margins to be in the range of two five to three 5% for the full year.
In the medium term, we expect non-GAAP operating margins to achieve double digits as.
As our growth plan unfold.
We anticipate a GAAP net loss of 78 to <unk> $57 million.
A $1, 12% to 83 cents per diluted share and a non-GAAP net income of 9 million to 17 million or 12 to 24 cents per diluted share for the full year of 2023.
Adjusted EBITDA is expected to be in the range of 35 million to $50 million for the year.
Capital expenditures are expected to range between 20% to $25 million for the year.
We would also like to provide our expectations for some key annual financial metrics.
For the medium term.
Starting in 2024.
We expect to achieve non-GAAP gross margins above 50% and we plan to deliver positive free cash flow.
By 2026, we expect our revenue from organic growth to surplus.
1 billion.
With adjusted EBITDA margins over 15%.
Driven by our innovative growth engines, as we penetrate further into manufacturing and healthcare applications.
Please note. These are medium term expectations and we believe that as revenue continues to grow the longer term results will be even stronger.
We are encouraged by the level of engagement with our customers.
We remain confident in our growth potential and we will continue to monitor our global issues that can have any impact.
With that let me turn the call back over to you for closing remarks.
In closing.
Even as we navigate todays dynamic environment.
The outlook for our customers' appreciation and adoption of three D printing continues to grow.
We have positioned the company to execute in challenging times and to lead through an expanding portfolio of hardware materials and software solution.
As the shift to additive manufacturing at scale accelerates.
We are being brought into customer opportunities as a strategic partner at higher level than in the past because the demand to bring product to market faster to reshape supply chain and to give consumers more personalized product are very real.
And we have proven our value with leaders across industries like the connectivity the Mayo clinic, NASA and Toyota our relentless focus on execution and continued investments for growth and ongoing profitability is expected to drive.
Relative outperformance and enhance shareholder value.
With that let's open it up for questions operator.
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Our first question today is coming from Shannon Cross of Credit Suisse. Please go ahead.
Thank you very much for taking my question and I'm curious as to your billion dollar target.
I remember I mean, this industry is that targets in the past and then not keep them minutes cause volatility.
Volatility to say the least so.
I'm curious can you give us more specifics and granularity behind how you came to that target number.
You know I don't know mix of revenue or just generally what gives you confidence that you're going to be able to say to you bet. Thank you.
Hi, Carol and thank you for the question.
We are.
Hawaii structured company nothing because we are saying on this call is based on something that we envisioned yesterday.
We have a long term planning based on a three year strategy and.
We think the quarter was a very important and that's why we are delivering quarter after quarter above expectations.
Expectations, but more importantly is the long term.
The long term foundation and Thats, what we are bidding strategies and.
And Thats why we are confident in putting outside a target of $1 billion with double digit operating income with above 50% gross margin.
Above 15% EBITDA.
It is based on the foundation that we've built and keep building for the last three and a half years.
And they are very clear growth drivers. It's the new technologies. We are yes, we are number two or three part of the new technology, which is remarkable to duty to achieve it in two years, but there is still so much room to grow there new NPI with our core technology.
The SDN.
We are going to introduce amaze.
Amazing New technologies there.
Taas position, which.
Men's outerwear profitability and covert story is a good example, the use cases that we are introducing like the truth in the fashion that Julie the automotive you and you thought the software.
And when we're talking about social we are talking about monetizing software because we are bidding and maybe we will have time later to elaborate on it but we are building unique software platform, which is open.
And delivering added value to our huge installed base and the bio printing when you put all these together in our five year plan and of course, we are not going now to get into the details we get to the $1 billion with high level of profitability.
Okay. Thank you and then can you talk a bit more in the near term.
Kimball.
It was a pretty tough compare you did better than expected can you talk about how you said you're changing how much of this is.
You know the pricing of materials versus utilization P times Q.
Certain verticals that maybe are using more materials.
Just wondering you know.
What's driving that because I assume consumables are a pretty important part is that the $1 billion as well.
It's an essential part of the $1 billion and essential part of the profitability.
And the main driver.
Mainly utilization.
The move to manufacturing.
Since we are reporting every end of the year, how much of our overall sales went to end use parts to manufacturing we can see this growth over year over year and this growth drives.
Utilization because the machine that is being used for <unk> is a completely different unit economics in terms of consumables and in machine, which is being used for prototyping.
A good example is the Delta this is Bob.
High level of consumption and add to it the cholesterol portfolio that is.
Mitch.
Tastic match to what we have now in terms of our hardware portfolio. We are very optimistic on the consumption going forward of material and also this quarter we saw.
The increase in SDM in origin material in manufacturing.
It's also a reflection of our strength as a company given the hardware the cigna.
Significant hardware sales in 'twenty, one 'twenty two you can see that our customers are buying a machine and they are using it. It's a long term investment it's reliable and it's a testimonial that we are delivering value.
Both <unk> and <unk>.
Many many different verticals auto Aero those are the big consumer of our materials.
Thank you.
Thank you. The next question is coming from Troy Jensen of Lake Street Capital markets. Please go ahead.
Hey, gentlemen, first of all congrats on a good Q1.
Thank you.
Hey, So I guess could you quantify could you first of all confirm cholesterol and timing and I guess I'm curious if there is any material revenues from them in Q1, and what you see.
That's going to contribute for.
For the year on a quarterly basis.
So Troy.
Thanks for the question question, we closed the deal in early April So no contribution whatsoever. In Q1, However, Q2 onwards, because I have the full impact.
Of cholesterol into our business, it's largely a placebo.
Okay.
With guys, we'd love to see organic growth of materials going for it is this is such a key key focus area for you guys on our profitability, but just a thought or somebody thinking about but my other question would be.
The <unk> hundred 50, <unk> southern nice kind of comment about the Martha.
Shipments estimate I'm, just curious I know you've got others in there also.
Can you just kind of maybe quantify or talk about status updates through <unk> and multi yeah. That's why units.
Yes, thanks for the question.
Debt.
<unk> is a fantastic machine.
And if required.
Focus completely I would say, 99% on manufacturing and use Bob.
For professional users and a great example is a must.
Machines out the large service Bureau in Germany that bought one and then another four four as you've bought many of them by the way to automotive.
However, it's a complex system.
That you need to be a professional and we are doing a very.
Conscious rollout of this machine the south with the deliberately we have a slow ramp up to make sure that our customers are happy and we are delivering the promised both both on the quality of the path and not less important the cost per pound that we believe we have the best.
<unk> in the industry with it.
Awesome.
<unk>.
Yeah.
Planned rollout.
We expect a significant bet their units out there in H two because the way we are rolling it out and also because of the funding that we are seeing now.
Okay. Okay.
Good luck keep up the good work.
Thank you. Thank you.
Thank you. The next question is coming from Greg Palm of Craig Hallum Capital Group. Please go ahead.
Yeah. This is Danny acreage on for Greg today, Congrats on the good results and thanks for taking the questions.
I guess I'll, just start with kind of what you're seeing out in the market right now from a demand perspective.
Obviously, you and certainly some of your peers.
Noted customer push outs and maybe some increased uncertainty.
So I guess, what have you seen over recent weeks and with raising kind of a floor on your on your guidance there and what gives you confidence in hitting that range and maybe more specifically what kind of visibility you have in the second.
The second half.
So.
I don't need to share.
And all of the listeners that day.
Interesting microeconomic condition for everyone in terms of growth GDP growth interest rate inflation, and everything, but luckily enough three D printing helps our customers to do better in this environment.
And therefore, we see high level of engagement.
Especially wait.
G suite.
Managers and executive the engagement is high.
We had.
Over the last two quarters, some challenges with that.
Our sales cycle, which is longer but we're starting to see that.
Yeah.
Sales cycles are somehow.
Balancing and we see that their top of final demand and Thats why we are.
Confidence about <unk> two and.
And that's why we raised the guidance otherwise we wouldn't do it.
Overall challenging environment, but strong demand with better top of funnel.
And somewhat balanced sales cycles.
Okay. That's good maybe just switching to Opex you know operating leverage was pretty strong in the quarter Opex came in.
A bit lower than expectation so.
You reiterated the full year guide for Opex, and I guess that implies.
A step up throughout the remainder of the year, how should we think about opex in Q2 and maybe.
You know the cadence throughout the year going forward.
Thank you Daniel for the question.
As you noted we reiterate the opex guidance for the full year.
While we increased six.
Six 2% to 630 on the revenue.
That's part of our I believe that day to day management of the business, we're very tight on Opex.
<unk> build throughout the year.
The right infrastructure.
To leverage the growth.
With minimal to no increase in Opex.
Now. The addition of <unk>, starting Q2 will add.
A small opex because it comes with naturally the employees in the business, but overall, our infrastructure is built and structured in a way to keep the.
Lower as we grow lower opex as a percentage as we demonstrated this quarter, even with lower revenue.
Yeah.
Okay, Great I'll leave it there thanks.
Thank you. The next question is coming from Ananda Baruah of loop capital. Please go ahead.
Yeah, Hey, good evening guys.
Afternoon.
Good question.
Okay.
If I could.
On the on the debt the debt.
Congrats on getting the product out the door.
Hey Pal.
How do you see the velocity and the ramping potential there.
Topically.
Thank you for the question.
Delta.
Huge for us.
Will be huge for us.
And we are focusing on.
Specific segment in <unk>.
<unk>, which we believe is the right one for us because of our capabilities and also because of the potential which is the restorative dental.
Use cases, so people have to buy and what we are offering here with our <unk> solution is a disruption to the current market.
It's a complete disruption to the market, we're talking about overall debt on a $50 billion market with only the denture 5 billion dollar market, which currently is labor intensive and we are ranked inc. A solution which is simple.
Quality better aesthetic.
You know with a click.
Particularly.
And it's only 5 billion dollar in the U S with the side, where we have the FDA approval put aside the rest of the world.
I'll start with the initial revenue of the H two because we are building a step by step building the foundation showcasing is making sure that our.
Dentists build the confidence surrounded by the way we are saving them between one to three visits to think about the dentist that is sitting in his clinic and suddenly because of our solution he needs to see the patient one to three times less than on average.
So we will wrap it up during age to expect significant impact.
In 2023.
Sorry at the end of 2033, and 124, and we are keeping innovating there.
It's not the last product that we're going to introduce with this unique raising and unique J.
Five vintages.
Thanks for that and what I guess, when we think geographic wise it sounds like you're starting in the U S.
I guess is there a plan for for a European rollout and others.
Other geographies and what was the timing of those.
Definitely no doubt we have a global expansion plan. The next one is Europe .
And not.
And not too far from now.
And then of course the market is there is a global plan.
Awesome I appreciate one last one in there how do you guys like what's the sale, what's the sort of into market. Following problems, Jeff look like that your absolute specialty salespeople are you all.
Plugging into the dental equipment market.
So we have.
Our combined plan of go to market with different channels multichannel in Atlanta for the den chairs it starting with building.
Confidence through.
Sure.
Dental lab.
With a very.
It's amazing.
<unk> from their side that we're also going to work with.
Institutions or those consolidators of kleenex in the in the U S and the rest of the World. We have also on a go to market because it's such a specialized product and we are exploring.
Business development opportunities.
Currently with the largest distributors in data.
And it's a combination of before.
Thank you.
Thanks, so much.
Thank you. The next question is coming from Brian Drab with William Blair. Please go ahead.
Alright. Good morning. This is Blake Keating on for Brian .
I just wanted to ask you guys. If you guys have talked a lot about the strength that youre seeing in dental but.
Across other end markets, what what markets are you most excited about.
What other end markets could you could you potentially see a pullback.
Type of macro environment.
N years longer than you expect.
Thank you. Thank you for the question, it's a great question.
Because our problem is where to focus we see so much.
Much enthusiasm across different verticals and we are so strong in many of them just lately I can share that we had fantastic results with government slash.
Aerospace fantastic results.
We see demand growing in automotive we see there.
The fashion business and of course, the dental but for us the strongest one our automotive and aerospace than desktop and of course, we also very optimistic about regenerative medicine.
Down the road three to five years not now, but we are building a unique position with our partners a coal plant. So if I'm trying to summarize.
Aerospace automotive.
Maybe cause Delta medical is the patient specific solution and also fashion.
Got it. Thank you and then on your new products, you mentioned again talk a lot about dental, but where else are you seeing a lot of.
A lot of strong demand for new products and then if you can give any color on may.
Maybe the last.
A few years of new products that have been introduced what they're contributing now to revenue or growth.
How should we think about that.
We don't Cherry.
The specifics out up their product, but I can share that since I joined we replenish the portfolio.
Literally you can go to any tradeshow strategies and you can see that most of the things that we are setting a new like our leading machine Polygenesis J P 55, and the <unk> III, which are completely new.
And.
If I go to SDM, then we introduce the new.
Carbon fiber machine and of course, the three new technologies, which are well selling.
And we see significant demand both for the origin and the Rps liquid resin solution and now together with cholesterol very optimistic but put all this aside.
We are focusing on use cases use case by use case.
And this is a completely new strategy that we started only two years ago and it works, we see new use cases in automotive.
We see new use cases, and aerospace like wrong, we see new use cases, with our origins with injection molding replacement and so on and so forth.
Yeah.
Got it thank you I'll pass it along.
Thank you. The next question is coming from Jim Ricchiuti of Needham <unk> Company. Please go ahead.
Alright, thank you.
Question, just on the targets that you're.
Sharing with US today for 24 for gross margins in your medium.
Term target so I'm wondering what kind of assumptions are you making for for manufacturing.
Which I guess was what about a third of the business at the end of last year, what kind of you make for 'twenty four and looking out for the medium term target for 26. Thank you.
Yes.
Thank you Jim for the for the question.
So as you mentioned, they're starting point as of end of 2022 is that one third of the business is.
Coming from.
And use cases, our manufacturing.
We don't share like for the future the specific percentage, but we expect it to increase significantly and that will drive.
A very positive impact on consumables on our gross margins and that's a significant portion of the increase to the 50% plus on the gross margin together with scale keeping mind that covers charge that we've just acquired come with high gross margins. So the combination of our journey into.
It comes with probably the highest gross margin.
Out of the different strains the combination of all of these will bring us to the 50, 50% plus gross margin.
Yeah.
Yes that actually is a segue to the next question.
I was wondering if you could talk a little bit about the progress you're making in the software business and how we should be thinking about this business over the next one to two years.
Hey, Jim Thank you for the question.
We are making significant progress in software it took us a while because we were investing.
The investment for the last two years in a new platform, but we have a very unique approach.
Very unique because we are not focusing on the <unk> part of the business.
We are not going to be the one managing the whole manufacturing enterprise, we are focusing on an H M platform, making sure that we deliver to our customers the ability to manage the entire digital thread of is additive manufacturing.
Workflow. So that's what we are doing and we opened it up from both sides to the green tariff, but also to their partners or added value policy is that we just don't know lately. Some of this but we are building an ecosystem.
What does it mean and by the way. This is something that I saw three years ago, and I was surprised to see that to bring the power unit two years between three to six different software and you need to say export import so cumbersome it doesn't make sense. So we are starting we have one platform.
Our technologies and this one platform allows the customer to sit on one story and manage is additive manufacturing operation is very unique to us.
And the way we do it we have a basic solution based on the Grub cut strength, we have a basic solution and then we have packages that we are only now we introduced the grab that great, but stay tuned we'll have more products like this.
Basic and additional added value and we're going to monetize it because it's such a big opportunity. It's a N a.
Yes.
<unk> said that it's about $3 billion in the next two to three years.
But that's not the most important thing the most important things I think will scale additive manufacturing and will allow us to use it in manufacturing and we have a very unique position here because.
We produced the system. So we have access to the logs we know exactly.
What.
The customer need and how to deliver it to them in the best way, we have the largest installed base, which allow us to create this ecosystem because many other companies that are needed and are working on their solution needs to access to the installed base and we have the best operating system.
Rob cut across all our technologies and we have from our customer we want to be on one system.
We want to be on one system.
Im very optimistic about our software, but again, it's it's building foundation I started talking about this about bidding foundation and wants to build a foundation you see that our customers are utilizing their machines and you can see record youth.
Consumption of our material.
This is a plan built the foundation and deliver value to our customer and the long tier hardware materials software service and use cases.
And it does work.
Thank you.
Thank you that brings us to the end of the question and answer session I would like to turn the floor back over to management for any additional or closing comments.
Thank you for joining us looking forward to updating you again next quarter.
Ladies and gentlemen, thank you for your participation. This concludes today's event you may disconnect. Your lines are log off the webcast at this time and enjoy the rest of your day.
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