Q2 2023 Stratasys Ltd Earnings Call
Greetings and welcome to discredit says second quarter 2023 earnings call. At this time, all participants are in a listen only mode.
A question and answer session will follow the formal presentation.
Anyone should require operator assistance during the conference. Please press star zero on your telephone keypad. As a reminder, this conference is being recorded it is now my pleasure to introduce your host Joe <unk> Vice President Investor Relations. Please go ahead.
Good morning, everyone and thank you for joining us to discuss our 2023 second quarter financial results on the call with US today are our CEO , Dr. Jan <unk> and our CFO Tom Zamir.
I would like to remind you that access to today's call, including the slide presentation is available online at the web address provided in our press release. 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 <unk>.
Spectation 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 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 second quarter of 2023, which were included as item five of our annual report on form 20-F for 2022 and in exhibit 99, two to the report on form 6K that we are furnishing to the SEC today, respectively. Please also see the.
Released that announces our earnings for the second 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 current information regarding our operating results and material developments concerning our company 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 in today's press release.
I'll now turn the call over to our Chief Executive Officer, Dr. Yao of Zeiss you off.
Thank you Ana good morning, everyone.
And thank you for joining us.
Before we discuss our results for the quarter.
I would like to provide a brief update on the M&A activities taking place.
As we announced on July 17.
Our board after consultation with its financial advisor and outside legal counsel unanimously determined that the July 13 revised the unsolicited proposal.
By treating system Corporation would reasonably be expected to result in a superior proposal.
Find has tried to see some military agreement we.
We desktop metal.
To determine where the trading system would ultimately make a superior proposal.
<unk> is conducting the necessary due diligence on three test systems business and prospects.
As the majority of the consideration is based on shares Australia systems.
We continue to work closely with trade assistance on the information they have provided and will provide an update at the appropriate time.
As the board continues to support our airports to maximize value for all strike us as shareholders. It is important to keep in mind that our board is not determined the trade assistance proposal in.
In fact constitute a superior proposal.
Furthermore.
The board has not changed it's unanimous recommendation to pursue the transaction with desktop metal.
And we will continue to work.
Towards closing he.
As always we are focused on pursuing the pet that will deliver the greatest value for our shareholders.
Our business is strong.
As evidenced by our second quarter results.
And we are well positioned for continued success.
Regardless of the outcome of these developments.
Additionally, natural dimension recently announced that it will no longer pursue its partial tender offer to acquire processes.
Following the offering is exploration on July 31st 2023.
Nano also announced that we throw its director nominees for the threat the Suez Board at our annual General meeting of shareholders that took place yesterday.
We then call the shareholders for their feedback.
I'm pleased that our shareholder.
Voted to reelect each of trial to see a director nominee.
Supporting our efforts to execute our strategy.
To deliver significant long term growth and maximize value for our company and our shareholders.
That's it.
The purpose of this call is to discuss our financial and operating results.
And we ask that you keep your question to that.
Turning to the results our strong second quarter results represent another consecutive quarter of solid.
So all these performance.
Marked by record recurring revenues, so consumer defense and customer service revenues.
These results demonstrate the success of our winning strategy, which includes our leadership position in five polymer additive manufacturing technologies.
Our resilient business model and strong financial profile.
The work we've done to execute our strategy has put us on track to achieve our medium term forecast as a standalone company of generating more than 1 billion in organic revenue in 2026.
Without significant M&A activity.
In addition to making substantial improvements in profitability over the coming years, we believe.
That this expectation will be further bolstered by the addition of desktop metal.
Together, we believe we are positioned to achieve outsized growth and create long term shareholder value for years to come.
We accomplished these results.
Against the ongoing challenging macro backdrop.
Continues to be marked by slower growth and higher interest rates and the global economy work to overcome recent periods of high inflation.
Despite the macro situation.
I'm pleased that customer demand and our engagement with both our installed base and new customers.
He is stronger than ever.
Our results show that our customer recognizes.
We offer a unique combination of industry, leading polymer technologies.
The broadest set of polymer materials.
Hey, unified software platform across the portfolio.
Unmatched go to market capabilities and excellent customer service.
But we're not stopping there.
Our suite of technology offering.
Continue to expand.
As we broaden our customer reach and gain share.
Particularly in manufacturing applications.
Our resilient and recurring business model.
Delivered adjusted gross margin this quarter that was a 90 basis point higher compared to the year ago period.
And other than 20 basis points higher sequentially.
Additionally, we improved opex spending as a percentage of revenue relative to the corresponding period last year.
As a result of our airports and despite the headwinds faced I'm proud that we delivered positive adjusted earnings per share for the eight consecutive quarter.
Our vision for the future of additive manufacturing and our leadership position in this industry is more robust than ever.
We ended the quarter with a strong balance sheet of over $200 million in cash and equivalents and no debt even after the closing of cholesterol assets acquisition.
This continues to support our growth through organic investments and accretive acquisition opportunities.
Including early stage, but highly compelling technology, driven businesses, which we believe will further improve result.
As we leverage our infrastructure and experience to strengthen operations now.
Now, let me touch on some of the milestones we achieved in the second quarter of 2023.
In dental in the second quarter was the first quarter of availability for entry level J three delta just screen terror as well as our disruptive digital dentures solution through that and.
And we are off to a fast start the new Gen III dented, yet for mixed trade off various dental part it seems strong U S and EMEA customer response.
And as noted last quarter, our prudent is the only FDA cleared for Palo monolithic three D printed denture solution on the market. We have already sold a number of these systems.
Including to Posco brothers Artisan and express three U S dental labs, notably the top five producers of dentists in the U S.
<unk> committed or deep within their evaluation process and likely to buy.
We are also still on track for European availability next year and have already engaged with the top 10 European venture producers there.
The feedback has been excellent and we look forward to updating you next year, when we received CE approval and can begin commercialization.
Yeah.
As a reminder, denture isn't over 5 billion dollar addressable market with only 5% coming from additive manufacturing to date.
Our leading technology and offerings are designed to further penetrate that impressive Tom and will drive sales in a large and growing space.
On the industrial side, we had a strong quarter for the Stratasys F 900.
Our largest format F D N system design.
Designed for high end parts and tooling applications.
Most of the units were sold into aerospace automotive and defense severity cuts.
For production parts manufacturing.
900 purchases included existing customers, such as BMW and lucid full factory production tooling.
The U S Air force and new customers, including Cormack, the commercial aircraft Corporation of China, which purchased two units to begin their pet towards F. D M flight path.
After a successful beta program featuring customers in the U S and EMEA, we launch our P. A 12 material for SaaS.
Yeah, 12 is a highly versatile polymer and the most requested material in powder bed fusion.
Combining P a twist the consistency.
Fast technology opens up a world of high volume applications that require advanced level of dimension of accuracy with the lowest cost per part.
And along with our channel partner Tcl off money in Australia, We announced a partnership with walking show and Drafty, United Racing team to and of course, the new E. M mob with the new strategies photos for 50 M. C. Three D printers.
The second such sprinter. The team use a three D printing to prototype and produce about faster and more accurately.
That's performed exceptionally well in challenging racing environments. We are proud of the continued progress and contributions.
Our technologies are making in the highly demanding I ran out of automotive racing all over the world.
Also in automotive, we announced that we show as integrated our innovative <unk> fashion technology into the interior of the new inception concept.
Achieving a level of resolution.
Not possible using traditional embellishment methods. The car incorporates a revolutionary interior design and features advanced materials.
Used exclusively using these processes J H 50, textile three D printers.
Turning to medical in the second quarter, we forged a joint development and commercialization agreement with call plant Biotechnologies 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 solution for coal plants regenerated breast implants and represents a.
$2 6 billion dollar opportunity.
Further the combination of our Petri technology based bio printing.
We there are age collagen based bio inks is ideal for future innovation and production of additional human tissues and organs.
Both companies have agreed to cross promote their respective bio printing product and we look forward to collaborating toward the successful commercialization of coal plants novel regenerative breast implants and beyond.
Just last week, we celebrated the F D. A clearance of axial treat these automated cloud based medical segmentation software.
As a reminder, we invested in axial treaty.
Trout based AI, driven three D printing platform that enables easy segmentation of CP and MRI scans for an atomic models.
Health care providers and medical device company use of cloud service to quickly go from skin to three D printed anatomic models without large upfront capital expenses. Therefore, the ability and scalability can help accelerate adoption of three D printed medical modest.
Across thousands of hospitals.
This is an important milestone is the ability to help global medical device manufacturers deliver patient specific surgical solution.
The promise of multi million dollar agreements with them.
And the key is speed and efficiency.
FDA clearance is expected to provide a major boost towards scaling our production processes.
Turning to slide nine.
Early in the quarter, we announced the revenue generating premium version of our flagship grab cut Greens software.
Grab Catherine Pearl.
It's designed to improve the efficiency of the prime preparation process for our SDN and <unk> customers and.
And we will be extended it to our other three D printing technologies in the months ahead.
We are now automatically attaching it to new SPM and soft system purchases, we generate a recurring revenue stream.
Grab Catherine Pearl.
It also includes capabilities from our recent acquisition.
Integrated is accuracy center.
Which reduces the number of print in order to achieve even more accurate thoughts.
You may recall.
That last year we.
We acquired revert and AI software company.
Which helps customers.
Quickly create consistently accurate and use production pop at scale.
The response is encouraging with several initial purchases during the quarter, including Boeing.
Over 75 companies Ah trial, and grabbed cut print role and we have plans.
Out an additional revenue generating software solution later this year.
As we continue to focus on adding value for customers.
While increasing recurring revenue through significant software enhancements.
During the second quarter, we closed the acquisition of cholesterol additive manufacturing materials business.
Which expands our differentiator three D printed materials, offering and stereolithography DLP and powders.
To address more manufacturing industry application.
We welcome their R&D facilities global development and sales teams around the world.
Portfolio of 60 materials for additive manufacturing and their extensive IP portfolio to our leading suite of consumables offerings.
The addition of Cavetto yielded immediate result, and contributed to another record quarter of consumable revenues, we expect to introduce new materials, resulting from the acquisition later this year.
Our technological innovations.
Best in class sales channels.
And key partnerships.
Contributing to our effort to build on our meaningful foundations for growth.
That will drive our industry leadership for long term.
I will now turn the call over to our CFO Athens, a meal to share the financial results and.
An update on our outlook for the rest of 2023 <unk>.
Thank you, Rob and good morning, everyone.
As we have mentioned, we achieved another quarter of solid results.
Against a persistently challenging backdrop in our customers' capital spending cycle.
We are particularly proud of how we improved both gross and operating margin.
We chose the progress we continue to make in driving efficiencies across the platform.
Overall.
Our results reflect the resilience of our diversified offerings provide.
The signs of acceleration in sales of manufacturing oriented system.
And the continued strong utilization of our systems by our customers.
Now, let me dive deeper into the numbers.
Yeah.
For the second quarter consolidated revenue of $159 8 million was up 2% adjusted for constant currency and Makerbot relative to Q2 2022.
In aggregate revenue was down four 1% and down three 7% at constant currency compared to Q2 2022.
OEM revenue, which excludes both makerbot and SDM.
Was up three 3% at constant currency from prior year period.
Product revenue in the second quarter declined by five 7% to 109.1 million.
Compared to the same period last year.
And was up one 5%, excluding makerbot and on a constant currency basis.
Within product revenue system revenue declined by 17, 9% to $48 3 million compared to $58 9 million in the same period last year.
Excluding makerbot and at constant currency system revenue was down eight 1%.
On a sequential basis system revenues grew 19, 4% indicative of the improving conditions, we've seen in the market and the continued strong level of engagement, we see with our customers.
Specifically, we saw strength in automotive aerospace and government for true production of end use parts as you all have noted earlier.
Consumables revenue rose by six 9% to $60 8 million.
Compared to the same period last year.
And rose by seven 3% on a constant currency basis and.
And by 10, 8% at constant currency excluding makerbot.
This represents another record level for Stratasys.
Service revenue, including F. D M was $50 7 million essentially.
Essentially flat as compared to the same period last year.
After backing out F. D M. It was up three 8% and up four 1% at constant currency.
And our customer service revenue was the highest ever.
Further Testament.
To the growing utilization rates of our system.
Within service revenue customer support revenue, excluding divestitures grew 8% compared to the same period last year and.
Any increased by eight 5% on a constant currency basis.
Now turning to gross margin.
GAAP gross margin was 41, 5% for the quarter.
Compared to 45% for the same period last year.
non-GAAP gross margin was 48, 5% for the quarter compared to 47, 6% in the same period last year.
The improvement in gross margin was driven by lower freight costs and the divestiture of Makerbot.
Which helped offset lower year over year hardware sales.
GAAP operating expenses.
We're at $99 9 million compared to $90 9 million during the same period last year.
The increase in GAAP operating expenses reflected in large part.
Onetime extraordinary costs associated with known dimension explore.
Partial tender offer and withdrawn proxy contest three.
<unk> proposal and the combination we announced with desktop metal.
non-GAAP operating expenses were $72 5 million.
Compared to $77 4 million during the same period last year.
This decrease reflects the divestiture of Makerbot.
And tight Opex management.
Which more than offset the inclusion of cholesterol in the quarter.
non-GAAP operating expenses were 45, 4% of revenue for the quarter compared to 46, 4% for the same period last year.
As we continue to focus on operational efficiency improvement.
We continue to manage our costs delivering relatively low opex to improve non-GAAP operating profitability.
Despite the lower revenue.
Reflecting the scalability of our model.
Regarding our consolidated earnings.
GAAP operating loss for the quarter was $33 7 million.
Compared to a loss of $23 5 million for the same period last year.
Reflecting the onetime extraordinary cost described earlier.
non-GAAP operating income for the quarter was $5 million.
Compared to $1 9 million for the same period last year.
The change is attributable to a 110 basis point improvement in non-GAAP opex as a percentage of revenue, which more than offset the declining revenues.
GAAP net loss for the quarter was $38 6 million or <unk> 56.
<unk> per diluted share.
Compared to a net loss of $24 4 million or <unk> 37 per diluted share for the same period last year.
The increase in GAAP net loss was.
Due in large part to the costs associated with none or dimension of expired partial tender offer.
And withdrawn proxy contest.
Three D systems proposal.
And the combination we announced with desktop metal, which are excluded from non-GAAP .
Yeah.
non-GAAP net income for the quarter was $2 5 million or four cents per diluted share.
Compared to net income of $1 2 million or two cents per diluted share in the same period last year.
We're proud to report that this was our eighth consecutive quarter of delivering positive net income.
On an adjusted basis.
Adjusted EBITDA was $10 6 million for the quarter.
Compared to $7 4 million in the same period last year.
Which reflects a 220 basis point improvement year over year on a percentage of revenue basis.
As you see on slide 16.
We used $23 2 million of cash in our operations during the second quarter.
Compared to the use of $22 8 million of cash in operations for the same quarter last year.
The use of cash was primarily driven by the timing of annual incentive payments.
Accretive in accounts receivable and costs associated to acquisitions proxy contest and related professional fees.
We ended the quarter with $205 4 million in cash cash equivalents and short term deposits.
Which in part reflects the impact of clothing collateral in the quarter.
Our balance sheet and cash generation remained strong spin.
Specifically, we are well capitalized and well positioned to capture value enhancing market opportunities as they are identified.
Clothing, the pending transaction with desktop metal.
Now, let me turn to our outlook for 2023 and the medium term.
Yeah.
We are reiterating our revenue guidance of 630 million to $670 million.
Due to timing, we anticipate continued sequential quarterly growth this year.
With third quarter higher than second quarter, and the fourth quarter should be our largest.
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 non-GAAP 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 and a half to three and 5% for the full year.
In the medium term, we expect non-GAAP operating margins to achieve double digits as our growth plan unfolds.
We anticipate a GAAP net loss of 115 to 96 million.
Or $1.66 to one dollar and 39 cents per diluted share.
And non-GAAP net income of $9 million to $17 million.
Or 12 to 24 cents per diluted share for the full year of 2023.
Our GAAP results and thus our outlook includes the onetime extraordinary costs associated with the proxy contest and merger related activities.
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 million to $25 million for the year.
Yeah.
Despite the near term challenges.
That persist due to macroeconomic conditions and a corresponding capital investment down cycle by our customers.
We are reiterating our medium term targets discussed on our last call.
Those targets are for non-GAAP gross margins about 50% and positive free cash flow starting next year.
By 2026, we continue to expect a revenue from organic growth.
To surpass 1 billion.
With adjusted EBITDA margin, surpassing 15%.
Driven by our innovative growth engines, as we penetrate further into manufacturing and health care applications.
Please note.
These figures are for <unk> Standalone and do not include anticipated benefits from our pending combination with desktop metal.
In summary, we generated strong financial results against a continued challenging backdrop and we remain encouraged by the level of engagement with our customers and confident in our long term growth and profitability potential.
With that let me turn the call back over to you all for closing remarks.
Bob.
Thank you Ethan.
Our customer appreciation.
And adoption of three D printing continues to grow as.
As we are an increasingly essential part of the effort to bring more agility flexibility and profitability to their global manufacturing operations.
I also want to acknowledge and thank the employees of strategies.
Further the execution of our strategy.
Excellent.
Helping to make strategies they are healthier.
And the strongest growing business in our industry.
We look forward to the future and we remain unwaveringly committed to delivering on our plans.
We seek to generate long term value for our shareholders with that let's open it up for questions operator.
Thank you before we open the floor for questions, our Chief Executive Officer Yours, Zeiss, we'd like to make a brief statement.
Yeah.
Thank you operator.
And good morning, everyone to join Us before.
Before we begin Q&A.
As an update on three D I want to be very clear.
We have been meeting with and exchanging significant information we treaty.
As part of our deciding if a treaty combination can result in a superior proposal to the one we signed with desktop metal.
We have had a number of joined meetings and exchanges of information.
And to have more already scheduled.
So we can arrive at.
And informed decision as soon as practical.
As always.
There can be no certainly.
The transaction will result.
And note that we have a signed agreement with desktop metal.
We believed.
These things are best done privately and constructively.
And as I said, we arent going to be taking any questions on M&A.
Now, let's get to our earnings which illustrate the progress we have made.
And now operator, please open it up for questions.
Thank you we will now be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad.
A confirmation tone will indicate your line is in the question queue you.
You May press Star two if you would like to remove first question from the queue.
For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. We currently ask participants to limit themselves to one question and one immediate follow up please.
Please hold while we.
All of our questions.
Our first question comes from.
Greg Palm with Craig Hallum. Please go ahead.
Yeah, Hey, thanks.
Everyone. Thanks for taking the questions I guess just.
Starting off with maybe the quarter end and the outlook I'm. Just curious just in terms of visibility levels. You know what's changed what's what's the same anything better or getting worse than you know a few months ago and just you know maybe maybe relative to some of the peers or others that play in the capital equipment.
A little bit better results I'm, just curious you know in terms of the outperformance where it's coming from.
Thank you, Greg and good morning.
So.
No doubt that the entire industry is operating in a challenging environment, because we're having a deflection potent erosion, we are moving to manufacturing bulk manufacturing.
Players.
Facing also economic challenges and put kind of a break on their capex. So all of us are operating in a challenging environment.
However, the nice thing is processes that we are very diversified.
And we are providing a full solution.
The product development lifecycle, but also across vertical which allow us to be quite diversified and on top of fee. We have very clear set of growth engine.
The first thing Thats happened over the last few years that we almost tripled our addressable market.
Then we also made some acquisitions.
Suddenly we see them in the market and they are currently Houston, both contributing both revenues and profitability.
So when you put this together the Covance CRO.
And strong material offering that we have and the growth in consumables and recurring revenue.
New offering in Delta plus new launches that we will have this year and you put everything together into one strong infrastructure in the market or go to market and.
And amazing network of partners.
<unk>.
He'd us with information about the market to very strong system, we have good visibility for it we.
Have a good visibility and we see there.
The light at the end of the tunnel.
Starting in the U S.
It's exactly as you can see it also on our hardware.
That.
Significant improvement from Q1.
Above 19%.
19, 4% improvement from Q1, so when you put everything together their growth engine the acquisition there.
The go to market and the infrastructure that we have we are such a structure company with good visibility for Easter and that's why we kept our guidance.
Okay, great and just in terms of guidance.
Next year and what are the M&A slide decks, you put out some base case and downside case scenarios for Stratasys.
Analog business and I, just wanted to maybe dig into that a little bit further because of the base case, you know 20 plus percent growth relative to this year at the midpoint and even in a downside case pretty strong double digit growth. So.
I know that's not guidance per se.
But what gives you and maybe the visibility next year that you know you can reaccelerate growth because that to that extent.
Thanks, Greg for the question, it's eight an M. So.
So as they start to related to the two the two model keep in mind that and sometimes the driver of that job related to.
Are the same answer for this question right. The acquisition of <unk>, that's something that did not impact our revenue at the beginning of the year in 2024, he's going to hit full year and we believe that we can grow that business. When you think about the acquisition of origin.
Saar, which is our staff and our P F.
As businesses continue to grow and we will have more and more impact as we go to our manufacturing and we continue our journey at <unk>.
The denture that you all have mentioned all of these growth driver and keep in mind that at the beginning of 2023 and even though is in in unstable macro.
The macro environment. So when you take all these together.
We have the infrastructure the business the go to market.
That can enable us to grow significantly year over year.
In normal macroeconomic environment.
The software, which is another growth engine for us and you get a complete picture of many growth drivers that could get us there.
Yeah.
Okay. Thanks for the help I'll hop back in the queue.
Thank you.
Our next question comes from Shannon Cross with Credit Suisse. Please go ahead.
Oh. Thank you very much I also wanted to talk a bit about what you saw during the quarter and guidance.
We just got off the authority system call, where they talked about pushed out or you know about that.
I saw during the quarter, what's been closed in July , but theyre seen further pushed out. So I'm just wondering maybe if you can talk about linearity. During the quarter. You know are you seeing delays in terms of order right now.
Maybe I don't know if you can just sort of contrasted to well I don't know if it's a different product sets.
Where do you see somehow the person's yours, but again, it's carnival a tale of two cities in terms of the commentary during the call and then as a follow up thank you.
Okay.
Thanks, Shannon and good morning. Thank you for your question.
So we definitely see longer sales cycle.
But we don't see significant pool.
Push of orders.
Going forward.
And I.
I guess, it's also relate to our diversification.
Geographically across different customers, but also the improvement in the U S. So the U S is still there the overall economy.
Economy is shrinking because you can see it in the purchasing managers index, but it's less severe than it was in the past in the last three four quarters.
Kind of the wave of economic challenge.
Move to the other side of the Ocean and we our USB, 60% of our revenues.
So are we.
We do see much better customer engagement.
A very strong, especially in the U S. So the demand is there.
It's a longer sales cycle, but we specifically didn't see a push in order to the next.
Quarter.
To your question.
Okay. Thank you and I'll I'll see if he can answer that well we'll try it.
You're undergoing.
Initial integration work looking looking at desktop metal I'm, just curious as you're doing that has anything changed in terms of what you saw going into the acquisition are you are there like what areas are you thinking are most complementary.
I'm, just kind of curious as to how that that's going.
So we don't see any change.
And we.
We still believe in what we announced and published about the complementary of those two businesses. So desktop better met that are bringing the best method solution that each.
If there will be a metal solution <unk>.
Mass production it will be desktop metal for sure.
And they bring.
Amazing position in dental they are the leader in digital casting which is large format part of metal and they are super innovative and when you combine this with processes Paul in a leading position with strategies go to market, which is the best in the industry and what strategies infrastructure.
Here, we see great complement parity between the two companies and that's why we signed the agreement.
Thank you so much.
Thank you.
Thank you our.
Our next question comes from Brian Drab with William Blair. Please go ahead.
Hi, Thanks for taking my question I, just wanted to clarify on co best drove just.
Just how much that contributes to growth and how you think about that with respect to organic revenue growth because this company.
Was it the deal was closed on.
April 5th and you'll get a full quarter than in the second quarter industrial revenue its about three points of growth.
I'm just wondering how are you thinking about this you know roughly three points of growth with respect to which I think you said today to 2% organic revenue growth for the company for the quarter.
Is that in there.
Okay.
Hi, Brian So first two of them relate to your question about cholesterol you write the deal closed at the beginning of April and contributed $4 6 million for the quarter and we believe that that that business will grow and already in 2023 and <unk>.
And anticipated further growth in 2024.
That business complement our other businesses and I'll go to Mark to market can leverage that business. So we we.
We see a significant growth and good business.
From commercial.
I will answer that that's our consumable business and keep in mind that covers choice is entirely consumable.
<unk> grew even without cholesterol.
And when you compare year over year, which I believe that was part of your question. So our business grew further with cholesterol, but also with uncle Bester.
Okay, and you made the statement, 2% organic revenue growth, excluding FX and Makerbot.
And I didn't.
If I exclude cholesterol with organic then down 1% is that fair.
That should be an acquisition revenue right I'm, just trying to clarify I'm not you know just a little confused.
I believe we provided both so we provided the cholesterol revenue in order for you to be able to model them.
Okay. So you have them they make about which is much more significant.
That was divested in August 2022.
I believe we provide and that's why I mentioned the growth in the consumable with and without cholesterol, but to your question. The 2% includes core bester.
I may have just missed that you did at both ways, Okay, and cholesterol should help margin somewhat right that youre cutting kind of cutting out the middleman and not having to pay the markup on these many consumables that you sourced from them in the past.
Correct, correct or was a healthy business as far as is concerned with the profitability yeah.
Yeah.
Great. Okay. Thanks for taking my question.
Thank you. Our next question comes from Troy Jensen with Lake Street Capital markets. Please go ahead.
Hey, first off gentlemen, and congrats on a really nice results here.
Thank you Troy.
So are you or maybe for you you know dental I know, it's a big focus for you guys. I guess to me I think about two different kind of big application. So there's probably jet for dentures SLA for more like a liners.
Which one do you think is kind of like better for you guys or the near term opportunity or when he when he took up the dental market is it one more than the other.
Good morning.
Uh huh.
Well, maybe I'll take a step back and they'll start without dental offering we completely replenished our dental offering over the last three years and we today have the broadest technological offering in dental because we are offering.
Poorly jet, what we call dental jet and also J treat interject and Jay five and those are by far the leading inkjet machine in dental.
Focusing on data with great cost per pound weight versatility with flexibility with the ability to print different application on the same Trey that's on the poly jet then we have the DLP with all the advantages of our <unk> technology, which mainly it's the best surface.
Finish in the industry in DLP and the meaning of it that there are some application like spleen.
You need this surface finish where we are really leading in terms of value to the end customers and last but not least we have the SLA.
<unk>.
And also in the future I believe also the staff will be able to.
To contribute to the liners, so the SLA and the.
South can be a great solution with great cost per pound for the liners.
Business. So this is like the overall portfolio.
Our belief is that in the long term.
The winners will be the poly jet.
And the DLP.
Also in our lineup by the way, although we are investing and we have other solutions for liners, we believe that that would be the solution and that's what this is where we are investing.
And in the short term no doubt that it's those two technology, starting with the dentures application, which is unique to slaughter system IP protected unit, just like I said no one else in the world can upstream.
Monolithic than chairs in one trains without the labor needed in order to glue. The two to the gingiva, it's a transformation and we will improve the material.
We go and we believe it will be a standout D. Next standout in dentures and you will see a which is a <unk> 5 billion.
Market only.
Only the U S.
So we are very optimistic about this it can be much bigger than our strategies as a whole.
And on top of it of course, our DLP, which we invested a lot in order to make sure that.
The LPC common greeley.
Plug and play in dental.
Awesome very detailed thank you my follow up I, just asked I mean I'm not SaaS.
You talked about nylon 12 coming out here.
Which I agree is a bigger market than island 11 for you guys and big opportunity, but just are you still kind of limited shipments with what's out there what do you think that's a that's going to be more.
Can you go bigger revenue growth.
So we made an amazing improvement in progress itself over the last.
Six months.
Mainly on two aspects of the SaaS.
One is the ph was which is by.
By far.
Our addressable market because this is a standout.
The P P H with.
On top of it.
To get there, we our software solution and.
We talked about it in the script, we improved accuracy dramatically.
And we keep making improvements and we have it in SDM and customers are coming to see but we have a very.
Deliberate.
Production of the machine everybody needs to go through our SDN to make sure that he knows how to operate it.
<unk>.
Highly optimistic about this machine because.
No one.
Has the value that we can deliver to customers in terms of cost per pound and accuracy.
Awesome. Thank.
Thank you good luck with all this merger itself.
Thank you.
Thank you.
There are no further questions at this time I would.
I'd like to turn the floor back over to York Zeiss for closing comments.
So thank you very much everybody that joined the call.
It's a pleasure to be part of this industry and to lead it as the most heftier squander. This company in the industry with the eighth consecutive.
A quarter of profitability and I want to thank all of our teams.
For making it happen.
Thank you for joining us and I'm looking forward to updating you again next quarter.
This concludes today's conference call you may disconnect. Your lines at this time. Thank you for your participation.
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Okay.
Yeah.
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