Q3 2023 Stratasys Ltd Earnings Call
[music].
Hello, and welcome to the Stratasys Q3, 2023 earnings conference call and webcast. If anyone should require operator assistance. Please press star zero on your telephone keypad.
Short answer session will follow the formal presentation. He may be placed in the question queue at any time by pressing star one on your telephone keypad. As a reminder, this conference is being recorded its now my pleasure to turn the call over to you and avoid Chief Communications Officer, and Vice President of Investor Relations. Please go ahead, yeah. Good morning <unk>.
And thank you for joining us to discuss our 2023 third quarter financial results on the call with US today are our CEO, Dr. Jan <unk>, and our CFO Etan Zamir I.
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 will 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.
Future performance events expectations or results.
Our 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 third quarter of 2023, which are included is 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 press release that announced.
Our earnings for the third 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 in material does.
Elements 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 today's press release I will now turn the call over to our Chief Executive Officer Doctor, You'll have Jive you all thank.
Thank you your honor.
Good morning, everyone and thank you for joining us.
Before going through our business update I'd like to comment about the situation in Israel.
Israel is home to about 25% of our employees, who have been performing in an exemplary fashion during the war.
Whether it be serving the country or maintaining our business. There has been no fundamental impact on our operations.
And our factory and offices have been open throughout we are proud of our employees and the spirit of our country. During this difficult time.
Before I turn to the third quarter results as you may have seen this morning, we announced that <unk>.
<unk> was appointed to our board of directors effective immediately.
<unk> is a seasoned <unk>.
<unk> with more than 30 years of leadership experience and we are pleased to have him bring expertise across business development M&A and operation of complex cross border businesses at scale.
As always our board is committed to ongoing refreshment and continues to take steps that will enhance value for our shareholders.
All of this appointment follows Ziv <unk> decision to step down from Stratasys Board. Following 10 years of service as a director we are grateful to visa for our commitment and many contributions to the company and wish her all the best.
Yeah.
And for the 10th quarter, we accomplished our results against the ongoing challenging global macro backdrop that is marked by slower growth higher interest rates and constrained capital spending.
During the third quarter, we achieved record recurring revenue from consumable sales.
Reflecting solid utilization of our printer and demonstrating our resilient business model and financial profile.
Customer demand.
And our engagement with both our installed base and new customers continues to be stronger than ever.
The results show that our customer recognizes our unique combination of industry, leading polymer technology.
The broadest set of falling raw materials.
A unified software platform across the portfolio.
<unk> go to market capabilities.
And excellent customer service.
And we continue to invest and innovate to stay at the forefront of additive manufacturing.
While growing the business across our end use segments.
Our portfolio of technology offerings continues to expand with particular focus on manufacturing applications.
We deliver results.
Comparable to the year ago period for revenues non-GAAP margin and adjusted EBITDA, Despite the increasingly challenging environment for capital spending for our customers heading into year end.
Additionally.
We kept non-GAAP opex cost as a percentage of revenue flat relative to the year ago period. As a result of our effort I am proud that we delivered positive adjusted earnings per share for the ninth consecutive quarter.
And to help to further improve profitability going forward, we recently divested two lower margin unprofitable businesses.
Our strategy is direct service Bureau.
This is expected to reduce 2023 revenue by $5 million, but help improve profitability and focus in 2024 and beyond.
We ended the quarter with a strong balance sheet of $185 million in cash equivalents and short term deposits and no debt.
This continues to support our ability to grow through a combination of organic investment and accretive acquisition opportunities that will further our.
Our strategic objective to be the leading provider of additive manufacturing solution.
Our vision for the future of editing manufacturing and our leadership position in this industry is more robust than ever.
Now, let me touch on some of our recent business highlights and milestones.
On the industrial side I want to highlight the launch of our very exciting and innovative F 3300, just us tweak at form next there.
The F 3300.
Is up to two times faster than other fortinet filament printers available today.
This inaugural addition for new SDM enterprise platform family.
This custom build specifically for manufacturing.
Significant advancements in speed reliability and operating efficiency demonstrate our continued commitment to innovation.
And will bring greater economic advantage to existing Houston and opened up new application opportunities.
The increased speed of the F 3300.
Turns out relative to any other polymer filament printers available to date.
With increased gantry speed and material extrusion.
It also offer up to 45% cost reduction.
The reduction compared to existing solution.
It is loaded with sensors, which will over time provide path and bring data collection capabilities to support foreseeable usage around quality and predictable outcome.
The F 33 hundreds.
Initially planned for commercial availability during the fourth quarter of 2023.
Is now planned for the first half of next year.
As a reminder, strive as Susie invented SDM over 35 years ago. It.
It is the world's most popular three D printing technology.
And we lead across aerospace automotive and defense applications.
This new F 3300 platform.
Was developed with tremendously valuable input from many of our customer.
Over the last several years.
Payload to address their production requirement.
This program included Toyota.
We announced it has become our first F 3300 customer.
The F 3300, together with our other manufacturing solutions, such as <unk> 350 staff in Oregon, Petrie, a production oriented system that will expand our addressable market.
<unk> growth and drive our continued leadership.
Okay.
Turning to some customers success from our industrial business.
We are appreciative that the U S Army Picatinny Arsenal further demonstrated its confidence in strategies by placing a significant order across our entire portfolio of five polymer technology.
F D N poorly jet.
Origin P. Three in New York Stereolithography.
These printers will be used across multiple military facilities, the strategic importance of picatinny, making such an investment in Stratasys is key as they are the organization that leads the additive manufacturing effort for the U S Army.
In automotive F. A W. China's largest only owned both of them on a fixture installed a variety of strategies system in its effort to build a world class additive manufacturing center.
With a goal of staying at the firm.
For front of the digital manufacturing transformation.
It's newly installed base includes Oregon, Hawaii.
Paul J J 850 prime.
And multiple F 900, <unk> systems, and we look forward to growing that relationship further.
Subsequent to quarter end, we all stood out where fright Fest event focused on aerospace and automotive feature.
Featuring customer testimonials from Northrop Grumman and Retford models that Ford is a great case study for additive manufacturing as it slow to start 62, two automobile is produced using approximately 250 bulk printed with R. F. P. M C.
10.
To deliver unparalleled performance.
Turning to slide eight.
Our dental business continues to be strong.
Foundations for growth if customers are scaling up with multiple unit orders and expansion of their portfolios for both ortho and implant applications.
In the U S with its 5 billion plus dentures industry customers are increasing adoption of our disruptive through dense solution and we expect continued acceleration in the years ahead in the EU we have.
<unk> positive feedback from top five lab network and we expect to expand our penetration there was prudent received CE approval.
On the health care front, we recently signed a partnership agreement with empty.
G M BH and longtime Stratasys partner to establish a new division called NC medical that we specialized and focused on delivering stratasys medical solutions to the German market. This is part of a global strategic decision to expand our reseller network through partners, who specialize in.
The medical field, we believe this will help increase our coverage focus and dedication to our health care customer.
Another new development is our relationship with go orthotics and innovator and a manufacturer of custom made orthotics.
Podiatrist they have purchased.
Multiple SaaS printers that enable them to quickly produce custom orthotics with high specification.
Increases were in effect to improve food, while saving vast walking time, and keep superior product fit and comfort not possible with traditional manufacturing.
The cost per foot orthotic opportunity is expected to more than doubled to $8 8 billion by 'twenty 32.
Turning to software I'm pleased to say that after running a free trial program, we have commercialized our premium offering.
All of the software has always been critical to our customer success.
But we have only recently extended our portfolio to include subscription only offerings with Gulf Coast Greensborough and open air.
Approximately half of our new F. B M. <unk> customers have chosen to subscribe to grab cut painful and we plan to offer it across poorly jets.
Neil and origins as well.
Oh no material side, we have added a number of financing into our flagship F 900 series.
Including offering new polymeric colors and support material.
We have also expanded the functionality of the Afghan added serious to open a M by allowing users to test and tune materials and printed power capabilities.
This provides additional functionality as they can.
And third the characteristics of Stratasys, and third party materials and screen their own formulation opening up new applications to expand the reach of our product and materials portfolio.
I will now turn the call over to our CFO Athens, the meal to share the financial results and update on our outlook for the rest of 2023.
Thank you.
And good morning, everyone.
Our third quarter results continue to demonstrate our ability to consistently deliver operating leverage and drive profitability, even in a capex constrained environment.
We are particularly proud of how we maintained the level of our non-GAAP opex as a percentage of revenues in a flat revenue quarter.
Even as we continue to invest for future growth.
These results highlight the financial discipline and business maturity that differentiate stratasys and our industry.
Overall, our results reflect the resilience of our diversified offerings provide continued high level of engagement with our customers.
And proof of their ongoing strong utilization of our systems.
Now, let me dive deeper into the numbers.
For the third quarter consolidated revenue of $162 1 million was essentially flat relative to Q3 2022.
<unk> was up three 3% at constant currency, and excluding Makerbot and Stratasys direct divestment.
Product revenue in the third quarter increased by 1% to $113 2 million compared to the same period last year.
And was up three 4% on a constant currency basis, and excluding Makerbot, which we divested in late August of 2022.
Within product revenue system revenue declined eight 6% to $51 5 million compared to $56 3 million in December of last year.
Excluding makerbot and at constant currency system revenue was down 5%.
On a sequential basis.
Systems revenue grew six 6% indicative of some improvement in conditions, we see in the marketplace and the continued strong levels of engagement, we have developed with our customers.
Consumables revenue rose by 10, 7% to $61 8 million compared to the same period last year.
And rose by 11, 6% on a constant currency basis, excluding makerbot.
This represents another record level of consumable sales for Stratasys.
Service revenue, including Stratasys direct was $48 9 million.
Down two 4% as compared to the same period last year.
And was up three 1% at constant currency, excluding makerbot and Stratasys direct divestment.
Within service revenue customer support revenue grew three 6% compared to the same period last year.
<unk> increased by three 2% on a constant currency basis and excluding makerbot.
Now turning to gross margin gap.
GAAP gross margin was 45% for the quarter compared to 43, 6% for the same period last year.
non-GAAP gross margin was 48, 3% for the quarter essentially flat compared to the same period last year.
GAAP operating expenses were $108 4 million compared to $86 4 million during the same period last year.
The increase in GAAP operating expenses reflected in large part our extra ordinary expenses associated with none of the dimension expired the partial tender offer and withdrawn proxy contest.
300, <unk> system proposal and our terminated deal with desktop metal.
non-GAAP operating expenses were $74 2 million flat as compared to the same period last year.
non-GAAP operating expenses were 45, 8% of revenue for the quarter also flat as compared to the same period last year.
As a reminder, we delivered the same opex level on flat revenue, despite additional opex generated by certain acquisitions.
Our ability to hold Opex levels flat is a testament to our focus on operational efficiency through cost management. This.
This clearly demonstrates the scalability and resiliency of our model and will serve us well as end markets stabilize and both revenues and margins improve over time.
Regarding our consolidated earnings.
GAAP operating loss for the quarter were $42 8 million.
<unk> to a loss of $15 6 million for the same period last year.
Collecting the increased extraordinarily expensive described before.
non-GAAP operating income for the quarter was $4 1 million, which is two 5% of revenues compared to $4 5 million or two 8% of revenues for the same period last year.
The modest decline is attributable to slightly lower year over year non-GAAP gross profit that's more than offset flat non-GAAP operating expenses.
GAAP net loss for the quarter was $47 3 million or.
Or 68 cents per diluted share.
Compared to net income of $18 7 million or 28 cents per diluted share for the same period last year.
The year over year decrease in GAAP profitability was due in large part to cost associated with none or they mentioned expired partial tender offer and withdrawn proxy contest three systems proposal and determine they could deal with desktop metal which are excluded from our <unk>.
non-GAAP results.
I'll also remind you that third quarter 2020 to GAAP net income included a onetime $39 1 million gain from the makeup of deconsolidation, which worsened the decline in GAAP profitability in Q3 2023.
non-GAAP net income for the quarter was $2 4 million or four cents per diluted.
Sure compared to a non-GAAP net income of $3 3 million or <unk> <unk> per diluted share in the same period last year.
We're proud to report that this was our ninth consecutive quarter of delivering positive net income on an adjusted basis.
Adjusted EBITDA was $9 8 million for the quarter compared to $9 9 million in December of last year, essentially flat on a percentage of revenue basis.
We used $12 7 million of cash in operations during the third quarter.
Compared to the use of $18 4 million of cash in operations for the same period last year.
The use of cash was primarily driven by costs related to mergers and acquisitions activity.
Offense against the hostile tender offers and proxy cost contest and related professional fees.
Operating cash flow, excluding cost of $13 7 million paid to advisers related to merger and acquisition activities and takeover defense would have been positive we.
We ended the quarter with $184 6 million in cash cash equivalents and short term deposits.
Our balance sheet and cash generation remained strong specifically, we are well capitalized and well positioned to capture value enhancing market opportunities as.
As they are identified.
Now, let me turn to our outlook for 2023.
Last quarter, we guided full year revenue at $630 million to $670 million.
Adjusting for the 5 million impact from the divestment of the tooth charter fees direct businesses.
This is equivalent to 625 million to $665 million.
Additionally, we have noted earlier the delay in selling the new F. 3300 that was planned for Q4 this year.
And the soft capex marketplace given.
Given these items, we now expect revenue to range between 620 million to $630 million.
From a gross margin perspective, we continue to expect full year 2023 to be in the range of 48% to 49%.
We expect gross margins to go back over 50% next year.
In 2023, we expect our non-GAAP operating expenses to be in the range of approximately $288 million to $290 million.
We are adjusting non-GAAP operating margins to now be in the range of 2% to two 5% for the full year.
We anticipate a GAAP net loss of $117 million to $104 million.
One $7 <unk> per share to $1 $51 per diluted share.
And the non-GAAP net income of $6 million to $9 million.
For 10 to.
214.
<unk> diluted share for the full year of 2023.
Our GAAP results and thus our outlook includes the onetime extraordinary costs associated with our acquisition related activities. The hostile tender offer that withdrawn proxy contest and related professional fees.
We expect positive operating cash flow in 2024.
As we do not anticipate incurring similar costs.
Notwithstanding whatever cost may be incurred in 2024 related to the comprehensive strategic alternative process that we announced in late September 2023.
Adjusted EBITDA is revised and now expect it to be in the range of $35 million to $38 million for 2023.
Capital expenditures are expected to range between $15 million to $20 million for 2023.
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 your for closing remarks.
Yes.
Thank you Ethan.
Our customers' appreciation and adoption of three D printing continues to grow.
As we introduce new and improved systems and materials and software offerings.
<unk> is an increasingly critical part of their effort to bring more agility flexibility and profitability to their global manufacturing operations.
Additive manufacturing is establish a formidable beachhead in manufacturing at scale.
One that we expect will grow and adoption as the technology continue to demonstrate real world success stories.
And we will be at the forefront.
We have proven.
Time, and time again that strategy is the industry leader demonstrating the ability to manage the business.
Through tough times, while still delivering superior results and profitability.
I'll conclude with a few thoughts on our announcement in September to explore strategic alternatives to maximize shareholder value.
For the past few years strategies has consistently outperform our sector.
On both financial metrics and business fundamentals.
We have continued to accomplish this even during challenging business environment. This year.
And the excessive M&A noise in our space.
Our focus remains on maximizing shareholder value, while being cognizant of the near term headwinds.
We expect the industry and macro headwinds will abate.
Returning us and the industry through a period of sustained growth and increased profitability.
That let's.
Let's open it up for questions operator.
Thank you, we'll now be conducting a question and answer session. We ask you. 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 poll for questions. Our first question is coming from James Ricchiuti from Needham <unk> Company. Your line is now live.
Thank you good afternoon.
A question on the.
3300, I Wonder if you could talk about.
The factors that led to the delay.
What I guess is now.
Partial availability in the first half of the year and it requires some additional tweaks.
What does the sales pipeline the early sales pipeline look like for this machine.
Thank you Jim I appreciate the question.
I would say that's what led to the delay is that high commitment of Stratasys two qualities.
So.
We know that this machine is going to manufacturing and we could not compromise on the quality.
We walked through.
To develop this machine together with many customers. It's we're exposed through NDA to the different features and recommendation.
And we already use it.
Toyota they are already using it.
Sure there are a few of those new machine in full next last week.
And there was a lot of excitement there I can only say that.
It's a very slight delay.
We have very strong demand through this machine.
We have already purchased all there.
And we.
I have full confidence that that will be a transformative.
For Inc. In manufacturing, mainly in aerospace and automotive spare part, but also in tooling jigs and fixtures, it's a completely different scale different delivery different value proposition and that's why we already have.
Customers develop their machine with us waiting to start engaging and start operating the machine and Remanufacturing.
Of course also other customers in the pipeline central sales I'm not talking about going to Toyota.
<unk> manufacturers in the world.
Got it that's helpful. Thank you I'll do my follow up question relates to grab cat.
How should we be thinking about the grad CAD.
Revenue opportunity with your customer base yet.
As you've started begun expanding.
Banding it toward the product portfolio.
Thank you Jim.
Todd.
It is an essential part of our strategy.
I would say.
In two different routes one we believe we need to give our customers the best experience and to make sure that any additive manufacturing operator has when he's walking is fully productive and is the best.
Friendly operating system. So, it's all about productivity and make the life of additive manufacturing operated much easier.
And when we are talking about dropped at this is we first take the customer perspective, what's going on with software in our industry is that.
Sorry to say, but it's almost MFS, because you need four or five different software in order to preempt one path and our vision is to take our strength, which is based on the fact that we are producing consistent we know the logs. We know did that though we know everything we have the largest installed base and we have.
We have the best operating system. So those are the pillars now we're taking those pillars and we said, okay, let's make it the platform.
Connected to everybody out there that can make the life of the operator easier like simulation partners like Oh.
Inventory traceability powered news Digest, both partners and also being able to connect all of our fleet on the other side and we think this graph cut then we say okay. We want to make your life easier the ways to make the life of our operators our customer easier to smooth day away.
They are running the operation, although we are doing it with grub, Scott, we are bringing new products to the market.
The forecast of software in our industry.
Get to $3 billion in the next five years.
And we will capture this path that is not the manufacturer enterprise system.
But those parts that really make the operator life more.
Productive and easier.
We have great gross margin there.
And we already launched two products.
What we called open AAN. So if you buy our software subscription base you can use other materials and we launched what we call broadcast Plainsboro, which has fantastic seat chair. This increase the productivity for example, what we call the accuracy Center, where you can use AI to close the loop.
Between the end use parts and to file.
We put it together youll becomes more productive because you placed much more accurate path.
This is the direction.
Going really well just as an anecdote in the last quarter, 50% of our sales in SaaS.
And in STM, we attach to.
So, let's say that rough.
<unk>, so I'm very optimistic about grub cut it will be an essential part in our recurring revenues going forward.
Thank you and congratulations.
So clearly a difficult environment and a lot of levels. Thank you.
Thank you.
Thank you. Your next question is coming from Greg Palm from Craig Hallum. Your line is now live.
Hi, This is Danny egret, John for Greg today, Thanks for taking the questions.
I kind of just wanted to start by digging into more broadbased, while youre seeing and maybe the implied Q4 guide.
It kind of a $5 million takeout from the divestments spot on on the F 3300.
Delay I mean were you expecting a decent sized contribution in Q4.
Or how much of it is just related to a broader sales cycles lengthening and some order push outs into the.
2024.
So we're well they will not be getting into the specific numbers of the F. 3300 contribution for Q4, but as you have mentioned this is a significant product and a significant launch so one seats.
We reached the commercial launch we indeed expect contribution to Q4 and that has that.
Any impact on our Q4 guidance.
Yes, Danny if you owned <unk> by the way that you asked about the order push outs. So the delay has nothing to do with order push outs at all it's clearly was only related to making sure we got the best product out.
Yep got it Okay. I think yeah. My my order push out was kind of more broad based and not necessarily related to.
3300, but that makes sense.
I guess, maybe shifting over to kind of the medium term targets that you got out there.
I think.
Most of those are below the revenue line or kind of fiscal year 'twenty. Four just wondering if you feel like you're still confident that you'll be able to achieve all of these.
Maybe just assuming that that the macro stays consistent for the near term next couple of quarters.
Danny Good question and.
The answer is that we have confidence in the main reason.
And most of those measures are within our control and I explained we've created an infrastructure both on the cost side.
On the gross margin side on the cash flow side.
Within our control so even in a challenging macro environment we.
We do have.
The levers and we do have the infrastructure to maintain low opex and to improve our cash flow.
So the 50% plus gross margin in 2020 for the operating cash flow positive in.
2024, and the ability to maintain good opex level as a percentage of revenue that's something that we're very focused and believe that can be achieved even in the macro a challenging macro environment.
Got it that's that's helpful. Maybe just one more touching on dental I think last quarter you had mentioned.
Our top five denture producer had or was committed to.
Acquiring system, but what's the update on that did that hit.
And any progress on smaller potential sales within that space.
Yeah.
Thank you for the question.
In one sentence, it's the highest revenue quarter in dental ever.
I think that's a good reflection of where we are our strategies working both on the <unk> side, but also on the replenish.
Replenishing of the portfolio both on the printer side, but also on the material side, it's really working with us on the regulatory front, we are receiving on time.
Uh huh.
Approvals that we're waiting for and we would see more growth there, especially because we are focusing on what we call restorative dental so we are less.
Sensitive to the current macro environment, where you have discretionary.
And our sectors like the liners and ideas were quite sensitive to inflation interest rate income.
On our end we are focused on our restorative on 10 chairs on removable dentures on model on crown in branches in the future So and we do it with <unk>.
A truly disruptive use case. So we are not there is no me too in our <unk>.
Frank.
Nothing here, it's about innovation.
Again, making the life of the dentist and the technician much easier multi material multi Tyler is highest at peak.
Almost no LIBOR.
We also are forming this restorative sector.
Great I will leave it there thanks.
Thank you. Your next question is coming from Ananda Baruah from loop capital. Your line is now live.
Hey, Yeah, Thanks, guys for taking the question and.
Our thoughts are certainly with you all and everyone.
That's occurring in your neck of the woods.
I guess a couple for me if I, yes, you're very welcome.
A couple for me if I could I.
I guess just to start on the macro and Jacob take care.
What's a useful way for us to think about as macro.
<unk> op begin to improve.
Well whenever that occurs 24 going into 'twenty five.
Key milestones or I'll use the term milestones the key milestones key occurring with Lithia industrial side of the audit the auto announcements are obviously quite exciting.
So inside of auto, but even more broadly aero and general industrial what the easily for us to think about the dynamic side page that that kind of need to occur will be occurring that can continue to amplify the activity in today's environment.
Okay.
Thank you Ronda, mainly a big thank you for your support we don't take it for granted and really I want to thank.
All our customers and industry peers. The support we are receiving over the last.
Uh huh.
Montana is amazing and worth mentioning so thank you.
So maybe I'll start with <unk>.
Maybe I'll start with the macro.
Insulation and wood I believe all the known facts, though.
<unk>.
<unk> puts us in the entire industry landscape.
Back on track and then I will relate to that.
Specific milestone first processes and specific vertical.
So I'll start with the macro what the internet.
Sure.
Those factors that really impact us.
It's very clear that those are two I would say that uncertainty.
Immediately because we are going to manufacture them.
And I'll explain why don't I'll get to Stratasys, we are going to want a sector. It's a very simple, but laser focused strategy.
When you go to a lot of affection and challenging the status quo.
And when there is uncertainty.
Yeah tendency.
The largest manufacturer in the world to change the way, they're doing things is lower by definition.
At the same time, there is the interest rate.
<unk> pressure.
Because of the added Capex and there is the cost of the Capex is the interest rate and it all started with inflation and so on and so forth.
But what we see now is that the inflation stabling.
Starting with the U S. So we are positive on this side.
And also we see that.
No matter what happened in the new state of the World.
With a zero percent interest rate, but with 3% or 4%.
Also in this world.
Large manufacturers need to staff.
And you know.
Oh, and you cycle of innovation and production and we see plenty of stories on doors and windows. Starting this new cycle. They are looking at the entities.
So those are the milestone.
Macro wise and by I would say leading manufacturer each one of them has its own story, but if it goes to electric vehicles or it goes to a new.
Airplane or and you won't get or whatever we are.
Oh, Dear and this is the place where we can shine why is strategies, we can shine because.
They are looking at digital manufacturing in their new journey.
And this is what we have done for the last almost four years.
We developed the best solution for real polymer manufacturing you take this out.
And we do it by the way too.
Directions, one is the best.
Building blocks hardware materials software and the other one is the tailoring of those building blocks into real solution set of use cases, so it takes us up.
We believe this is the best course step out in the industry.
The best cost about you can do bulk.
No one else can do them and then we take them to machine components ease.
This is a use case and you will see that we would be more and more indoors machine components you take the phase III. The past focus is our unique accuracy is unique so we target connect doors and we have unique.
Results there you'll take SDM, we have proven used cases.
In.
Spare parts Aero and auto and she received also adjacency to link this is not one lesson not too much and we are talking about hundreds of machines that are doing it already.
No. Thanks, Paul aged we took them to use cases, we are transforming the apologists from prototyping into use cases, which are remanufacturing, Doug dentures and remove them, but then you take the new stereolithography, we are focusing on investment casting we are focusing on.
We've done it.
For example, F. One the majority of the Fas one player using our materials and our machines.
So the direction is clear what do you need to look when you look at.
The future and the milestone is that we are making progress in those manufacturing use cases, and we do it through digital solution and by the way we are losing a lot of AI and that because we want to make sure that there is the accuracy is there and also at the FDIC 300 by the way we.
The new suite of sensors and.
And we make sure the dose so we capture the data and we will leverage the AI.
Solutions that we developed together with the <unk> guide to improve the portfolio.
Yeah.
That's a lot of Super helpful context, I really appreciate that I'll I'll cede the floor there because I'm sure. There is more question and that was really helpful. Thanks, So much.
Thank you. Thank you.
Thank you. Your next question is coming from Brian Drab from William Blair. Your line is ally.
Good morning. This is Tyler on for Brian I. Appreciate you guys, taking my questions.
Yeah.
Just wanted to started with you guys mentioned that you had your record high recurring consumables revenue and obviously theres a lot of printer utilization can you just touch on what end markets, you're seeing the greatest utilization.
So great.
Great question, So we have five technologies.
And what we have done over the last three years is that we make sure that we are matching the hardware we divest materials portfolio. So there was no one in the industry has a larger polymer material portfolio than stratos.
So we started we definitely haven't followed yet then we acquired cholesterol cholesterol brought to us also.
Stereolithography liquid resin some DLP liquid resin, that's one of them, we already launched an amazing.
New.
Material with unique durability outside in tough weather and also powder. So the strategy is very clear.
We built the first solution and we make sure we have enough recurring revenue and Thats the place of the material. So when we look at the material we want to make sure that we have materials that are tougher for oil and gas with the right properties for manufacturing because we have a clear solid strategy, but we need also the material to support this strategy and this is where.
We see also the increasing demand we.
We are less focusing on rapid prototyping, although we're spending quite a lot there, but we are focusing on.
On Remanufacturing. So this is the direction and manufacturing is by definition four to five times more consumption, what we call unit economic more consumption per year.
Units per machine than rapid prototyping.
This is the place we see the growing demand.
Alright, I appreciate the color on that and just a quick question.
Professor acquisition was that about $5 million in revenue for the quarter.
Yes, as we mentioned in.
In the past the run rate for <unk> is roughly 20 million in the year and this quarter it was roughly $5 million impact for the quarter.
Okay I appreciate that I'll pass it on.
Thank you. Your next question is coming from Jacobs Stefan from Lake Street Capital. Your line is now live.
Yes.
Guys. Thanks for taking my questions.
Just kind of want to focus on the.
Divestitures, you've made here in the quarter.
You know.
I guess I'm, just trying to get a Samsung.
You noted they were running that kind of an operating loss.
How much can we kind of expect.
Our operating margin last year.
Hi, Jacob welcome to the team of analysts.
Yeah. Thank you.
So let me start with a few centers is about SDM and why it's important in the big scheme of Stratasys, and then I'll, let <unk> shared a.
Specific data.
We call it SDM to point, all why because SDN is critical for our success going forward, we are going to want a factoring in STM ease of manufacturing.
And we focus SDM this year only on additive manufacturing with our technologies, we restructured it we moved from I know when I started we had eight to three sites very large seismic scale.
Three productive based on our technology as the SaaS the SDN the origin.
The poly jets for manufacturing salute.
Solution.
And also stereolithography investment casting real manufacturing.
So that's the idea and once you have a strategy, we decided to divest the others that are not meeting the strategy, which is mainly the European business that we had in California and.
Laser metal that we had in Austin.
And this is part of the overall commitment of processes.
To profitability, we are the only public company that the only profitable public OEM company with positive cash flow and we'll keep doing it will keep improving the quality of the business.
And to deliver on our forecast.
As we did for the last 12 quarters.
So we are very strong, but we are strong because we are doing those step by step disciplined steps to improve the quality of the business and I'll, let <unk>.
Sure the debt.
Sure So Jacob.
Yes.
As we mentioned the impact of those two divestment.
First of all only one of them impacted the Q3 results and that was.
Roughly yeah.
One 5 million impact on the revenue in the quarter, we expect.
The impact on 2023.
Of the divestment of the two business history, roughly $5 million on revenue.
As you mentioned those two businesses.
Yes.
Were loss, making and negatively impacted our total profitability. So we expect that the divestment of those two businesses will have positive impact both on our gross margins and our bottom line.
But we won't get into the specific details I will just say that in our numbers that you'll see for 2024 and will also be on Q4 on gross margins and other aspects and also benefit our enjoyed yeah.
Those two divestments, that's one of the pillar.
Okay. That's helpful.
And then maybe just kind of on the strategic alternatives.
It is.
Yes.
I guess whats the timeline here when do you kind of expect things to be.
It's ramped up.
So.
We cannot comment is designed to support it at the board level, but I can just shared the frame in a sense, we announced it we announced as we are in.
Process of strategic alternatives. This process started.
We have we are we are engaging with good interactions we are engaging and.
You know we are doing the best for our shareholders and we are taking the time to do it there is no reward in Israel and steel.
We are doing the best to make sure that we are there and we are enhancing the shareholder value to this process.
Okay understood.
That's all I had thanks guys.
Thank you.
Thank you we reached end of our question and answer session I'd like to turn the floor back over for any further or closing comments.
So I would like to thank you for joining I would like to thank our team for an amazing work and for really maintaining the business and doing much better than anyone else in this industry. So I want to thank the throughout the system and are looking forward to updating you again next quarter. Thank you.
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.