Q3 2024 Stratasys Ltd Earnings Call
Equinox
Speaker Change: Greetings, and welcome to the Stratasys Q3 2024 Earnings Conference Call-In Webcast. At this time, all participants are in a listen-only mode. If anyone should require operator assistance, please press star zero on your telephone keypad. A question and answer session will follow the formal presentation.
Speaker Change: You may be placed into question queue at any time by pressing star 1 on your telephone keypad.
Speaker Change: We ask that you please ask one question, one follow-up, then return to the queue.
As a reminder, this conference is being recorded.
Speaker Change: It's now my pleasure to turn the call over to Yonah Lloyd.
Yonah Lloyd: Chief Communications Officer and VP of Investor Relations. Please go ahead, sir.
Yonah Lloyd: Good morning, everyone, and thank you for joining us to discuss our 2024 third quarter financial results.
Yonah Lloyd: On the call with us today are our CEO, Dr. Yoav Zeif, and our CFO, Eitan 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.
Yonah Lloyd: 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.
Yonah Lloyd: Please note that some of the information provided during our discussion today will consist of forward-looking statements
Yonah Lloyd: 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.
Yonah Lloyd: All statements that speak to future performance, events, expectations, or results are forward-looking statements.
Actual results or trends could differ materially from our forecast.
Yonah Lloyd: 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 2023 year.
Yonah Lloyd: Please also refer to that annual report along with our reports filed with or furnished to the SEC throughout 2024 for additional operational and financial details.
Yonah Lloyd: reports on Form 6K that are furnished to the SEC on a quarterly basis and throughout the year provide updated current information regarding the company's operating results and material developments concerning our company.
Yonah Lloyd: Stratasys assumes no obligation to update any forward-looking statements or information which speak as of their respective dates.
Yonah Lloyd: 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.
Speaker Change: 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. Yoav Zeif. Yoav?
Thank you, Yonah.
Good morning, everyone, and thank you for joining us.
Speaker Change: Last quarter, we shared that we were taking decisive actions to better align our business with the realities of today's market.
Importantly, beyond these actions,
Speaker Change: We remain agile, financially strong, and well positioned to benefit from the eventual turn in the cycle.
Speaker Change: We are committed to the financial execution of our plans and have transformed the company by removing costs and streamlining the business to focus on the largest industry targets, where we see the most opportunity for growth.
particularly in manufacturing applications.
across automotive, defense, aerospace, medical devices, and dental.
has generated excitement from the market.
and he's expected to help us expand our presence
in factory floor manufacturing across multiple industries.
Speaker Change: In Dental, where 3D printing is already a standard method, our proven true-dent solution
Speaker Change: is highly regarded for its groundbreaking disruption in both cost and fit when it comes to dentures.
Additionally, our suite of specialized software offerings.
is starting to gain traction.
Speaker Change: Which we believe will drive the increased high margin revenues in the coming years
Speaker Change: not just the greatest growth potential in our opinion but also the most significant overall TAM for additive manufacturing
and they are in the early stage of adoption.
Why we appreciate
Speaker Change: that we now must deliver on the initiatives we have put in place in a sustained manner and that it will take time.
Speaker Change: We are pleased to share that we are already starting to realize benefits.
following 10 quarters of positive adjusted earnings per share.
Speaker Change: As challenging market conditions persisted further, we incurred only minor losses on an adjusted basis in the first half of this year. Now, as a result of our transformative actions,
Speaker Change: And without the tailwind of any market recovery to this point, we quickly return to profitability on an adjusted basis in the third quarter.
These results demonstrate our team's ability
to execute a comprehensive undertaking.
an attribute that continues to set strategies apart.
Speaker Change: Now let me dive a bit deeper into our results for the third quarter.
Yonah Lloyd, Yonah Lloyd, Yoav Zeif
Speaker Change: Our business continues to demonstrate its fundamental strength through improved margins.
and our ability to maintain a robust balance sheet.
Speaker Change: We were able to deliver our eighth quarter in a row of year-over-year growth from our recurring revenue consumable sales.
and similar to the second quarter
Speaker Change: The resilience in consumables was primarily driven by FDM technology utilization.
This underscores two key takeaways.
The Stability of a Recurring Revenue Model
and our customers accelerating transition from prototyping to manufacturing applications.
Speaker Change: As customers increasingly leverage our solutions to optimize cost and enhance operational efficiency, we are well positioned to expand our manufacturing presence.
with Upcoming Product Innovations.
Speaker Change: We believe our focus on furthering customer enablement through additive education and investment
will make a big difference.
Speaker Change: As our customers enhance their understanding of how to fully utilize additive manufacturing design and workflow benefits in tandem with other traditional processes.
Speaker Change: Our strategy for driving long-term shareholder value centers on targeted innovation across materials, knowledge, and workflow solutions in high-growth target industries.
that benefit from emerging megatrends.
Those include addressing supply chain risks,
Speaker Change: Onshoring, New Mobility, Customization, Sustainability, and a non-stop drive for greater efficiency and lower cost across the manufacturing spectrum.
Speaker Change: in Technology and Materials Development, coupled with a focused approach to key end-users
Speaker Change: We are laying the foundation for strategy's next leg of growth.
once the current down cycle inevitably subsides.
During the 10th quarter,
We achieved a number of milestones and new product introductions.
Speaker Change: We continue to drive demand for our new flagship F3300 industrial platform.
Speaker Change: which we showcased at the International Manufacturing Technology Show in Chicago in September.
Designed for superior performance, the F3300 delivers high-quality
Speaker Change: durable thermoplastic parts with unmatched accuracy. It delivers faster print speeds with industry-leading repeatability and significantly reduces downtime, making it the premier offering in its class.
Speaker Change: We continue to generate interest and order for the F3300 and are already shipping systems to key customers.
Speaker Change: leading companies across automotive, aerospace and defense sectors, along with commercial and industrial manufacturers.
Speaker Change: During the third quarter, we launch our new Origin 2 printer, along with the Origin Cure post-processing system.
Speaker Change: While our primary focus is on expanding additive manufacturing at scale, this solution helps a subset of our customers focus on the growing demand for injection molding quality for short production runs.
Speaker Change: A great example of a target industry for this technology is connectors.
Speaker Change: where manufacturing costs are high and the production runs are in line with what this particular technology can deliver. This is one of many compelling opportunities for us.
Speaker Change: and for our customers, such as TE Connectivity, who serve the aerospace, automotive and other sectors.
Speaker Change: We also launched our Stratasys NEO Build Processor for investment casting, a unique solution designed in collaboration with Materialize to accelerate the production of high-quality investment casting master patterns.
Speaker Change: Developed for the NEO 450 and NEO 800 SLA printers, the new build processor delivers up to 50% faster file processing and significantly enhanced print speeds.
Speaker Change: streamlining the 3D printing workflow for manufacturers and service bureaus in the aerospace and other demanding industries.
Speaker Change: Given our focus on returning value to shareholders, in September, our Board of Directors approved a $50 million
Share Repurchase Plan
which we have already started to execute.
Speaker Change: We are committed to maximizing shareholders' value while maintaining a strong balance sheet.
Speaker Change: and are taking additional steps to unlock value, including seeking to monetize certain high-value assets.
I'd like to take a moment to provide additional details.
on the CRITICA strategic initiatives that we have implemented recently.
Speaker Change: On last quarter's call, we unveiled a plan designed to reinforce our industry leadership and ensure sustainable profitability across market cycles.
Our action plan centers on two critical objectives.
Speaker Change: Realigning our operational costs with current market dynamics through a workforce reduction of 15%.
and intensifying our focus on accelerating customer adoption.
by eliminating implementation barriers.
Speaker Change: These measures aim to create a more resilient business model that consistently generates profits and positive cash flow.
Our implementation of the restructuring plan is ahead of pace.
Speaker Change: as evidenced by the improvement in operating margins that Eitan will discuss in a moment.
Speaker Change: We are on a track to achieve our target of $40 million in annual cost savings.
starting in the first quarter of next year.
Speaker Change: While also enhancing our go-to-market strategy to focus on the highest-growth products,
Materials and Software Solutions
Speaker Change: These actions are designed to help us align costs with current conditions.
build a long-term, profitable, cash-generating business
and stay agile during downturns.
while being ready to respond quickly when customer spending returns.
Speaker Change: Importantly, we are committed to delivering increased profitability and cash flow in 2025 that we discussed on our last call.
We are confident.
Speaker Change: that once current headwinds subside, renewed access to capital will spare customer spending to more accurately reflect the expressed high demand for our solutions.
Over to you, Eitan.
Thank you, Yoav, and good morning, everyone.
This quarter demonstrated the resilience of our operating model.
A key differentiator relative to peers in our sector.
Speaker Change: as well as the fast actions of our team as we delivered improved growth margins and bottom line profit despite year-over-year pressure on revenues.
Speaker Change: These results were thanks, in part, to yet another quarter of year-over-year growth in consumable sales, and faster-than-anticipated progress on our cost control initiatives, enabling us to increase our profitability expectation for the year.
Now let me get into the details of our numbers.
Speaker Change: For the third quarter, consolidated revenue was $140 million compared to $162.1 million in the same quarter in 2023.
due to persistent softness in capital equipment spending.
Speaker Change: Product revenue in the third quarter was $94.1 million, compared to $113.2 million in the same period last year.
Speaker Change: Within product revenue, system revenue was $31.7 million, a sequential improvement from the second quarter.
Speaker Change: Yet off compared to the $51.5 million we produced in the same period last year.
Speaker Change: Consumables revenue grew 1% to $62.4 million compared to the same period last year.
Speaker Change: As Yoav mentioned, this is our eighth straight quarter of year-over-year growth.
Speaker Change: Our ability to consistently grow consumable sales, despite the changing backdrop, signals that the utilization rates of the systems we have sold remain robust.
Speaker Change: It's important to note that we continue to expect consumables demand to be resilient for the foreseeable future, despite recent weakness in hardware sales, as the install base continues to be well utilized.
Service revenue, including Stratasys Direct, was $45.9 million.
compared to 48.9 million in the same period last year.
Speaker Change: Absent divestitures, service revenue was off a bit more than half a percent.
Speaker Change: Within service revenue, customer support revenue was up 1.3% compared to the same period last year.
Now turning to growth margins.
Speaker Change: Gap gross margin expanded to 44.8% for the quarter, compared to 40.5% for the same period last year.
Speaker Change: Non-gap growth margin also grew to 49.6% for the quarter, compared to 48.3% in the same period last year, and it's the highest since Q4 2019.
Speaker Change: The improvement versus the prior period was driven, in part, by a greater mix of consumables and higher margins at Stratasys Direct due to divestitures.
GEP operating expenses were $88.2 million.
compared to 108.4 million during the same period last year.
Speaker Change: The improvement in expenses was primarily due to lower costs related to prospective and potential mergers and acquisitions, defense against a hostile tender offer, proxy contests and related professional fees.
Speaker Change: Non-GEP operating expenses were $69.6 million compared to $74.2 million during the same period last year.
Speaker Change: due primarily to lower employee-related costs, including early benefits from the cost-saving initiative announced last quarter.
Speaker Change: Non-GEP operating expenses were 49.7% of revenue for the quarter, compared to 45.8% for the same period last year.
Regarding our consolidated earnings
Speaker Change: Gap operating loss for the quarter was $25.5 million, compared to a loss of $42.8 million for the same period last year.
Non-GAP operating loss for the quarter was 0.1 million.
Speaker Change: compared to operating income of $4.1 million for the same period last year.
The change reflects the lower overall revenue.
Speaker Change: offset somewhat by the improved growth margin and lower employee-related costs.
Gap net loss for the quarter was $26.6 million.
Speaker Change: or $0.37 per diluted share, compared to a net loss of $47.3 million or $0.68 per diluted share for the same period last year.
Speaker Change: Non-GAAP net income for the quarter was $0.4 million, or $0.01 per diluted share, compared to net income of $2.4 million, or $0.04 per diluted share, in the same period last year.
Speaker Change: Adjusted EBITDA was $5.1 million for the quarter, compared to $9.8 million in the same period last year.
Speaker Change: We also improved our cash utilization during the quarter, as we only used $4.5 million of cash in our operations during the third quarter, compared to $12.7 million in the same quarter last year. Year-to-date, our operating cash flow remained positive.
Speaker Change: We ended the quarter with $144 million in cash, cash equivalent, and short-term deposits.
Speaker Change: compared to 150.9 million at the end of the second quarter this year.
Speaker Change: Our balance sheet remains strong and is expected to improve as the impact of our cost-saving measures accelerates in the fourth quarter of this year and beyond, strengthening our ability to act on value-enhancing opportunities.
Now, let me turn to our outlook for 2024.
Speaker Change: We are reiterating our expectation that full year 2024 revenue will range between $570 million to $580 million.
We are raising the margins and profit forecast.
Speaker Change: From a gross margin perspective, we now expect full year 2024 to be slightly higher than what we shared on our last call, in a range of 49% to 49.2%.
Speaker Change: For 2024, we expect our operating expenses to range between $276 to $278 million.
Speaker Change: We expect non-GEP operating margins to range between 0.6% to 1.3% for the full year.
Speaker Change: We anticipate a gap net loss of 105 to 90 million dollars or one dollar and 48 cents to one dollar and 27 cents per diluted share.
Speaker Change: and non-GAAP net income of $2.1 million to $5 million or $0.03 to $0.07.
Speaker Change: Capital expenditures are expected to range between 15 to 20 million dollars for the year.
Speaker Change: And while we are not providing a formal 2025 outlook, to Yoav's point on the actions we are taking to align the business to current conditions,
Speaker Change: We would expect to generate 8% EBITDA margin even if there was no revenue growth compared to 2024.
Speaker Change: And if we can achieve even slightly moderate revenue growth, given the operating leverage in the business, we could reach at least 10% EBITDA margin.
Speaker Change: With that, let me turn the call back over to Yoav for closing remarks.
Thank you, Eitan.
with our effective implementation.
Speaker Change: of key initiatives to transform the company since the end of the second quarter.
We have streamlined the operations.
Speaker Change: improved margins and tightened our focus to the most compelling use cases.
We are enabling our customers.
to more easily ramp their adoption of additive manufacturing.
with enhanced go-to-market engagement.
and better education for their system users.
Speaker Change: We are laser focused on delivering increased profitability while preserving our strong balance sheet.
Speaker Change: With our market-leading systems, software and consumables, we are poised to outperform when capital spending returns.
Stratasys has been a leader in additive manufacturing for decades.
Speaker Change: And with the actions we have taken, we have repositioned the company to extend that leadership in the years ahead. Our customers continue to expand the use of our systems and solutions.
Speaker Change: Through this turbulent point in the cycle, we are setting the stage for a return to significant growth, expanded profitability, and value creation for our shareholders.
With that, let's open it up for questions.
Operator
Yonah Lloyd, Yonah Lloyd, Yoav Zeif
Speaker Change: Thank you. We will now be conducting a question and answer session. If you would like to be placed into question Q, please press star 1 on your telephone keypad. And as a reminder, please ask one question and one follow-up, then return to the queue. Once again, that's star 1 to be placed into question Q.
Speaker Change: Our first question is coming from Jim Raschutte from Niedermann Company. Your line is now live.
Speaker Change: If I look at the implied revenue guidance for Q4, which is up sequentially,
Speaker Change: Your EPS guidance seems to suggest a break-even, you know, kind of a break-even quarter.
Speaker Change: And so my question is, are you anticipating some pullback in gross margins, where we've obviously seen some nice improvement, or maybe is there something else in OPEX, higher trade show expense, or some other factors? And then I have a quick follow-up.
Yonah Lloyd, Yonah Lloyd, Yoav Zeif
Speaker Change: Thanks, Jim, for the question. So let me help you maybe and everyone to think how to model Q4 in the full year.
We've updated the annual 2024 EPS to $0.03 to $0.07.
Speaker Change: When you take the first nine months EPS and you deduct that from the annual EPS, you get to a Q4 that is in the range of positive eight cents.
to positive 12 cents for Q4 only.
Speaker Change: So, I'm not sure, I'm not sure about the math. Okay, you know what, it's my mistake, I apologize. I may have just had some bad news. Thank you for clarifying.
Speaker Change: For sure, but actually it helps me if that's okay to highlight that this is exactly the change
We announced last quarter. We said that Q3...
Speaker Change: will start to benefit the savings, but Q4 is going to be significantly positively impacted by the restructuring, and it is translated into that relatively high EPS level in Q4.
Speaker Change: No, thank you for clarifying that. Follow-up question just relates to, look, I know you're not giving any kind of specific guidance beyond.
Speaker Change: Q4, but you know the fact that you're showing some year-over-year improvement that you showed year-over-year improvement in Q4
Speaker Change: Q4. Is there any reason that that wouldn't be the case in Q1? From a year-on-year standpoint, obviously, there's going to be the normal seasonality sequentially from Q4 to Q1. But just wondering how we might be thinking about the early start to next year. The market's still uncertain, I know.
Thank you.
Speaker Change: Thanks, Jim. So, as you noted, actually, to continue from my last answer, when you take the actual three quarters and the full guidance on the revenue,
Speaker Change: Basically, the derivative is Q4 that is between 148 to 158 as you noted.
Speaker Change: This is partly a seasonality, Q4 has been strong for us and for most of the industry over the years. So it's a seasonality, it's a pipeline that we see, but it's too early.
Speaker Change: to say how the first half of 2025 would look like. And we're not guiding, of course, yet about 2025.
Yonah Lloyd, Yonah Lloyd, Yoav Zeif
Thank you.
Yonah Lloyd, Yonah Lloyd, Yoav Zeif
Speaker Change: Thank you. Next question today is coming from Troy Jensen from Canterbury, St. Andrew line. Is that live?
Speaker Change: Hey Dylan, congrats on the good cost cuts and good results here.
Thank you. Thank you.
Speaker Change: Hey, so first of all, guys, just on the consumables, I know you've had, you know, the great year-over-year growth, you know, eight consecutive quarters, but on a sequential basis, it's been down two quarters in a row, and we're only at kind of, I'd say the year-over-year growth rate has kind of declined from kind of 12% to 1%, so...
Speaker Change: Can you just talk about any concerns of that going negative here in Q4 or you know, what's going to get us back to kind of, you know, high single-digit kind of growth in consumables?
Speaker Change: Hey, Troy, thank you for the question. I think this is something that differentiates strategies. We have a very solid recurring revenue model.
Speaker Change: very solid, which helps us, especially in those challenging times. If I look at consumer growth, first of all, the fact is that it grows year over year, and this growth is a reflection of this solid revenue stream.
Yonah Lloyd, Yonah Lloyd, Yoav Zeif
One thing for sure, it is growing year over year.
Speaker Change: And we can see it's a trend and it is supported by the fact that we are going to manufacturing, that we have a large install base and this install base is growing year over year over year and the fact that we are going to manufacturing.
support higher utilization
Speaker Change: and we are also selling more high-end equipment that consumes more faster.
Speaker Change: So a new system will always consume more than an old system.
and this is a very healthy thread.
Speaker Change: Quarter by quarter, it could be lumpy, but you over here, we are committed for growth.
Speaker Change: And we are putting out new material regularly. So this is part of the ongoing business. Every quarter, we have more material, you know, on top of the fact that we have already the largest portfolio of materials.
and Yonah Lloyd.
Speaker Change: All right, and just a second question. I believe last week there was another round of workforce reductions. Curious, was this a new initiative or was this kind of the continuation of what you guys said three months ago?
Thank you. Bye. Bye.
Speaker Change: I don't know, maybe you reduced workforce, but we did not.
Speaker Change: We had one restructuring, and of course there are some ongoing, regular course of business of people leaving and we are recruiting, but there was one restructuring, one move.
Speaker Change: We executed it ahead of plan, which helps us already in Q3, although we didn't plan for it.
Speaker Change: It puts us in a great position both commercially, financially, and in terms of the cash position that we finished the quarter better than we expected.
Yonah Lloyd, Yonah Lloyd, Yoav Zeif
Speaker Change: Thank you. Next question is coming from Greg Palm from Craig Hallam. Your line is now live.
Greg Palm: Yeah, thanks for taking the questions and congrats on the better results here. Maybe just to start thinking back on...
Greg Palm: You know, the last 18-24 months in this cycle, you know, just thinking about, you know, just software manufacturing, you know, policy uncertainty, you've had inflation, you know, interest rates, all that stuff that we've talked about.
Any way to kind of rank order?
Greg Palm: the importance of some or all of those. And I guess what I'm where I'm going with this is even an environment where maybe rates don't come down. You know, if we've got at least sort of policy certainty in a little bit sort of better manufacturing activity, does that give you more confidence that
Greg Palm: You know, maybe you can see some of this pent-up demand sort of flush through the pipeline. Just kind of curious to get, you know, sort of your broader thoughts going into 2025.
So, great question. Thank you for the question.
Speaker Change: As you said, it's all about the current macro environment. In high-cost capital environments, our customers don't have the urgency to invest in new innovative technologies.
And that's what we are facing. This is reality.
So, the macro is the main issue, no doubt.
But still, there are...
Speaker Change: significant light out there, lights out there, like the utilization of our equipment and our machines. So we see that this technology is needed and quarter after quarter it is more important for our customers.
And we use this time...
Speaker Change: to strengthening already the best portfolio in the industry and to make sure that we will be ready when the positive turn will come.
and what we believe
Speaker Change: As you mentioned, this is a cycle, but the megatrends are there.
Speaker Change: We are talking about the need for resilient and agile supply chains.
Speaker Change: We are talking about onshoring, especially now with the new geopolitical environment.
We are talking about localization of manufacturing, new mobility trends.
Speaker Change: Customization, especially in medical and dental, dental for us is a huge thing, especially with our dentures. We're talking about overall digitalization of manufacturing. Those megatrends are there no matter what is the level of the interest rate.
Speaker Change: So, I believe, we believe that it's only a matter of time and we just need to be ready
Speaker Change: when the market will change, will turn. We are investing to increase enablement, education, to increase the use of our technologies in proven use cases.
Speaker Change: And when I'm saying proven use cases, I mean a use case where we know that additive, especially our solution, is better than the traditional one. We have a great ROI.
Speaker Change: But there is no appetite from the customers now to adopt it because of the macro environment. And we have many examples, mainly in aerospace, in automotive tooling. For example, we have an automotive tooling player that...
has tens of thousands of machines, and North American player.
Speaker Change: He has tens of thousands of machines, but you know how much of his overall tooling spend is going to additive? Only less than 1%. And tooling is a $12 billion addressable market.
Speaker Change: And when we are talking with our customer and we ask them what is the potential of additives, they said 25 to 27 percent, and now we are in 1 percent.
So in macro, we have a better macro condition.
Speaker Change: I believe in an upside. Actually, Yonah Lloyd, a tremendous upside.
Yonah Lloyd, Yonah Lloyd, Yoav Zeif
Got it, yep, that's helpful.
Speaker Change: I guess I appreciate, I think a lot of us appreciate the conservatism. I think the implied guide for gross margin for the year means that Q4 gross margin is going to be flat to down on obviously much higher revenue levels than what you just put up and maybe a little bit of benefit from restructuring. So I guess is there a mix issue relative to Q3 or is it just more out of conservatism?
Thank you. Bye.
Thank you for the question.
Speaker Change: So, first of all, the Q4 growth margin, at least based on our forecast, is going to be slightly higher than Q3.
Speaker Change: That's why the full year total guidance will be between 49 to 49.2, but we have confidence in the ability to achieve it.
We plan, we expect to sell more hardware in Q4.
Speaker Change: So to your point you mentioned that, that will impact the mix, however we are very excited about the ability to grow hardware in this environment.
So it's a matter of mix.
Speaker Change: We're moving step-by-step and increasing and improving our gross margin. The 49.6% that we had this quarter is the highest gross margin since Q4 2019.
So almost a record for the last five years.
Speaker Change: and in general, you can see that from the last few quarters, our growth margin is strong, is stable, and we believe that with the restructuring and with all the other things that we're doing, we will continue to improve it and increase it in the near future.
Speaker Change: Okay, yeah, that's a good point. And I guess just last one, maybe a clarification, did you say you've already started buying back stock? I thought I kind of heard that and just kind of curious to hear what your thoughts around of sort of the pace and usage of that authorization.
Sure, we've started to purchase shares in Q4.
Speaker Change: and we will update you as part of the Q4 results that's going to be part of our of course financial reporting process but we do that gradually and we find the right balance between the purchase of shares and securing our cash position but to your question we've started the process.
Speaker Change: Understood. Okay, I will leave it there. Best of luck. Thanks.
Speaker Change: Thank you. As a reminder, that's star 1 to be placed in the question queue. Our next question is coming from Brian Drab from William Blair. Your line is now live.
Brian Drab: Thank you. I don't know if you made any comments on the 3300, but can you update us on how that rollout is going? I think on the second quarter you said you're hoping to sell a few more of those in the second half of the year than the first half. Thanks.
Thank you, Brian, for the question.
DeWorth
It's going well, going well. This is our flagship.
Brian Drab: in industrial solutions. It's a whole platform starting with the F3300. And it definitely, and we hear it from our customers, delivers superior performance for industrial users.
Brian Drab: So we have sold, we shipped to a variety of markets.
Brian Drab: The first customers are highly trusted ones, very professional, like Toyota, BAE Systems.
Nissan and many others.
Brian Drab: And definitely there will be kind of a flywheel effect, because when those customers are buying a machine and adopt it, it's a trigger for others because they want to stay competitive.
Brian Drab: and this machine delivers, you know, double the speed of any other machine on this segment. So it's going well, we have a nice pipeline and backlog and we are very optimistic and we keep investing in expanding this platform.
Yoav Zeif: Yonah Lloyd, Yoav Zeif, Yoav Zeif, Yoav Lloyd, Yoav Lloyd, Yoav Lloyd
Yonah Lloyd, Yonah Lloyd, Yoav Zeif
Speaker Change: Okay, thank you. And then just one other question for now. I mean, clearly the election results are very recent, but the discussions around, you know, the potential outcome and tariffs and that have been ongoing for months. So I'm just curious how you think about the opportunity for on-shoring and a focus on U.S. manufacturing to help Stratasys.
Speaker Change: And have you had any discussions with customers that are where you actually see kind of the wheels in motion of some of these customers maybe making moves and what end markets, you know, might you benefit in this kind of scenario? Thanks.
Speaker Change: Thank you, great question. No doubt that the latest results support the megatrends.
Speaker Change: Those mega trends that I already mentioned about localize manufacturing, onshoreing it is clear that this is a tailwind for us you know
Speaker Change: I don't want to share anything from customers now, but just a year ago I participated in a conference of CEOs.
Speaker Change: and discussing the impact of the U.S.-China relationship. And it was clear there that Additive has what to offer in this decoupling from China.
Speaker Change: And I guess now, and I'm not getting into politics, it's even strengthening this topic. So, yeah, we are optimistic.
Yonah Lloyd, Yonah Lloyd, Yoav Zeif
Okay, thank you very much.
Yonah Lloyd, Yonah Lloyd, Yoav Zeif
Speaker Change: Thank you. Next question is coming from Jacob Stefan from Lake Street Capital. Your line is now live.
Jacob Stefan: Hey guys, thanks for taking the questions. You know, I'll kind of ask a similar, broader macro question in a little bit different way.
Jacob Stefan: Now, obviously, we've had two rate cuts since you last reported the change in administration. And, you know, there's also been an acquisition of one of your competitors. I'm just curious, you know, maybe you could kind of help us.
Jacob Stefan: I guess, quantifier, you know, qualitatively maybe, you know, how are you seeing demand trends in some of your newer product lines with the Origin 2 and maybe Neo and maybe contrast that to the H350?
Thank you.
Speaker Change: I would say, thank you for the question, I would say that demand is there.
Speaker Change: In some cases we have more leads, depends on the country and technology and use case. In some cases we have even more leads than we had in the past, before the downturn.
Speaker Change: The problem is not the leads or the engagement or the interest, the problem is the lack of
Thank you.
Speaker Change: So the demand, that's what we always say, the pent-up demand is there.
So, we believe that
Speaker Change: Those megatrends, plus the changes in the market, and you mentioned very important two changes. One is the election and the economic atmosphere.
And the other one...
Speaker Change: is the fact that there was excess supply in additive manufacturing.
which was not sustainable.
Speaker Change: and how many companies are pushed out of the market, and it's healthy. It's a process of being more mature as an industry and focusing on what is important to our customers. And that's what we are doing. I'll give you an example. We are focused on automotive.
So,
We are going to the most...
Speaker Change: difficult customers that have the highest requirement, for example, Formula One customers.
or motor racing customers.
[inaudible]
Speaker Change: And we proved the point that our technology, like wind tunnel, where we are already more than 60% of the Formula 1 with this.
or End-Use Parts for Automotive and Short-Run Automotive Producers.
in car racing. Once you prove it there,
Speaker Change: It's only a matter of time when we'll open up to the mass manufacturing.
and we'll shift our focus from proving the use cases
and the advantage of these use cases to mass production.
Yonah Lloyd, Yonah Lloyd, Yoav Zeif
Yonah Lloyd, Yonah Lloyd, Yoav Zeif
Speaker Change: Okay, thank you. And then maybe just switching to the restructuring initiative. Appreciate all the color on that, but now that you're kind of a few months into it and it's tracking well ahead of expectations, are you seeing any other areas where maybe you can take additional costs up without, you know, any additional layoffs? Or do you feel like this, you know, the $40 million is kind of the only significant change you'll make?
Thank you.
Thank you. Thank you. Thank you.
Speaker Change: Thanks, Jacob, for the question. So first of all, we're always focused on efficiency.
Speaker Change: and very tightly monitor our costs. The restructuring plan has significant headcount-related savings, but there are also other savings.
Speaker Change: As we mentioned also in the last quarter's earnings call, this restructuring plan was driven by a strategic change or update.
Speaker Change: So there are projects that are no longer part of our strategy and where a fieldwork concept
Speaker Change: We shut down certain locations. There are different cost savings that are non-headcount related and we're very focused on completing these areas and that's why we said that we expect only at the beginning of next year.
Speaker Change: to achieve the fully annualized impact of the $40 million that we promised the market.
As you mentioned, we're ahead of the plan.
Speaker Change: It helps us to shift to profitability already in Q3, which is better than we promised last quarter and expected. Significant savings will be realized in Q4. That's why we have confidence.
Speaker Change: on the ability to deliver significant EPS in Q4. That will, of course, will be translated to positive.
Speaker Change: Cash flow, once those savings are materialized, to a significant cash flow impact in 2025, which is important.
Speaker Change: and that will put us in the best commercial and financial position in the market.
Speaker Change: earlier and and also last quarter. Once the 40 million annualized savings are achieved
Speaker Change: That will be translated into 8% EBITDA Assuming that there is no change in there in the revenue levels and if revenue levels will increase that could get us very quickly to double digit
Speaker Change: EBITDA, which is which is very meaningful and critical for us and of course for the market.
Yonah Lloyd, Yonah Lloyd, Yoav Zeif
Yonah Lloyd, Yonah Lloyd, Yoav Zeif
Yonah Lloyd, Yonah Lloyd, Yoav Zeif
Appreciate it, guys. Thanks.
Yonah Lloyd, Yonah Lloyd, Yoav Zeif
Speaker Change: Thank you. Next question today is coming from Alec Valero from Loop Capital Markets. Your line is now live.
Yonah Lloyd, Yonah Lloyd, Yoav Zeif
Speaker Change: I believe you guys mentioned in your previous earnings call that you have a target of 15% headcount reduction by the end of this year.
Speaker Change: I guess my question is like you mentioned you're ahead of plan so I understand that but any can you give any sort of like remark on like how much percent there is left for this year?
Yonah Lloyd, Yonah Lloyd, Yoav Zeif
Yonah Lloyd, Yonah Lloyd, Yoav Zeif
Alex: Thank you, Alex. So maybe I'll elaborate a little bit about the...
and acquired a few businesses in the last few years.
Alex: This is part of the optimization and that generates a significant cost savings. There are other projects that are no longer part of our focused strategy. And there are a few other examples. But again, I want to emphasize it's not only headcount related.
Alex: So when we say that we are ahead of the plan, and of course you've experienced many companies that announce restructuring.
Alex: We're actually quite proud about our ability to execute what we've announced on August 29th, on the second quarter earning call.
Alex: To be able to very quickly execute this plan and to achieve some of the savings already in Q3
Alex: which means one month after we announced it as part of the Q2 earning call. That's something that we're very proud of and, of course, came with a lot of effort. But it's still only a small part of the annual target saving. That's why in Q4...
Alex: We're certain we have much more confidence in the ability to achieve a much bigger significant portion of the annualized level and to generate those high EPS that I mentioned earlier.
Yonah Lloyd, Yonah Lloyd, Yoav Zeif
Speaker Change: Yeah, that's super helpful. Thank you for that. Just as a quick follow-up, change it up a bit here,
Speaker Change: Can you guys maybe say a few key milestones that we should look out for moving into next quarter and beyond?
Yonah Lloyd, Yonah Lloyd, Yoav Zeif
Speaker Change: That's a great question. We are very proud in our student solution.
It's a...
It's so unique that...
We are going and...
Speaker Change: When we are meeting dentists, they are amazed from what you can do. Just as an anecdote, you can reduce the number of visits with the dentist.
Speaker Change: from 6 to 8 to 2 and still the customer or the patient will feel more comfortable with the new dentures.
Speaker Change: You know, the spearheads of restorative dental. We are the first one, the best, and the most aesthetic monoblock dentures in the market.
Speaker Change: So, I want to thank our teams. By the way, I want to thank our teams also for the restructuring.
Speaker Change: This is a record execution of what they have performed. But when I'm talking about the milestone...
Speaker Change: You need to look at two things that we are doing.
Speaker Change: It's the penetration to clinics and the regional penetration. Those are two axes that we have.
So, one important milestone that we will take it from
North America U.S.
to EMEA and AIPAC and this is very soon.
The second thing...
is that
Speaker Change: When we are talking about penetrating dentists, it's about creating credibility and education with the leading institutions and labs, starting with the U.S. and moving to Europe. And that's what we are doing. And you will see, step by step, we are showing the solution. And we are improving the solution all the time, by the way.
Speaker Change: on in terms of aesthetic and translucency. It's getting better and better every day. We are going to present it in the IDS show in late March, which is the biggest dental show in the world, like 180,000 participants in Germany.
and we expect to see more regions.
more clinics, credibility of being
Speaker Change: having credentials from the top dentists, dentists institutions and then getting also to
Yonah Lloyd, Yonah Lloyd, Yoav Zeif
Speaker Change: Many different bodies that adopt dentures. For example, we have, you know, interaction with the government, for example.
for their army. This is just as an example.
Speaker Change: In short, we will go to more regions to get the certification and we are opening up more clinics through new credentials.
and Yonah Lloyd. Thank you.
and Yonah Lloyd. Thank you.
Awesome, thanks so much for that guys. Appreciate it.
Thank you. Next question. Go ahead.
Please proceed, go ahead.
One more thing, sorry, one more thing.
This is about our dentures.
Speaker Change: Another super important use case for us is government and defense. This is a growing segment and will keep growing.
Some may say unfortunately, but it keeps going.
Speaker Change: We are very strong there, we are the leader in aerospace in defense and there are strong milestones that we put in front of us in terms of opening up new applications in defense.
and you will see it as well.
Yonah Lloyd, Yonah Lloyd, Yoav Zeif
Speaker Change: Thank you. Our next question is a follow-up from Jim Raschutte from Needham & Company. Your line is now live.
Speaker Change: Where might you see are you seeing more signs of recovery and maybe conversely, you know Just from an investment standpoint where our customers and some other verticals may be automotive still a little bit more cautious
Assalamu-Alaikum
I would say in this order, government and defense, aerospace,
Automotive Tooling, Dental and Medical
hope to
Thank you for your time.
Speaker Change: Geographically, any changes in demand trends that you saw in the quarter?
Speaker Change: Not really. Not really. Like, you know, it started in the US, then it moved to EMEA and APAC, but currently it's a soft hardware market.
Speaker Change: Okay, and maybe if I could slip one final one in. You seem to be seeing some nice progress with GrabCad Print Pro. I'm wondering, is there any way to think about the revenue contribution in this area of the business as we look out over the next year?
Thank you. Bye-bye.
Speaker Change: Jim, that's a good question. We have put a lot of effort around our software solution. As you mentioned, revenue is increasing.
Speaker Change: is growing significantly. I'll just remind everyone that software is coming with the highest
growth margin out of the, you know, the different streams.
Speaker Change: The attachment rate is very promising and we're very proud of.
Speaker Change: When it becomes a big enough, of course, we will provide more granular data around the revenue But but the progress and the trend is is very promising and we're very excited about it Let me even be may I? Let me be even more specific
and Yonah Lloyd. Thank you.
We are selling software.
There is a growth year over year in our sales.
Speaker Change: because those are recurring revenues and you push more features and you have direct relationship with the customers. And the nice thing that we are selling more GrabCads
mainly the pro and, you know, the...
Speaker Change: premium solutions of GrubCut. We have Print Pro and Streamline Pro. There is a demand. We are selling more. I meet many customers.
every week, every quarter.
Speaker Change: and the nice thing for me it was like wow we have a great software when they asked me can you put your software on other OEM players
Speaker Change: and this is a great proof point how good is our software solution.
Thank you. Congratulations on the quarter. Thanks. Thank you.
Speaker Change: Thank you. We have reached the end of our question and answer session. I'd like to turn the floor back over for any further or closing comments.
[inaudible]
Speaker Change: Thank you for joining us, looking forward to updating you again next quarter.
Yonah Lloyd, Yonah Lloyd, Yoav Zeif
Speaker Change: Thank you. That does conclude today's teleconference and webcast. You may disconnect your line at this time and have a wonderful day. We thank you for your participation today.