Stratasys, Ltd.

Greetings. Welcome to the Stratasys Q1 2022 conference call and webcast. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note, this conference is being recorded. I will now turn the conference over to your host, Yonah Lloyd, Chief Communications Officer and Vice President of Investor Relations. You may begin.

Good afternoon, everyone, and thank you for joining us to discuss our 2022 first quarter financial results. On the poll with us today are our CEO, Dr. Yoav Zaif, 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. 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 to future performance, events, Expectations or results are forward-looking statements. Actual results or trends could differ materially from our forecast. For risks that could cause actual results to be materially different from those set forth in forward-looking statements, please refer to the risk factors discussed or referenced in Stratasys' annual report on Form 20F for the 2021 year. Please also refer to our operating and financial review and prospects for the 2021 year. and for the first quarter of 2022, which are included as item five of that annual report and in exhibit 99.2 to the report on form 6K that we are furnishing to the SEC tomorrow, respectively. Please also see the press release that announces our earnings for the first quarter of 2022, which is attached as exhibit 99.1 to a separate report on form 6K that we are furnishing to the SEC today. In order to obtain updated information throughout the year concerning our quarterly results of operations and the risks and other factors that most impact those results, please see the quarterly earnings press releases and our quarterly operating and financial review and prospects, each of which will be attached as an exhibit to our report on Form 6K that we will furnish to the SEC on a quarterly basis over the course of the year. Stratasys assumes no obligation to update any forward-looking statements or information which speak as of their respective dates. As in previous quarters, today's call will include GAAP and non-GAAP financial measures. The non-GAAP financial measures should be read in combination with our GAAP metrics to evaluate our performance. Non-GAAP to GAAP reconciliations are provided in tables in our slide presentation and today's press release. I will now turn the call over to our Chief Executive Officer, Dr. Yoav Zay. Yoav?

Thank you, Yonah. Good afternoon, everyone, and thank you for joining us. Today, I will touch on the highlights of our first quarter and share insights on a number of key milestones achieved so far in 2022. I will then hand it off to Eitan to discuss our financial results and outlook in more detail. The first quarter was our strongest in six years, a great start to an exciting year for Strategies. We delivered solid results that include contributions from across our platform to drive top-line growth and improve margins. All of our technologies grew, and I'm happy to say that all of our key businesses showed improvement compared to our pre-COVID first quarter of 2019. We are particularly excited by the early momentum from our new Origin P3 H350 SAF and neo systems designed specifically for high-volume production of end-use parts. Our focus on execution is yielding results that demonstrate how our strategy to grow our leadership position in polymer 3D printing is working. Our revenues of $163.4 million were up 22% versus the prior year quarter. We see particular strength in systems, which grew 37%, and we ended the quarter with a robust balance sheet that included over $475 million of cash and no debt. During the first quarter, we expanded our penetration further into applications for aerospace, automotive, and fashion we tailored industry-specific solutions. For example, working with our partner Lockheed Martin, we uniquely qualified a high-performance antero material for aerospace and use power. In automotive, Redford Motors is now second auto OEM, using all five of our technologies for use in design, prototypes, tooling and final parts used in vehicle production. We also officially launched the commercialization of our fashion solution with TechStyle, that's T-E-C-H style, the industry's first 3D printer designed specifically for printing direct to garment and other end products. It opens unlimited possibilities for the fashion industry to personalize and customize premium textiles, clothing, bags, and accessories, footwear, and many other fashion applications. I would like to highlight three important milestones reached since the close of the quarter that we expect will contribute to our ongoing efforts to outperform. First, we announced the creation of a new entity comprised of MakerBot and Ultimaker. With our focus on industrial, healthcare, and production-scale polymer 3D printing for manufacturing, we determined that MakerBot, a desktop solution, fell outside of our core businesses. The transaction serves several purposes. It allows us to further concentrate our efforts to grow our leadership position in our area of focus. It has a margin accretive benefit on our business and our commercial agreement provides us access to entry-level 3D printing users, allowing us to potentially realize incremental synergies without distracting our resources. We believe that the desktop sector is growing at a healthy pace and that the new company will be a leading force in that industry. and we view our investment as having the potential to realize incremental long-term value for our shareholders. Second, we recently published our inaugural report on environmental, social, and governance activities, which we believe is the first report published to GRI standards in our industry by an OEM. This report outlines our commitment to ESG, and establishes benchmarks for future targets. Our sustainability priorities include design for responsible production and consumption, transparency, people-first initiatives, and social impact programs. We are also focusing on renewable energy projects, quality education, industry innovation, and climate action. The 3D printing industry is ideally situated to drive innovation and improvement in manufacturing from a sustainability perspective, and Stratasys is aiming to lead those efforts. I encourage visiting our website to review the report. And third, last week we hosted our annual flagship manufacturing virtual event, where we announced a number of new product updates, which will strengthen our market-leading offerings and the value potential our product can bring to customers. PA12, the most popular industrial 3D printing material, is expected to be available later this year for our H350 printers. Also for the H350, we announced the upcoming availability of polypropylene, which is very popular in traditional manufacturing, but not widely available in 3D printing. This material further demonstrates the competitive superiority that our SAP technology provides in powder bed space with respect to material, speed, accuracy, cost per part, and total cost of ownership. In FDM, we are upgrading our F123 series with the launch of the F190CR and the F370CR systems CR means composite ready and includes the new nylon CF10, a carbon fiber material that is both exceptionally strong and light, thereby expanding the end market opportunities for the F123 series. We also announced our first Stratasys validated FDM materials from third party materials partners, which our channels will begin to sell in the second half of 2022. It's a great example of our open material ecosystem approach, beginning to bear fruit. For our P3 technology, we are adding Rabkat print software to Origin, completing the integration effort to have a single platform across all of our core manufacturing systems. We announced the availability of the first Origin-compatible materials from our Origin open material license. And importantly, we launched Origin Local, an offline, non-cloud version, which is ideal for use by certain defense and government applications. When you consider all of these developments, along with the new product that we recently launched, you can see why we are so excited about the future. As we execute on our strategy and build momentum, customers continue to permanently replace a number of their traditional manufacturing choices with our additive manufacturing solutions, expressing their long-term confidence in strategies. The recent supply chain and related issues have been a catalyst across industries to rethink how they manage their product life cycle. We see it happening with leading companies such as General Atomics, which invested in both Stratasys and Stratasys Direct and has been expanding its additive manufacturing program for unmanned aerial vehicles beyond tooling to end-use parts. They have a goal to increase the percentage of parts using additive on their UAV drones to 50% on their smaller ones and mid-single percent on the larger ones. We see it with healthcare companies like Medtronic, which has moved from machine tools to 3D printed tools with strategies because they can create more accurate complex parts while reducing costs by 80%, saving millions of dollars. And we see it with transportation giants like Alstom, which is 3D printing spare parts, tens of thousands of them, As part of its industry of the future program, reducing its dependence on outside suppliers while reducing lead time by 95%. There are many more such changes taking place across industries, and we believe that this clearly shows the path that manufacturers are on as they make their production lines more efficient, less costly, more sustainable, and simply better with strategies. We are also encouraged to see the US government and large manufacturers step up to help more companies get involved in our industry through the additive manufacturing forward program. This initiative was announced by the White House earlier this month and reflects their belief in 3D printing's benefits to the manufacturing economy. This includes building more resilient supply chains and on-shoring manufacturing to help grow the economy. The program is specifically designed to help suppliers to companies like Raytheon and Lockheed invest more in additive manufacturing. GE Aviation, Honeywell and Siemens are also some of the initial participant companies. While many of our largest customers are building out sophisticated advanced manufacturing centers. It's their suppliers that manufacture a lot of their end-use parts. This program helps incentivize more companies to invest in additive manufacturing, given large OEMs are now committing to purchasing additively produced products. The program also will provide training, technical assistance, and standout developments. all things needed to help additive manufacturing to go in mainstream. And Stratasys has the full solution and broadest portfolio to support this initiative. With that, I will now turn the call over to our CFO, Eitan Zamir, to share the financial results and update our outlook for 2022. Eitan?

Thank you, Yoav, and good afternoon, everyone. We're pleased to have delivered a strong start to 2022. The revenue growth, especially the 36.7% growth in our system sales, along with our improving margins, position us to build momentum through the balance of the year and beyond. For the first quarter, total revenue was 163.4 million, a 21.8% increase from the prior year period. driven by growth from all technologies and primarily by strength in systems. On a constant currency basis, total revenue increased 24% versus the prior year quarter. Important to note is that all key businesses were higher than the pre-pandemic first quarter of 2019, resulting in total revenue being 5.2% higher as compared to that period. Product revenue in the first quarter was 113.1 million, an increase of 25.2% compared to the same period last year, or 27.8% on a constant currency basis. Within product revenue, system revenue increased 36.7% to 54.5 million compared to the same period last year, an increase by 39.3% on a constant currency basis. System sales reflected the highest first quarter total in five years, strengthened by the launch of the Origin One in mid-February and the first full quarter of H350 sales. Importantly, the higher margin consumable business saw revenue increase by 16.1% to 58.6 million compared to the same period last year. and increased by 18.8% on a constant currency basis. Consumable revenue also exceeded the first quarter of 2019, as well as the fourth quarter of 2021, reflecting the impact of strong system sales throughout 2021 and their expected flow through as initial materials are replenished. Service revenue was 50.3 million, an increase of 14.8% compared to the same period last year, and slightly higher than the first quarter of 2019. On a constant currency basis, service revenue increased by 16.1%. Within service revenue, customer support revenue increased by 10.1% compared to the same period last year, and increased by 11.7% on a constant currency basis. We know that 2022 is a year of strategic execution, following the important acquisition we made in the past two years to strengthen our technology portfolio and ensure we could provide comprehensive solutions across the entire polymer application space. These investments are already contributing to revenue, putting us ahead of the curve and increasing our competitive advantage in the 3D printing industry. Now turning to gross margin. GAAP gross margin was 42.6% for the quarter compared to 41.4% for the same period last year. Non-GAAP gross margin was 47.3% for the quarter compared to 46.7% for the same period last year. Margin improvement year over year was driven by higher revenues in systems consumables, services, and improve operational efficiency. This was partly offset by macro issues related to logistical challenges and availability of materials. Gap operating expenses were 89.3 million, an increase of 15.3 million or 20.7% from the same period last year. Non-gap operating expenses were 75.3 million, an increase of 10.1 million, or 15.5%, compared to the same period last year. Non-GAAP operating expenses were 46.1% of revenue for the quarter, our lowest Q1 OPEX as a percentage of revenue in seven years, compared to 48.6% for the same period last year. The 10.1 million year-over-year increase in operating expenses on an absolute basis was driven primarily by the impact of three acquisitions, ZART 3D, Origin, and RPS, as well as higher commission based on higher revenue. We were pleased to see the efficiency of our model, where the additional operating expenses reflected only a 35% incremental cost. instead of the historical range in the mid to high 40%. Regarding earnings, gap operating loss for the quarter was 19.6 million, compared to a loss of 18.4 million for the same period last year. Non-gap operating income for the quarter was 2 million, compared to a loss of 2.6 million for the same period last year. The difference reflects our business scalability and improved operational efficiencies, which resulted in better growth margin and lower operating expenses. Gas net loss for the quarter was 20.9 million, or 32 cents per diluted share, compared to a net loss of 18.9 million, or 32 cents per diluted share, for the same period last year. Not yet net income for the quarter was $1.2 million or $0.02 per diluted share compared to a loss of $3.8 million or $0.06 per diluted share in the same period last year. Adjusted EBITDA of $8.1 million compared to $3.5 million in the same period last year reflecting our improved profitability levels. We used 16.1 million of cash from operations during the first quarter, compared to generating 22.8 million of cash in the same quarter last year. The use of cash was driven by deliberately increased inventory purchases and an increase in accounts receivable. We ended the quarter with 475.6 million in cash, cash equivalent, and short-term deposits. compared to $502.2 million at the end of the fourth quarter of 2021. We remain well-funded and well-positioned to capitalize on value-enhancing market opportunities as they arise. Now let me turn to our outlook for 2022. I would note that our guidance continues to include full-year anticipated contribution from Makeable. as the announced business combination with Ultimaker has not yet closed. We expect the transaction to be margin accretive upon closing, and we plan to update our outlook later this year. Today, we are tightening the revenue range from our previous guidance for 2022 revenue. It is now $685 million to $695 million, While we are encouraged by the level of engagement with our customer and confident in our growth potential, we're also monitoring global issues that can have an impact, such as the shutdowns in parts of China, currency fluctuation, and continued other supply chain constraints. We continue to expect revenue to grow sequentially each quarter throughout the year, with the second half of the year notably stronger than the first half. Revenue growth for the second quarter is expected to be low to meet teens as a percentage over the second quarter of 2021. From a gross margin perspective, we continue to expect full year 2022 to be flat to slightly higher as compared to 2021, with the second half stronger than the first half, based primarily on higher revenue. We expect the second quarter to be relatively flat to the second quarter of last year. As a reminder, we view the current gross margin situation as temporary. When headwinds caused by logistics and material macro issue pass, and we continue to execute on a long-term plan, we expect our margin to head back over 50%. In 2022, we continue to expect our operating expenses to be approximately 20 to 25 million higher than 2021, primarily due to the impact of owning XAR3D for the full year, higher costs that result from higher sales, and investment in new growth driver such as OriginOne and HealthCare. Operating expenses are typically higher in the second quarter as compared to the first quarter due to the normal timing of compensation expenses. And while the absolute dollar value of these expenses will grow, we expect to see the percentage of revenue remain flat or even improve slightly throughout the year. While the first quarter came in stronger than expected, we recognize that the above-mentioned supply chain and other macro issues could impact our revenues and costs. So we continue to guide non-GAAP operating margins to be slightly above 2 percent for the full year. Longer term, we expect operating margins to achieve double digits as our growth plan unfolds. We continue to anticipate a gap net loss of 74 to 67 million, or $1.11 to $1 per diluted share, and non-gap net income $10 to $13 million, or $0.14 to $0.19 per diluted share. Adjusted EBITDA is still expected to be in the range of $38 million to $41 million, and capital expenditures in the range between $20 million and $25 million. With that, let me turn the call back over to Yoav for closing remarks. Yoav?

Thank you, Eitan. Our strong start to the year and the strategic moves we continue to make demonstrate that we are executing on our plan. The powerful combination of our new technology offerings, expanded materials and software solutions, strong balance sheet, and our dedicated, talented teams positions us well to execute on our strategy with excellence. We will continue to grow our top and bottom lines, improving profitability over time due to increasing scale. As I noted earlier, we are relentless about our focus to grow our leadership position in polymer additive manufacturing. Our results over the past two years clearly reflect that our strategy is working. With that, let's open it up for questions. Operator?

At this time, we will be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. In addition, we ask that you please limit to one question followed by one immediate follow-up question. One moment, please, while we poll for questions. Our first question is from Greg Palm with Craig Holm. Please proceed with your question.

Yeah, thanks. Congrats on the progress here and thanks for taking the questions.

Thanks, Greg.

Yoav, you've been a big believer in having this kind of call it full product portfolio across different kinds of polymer technologies. And, you know, curious now that everything's launched in the market, You know, are you seeing the synergies in line with what you expected? Are they better? I mean, you mentioned the second auto OEM that's using all five, but curious if you think they're capturing more wallet spend with some of the existing customers as well.

Thank you, Greg, for the question. As we wrote in our script, the strategy is working, period. So the ability of Stratasys to leverage our infrastructure, our go-to-market, our expertise in polymer, our cutting-edge technologies, and build all this on two ecosystems, two platforms, which are the material and the software with cutting-edge technology, capturing the synergies across technologies, but also within customers with the same go-to-market It works. And we are very encouraged by it because we really put in place our differentiation and our uniqueness to work. And it works.

Yeah, you know, Greg, it's Jonah. What I would add on that is it's very encouraging to see how customers are actually making that permanent switch from their traditional manufacturing to additive manufacturing. We highlighted a few of the customers in the slides, but there's dozens and dozens. And I think that really is the strongest demonstration from the market that they believe in the technology. They believe that we can help them improve their production lines. And we look forward over the course of the next quarters and years to building and building on that because that's how you start to disrupt the traditional manufacturing and begin to take away that $13 trillion investment. addressable market piece by piece.

Yeah, completely agree. And it goes beyond just the five technologies. It's the ability to create the solution with the material, which is open and validated, with the software, with the service, and put everything together around this package, which is practically we are connecting everything with the software. Rarely, I think that it would be very difficult to competitors to meet this offering to our customers.

Yeah, that makes a lot of sense, and thanks for that commentary. My follow-up was going to be along those lines in terms of who or what you think you're displacing, and it sounds like maybe it's more of a byproduct of displacing traditional technologies, but if all of a sudden you've got customers that are using all five-year technologies Presumably you're displacing maybe some competitors in the additive field as well. What are your thoughts on that versus traditional?

We are focusing on delivering value to our customers. And we believe that using one platform of material and software and service with five technology, with our expertise, with our application engineers, is the best value that we can deliver and very competitive in the marketplaces. And that's what will take us forward. You know, in some cases we see customer replacing and replacing other additive manufacturing providers, but we are focusing on adding value and not on taking out other customers or other providers.

Okay, good. Well, best of luck going forward and look forward to seeing you at Rapid this week.

Thank you.

Our next question is from Troy Jensen with Lake Street Capital. Please proceed with your question.

Hey, gentlemen. Congrats on the 22% growth here. It's pretty impressive. Thank you. Hey, so first, a clarification for Eitan. Could you give us the dollar amounts again for systems and consumables?

You mean the total revenue actual Q1? Yes.

Yeah, total system revenues in Q1 and consumable revenues in Q2.

So total system is 54.5, and total consumable is 58.6.

Awesome. Thank you. And for you, Polipropylene, I guess, to my knowledge, that material isn't available at all in the industry, and I thought you said it wasn't widely available. So I guess I'm curious to know, is this real polypropylene or polypropylene-like material? Am I correct in thinking that it's not really available?

So it is available, but we believe that our offering will be a much better one in terms of accuracy, speed, like the whole list that we put together in the script, and cost per part because of, I would say, the versatility of our machine and the ability to have a great thermal control, which is very important. from polypropylene. For many years, I was managing plants where the main input was polypropylene. It's a great material, and it's really a great step into manufacturing. So this is the most common plastic out there.

Yeah, I totally agree. And am I correct that it was just the H350 that this is on? Yeah, you are right. Awesome. Awesome, guys. Well, congrats on the great results, and I'll see you tomorrow. Thank you. Thank you. See you tomorrow.

Thank you for your event. Our next question is from Wamsi Mohan with Bank of America. Please proceed with your question.

Yes, thank you, and congrats on the strong results. Really nice revenue growth. Thank you. I was wondering if you can talk a little bit about gross margins. I think you guys alluded to both macro challenges and availability of material. So can you help us think through How much are gross margins pressured by inflation and supply chain issues currently? Because I understand your target is to be significantly higher. What sort of pressure are you currently absorbing? Right.

So, thank you, Wambli. It's a good question. I think we related to this in the script that in Q1, We had approximately a little bit more than 2% 200 basis points compared to Q1 2021. That's the impact of the inflation and the material cost. We did compensate with price increase, but we really were focused on delivery to our customers. And that's the focus, and we're able to mitigate some of these pressures and costs with price increase, as mentioned.

Okay, thank you. I'm also trying to understand the EBITDA bridge as it pertains to the second half versus the first half. If I just look at your OPEX guide increase for the year of 20 to 25, you already have about $10 million of that. increase absorbed in Q1, and you already said Q2 was going to be up sequentially. So is it right to think that most of this OPEX increase is very front-end loaded for you in the year? And if so, if the back half OPEX is relatively flat and you're already doing $8 million in EBITDA, why would you not see much more stronger EBITDA leverage in the back half of the year because you're annualizing already to 32 million EBITDA and your low end of your guide is 38, but your OPEX is so much front end loaded. So can you just help me think through the moving pieces on this EBITDA bridge? Thank you.

So, you know, that's a good question. So first of all, when you look on 2021 spread over the quarter, over the year, so there was a difference between, you know, the different quarters and, you know, OPEX increased in the second half of 2021, partially related to the ZARA acquisition and other items that we've mentioned in previous calls. So that's why the change, the increase that you see, Q1 versus Q1, does not necessarily reflect the trend for the next quarter. I hope that it addresses the question. Then on the improved EBITDA or the kind of EBITDA that we guide, As mentioned on the script, we are very confident about our ability to meet our numbers and to meet our guidance. But we do take into account the challenges, the macroeconomic challenges, and the high certainty in the current market. So we embedded that into our bottom line guidance. And as we move throughout the year, we will be able to update further if those conditions improve.

Okay, thank you very much.

Maybe one day I would just want to leverage your question just to thank our operations team, your question about supply chains because they did really above and beyond. And I know many companies in our industry and out of our industry that couldn't deliver and couldn't meet their revenue targets because of supply chain. And our guys did fantastically well. We are sourcing globally, but they found so many creative ways to deliver, and I thank them for that. And despite the fact that we put delivery as first priority, we improved gross margin. All the applause for our ops team.

Our next question is from Paul Chung with J.P. Morgan. Please proceed with your question.

Hi, thanks for taking my question. So just on consumables, should we kind of expect some acceleration here maybe after such a strong rebound here in system sales over the last couple of quarters? You know, how typical is the lag for reorders for some of these newer systems? And then just on utilization rates from your install days for consumables, you know, where are you seeing kind of pockets of strength there on both, you know, materials and applications?

Thanks, Paul, for the question. You saw the increase in our hardware this quarter and also in the last few quarters. And the higher the hardware growth is, the more consumables and services will follow. We already start to see those fruits in this quarter, which was the consumable was the highest since Q2 2018. And we expect to continue to see this growth. also coming from our new products.

Okay, great. And then, you know, follow up on the U.S. government initiative here. You have a slide here pointing that out. Are your discussions kind of accelerating from, you know, some of those key companies in aerospace on your slide? You know, do you get a sense there may be kind of possible government funding involved or you know, are you seeing any catalysts from the policy side? Thank you.

Thank you for the question, Paul. We have a long relationship with the government and specifically with the U.S. government. We believe that government is a catalyst, practically, for the adoption of 3D printing because it's so... It's the best fit for long, sustaining programs. For spare parts, we showed it with our NAVAIR deal, which is a long-term deal and we are supporting it. And we'll see more of those deals going forward. So we have a lot of appreciation to the U.S. government as a catalyst for the adoption of additive manufacturing. But the ability... to leverage also our relationship with corporate America and leading aero and auto players like Lockheed Martin and others, and to build a package that address not the leading company, but many, many, many suppliers is really unique to Stratasys. Because as I mentioned at the beginning of this call, we have the solution, we have the full package. When someone wants to step into additive, and to start manufacture, it's a lot of training, it's a lot of support, it's a lot of, you know, we need to hold the hand of those small suppliers and make sure they are meeting the requirements and the certification and the allowables that we invest so much for the high end. So we believe that the combination of corporate America, the government, and our infrastructure and capabilities can be a great success. It's a journey, but we are happy to start stepping into it.

Great, thank you.

Our next question is from Jim Ricutti with Needham. Please proceed with your question.

Hi. Question, just given where we are, middle of May, I'm wondering what you've seen in terms of demand. You obviously had a strong Q1 in terms of top line growth, but I'm just wondering in light of some of the macro challenges that we're hearing about, are you seeing any change in demand either in specific verticals or geographies, or are you seeing the same level of demand exiting the quarter that you saw in Q1?

Hey, Jim, thank you for the question. To date, demand is strong. It doesn't mean that we as leaders of this company are not, you know, looking all over and planning for the future because we are looking what's going on in the capital market and in other markets, but it's clear to us today demand is strong. And this is why we build our inventory. You can see it in the report. We build our inventory because the demand is strong and we need to meet the demand. But we are not, you know, We are not driving blind. Of course, we are cautious, but thank God and thank the industry and good technology to demand current instruments.

And a separate question in a somewhat unrelated area, but I wanted to follow up on the new product that you've introduced into the textile printing market. I wonder if you could talk a little bit about the strategy for this product. It seems like it's a different channel. And to what extent is this more of a gradual introduction in terms of planting a flag in this market?

It's a great question. As I mentioned, we have four growth engines. The cutting edge technologies, the five technologies, the software, the material, the service, but nothing will work if we will not cross the chasm of this industry from prototyping to manufacturing. And you can cross the chasm only with use cases. And fashion is a great use case with huge potential. Our addressable market is a high-end fashion market. So when we're talking about luxury goods, high-end fashion, because we can do something that no one else can do. With our PolyJet technology, we can have design, we can work with the best house brands in the world, and we are already doing it. So we already have some fantastic results, and we are talking about thousands of items, like shoes and garments that are already there. Of course, it's just the beginning of the beginning, but we are going to show it in the Milan show. I think it's in June. It's super exciting because it's mass market and it's real manufacturing. And it's real manufacturing with material jetting that no one believed in the world that it's possible. But we made it happen.

And are you going direct or using a channel partner here?

We are doing both, and we are using also service bureaus because this industry is working a lot with outsource to high-end manufacturers. So we are doing both. It's really exciting. I really invite you to come and see it in the Milan fashion show. It's amazing.

Thanks very much. Congrats on the quarter, by the way.

Thank you.

Our next question is from Ananda Barua with Loop Capital. Please proceed with your question.

Hi, good afternoon. Good evening, guys. Thanks for taking the question. And congrats on the strong execution and the good results of following this. Yeah, you're welcome. Could you remind us, to the extent you can give us context, for the second half of the year, or for the remainder of the year, what you guys we'll be doing in terms of new products across the platform. I think a quarter or two ago you had made mention that you had new products coming out throughout 2022. That'd be great. Thanks.

Can you please repeat the question? I'm not sure we... It's a little hard to hear.

Were you asking about the new products we're launching during the rest of the year?

Yeah, exactly. Any context. I know you can only get so specific, but just any context that you can give us.

Yeah, this is a great question. Thank you. Now it's clear. We had last week our manufacturing event, Experience Stratasys Manufacturing. And within this event, we were very clear on what are the new products. And the focus now is to take what we have and make sure that it's suitable for manufacturing. So it starts with two new materials, the PA-12 and the polypropylene for the SAF, for the SAF technology. We have 16 overall, 16 new materials. I don't know if there are others. I don't want to say something that I'm not sure, but 16 materials to launch in one year, this is remarkable. really remarkable. On top of it, we are putting all our technologies on GrabCat, which is a new product. So GrabCat will be also on the south and also on the origin. And we also have the origin local, which is suitable for manufacturing with defense and other similar industries and verticals. So we are making sure that we are following our strategy. It's not only the cutting-edge machine, but you have also the software and the material and the service to be successful. From my perspective, this is real additive manufacturing 2.0 because it's not about the technology. It's about solving the problem to the customer. This is 2.0, and you can be 2.0 AM only if you have the full solution. And I'm proud to say that we have the full solution.

That's great. That's it for me. Thank you so much. Really looking forward to seeing the rest of the year. Thanks.

Our next question is from Noel Diltz with Stifel. Please proceed with your question.

Hi, guys. And again, congrats on the good quarter. It seems like you're pretty satisfied with your current hardware technologies and offerings. But can you revisit if there's anything you feel you need to add on that front? And if you could just generally speak about your M&A priorities. Thanks.

I know. Thank you. That's a great question. We are not satisfied at all with what we have. That's not our nature here. We're not satisfied with anything. For each one of our technology, we have a five-year roadmap to make sure that we will be at the front of this technology for many years to come, and we spent very high level of R&D in order to make it happen. Having said that, and by the way, it's in our five years plan, it's in our annual operating plan in each one of our technologies. But let's put this aside. We also understand that we must invest in material and in software and improving our service because we are taking our solution and those technologies to manufacturing. and it's a completely new set of requirements from the customer side. So that's exactly what we are doing. In terms of the technology, to get back to your question, we are investing, I think we already mentioned it, we have an arm, and we should probably announce it in more details, but we have an arm that invests in technologies to make sure that we are not only innovating internally, but also externally, to secure our Polymer leadership position. And we invested in companies like Genera and like 90 Labs and like Inkbit, which are really, this is the new generation of AM, and we will make sure that that will be part of our offering as well.

Okay, thanks. And Jim asked this question a bit, but could you expand a little bit on what you're seeing from a geographic trend perspective? Thanks.

Geographic trends. We put aside the lockdown in China that obviously impacted the entire world. We see a strong demand from all our geographies Very strong quarter for our EMEA business, but also in the other businesses, strong demand.

Thank you.

We have reached the end of the question and answer session, and I will now turn the call over to CEO, Dr. Yoav Seif, for closing remarks.

Thank you for joining us. Looking forward to updating you again next quarter.

This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.