Stratasys, Ltd.

Hello, and welcome to the Stratasys Q2 2022 conference call and webcast. At this time, all participants are in listen-only mode. A question and answer session will follow the formal presentation. We ask you to please ask one question and one follow-up, then return to the queue. If anyone should require operator assistance, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to Yona Lloyd, CCO, and Vice President, Investor Relations. Yonah, please go ahead, sir.

Good morning, everyone, and thank you for joining us to discuss our 2022 second quarter financial results. On the call 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 second quarter of 2022, which are included as item five of that annual report and in exhibit 99.2 to the report on Form 6-K that we are furnishing to the SEC today, respectively. Please also see the press release that announces our earnings for the second quarter of 2022, which is attached as exhibit 99.1 to a separate report on Form 6-K 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 a report on Form 6-K 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 Zaif. Yoav?

Thank you, Your Honor. Good morning, everyone, and thank you for joining us. Our second quarter results reflect a continuation of our ongoing business momentum. I am proud of the strategy team. As we delivered our strongest second quarter in four years, revenues of $166.6 million were up 13.3% versus the prior year quarter, 16.4% taking FX into account. and ahead sequentially over first quarter these metrics are aligned with our prior outlook we saw particular trend in system revenues which grew by over 29 percent compared to the second quarter of 2021 with year-over-year growth across all printer technologies importantly our balance sheet has us well positioned with 441.5 million of cash and equivalents and no debt. We are operating in an environment of supply chain constraints, global economic uncertainty around inflation, raising interest rates and slowing GDP. As we face these challenges, our ongoing laser focus on execution of the business plan continues to help us deliver positive financial results and drive progress towards our stated goal of growing our leadership position in polymer additive manufacturing. The first half of 2022 saw us advance our strategy on several fronts. We continue expanding our penetration into applications for aerospace, automotive, healthcare, and fashion. We tailored industry-specific solutions for customers like PepsiCo, Toyota, and Rady Children's Hospital in San Diego. As noted on our last call, we have launched two new composite-ready 3D printers in Q2, along with the new tech-style printer for the fashion industry. In addition, we launched GrabCat software on the origin line of 3D printers and introduced a broad array of new materials. This breadth of manufacturing expertise is leading to new business opportunities. We recently made two exciting announcements in the auto racing industry. Specifically, Stratasys was named a NASCAR Competitive Partner, where we are teaming with NASCAR to provide the first ever 3D printed parts to be used on all of their next generation cars. Those parts utilize Stratasys high-yield PA11 material derived from sustainable sources and are manufactured at Stratasys Direct using our H350 3D printer. Other parts are produced by NASCAR on our Focus 450 MC system. We also became the official 3D printing partner of Toyota Racing Development. Our 3D printed parts will be used in the Toyota GR86 vehicle for competition in 2023. Stratasys F370 and the new F370CR system are expected to be utilized as part of this partnership. And similar to the NASCAR relationship, Toyota Racing Development will also utilize Stratasys Direct to print PA11 parts on the H350. Auto racing is an excellent development proving ground that can ultimately lead to mainstream production runs for millions of consumer and commercial vehicles. We have demonstrated the suitability of the H350 using our SAP technology for producing a wide variety of automotive parts. This can include DACs, front grids, side mirrors, electric cables, and electrical connectors, among many others. As we execute our materials ecosystem strategy, we will be opening up even more automotive use cases. We are seeing similar momentum in other areas. In dental, we continue to see strength in the J5 dental jet line that we launched last year. In Q2, we released an updated version that doubles the throughput without sacrificing quality, makes improvements in resin consumption, reduces support usage and waste, and increases the number of parts the customer can place on the print rate. And on the medical side, in early July, we released radiometrics for our digital anatomy printer, which uniquely lets healthcare professionals and medical device companies visualize 3D printed models under x-rays and CT scans in unique ways. This attention to the need of healthcare professionals is helping us grow our presence in the market. For instance, we recently shared how the University Hospital of Southern Denmark went from a single-material XLA printer to our multi-material, full-color J5 MediJet printer. And now the surgeons are saying they no longer want to do surgical procedures without 3D printed guides. I'd also like to update you that we are progressing on the merger of MakerBot with Ultimaker and we expect it to close during the third quarter. As we previously announced, once the transaction closes, we will hold approximately 45.6% of the combined company post-merger and will account for the combined company via the equity method, rather than by consolidating it within our own results. This change is not expected to have a material impact on our consolidated revenues. I will now turn the call over to our CFO, Eitan Zamil, to share the financial results and update our outlook for the rest of 2022. Eitan?

Thank you, Yoav. and good morning, everyone. We are pleased to have built upon the strong start we saw for 2022. Revenues were driven by a 29.2% growth in our system sales compared to the second quarter of 2021, continuing the strong trend that is expected to increase sales of recurring consumables and services in the future. And we saw ongoing operating leverage that reflects the strength of our business model. In general, we see continued strength in our business performance as revenue growth drives improved margins and earnings results. For the second quarter, total revenue grew by 13.3% to $166.6 million from the prior year period. on a constant currency basis, total revenue increased 16.4% versus the prior year's quarter. Product revenue in the second quarter rose by 15.4% to 115.7 million compared to the same period last year, or by 19.4% on a constant currency basis. Within product revenue, System revenue grew by 29.2% to 58.9 million compared to the same period last year, and increased by 33.5% on a constant currency basis. System sales reflected the highest second quarter total in four years, strengthened by the continuing ramp of the Origin One and H350 mass production system. Consumables revenue was up by 3.9% to 56.9 million compared to the same period last year, and grew by 7.5% on a constant currency basis. Service revenue was 50.9 million, an increase of 9% compared to the same period last year, and up by 10.9% on a constant currency basis. Within service revenue, customer support revenue grew 9.1% compared to the same period last year and increased by 12.9% on a constant currency basis. Now turning to gross margin. Gap gross margin was 40.5% for the quarter compared to 43% for the same period last year. Non-gap gross margin was 47.6% for the quarter, compared to 47.5% for the same quarter last year. Higher systems and consumable revenue and raised pricing, along with operational efficiencies, helped to offset the growth in logistics and material costs, which were mostly attributable to global inflation. Gap operating expenses were 90.9 million, compared to 86 million during the same period last year. Non-GAAP operating expenses were 77.4 million, compared to 72.5 million during the same period last year. Non-GAAP operating expenses were 46.4 percent of revenue for the quarter, compared to 49.3 percent for the same period last year, as we continue to focus on operational efficiency improvement. The 4.9 million year-over-year increase in operating expenses on an absolute basis was driven primarily by the impact of the ZAR 3D acquisition, as well as increased travel and trade show activities and higher commissions, based on the higher revenue. Last quarter, we noted that the incremental cost was only 35%. This quarter, we are pleased to note an improved efficiency of our model, where the additional operating expenses reflected only 25% incremental cost, instead of the historical range in the mid to high 40%. Regarding earnings, gas operating loss for the quarter was 23.5 million compared to a loss of 22.7 million for the same period last year non-gap operating income for the quarter was 1.9 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 modest gross margin growth and improved operating margin. GAAP net loss for the Quartel was 24.4 million, or 37 cents per diluted share, compared to a net loss of 20.2 million, or 31 cents per diluted share for the same period last year. Non-GAAP net income for the Quartel was 1.2 million, or 2 cents per diluted share, compared to a loss of 1.6 million, or two cents per diluted share in the same period last year. Adjusted EBITDA of 7.4 million compared to 3.5 million in the same period last year reflected our improved profitability levels. We used 22.8 million of cash in our operations during the second quarter, compared to generating 5.6 million of cash from operations in the same quarter last year. The use of cash was primarily driven by deliberately increased inventory purchases of over $20 million. We ended the quarter with $441.5 million in cash, cash equivalent, and short-term deposits, compared to $475.6 million at the end of the first quarter of 2022. With our Fortress balance sheet, and strong cash generation profile, we remain well-funded and well-positioned to capitalize on value-enhancing market opportunities as they are identified. Now let me turn to our outlook for 2022. I would note that our guidance continues to include full-year anticipated contributions from MakerBot. as the announced merger with Ultimaker has not yet closed. Since our last update, currency exchange rates have continued to decline across a number of our key foreign currencies, impacting our outlook for revenues for the second half of the year by $10 million. We expect the timing of such impacts to be relatively even across the third and fourth quarter. And as a result, are adjusting our full year revenue guidance accordingly. We now expect revenue in a range of $675 million to $685 million, and for revenue to continue growing sequentially throughout the remainder of the year. Revenue growth for the second half of the year is expected to be approximately 6% to 7% higher than the second half of 2021, with the fourth quarter anticipated to grow at a higher rate than the third. As I noted earlier, the change in full-year revenue outlook is due to declines in currency rates. 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 third quarter to be relatively flat compared to the third quarter of last year. As a reminder, we view the current gross margin situation as temporary. Once headwinds caused by macro logistics and material issues pass and we continue to execute on a long-term plan, we expect our margins to head back over 50%. In 2022, we now expect our operating expenses to be approximately 18 to 23 million higher than 2021 primarily due to the impact of owning zar3d for the full year highest cost that results from higher sales and investment in new growth drivers such as origin one and healthcare and despite the higher absolute dollar value year over year we expect our operating expenses as a percentage of revenue to continue improving by decreasing throughout the year we continue to expect non-GAAP operating margins to be slightly above 2% for the full year. Longer term, we expect non-GAAP operating margins to achieve double digits as our growth plan unfolds. We now anticipate a GAAP net loss of 78 to 69 million, of $1.17 to $1.04 per diluted year. and non-gas net income of 10 to 13 million or 14 to 19 cents per diluted share. Adjusted EBITDA is still expected to be in the range of 38 million to 41 million and capital expenditures in a range between 20 to 25 million. While we are encouraged by the level of engagement with our customers and remain confident in our growth potential, we continue to monitor global issues that can have an impact. With that, let me turn the call back over to Yoav for closing remarks. Yoav?

Thank you, Eitan. We are pleased with our strong first half results and how they position us to execute our plan. We have aligned our business expectations based on the current global macroeconomic conditions. Importantly, 3D printing is uniquely positioned to help our customers address and overcome many of the concerns that arise in time like this. With our expanding portfolio, we should continue to capture market share on the factory floor of Fortune 500 companies around the world as the relevance and adoption of 3D printing grows. And as we build on our leadership position, drive growth, and improve profitability, we expect to outperform and create long-term shareholder value. With that, let's open it up for questions.

Operator? Thank you. We'll now be conducting a question and answer session. As a reminder, please ask one question, one follow-up, then return to the queue. If you'd like to be placed into question queue, 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'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing star 1. And once again, that's one question, one follow-up, then return to the queue. One moment, please, while we poll for questions. Our first question today is coming from Greg Palm from Craig Hallam. Your line is now live.

Yeah, thanks. This is actually Danny Egerich on for Greg today. Thanks for taking the questions. I guess just starting off, maybe any further color on what you're seeing in the broader demand, you know, broader demand trends given the current macro and maybe if you could even break that down further into the geographic markets that you serve.

Hi, Danny, and good morning. Thank you for your question. We are seeing very nice level of engagements with our customers, and we are focusing on the opportunity. The nice thing with us, of course, we are operating in the same world like anyone else, but in the last two years, we opened up for us new markets. We practically doubled our total addressable market. So despite the fact that outside there There are issues, macro issues, supply chain issues, inflation. We, in the micro level, a strategist, are seeing double size of the market, which means that we have very nice space to grow in. And that's what we are doing, and that's why we have nice demand. And you can see it also in our...

Yeah, thanks. And then I guess just off that, are you surprised to the upside or downside on any geographies, Europe or the Americas or anything like that?

In general, things are going as planned. And the nice thing with strategy is that we are very diversified, both in terms of products and geographies. So luckily enough, it's not luck, we planned it. But we planned well, and we are meeting our numbers.

Yeah. Okay, and then just moving on to some of the guidance, still targeting double-digit operating margins longer term. Anyway, you can go into more detail on that, maybe the timeline or the level of revenue associated with that, just being that it's a fairly significant jump from this current year estimate of that 2%.

Hey, Daniel.

That's a very good question, and similar to our message, I believe, the last quarter, The whole story or the main story here is the scalability, right? We have five technologies. We're well-positioned to grow long-term, double-digit for the coming years. And with that double-digit revenue growth, the scalability, the ability to bring OPEX in very, very low margins or much lower margins, That's the story here. And actually, this quarter, the second quarter, just demonstrated, right? So if you compare Q2 2022 to Q2 2021, and you look on almost 20 million revenue increase that came with 5 million OPEX, that's 25% OPEX on that incremental revenue, right? So that's the scalability. That's the way to improve growth margins and OPEX as we get bigger, bringing us to the double-digit operating profits.

Your next question today is coming from Paul Chung from J.P. Morgan. Your line is now live.

Hi. Thanks for taking my questions. So just on cash flow, you're seeing a drag this year in the first half on inventory investments and other kind of working cap investments. How do we think about cash flow generation in the second half? And can you break even or pause it for the year after heavy investments in the first half?

Yeah, thanks.

That's a very good question. So first, maybe taking you back to the last eight to nine quarters, right? So after seven quarters with a significant positive operating cash flow, seven consecutive quarters, this is the second quarter that we have negative operating cash flow. But this is deliberately. That's basically our focus on the demand. on meeting our client's expectations, customer expectations. Keep in mind that we are a global company. We demand everywhere. We want to make sure that we have the inventory in place globally in the different locations available. We're trying to leverage our strong cash position with no debt. And even if it means a couple of quarters of a negative operating cash flow in order to meet our demand, in order, by the way, also to improve our gross margin in the future, because that will enable us to shift more to sea versus air shipment in the future, having the right scale of inventory. That's the way we think about it. Obviously, we're very sensitive, we're very cautious to cash flow, but this is a temporary, deliberate action by the company. And, you know, we do see that in the future, in the later future, we see ourselves, again, coming back to positive operating cash flow and positive free cash flow in the mid to long term.

Thanks for that. And then just to follow up, you know, historically it's been quite difficult to kind of break out beyond the $700 million in revenues for the year. You're almost there in 22. But, you know, as we think about 23, expand on the confidence you have in the product portfolio and, Any other levers you want to call out? Why is it different this time around? And you mentioned the 50% gross margin target. What's the expected timing of rebounding back to those levels? And are you seeing some evidence of consumables demand kind of accelerating? Thank you.

Thank you. If you ask, thank you for your question. I will divide my answer to two. First, I would like to start with the revenues. we are quite confident that we will pass the $700 million and more because we created the growth engine and we put them in place in the last two years. So we have the most innovative polymer technologies. We have a great, more than great, you know what, material platform that is open now, and we will keep strengthening this material platform and we'll see more revenues out of it. We have a very strong software platform and a service that is much better, plus use cases that will go one by one and conquer them. So we have a very clear five-year plan and we are very confident that we will be able to achieve it, including passing the $700 million, starting with the Origin and the TAP and the RPS. So we have plenty of room to grow. That's on the revenue side. Then if I look at profitability measure, as we said before, it would take us two to three years, but we'd be there.

Thank you. Our next question is coming from Troy Jensen from Lake Street Capital. Your line is now live.

Hey, gentlemen. Congrats on the nice results here.

Thank you.

Hey, guys. So I want to look at second half guidance here. If you kind of do the math, you're talking about a $21 million increase over – you know, last year's second half. So, you know, I'm always curious to know if the base business is growing. So with this $21 million increase, you know, how much of that is coming? I guess you won't tell me how much is coming from the new products, but are you assuming that your base business, your FDM and PolyJet, will be growing in the second half over last year's second half?

Hey, Troy. Did you hear me, Troy?

Turn it along, please.

Yes. All businesses are growing, in particular the hardware. The hardware is the driver. Look at our results today. 29% practically in retail, 33% growth in hardware. This is the driver for material and service. And it goes across the different technologies. So both the base technologies, FDM and PolyJet, and the new technologies are growing. And for me, the most important thing, they are growing in hardware. So we see more recurring revenues from this growth.

Perfect. All right, now my follow-up here is you provided us an update of your operating margin targets at double digits and long-term. I'm curious to know if you guys will avoid doing dilutive acquisitions while you guys strive for this higher level of profitability?

Hey, Fred. Thanks. That's a good question. So, obviously, you know, we're talking about, you know, two to three years to get to the double digits operating income. It will be a mix of doing the right thing for the company, but I can tell you, as I think I answered earlier, we really believe that our organic business today, like the platforms that we created, the technologies, the value proposition, those by themselves, as we grow, as revenue continues to increase double digits in the next year, will bring significant incremental operating profit and will get us closer to the double digits.

Thank you. Next question is coming from Wanzi Mohan from Bank of America. Your line is now live.

Yes, thank you. Good morning. You noted increased TAM now and resiliency in demand. You obviously kept your guide sort of outside of FX. I'm curious to hear a little bit about maybe what your customers are doing with the install base in terms of usage metrics. Maybe that can be a way for us to gauge what the demand looks like of your install base of systems. If you look at consumables growth, There was some deceleration, and I know some of the compares are strange. So maybe you can give us a sense what you're hearing from customers around intention in the back half of this year in terms of usage metrics. Are you thinking they're going to remain relatively consistent, or are you anticipating that to either increase or decrease in any significant fashion? And I will follow up.

Thank you for the question. Let's start with the long term, because this is what is really important here. What is really important is there is a shift from using our machines for prototyping with very limited utilization to using our machines for real production, even if it's low volume or personalized end-use parts, but it is real manufacturing, and we know that real manufacturing machines consume four to five times material than a prototyping machine. This is the essence of everything that we are doing here. And it's a long journey, but we are starting, we are reporting on it, as you know, every first quarter, and we are step by step making it happen, use case by use case, application by application, so it doesn't matter if it's dentures or crowning bridges, or a pre-surgical clinic, or ducts for automotive, or airplanes. This is exactly what we are doing. We identify the use cases where manufacturing can benefit from energy manufacturing, and then we come with the full solution, and we open the market together with our customers. And it will grow year over year, as we said, 20%, we committed to this, 20% year over year growth of this portion of our business. This is the big picture. Now when I'm looking at next, you know, the second half, who knows exactly what we'll have there. But what we do know is that we have five technologies, the largest in store base in the industry, very strong balance sheet, and we become more critical to our customers. So when we look at the inventory that we build up, their needs and the fact that they are consuming more material across five technologies, I'm optimistic that we are resilient enough for any market condition.

Okay, thanks for that, Yoav. And then... Maybe one for Etan. How much pressure are you currently experiencing from inflation on your gross margins? You're obviously seeing a nice uptick in revenue. You're signaling a lot of confidence in continued revenue growth, and you're getting back to 50% gross margins. Is it right to think that you have obviously positive operating leverage as you're getting increased volume on your revenues, but then the inflation pressures are more than offsetting that positive leverage in some ways. And so if we think about the bridge to get to your 50%, are you absorbing like 300, 400 basis points of growth margin headwind right now because of inflation, or are you expecting other levers to get you over the 50?

Thank you, Vamati.

So first, to answer your last part of the question, when we compare it to Q2 2021, we see roughly a 300 basis point impact, give or take. So 3% on our gross margin year over year. However, as you noted, there are a few things that we've done to compensate. One is the higher revenue. So scalability works on the gross margin as well. Higher revenue improves our gross profit with the fixed cost and so on. Second, we did increase prices. several times over the last year. So when we compare ourselves to Q2 2021, there was a price increase by us to mitigate, to offset the logistics, the inflation. And there's also the operational efficiencies. We try to be more efficient. The higher inventories, the higher production levels come with, make the cost per unit higher. naturally lower, and that's part of the scalability. And there's also the FX that has some impact on our gross margin. So when you aggregate all these together and we see we look one, two, three years ahead, the scalability, the higher revenues, and the combination of what I've mentioned should get us to the 50%.

Thank you. Next question is coming from Kira McCabe from Steeple. Your line is now live.

Oh, yes, thank you for taking my questions. My first question was on the slide of the J5 DentaJet. You mentioned that you're seeing significant dental sales, particularly in EMEA. I was wondering if you could provide any other color on demand in the dental area in the regions, North America, Europe.

Thank you for the question. We are building stronger dental portfolio in additive manufacturing. And we can do it because we have five technologies, very strong portfolio of materials, and deep knowledge and expertise in dental historically. And we are now leveraging it. We have a portfolio both in DLP and in polygen, and the polygen is disruptive. The ability to print everything, every different application on the same tray, plus the ability to do it fast and with different materials. This is very unique and disruptive in the market. This is the PolyJet. Then we have the DLP, which I believe the best part and the best accuracy in the business. And actually the RPS, which is a serolithography large format that will help us to get into the aligners business and other dental applications. So what we are focusing now is on building the material portfolio that will go with those three technologies, supporting them with application engineers and unique service offering. We started to build a unique service offering. It's not like our regular service. And when you put everything together, the speed, the yield, the quality that we will be able to provide to our customers, plus disruptive solutions that you will see in the future, really disruptive solutions that you will see in the future that we are working on it, Ivory will be a leading player in dental offering, starting with the DentalJet.

Great, thank you. And my follow-up question was on the slide on non-GAAP solutions. You guys are seeing very good improvement in the service gross margins sequentially and year over year. Just kind of wondering if you could provide any color on what's really driving that improvement in the service gross margin.

Thank you. The improvement on gross margin in the service is driven by price increase that we've generated as well as deals that came with better gross margin that more and more politically impact our gross margin on service. These are the two main elements that improve the gross margin on the service business.

Thank you. Next question is coming from Brian Drab from William Blair. Your line is now live.

Hi, thanks for taking my question. I was wondering if you could, uh, maybe give a little more color on MakerBot, um, just to help us model, um, help everyone model, uh, you know, you said immaterial impact on revenue. Um, I'm just wondering, you know, what, what, what is the definition of material in this case? And, and, uh, you're going to see that revenue come out of the, since you're reporting the equity method, come out of your top line. So can you give us any more color on that? And also, what does that do for profitability? I imagine that has at least, I guess maybe you're going to say it's immaterial, but a small step up in margin after this move.

Thank you, Brian.

As we mentioned previously, we're waiting for the deal to close and the timing of the deal close will impact our results for the rest of the year. So bear with us. We'll get back to you after the deal closes and we'll update on the numbers. However, to one of your comments, one of your points, And the makeable business, the exclusion of the makeable business will improve our margin for the rest of the year.

And just irrespective of the timing of it, you can't comment on how generally, you know, how this business is doing, the level of revenue?

Not at this time, but we'll update later.

Thank you. Our next question is coming from Ananda Barula from Loop Capital. Your line is now live. Hey, thanks guys for taking the question.

Yeah, just two quick ones if I could. Can you talk about where you're still seeing the supply constraints the most? And then I have a quick follow-up. Thanks.

Hi, Ananda. Thank you. No, nothing new here. Lockdown in China is still there. Some releases here and there. traffic jams in U.S. ports, and overall a shortage, mainly in electronics, and some raw materials because of the war. So, you know, it's usual suspects, I would say. And we are working strongly with our team. I want to thank my operations team. We didn't miss a penny this quarter, despite the fact that it's a war out there in supply chain. We are investing in increasing the inventory. We are willing to pay in order to deliver, to pay and leverage our strong balance sheet in order to deliver value on time to our customers and ensure that we can supply them. I believe it will release gradually because it's part of the cycle.

And would you consider, that's a really helpful context, and Would you consider the supply, like sort of collectively things to be easing at all yet?

Not yet, but our expectations by the end of the year will see it becoming easier. And, you know, I'm optimistic. I have an optimistic nature. It's good for every manufacturer. So look on the bright side.

Thank you. We've reached the end of our question and answer session. I'd like to turn the floor back over for any further or closing comments.

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

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.