This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.
spk06: Greetings and welcome to the Stratasys Limited first quarter 2023 earnings call. At this time, all participants are on a listen-only mode. A brief 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. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Yonah Lloyd, Chief Communications Officer and Vice President of Investor Relations. Thank you. Please go ahead.
spk00: Good morning, everyone, and thank you for joining us to discuss our 2023 first 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 2022 year. Please also refer to our operating and financial review and prospects for 2022 and for the first quarter of 2023, which are included as item 5 of our annual report on Form 20F for 2022 and in Exhibit 99.2 to the report on Form 6K that we are furnishing to the SEC today, respectively. Please also see the press release that announces our earnings for the first quarter of 2023, which is attached as Exhibit 99.1 to a separate report on Form 6K that we are furnishing to the SEC today. Our reports on Form 6K that we furnish to the SEC on a quarterly basis and throughout the year provide updated current information regarding our operating results and material developments concerning our company. Stratasys assumes no obligation to update any forward-looking statements or information which speak as of their respective dates. As in previous quarters, today's call will include GAAP and non-GAAP financial measures. The non-GAAP financial measures should be read in combination with our GAAP metrics to evaluate our performance. Non-GAAP to GAAP reconciliations are provided in tables in our slide presentation and today's press release. I will now turn the call over to our Chief Executive Officer, Dr. Yoav Zayt. Yoav?
spk02: Thank you, Yonah. Good morning, everyone, and thank you for joining us. Before I discuss the business highlights, I would like to comment briefly on the three unsolicited proposals we received in recent months from Nano Dimension to acquire strategies, initially for $18, then $19.55, and subsequently for $20.05 per share in cash. As previously announced, consistent with its fiduciary duties and in consultation with its independent financial and legal advisors, the Stratasys Board carefully reviewed and evaluated each proposal. Following each review, the Stratasys Board unanimously rejected all three proposals, because they eat substantially undervalued strategies in light of the company's standalone prospects. As we have articulated previously, Nano is in the midst of multiple lawsuits with its shareholders involving the control and governance of the company. And as a result, serious questions remain about the legal legitimacy of the Nano offer. The strategies board and management team are committed to enhancing shareholders' value and continue to successfully execute on the company's growth strategy. We are making strong progress towards becoming a highly profitable $1 billion revenue company. As part of its fiduciary duties, the board will review any bona fide proposal for the company and weigh it against our standalone plan. We are not going to comment further on this matter today. We appreciate you keeping your questions focused on our results, as the focus of this call is our performance for the quarter. Our excellent results for Q1 2023 represent another consecutive quarter of solid performance, despite an increasingly challenging macro backdrop. we continue to execute on our winning strategy, driven by our broad, global, and diverse set of systems, materials, and software solutions. With our leadership position, our five key technologies, resilient business model, and strong financial profile, we believe we are positioned to accelerate growth and drive shareholder returns, not only for today, but also for years to come. Our confidence is reflected in the medium-term focus we are announcing today. Eitan will provide further details during his remarks, but we expect to surpass $1 billion in revenue in 2026 with substantial profitability. In terms of our first quarter results, we are seeing stronger utilization by our customers than ever before, which drove all-time record revenues in both consumables and customer service. As we have noted in the past few earnings calls, macro-related pressure on CapEx budgets are causing longer sales cycles and occasional deferrals of orders. Our OEM revenue was relatively flat to the first quarter of last year, adjusted for FX and divestment, primarily due to the impact of those factors on hardware purchases. The manufacturing trends of on-shoring, deglobalization, and just-in-time production are driving opportunities for growth. Stratasys is positioned to take advantage of these opportunities given our combination of proven market leading system in FDM and PolyJet, new technology offerings in P3, SAP, and stereolithography, the broadest set of polymer materials in the industry, a unified software platform across the portfolio, and unmatched go-to-market capabilities. Along with our robust balance sheet, This sets us apart and will enable us to sustain our organic growth and expand our reach via the pursuit of external opportunities. Engagement with both our installed base and new customers remains strong. We continue to expand our customer reach across our entire suite of technologies, particularly targeting manufacturing applications. We have demonstrated a resilient and recurring business model that delivered gross margin this quarter that were flat compared to the year-ago period, and also kept OPEC spending as a percentage of revenue nearly flat to the corresponding period last year, even with a reduction in revenues. As a result of our effort, and despite the headwind faced, I'm proud that we delivered positive adjusted earnings per share for the seventh consecutive quarter. Our vision for the future of additive manufacturing, and in turn, our ability to deliver greater returns for our shareholders is more robust than ever. We ended the quarter with a strong balance sheet that includes no debt and $288 million in cash and equivalents. This continues to support our growth through organic investment and accretive acquisition opportunities, including early stage but highly compelling technology-driven businesses, which we believe will improve results as we leverage our infrastructure and experience to strengthen operations. Now, let me turn to the exciting achievements and milestones reached since the end of 2022. In February, we introduced the first monolithic, multicolored 3D-printed dental solution through our prudent resin. our first ever FDA-cleared medical device. As a reminder, dental overall is a 50 billion tom and is fast-growing industry for additive manufacturing. The TrueDent solution enables labs to create permanent, natural-looking dentures with accurate tooth structures, gum, shade, and translucency in one continuous print. The resin is designed for exclusive use in our J5 Dentajet printers using GrabCut print software and provides Dental Labs the ability to scale manufacturing with simplified workflow and reduce processing time. To deliver the best quality dentures available in the market today, we already have several new customers and many of the largest dental labs are actively evaluating the solution. In February, we launched the new J3 DentaJet printer, opening up more opportunities to strategists, such as implant models and surgical guides for dental labs. It recently received an excellent reception at the dental industry's largest ratio. Our superior accuracy provides an entry point for customers ready to step up from lower quality solutions. One of the world's largest dental labs said it tripled its daily production volume with the J3 relative to the previous system. Moving to our medical highlight, in February, we signed an agreement with Ricoh USA to provide on-demand 3D printed anatomic models for clinical settings. Our patient-specific 3D printed solutions combined our 3D printing technology the cloud-based segmentation as a service solution from Axial 3D and precision additive manufacturing service from Ricoh into one convenient solution. This represents an expansion of the relationship between Ricoh 3D for healthcare and Stratasys. After quarter end, we forge a joint development and commercialization agreement with ColdPlant Biotechnologies. to transform healthcare with industrial scale bioprinting of tissues and organs. The initial focus of the relationship will be around development of bioprinting solutions for cold plants, regenerative breast implants. A 2.6 billion opportunity. Further, the combination of our P3 technology-based bioprinter with their RH collagen-based bio-ink is also ideal for future innovation and production of additional human tissues and organs. Both companies agree to cross-promote our respective bioprinting products. On the industrial side, in March, we secured a multi-system opportunity with Goethe's Maschinenbau for our mass-production H350 printers. The sales involve four additional systems to help the German Service Bureau meet growing demand for high-quality end-use parts. Getz is already a valued partner that also deploys FDM and Polygest-based Stratasys printers. In addition, in early April, we closed the acquisition of Covestro's additive manufacturing materials business. which expands our differentiated 3D printed material offering in stereolithography, DLP, and powders to address more manufacturing industry applications. Covestro is expected to be immediately accretive and includes R&D facilities, global development, and sales teams, and a portfolio of 60 materials for additive manufacturing. Together, we will be able to address more applications faster pushing the boundaries of what is possible in additive manufacturing. We are also growing our focus on adding value for customers while increasing recurring revenue through significant software enhancements. Last month, we introduced GrabCat Sprint Pro, which provides a major productivity boost for our customer. The initial rollout is for our SAF and FDM systems. applicable for end-use parts and production scale volumes, tooling and prototypes. We plan to make this software update available across our other three technologies as well. The annual subscription package includes quality management capabilities from our Riven acquisition, as well as added functionality from third-party partners. three value-add plug-in partners available in the initial release. As we continue growing our ecosystem, our Castor, AlphaStar, and Cognitive Design System. These advances in software are helping Stratasys integrate into scaled-up Industry 4.0 infrastructure. In fact, the Advanced Manufacturing Research Center at the University of Sheffield has been able to successfully incorporate Stratasys data into its factory-plus architecture right alongside CNC machines, robot arms, and other mainstream factory equipment. In addition, Stratasys expansion into software is helping drive opportunities with systems and materials. Our previously announced OpenAM software is now widely available to customers. and we are seeing it help unlock Fortus 450 printer opportunities with manufacturing customers that are interested in FDM for end-use part applications due to the greater flexibility it provides in materials selection. That is also a key driver of customers' interest in Origin 1 printers as well. Our technological innovations best-in-class sales channels, and key partnerships are contributing to our effort to build on our meaningful foundations for growth that will drive our industry leadership for the long term. I will now turn the call over to our CFO, Eitan Zamir, to share the financial results, update our outlook for the rest of 2023, and outline our medium-term forecast. Eitan?
spk01: Thank you Yoav and good morning everyone.
spk02: As Yoav mentioned, we achieved solid results against the increasingly challenging macro backdrop in the quarter. We are particularly proud of how we held the line on both growth and operating margin, maintaining profitability in a challenging environment due to the right infrastructure and tight objects management. and we continue to drive efficiencies across the platform. Our results demonstrate the resilience that our diversified offering provides. Despite the expected slowdown in new printer sales, we saw continued utilization of our systems by our customers, driving record recurring revenues from consumables and customer service, helping us deliver our seventh straight quarter of adjusted profitability. Now let me dive deeper into the numbers. For the first quarter, consolidated revenue of 149.4 million was down 2.6% compared to Q1 2022. Adjusted for the investitures and at constant currency and down 8.6% compared to the unadjusted revenues. Revenue in our OEM business, which excludes Makeabot as well as FDM, was down 0.9% at constant currency from the prior year period. Product revenue in the first quarter declined by 10.7% to 101 million compared to the same period last year. or by 5.1%, excluding divestitures and on a constant currency basis. Within product revenue, system revenue declined 25.8% to $40.5 million, compared to $54.5 million in the same period last year. Excluding divestitures and on a constant currency basis, revenue was down 19.2%. Consumables revenue rose by 3.3% to 60.5 million compared to the same period last year, rose by 5.2% on a constant currency basis, and grew by 7.5% in our OEM business at constant currency. This represents a record level for Stratasys and signals that utilization rate of our systems we have sold are strong. Services revenue, including SDM, was 48.4 million, down 3.9% as compared to the same period last year. After backing out SDM, it was up 2.4% and up 3.9% at constant currency. And our customer service revenue was the highest ever, a further testament to the growing utilization rates of our system. Within service revenue, customer support revenue grew 4.9% compared to the same period last year, and increased by 6.4% on a constant currency basis. Now turning to gross margins. GAAP gross margin was 43.8% for the quarter, compared to 42.6% for the same period last year. Non-GAAP gross margin was 47.3% for the quarter, flat compared to the same period last year. Our ability to hold gross margin unchanged despite the decrease in revenue is a testament to our relentless focus on cost savings across the platform. Gross margins also benefited from the divestment of Makeabot last year. partially offset by the FX impact. Gap operating expenses were 82.2 million compared to 89.3 million during the same period last year. Non-gap operating expenses were 69.2 million compared to 75.3 million during the same period last year. Non-gap operating expenses were 46.3% of revenue for the quarter. compared to 46.1% for the same period last year, as we continue to focus on operational efficiency improvement. We continue to efficiently manage our costs, delivering relatively low OPEX despite the lower revenue, reflecting the scalability of our model. Regarding our consolidated earnings, GAAP operating loss for the quarter was 16.8 million, compared to a loss of 19.6 million for the same period last year. Non-GAAP operating income for the quarter was 1.5 million, compared to 2 million for the same period last year. The change reflects the decline in overall revenue, offset somewhat by 8.2% improvement in non-GAAP OPEX. GAAP net loss for the quarter was $22.2 million or $0.33 per diluted share, compared to a net loss of $20.9 million or $0.32 per diluted share for the same period last year. Non-GAAP net income for the quarter was $1.1 million or $0.02 per diluted share, compared to a net income of $1.2 million or $0.02 per diluted share in the same period last year. This was our seventh consecutive quarter of delivering positive net income on an adjusted basis. Adjusted EBITDA was $7 million for the quarter compared to $8.1 million in the same period last year, which reflects a flat result year over year on a percentage of revenue basis. We used $17.9 million of cash in our operations during the first quarter, compared to the use of 16.1 million of cash for operations in the same quarter last year. The use of cash was primarily driven by increased inventory purchases. We expect our inventory levels to decline in the back half of the year, contributing towards returning to positive cash flow for operations for 2023. We ended the quarter with $287.6 million in cash, cash equivalents, and short-term deposits, compared to $327.8 million at the end of 2022. Our balance sheet and cash generation remain strong. Specifically, we are well-capitalized and well-positioned to capture value-enhancing market opportunities as they are identified. Now let me turn to our outlook for 2023 and the medium term. We expect the ongoing challenging macro backdrop to most likely persist for much of 2023, continuing to cause delayed purchases, longer sales cycles, and overall inflationary and recessionary concerns, reflecting in buyers' behaviors. Based on our first quarter results and current visibility of our end markets, we are updating our fully revenue guidance as follows. We are raising the low end, narrowing the range, now expected to be between 630 to 670 million with sequential quarterly revenue growth. While we are still experiencing continued softness in the second quarter, we expect that we will see notably higher growth in the second half. From a growth margin perspective, we continue to expect full year 2023 to be in the range of 48 to 49%, with improved year-over-year growth in the second half of 2023. We expect our margins to get back over 50% next year. In 2023, we expect our operating expenses to be in the range of approximately 290 to 300 million. We continue to expect non-GAAP operating margins to be in a range of 2.5% to 3.5% for the full year. In the medium term, we expect non-GAAP operating margins to achieve double digits as our growth plan unfolds. We anticipate a gap net loss of 78 to 57 million, or $1.12 to 83 cents per diluted share, and a non-gap net income of 9 million to 17 million, or 12 to 24 cents per diluted share for the full year of 2023. Adjusted EBITDA is expected to be in the range of 35 million to 50 million for the year. Capital expenditures are expected to range between 20 to 25 million for the year. We would also like to provide our expectations for some key annual financial metrics over the medium term. Starting in 2024, we expect to achieve non-GAAP gross margins above 50%, and we plan to deliver positive free cash flow. By 2026, we expect our revenue from organic growth to surpass $1 billion, with adjusted EBITDA margins over 15%, driven by our innovative growth engines as we penetrate further into manufacturing and healthcare applications. Please note, these are medium-term expectations, and we believe that as revenue continues to grow, the longer-term results will be even stronger. We are encouraged by the level of engagement with our customers, remain confident in our growth potential, and we will 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? In closing, Even as we navigate today's dynamic environment, the outlook for our customers' appreciation and adoption of 3D printing continues to grow. We have positioned the company to execute in challenging times and to lead through an expanding portfolio of hardware, materials, and software solutions as the shift to additive manufacturing at scale accelerates. We are being brought into customer opportunities as a strategic partner at higher level than in the past because the demand to bring product to market faster, to reshape supply chain, and to give consumers more personalized products are very real. And we have proven our value with leaders across industries like TE Connectivity, the Mayo Clinic, NASA, and Toyota. Our relentless focus on execution and continued investment for growth and ongoing profitability is expected to drive relative outperformance and enhance shareholder value. With that, let's open it up for questions. Operator?
spk06: Thank you. The floor is now open for questions. If you would like to ask a question, please press star 1 on your telephone keypad at this time. 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 the handset before pressing the star keys. We do ask that you please limit yourself to one question and one immediate follow-up. Again, that's star 1 to register a question at this time. The first question today is coming from Shannon Cross of Credit Suisse. Please go ahead. Thank you very much for taking my question.
spk07: I'm, I'm curious as to your a billion dollar target. Um, I remember, I mean, this, this industry has set targets in the past and then not achieved them and it's caused volatility to say the least. So I'm, I'm curious, can you give us more specifics and granularity behind how you came to that target number? Um, you know, I don't know, mix of revenue or. Just generally, what gives you confidence that you're going to be able to achieve it? Thank you.
spk02: Hi, Shannon. Thank you for the question. We are quite a structured company. Nothing that we are saying on this call is based on something that we envisioned yesterday. We have long-term planning based on a three-year strategy, and we think that quarters are very important. And that's why we are delivering quarter after quarter above the expectations. But more important is the long-term foundations. And that's what we are building in Stratasys. And that's why we are confident in putting outside a target of $1 billion with double-digit operating income, with above 50% gross margin, with above 15% EBITDA. It is based on the foundations that we have built and keep building for the last three and a half years. And they are very clear growth drivers. It's the new technologies. We are, yes, we are number two or three in each one of the new technologies, which is remarkable to do it, to achieve it in two years. But there is still so much room to grow there. New NPIs with our core technologies. You know, the FDM. We are going to introduce Amazing new technology is there. The materials position, which cement our profitability, and Covestro is a good example. The use cases that we are introducing, like the true dent, the fashion, the tooling, the automotive end-use files, the software. And when we are talking about software, we are talking about monetizing software, because we are building, and maybe we'll have time later to elaborate on it, but we are building unique software platform, which is open and delivering added value to our huge install base, and the bioprinting. When you put all this together in a five-year plan, and of course we are not going now to get into the details, we get to the $1 billion with high level of profitability.
spk07: Okay. Thank you. And then can you talk a bit more in the near term on consumables? You know, it was a pretty tough compare. You did better than expected. Can you talk about how usage is changing? How much of this is, you know, the pricing of materials versus utilization, P times Q, certain verticals that maybe are using more materials? Just wondering, you know, what's driving that? Because I assume consumables are a pretty important part of the $1 billion as well.
spk02: It's an essential part of the 1 billion, an essential part of the profitability. And the main drivers are mainly utilization and the move to manufacturing. Since we are reporting every end of the year how much of our overall sales went to end-use parts, to manufacturing, we can see this growth year over year. And this growth drives the utilization because a machine that is being used for end-use parts has a completely different unit economics in terms of consumables than a machine that is being used for prototyping. And a good example is the dental. This is end-use parts, high level of consumption, and add to it the Covestro portfolio that is match, fantastic match to what we have now in terms of our hardware portfolio, We are very optimistic on the consumption going forward of material. And also, you know, this quarter we saw an increase in FDM and origin material in manufacturing. And it's also a reflection of our strength as a company, given the hardware, the significant hardware sales in 21 and 22. You can see that our customers are buying our machine and they are using it. It's a long-term investment. It's reliable, and it's a testimonial that we are delivering value. Both in many, many different verticals, auto, aero, those are the big consumer of our materials.
spk06: Thank you. Thank you. The next question is coming from Troy Jensen of Lake Street Capital Markets. Please go ahead.
spk03: Hey, gentlemen, first of all, congrats on a good Q1.
spk01: Thank you.
spk03: Hey, so I guess could you first of all confirm Covestra and timing? I guess I'm curious if there's any material revenues from them in Q1 and what you think that's going to contribute for the year on quarterly basis.
spk01: So Troy, thanks for the question. We closed the deal in early April. So no contribution whatsoever in Q1. However, Q2 onwards is going to have the full impact of Covestro into our business. It's largely consumable.
spk03: Perfect. Ideally, guys, we'd love to see organic growth of materials going forward. This is such a key focus area for you guys on the profitability. But just a thought or something to think about. But my other question would be, The H350, I saw the nice comment about the multi-shipment customer. I'm just curious. I know you've got others in there also. Could you just maybe quantify or talk about the status of H350 in multi-customer units?
spk02: Yeah. Thank you for the question. H350 is a fantastic machine, and it's focused completely... I would say 99% on manufacturing end-use parts for professional users. And a great example is Getz Maschinenbau, the large service bureau in Germany that bought one and then another four. Four end-use parts, many of them, by the way, to automotive. However, it's a complex system that you need to be a professional, and we are doing a very... conscious rollout of this machine. The staff is deliberately, we have a slow ramp up to make sure that our customers are happy and we are delivering the promise both on the quality of the part and not less important, the cost per part that we believe we have the best position in the industry with it. And giving the plans rollout, we expect significant better units out there in H2 because the way we are rolling it out and also because of the funnel that we are seeing now.
spk03: Perfect. All right, guys. Good luck. Keep up the good work.
spk01: Thank you. Thank you.
spk06: Thank you. The next question is coming from Greg Palm of Craig Hallam Capital Group. Please go ahead.
spk04: Hey, this is Danny Egerich on for Greg today. Congrats on the good results and thanks for taking the questions. I guess I'll just start with kind of what you're seeing out in the market right now from a demand perspective. You know, obviously you and certainly some of your peers noted, you know, customer push outs, maybe some increased uncertainty. So I guess what have you seen over recent weeks and with raising kind of the floor on your guidance there, what gives you confidence in hitting that range and maybe more specifically what kind of visibility you have in the second half?
spk02: So I don't need to share with, you know, the listeners that it's – interesting microeconomic condition for everyone in terms of growth, GDP growth, interest rate, inflation, everything. But luckily enough, 3D printing helps our customers to do better in this environment. And therefore, we see high level of engagement, especially with T-Suite, managers and executives, the engagement is high. We had, over the last two quarters, some challenges with the sales cycle, which is longer, but we are starting to see that the sales cycles are somehow balancing, and we see better top of funnel demand. And that's why we are confident about H2. And that's why we raised the guidance. Otherwise, we wouldn't do it. So overall, challenging environment, but strong demand with better top of funnel leads and somewhat balanced sales cycle.
spk04: Okay, that's good. Maybe just switching to OpEx operating leverage was pretty strong in the quarter. OpEx came in a bit lower than expectations. So you reiterated the full year guide for OpEx and I guess that implies a step up throughout the remainder of the year. How should we think about OpEx and Q2 and maybe the cadence throughout the year going forward?
spk01: Thank you, Danny, for the question. As you noted, we reiterate the OPEX guidance for the full year while we increased the 620 to 630 on the revenue.
spk02: That's part of our, I believe, the day-to-day management of the business. We're very tight on OPEX. We've built throughout the year the right infrastructure to leverage the growth with minimal to no increase in OPEX. Now, the addition of Covestro starting Q2 will add a small OPEX because it comes with, naturally, the employees and the business. But overall, our infrastructure is built and structured in a way to keep lower, as we grow, lower OPEX as a percentage, as we demonstrated this quarter, even with lower revenues.
spk04: Okay, great. I'll leave it there. Thanks.
spk06: Thank you. The next question is coming from Ananda Barua of Loop Capital. Please go ahead.
spk08: Yeah, hey, good evening, guys. Good afternoon, at least. Hey. Thank you for the question. Hey. Two, if I could, on the denture business, congrats on getting the product out the door.
spk07: How –
spk08: How do you see the velocity of the ramping potential there, philosophically?
spk02: Thank you for the question. Dental will be huge for us. Will be huge for us. And we are focusing on a specific segment in dental which we believe is the right one for us because of our capabilities and also because of the potential, which is the restorative dental use cases. So people have to buy it. And what we are offering here with our dentures solution is a disruption to the current market. It's a complete disruption to the market. We're talking about overall dental, a $50 billion market with only the dentures, $5 billion market, which currently is labor-intensive. And we are bringing a solution which is simple, higher quality, better aesthetic, you know, with a click, practically. And it's only $5 billion in the U.S., put aside, where we have the FDA approval, put aside the rest of the world. And we'll start to see initial revenues in H2, because we are building it step by step, building the foundation showcasing it, making sure that dentists build the confidence around it. By the way, we are saving them between one to three visits. Think about the dentist that is sitting in his clinic and suddenly because of our solution, he needs to see the patient one to three times less than on average. So we ramp it up during H2, expect significant impact in 2023, sorry, at the end of 2023 and 2024, and we are keep innovating here. It's not the last product that we are going to introduce with this unique resin and unique J5 dentages.
spk08: Thanks for that. And what, like, I guess when we think geographic-wise, sounds like you're starting in the U.S., what's the... I guess, is there a plan for a European rollout and other geographies, and what would the timing of those be?
spk02: Definitely, no doubt, we have a global expansion plan. The next one is Europe. And not too far from now. And then Asia, of course. The market is there. It's a global plan.
spk08: Awesome. I appreciate it. One last one there. How do you guys, like what's the sale, what's the sort of into-market selling process look like there? Do you have sort of specialty salespeople or are you sort of plugging into the dental equipment market? Thanks.
spk02: So we have a combined plan of go-to-market with different channels, multi-channel plan for the dentures. It's starting with building the confidence through dental labs with a very amazing traction from their side. Then we're also going to work with institutions or those consolidators of clinics in the US and the rest of the world. We have also our own go-to market because it's such a specialized product. And we are exploring business development opportunities currently with the largest distributors in Delta. And it's a combination of the four.
spk08: Thank you. Thanks so much.
spk06: Thank you. The next question is coming from Brian Drab of William Blair. Please go ahead.
spk05: All right, good morning. This is Blake Keating on for Brian. I just wanted to ask, you guys have talked a lot about the strength that you're seeing in dental, but across other end markets, what markets are you most excited about and what other end markets could you potentially see a pullback if this type of macro environment continues longer than you expect?
spk02: Thank you. Thank you for the question. It's a great question. Because our problem is where to focus. We see so much enthusiasm across different verticals. And we are so strong in many of them. Just lately, I can share that we had fantastic results with government slash aerospace. Fantastic results. We see demand growing in automotive, we see the fashion business, and of course, the dental. But for us, the strongest one are automotive and the aerospace, then dental, and of course, we're also very optimistic about regenerative medicine. Down the road, three to five years, not now, but we are building a unique position with our partners, Coltland. If I'm trying to summarize, aerospace, automotive, medical, dental, medical is the patient-specific solution, and also fashion.
spk05: Got it, thank you. And then on your new products, you again talked a lot about dental, but where else are you seeing a lot of strong demand for new products? And then if you can give any color on maybe the last few years of new products that have been introduced, what they're contributing now to revenue or growth. How should we think about that?
spk02: We don't share it, the specific data pair product, but I can share that since I joined, we replenished the portfolio. Literally, you can go to any trade show of strategies and you can see that most of the things that we are selling are new, like our leading machines In PolyJet is J55 and the J3, which are completely new. And if I go to FDM, then we introduce the new carbon fiber machines. And of course, the three new technologies, which are well-selling. And we see significant demand both for the Origin and the RPS, the liquid resin solution. And now, together with Covestro, I'm very optimistic. But put all this aside, we are focusing on use cases, use case by use cases. And this is a completely new strategy that we started only two years ago, and it works. We see new use cases in automotive. We see new use cases in aerospace, like drones. We see new use cases with our origin, with injection molding replacement, and so on and so forth.
spk05: Got it. Thank you. I'll pass it along.
spk06: Thank you. The next question is coming from Jim Rusciutti of Needham & Company. Please go ahead.
spk09: Hi. Thank you. Question just on the targets that you're sharing with us today for 24 for gross margins and then your medium term targets. I'm wondering what kind of assumptions are you making for manufacturing? which I guess was what, about a third of the business at the end of last year. What kind of assumptions do you make for 24 and looking out for the medium term target for 26? Thank you.
spk02: Yeah. Thank you, Jim, for the question. So as you mentioned, the starting point as of end of 2022 is that one third of the business is coming from end use cases or manufacturing.
spk01: We don't share for the future the specific percentage, but we expect it to increase significantly, and that will drive the very positive impact of consumables on our growth margins. That's a significant portion of the increase to the 50% plus on the growth margin.
spk02: Together with scale, keep in mind that Covestro that we've just acquired come with high growth margins. So the combination of our journey to manufacturing, of the scale, of the software that comes with probably the highest growth margin out of the different streams, the combination of all these will bring us to the 50% plus growth margin.
spk09: That actually is a segue to the next question. I wonder if you could talk a little bit about the progress you're making in the software business and how we should be thinking about this business over the next one to two years.
spk01: Hey, Jim. Thank you for the question.
spk02: We are making significant progress in software. It took us a while because we have invested for the last two years in a new platform, but we have a very unique approach. Very unique, because we are not focusing on the MES part of the business. We are not going to be the one managing the whole manufacturing enterprise. We are focusing on an AM platform, making sure that we deliver to our customers the ability to manage the entire digital thread of his additive manufacturing workflow. So that's what we are doing. And we opened it up from both sides, to the printers, but also to the partners or added value partners that we just announced lately, some of them. But we are building an ecosystem. What does it mean? And by the way, this is something that I saw three years ago and I was surprised to see that to print a part, You need to use between three to six different softwares and you need to save export, import, it's so cumbersome. It doesn't make sense. So we are solving it. We have one platform across our technologies and this one platform allow the customer to sit on one screen and manage his additive manufacturing operations. It's very unique to us and the way we do it, we have a basic solution based on the GrabCut print. We have a basic solution, and then we have packages that we add to it. Only now we introduce the GrabCut print, but stay tuned, we will have more products like this. With basic and additional added value, and we are going to monetize it because it's such a big opportunity. It's, you know, the smart actor said that it's about $3 billion in the next two, three years. But that's not the most important thing. The most important thing is that it will scale added in manufacturing and will allow to use it in manufacturing. And we have a very unique position here because we produce the system. So we have access to the logs. We know exactly what the customer needs and how to deliver it to him in the best way. We have the largest install base. which allow us to create this ecosystem because many other companies that are needed and are working on their solution need the access to the install base. And we have the best operating system, the GrabCAD, across all our technologies. And we heard from our customer, we want to be on one system. We want to be on one system. So I'm very optimistic about our software, but again, it's building foundations. I started talking about this, about building foundations. And once you build a foundation, you see that our customers are utilizing the machines, and you can see record use and consumption of our material. This is the plan. Build a foundation and deliver value to our customer in the long term. How will material software service and use cases? And it is working.
spk09: Thank you.
spk06: Thank you. That brings us to the end of the question and answer session. I would like to turn the floor back over to management for any additional or closing comments.
spk02: Thank you for joining us. Looking forward to updating you again next quarter.
spk06: Ladies and gentlemen, thank you for your participation. This concludes today's event. You may disconnect your lines or log off the webcast at this time and enjoy the rest of your day.
Disclaimer