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spk03: Hello, and welcome to the Stratasys Q3 2023 Earnings Conference Call and Webcast. If anyone should require operator assistance, please press star zero on your telephone keypad. A question and answer session will follow the formal presentation. You may be placed into question queue at any time by pressing star one 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, Chief Communications Officer and Vice President, Investor Relations. Please go ahead, Yonah.
spk00: Good morning, everyone, and thank you for joining us to discuss our 2023 third 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 Stratus' 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 third quarter of 2023, which are included as item five 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 third 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 Zeif. Yoav?
spk05: Thank you, Yonah. Good morning, everyone, and thank you for joining us. Before going to our business update, I'd like to comment about the situation in Israel. Israel is home to about 25% of our employees who have been performing in an exemplary fashion during the war. Whether it be serving the country or maintaining our business, there has been no fundamental impact on our operations. And our factory and offices have been open throughout. We are proud of our employees and the spirit of our country during these difficult times. Before I turn to the third quarter results, as you may have seen this morning, we announced that Aris Kekagian was appointed to our board of directors, effective immediately. Aris is a seasoned executive with more than 30 years of leadership experience, and we are pleased to have him bring expertise across business development, M&A, and operations of complex cross-border businesses at scale. As always, our board is committed to ongoing refreshment and continues to take steps that will enhance value for our shareholder. Ari's appointment follows Ziva Patir's decision to step down from Stratasys board following 10 years of service as a director. We are grateful to Ziva for her commitment and many contributions to the company and wish her all the best. And for the third quarter, we accomplished our results against the ongoing challenging global macro backdrop that is marked by slower growth, higher interest rates, and constrained capital spending. During the third quarter, we achieved record recurring revenue from consumable sales, reflecting solid utilization of our printers and demonstrating our resilient business model and financial profile. Customer demand and our engagement with both our installed base and new customers continues to be stronger than ever. The results show that our customer recognize our unique combination of industry leading polymer technologies, the broader set of polymer materials, a unified software platform across the portfolio unmatched go-to-market capabilities, and excellent customer service. And we continue to invest and innovate to stay at the forefront of additive manufacturing while growing the business across our end-use segment. Our portfolio of technology offerings continues to expand with particular focus on manufacturing applications. We deliver results comparable to the year-ago period for revenues, non-GAAP margin, and adjusted EBITDA, despite the increasingly challenging environment for capital spending for our customers adding into year-end. Additionally, we kept non-GAAP OPEX costs as a percentage of revenue flat relative to the year-ago period. As a result of our effort I'm proud that we delivered positive adjusted earnings per share for the ninth consecutive quarter. And to help further improve profitability going forward, we recently divested two lower margin, unprofitable businesses from our strategies direct service bureau. This is expected to reduce 2023 revenue by 5 million, but help improve profitability and focus in 2024 and beyond. We ended the quarter with a strong balance sheet of 185 million in cash, equivalent and short-term deposits, and no debt. This continues to support our ability to grow through combination of organic investment and accretive acquisition opportunities that will further our strategic objective to be the leading provider of additive manufacturing solutions. Our vision for the future of additive manufacturing and our leadership position in this industry is more robust than ever. Now let me touch on some of our recent business highlights and milestones. On the industrial side, I want to highlight the launch of our very exciting and innovative F3300 just last week at Formnext. The F3300 is up to two times faster than other polymer filament printers available today. This inaugural edition of our new FDM enterprise platform family is custom built specifically for manufacturing. Significant advancements in speed, reliability, and operating efficiency demonstrate our continued commitment to innovation and will bring greater economic advantage to existing users and open up new application opportunities. The increased speed of the F3300 stands out relative to any other polymer filament printers available today, with increased gantry speed and material extrusion. It also offers up to 45% cost per part reduction compared to existing solutions. It is loaded with sensors, which will over time provide part and print data collection capabilities to support foreseeable usage around quality and predictable outcomes. The F3300 Initially planned for commercial availability during the fourth quarter of 2023. Is now planned for the first half of next year. As a reminder, Stratasys invented FDM over 35 years ago. It is the world's most popular 3D printing technology. And we lead across aerospace, automotive, and defense applications. This new F3300 platform was developed with tremendously valuable input from many of our customers over the last several years, tailored to address their production requirement. This program included Toyota, who we announced has become our first F3300 customer. The F3300, together with our other manufacturing solutions, such as H350 Soft and Origin P3, a production-oriented system that will expand our addressable market, facilitate growth, and drive our continued leadership. Turning to some customer success from our industrial business. We are appreciative that the US Army Picatinny Arsenal further demonstrated its confidence in strategies by placing a significant order across our entire portfolio of five polymer technologies. FDM, PolyJet, SAF, Origin P3, and Neocerolitography. These printers will be used across multiple military facilities. The strategic importance of Picatinny making such an investment in strategies is key, as they are the organization that leads the additive manufacturing effort for the US Army. In automotive, FAW, China's largest only-owned auto manufacturer, installed a variety of strategy systems in its effort to build a world-class additive manufacturing center with a goal of staying at the forefront of the digital manufacturing transformation. Its newly installed base includes Origin 1, PolyJet J850 Prime, and multiple F900 FDM systems. And we look forward to growing that relationship further. Subsequent to quarter end, we hosted our Stratafest event focused on aerospace and automotive, featuring customer testimonials from Northrop Grumman and Redford Motors. Redford is a great case study for additive manufacturing, as its Lotus Type 62 2 automobile is produced using approximately 250 parts printed with our FDM system to deliver unparalleled performance. Turning to slide 8, our dental business continues to build strong foundations for growth. as customers are scaling up with multiple unit orders and expansion of their portfolios for both ortho and implant applications. In the U.S., with its 5 billion plus dentures industry, customers are increasing adoption of our disruptive prudent solution, and we expect continued acceleration in the years ahead. In the EU, we have received positive feedback from top five lab networks and we expect to expand our penetration there once Prudent receives CE approval. On the healthcare front, we recently signed a partnership agreement with NC GmbH, a long-time Stratasys partner, to establish a new division called NC Medical that we specialize and focus on delivering Stratasys medical solutions to the German market. This is part of a global strategic decision to expand our reseller network through partners who specialize in the medical field. We believe this will help increase our coverage, focus, and dedication to our healthcare customer. Another new development is our relationship with Go Orthotics, an innovator and manufacturer of custom-made orthotics for podiatrists. They have purchased Multiple soft printers that enable them to quickly produce custom orthotics with high specification increase manufacturing throughput while saving vast working time and achieve superior product fit and comfort not possible with traditional manufacturing. The custom foot orthotic opportunity is expected to more than double to $8.8 billion by 2032. Turning to software, I'm pleased to say that after running a free trial program, we have commercialized our premium offerings. Our software has always been critical to our customer success, but we have only recently expanded our portfolio to include subscription-only offerings with GrabCat Print Pro and OpenAM. Approximately half of our new FDM and SaaS customers have chosen to subscribe to GrabCut Print Pro, and we plan to offer it across PolyJet, Neo, and Origin as well. On our material side, we have added a number of enhancements to our flagship F900 series, including offering new polymers, colors, and support materials. We have also expanded the functionality of the F900 series to OpenAM, by allowing users to custom-tune materials and printed parts capabilities. This provides additional functionality as they can alter the characteristics of strategies and third-party materials and print their own formulations, opening up new applications to expand the reach of our product and materials portfolio. I will now turn the call over to our CFO, Eitan Zamir, to share the financial results and updates on our outlook for the rest of 2023. Eitan?
spk04: Thank you, Yoav, and good morning, everyone. Our third quarter results continue to demonstrate our ability to consistently deliver operating leverage and drive profitability, even in a CapEx-constrained environment. We are particularly proud of how we maintain the level of our non-GAAP OPEX as a percentage of revenues in a flat revenue quarter, even as we continue to invest for future growth. These results highlight the financial discipline and business maturity that differentiates Stratasys in our industry. Overall, our results reflect the resilience our diversified offerings provide. continued high level of engagement with our customers and proof of their ongoing strong utilizations of our systems. Now let me dive deeper into the numbers. For the third quarter, consolidated revenue of 162.1 million was essentially flat relative to Q3 2022 and was up 3.3% at constant currency and excluding MakerBot and Stratasys direct divestment. Products revenue in the third quarter increased by 1% to 113.2 million compared to the same period last year and was up 3.4% on a constant currency basis and excluding MakerBot, which we divested in late August of 2022. Within products revenue, system revenue declined 8.6% to $51.5 million compared to $56.3 million in the same period last year. Excluding MakerBot and at a constant currency, system revenue was down 5%. On a sequential basis, systems revenue grew 6.6%, indicative of some improvement in conditions we see in the marketplace and the continued strong levels of engagement we have developed with our customers. Consumables revenue rose by 10.7% to 61.8 million compared to the same period last year, and rose by 11.6% on a constant currency basis, excluding makeable. This represents another record level of consumable sales for Stratasys. Service revenue, including Stratasys Direct, was $48.9 million, down 2.4% as compared to the same period last year, and was up 3.1% at constant currency, excluding MakerBot and Stratasys Direct Divestment. Within service revenue, customer support revenue grew 3.6% compared to the same period last year, and increased by 3.2% on a constant currency basis and excluding makeable. Now turning to gross margins. GAAP gross margin was 40.5% for the quarter, compared to 43.6% for the same period last year. Non-GAAP gross margin was 48.3% for the quarter, essentially flat compared to the same period last year. GAAP operating expenses were 108.4 million. compared to 86.4 million during the same period last year. The increase in gap operating expenses reflected, in large part, our extraordinary expenses associated with nano-dimension expired partial tender offer and withdrawn proxy contests, 3D system proposals, and our terminated deal with desktop methods. Non-gap operating expenses were $74.2 million, flat as compared to the same period last year. Non-GAAP operating expenses were 45.8% of revenue for the quarter, also flat as compared to the same period last year. As a reminder, we delivered the same OPEX level on flat revenue despite additional OPEX generated by certain acquisitions. Our ability to hold OPEX levels flat is a testament to our focus on operational efficiency through cost management. This clearly demonstrates the scalability and resiliency of our model and will serve us well as end markets stabilize and both revenues and margins improve over time. Regarding our consolidated earnings, gap operating loss for the quarter was 42.8 million compared to a loss of 15.6 million for the same period last year, reflecting the increased extraordinary expenses described before. Non-GAAP operating income for the quarter was 4.1 million, which is 2.5% of revenues, compared to 4.5 million, or 2.8% of revenues, for the same period last year. The modest decline is attributable to slightly lower year-over-year non-GAAP gross profit that more than offset flat non-GAAP operating expenses. GAAP net loss for the quarter was 47.3 million, or 68 cents per diluted share, compared to net income of 18.7 million, or 28 cents per diluted share for the same period last year. The year-over-year decrease in GAAP profitability was due, in large part, to costs associated with nano-dimensions, expired partial tender offer, and withdrawn proxy content, 3D systems proposals, and a terminated deal with desktop metal, which are excluded from our non-GAAP results. I'll also remind you that third quarter 2022 GAAP net income included a one-time $39.1 million gain from the makeable deconsolidation. which worsened the decline in GAAP profitability in Q3 2023. Non-GAAP net income for the quarter was $2.4 million, or $0.04 per diluted share, compared to non-GAAP net income of $3.3 million, or $0.05 per diluted share, in the same period last year. We're proud to report that this was our ninth consecutive quarter of delivering positive net income on an adjusted basis. Adjusted EBITDA was 9.8 million for the quarter, compared to 9.9 million in the same period last year, essentially flat on a percentage of revenue basis. We used 12.7 million of cash in our operations during the third quarter, compared to the use of 18.4 million of cash in operations for the same period last year. The use of cash was primarily driven by costs related to mergers and acquisitions activities, defense against the hostile tender offers and proxy cost contest, and related professional fees. Operating cash flow, excluding costs of $13.7 million paid to advisors related to mergers and acquisition activities and takeover defense, would have been positive. We ended the quarter with 184.6 million in cash, cash equivalent, and short-term deposits. 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. Last quarter, we guided full-year revenue at $630 million to $670 million. Adjusting for the $5 million impact from the divestment of the two Stratasys direct businesses, this is equivalent to $625 million to $665 million. Additionally, we have noted earlier the delay in selling the new F3300 that was planned for Q4 this year. and a soft CapEx marketplace. Given these items, we now expect revenue to range between 620 million to 630 million. From a gross margin perspective, we continue to expect full year 2023 to be in a range of 48% to 49%. We expect gross margins to go back over 50% next year. In 2023, We expect our non-GAAP operating expenses to be in the range of approximately $288 to $290 million. We are adjusting non-GAAP operating margins to now be in the range of 2% to 2.5% for the full year. We anticipate a GAAP net loss of $117 to $104 million. or $1.7 per share to $1.51 per diluted share, and the non-GAAP net income of $6 to $9 million, or $0.10 to $0.14 per diluted share, for the full year of 2023. Our GAAP results, and thus our outlook, includes the one-time extraordinary costs associated with our acquisition-related activities, the hostile tender offer, the withdrawn proxy contest, and related professional fees. We expect positive operating cash flow in 2024, as we do not anticipate incurring similar costs, notwithstanding whatever cost may be incurred in 2024 related to the comprehensive strategic alternative process that we announced in late September 2023. Adjusted EBITDA is revised and now expected to be in the range of 35 to 38 million for 2023. Capital expenditures are expected to range between 15 to 20 million for 2023. In summary, we generated strong financial results against a continued challenging backdrop, and we remain encouraged by the level of engagement with our customers and confident in our long-term growth and profitability potential. With that, let me turn the call back over to Yoav for closing remarks. Yoav?
spk05: Thank you, Eitan. Our customers' appreciation and adoption of 3D printing continues to grow. As we introduced new and improved systems, materials, and software offerings. Stratasys is an increasingly critical part of their efforts to bring more agility, flexibility, and profitability to their global manufacturing operations. Additive manufacturing has established a formidable beachhead in manufacturing at scale, one that we expect will grow in adoption as the technology continues to demonstrate real-world success stories. And we will be at the forefront. We have proven time and time again that Stratasys is the industry leader, demonstrating the ability to manage the business through tough times while still delivering superior results and profitability. I'll conclude with a few thoughts on our announcement in September to explore strategic alternatives to maximize shareholder value. Over the past few years, Stratasys has consistently outperformed our sector on both financial metrics and business fundamentals. We have continued to accomplish this even during challenging business environment this year and the excessive M&A noise in our space. Our focus remains on maximizing shareholder value while being cognizant of the near-term headwinds. We expect the industry and macro headwinds will abate, returning us and the industry to a period of sustained growth and increased profitability. With that, let's open it up for questions. Operator?
spk03: Thank you. We'll now be conducting a question and answer session. We ask you to please ask one question and one follow-up. If you'd like to be placed into question queue, please press star one at this time. One moment, please, while we poll for questions. Our first question is coming from James Rusciutti from Niedermann Company. Your line is now live.
spk06: Thank you. Good afternoon. A question on the F3300. I wonder if you could talk about the factors that led to the delay and what I guess is now commercial availability in the first half of the year. Did it require some additional tweaks? And what does the sales pipeline, the early sales pipeline, look like for this machine? Thank you.
spk05: Thank you, G. I appreciate the question. I would say that what led to the delay is the high demand commitment of strategists to quality. So we know that this machine is going to manufacturing and we could not compromise on the quality. We worked to develop this machine together with many customers that were exposed through NDA to the different features and recommend it. And we already use it in Toyota. They are already using it. you know, share their view about the machine in Formnext last week, and there was like a lot of excitement there. I can only say that it's a very slight delay. We have very strong demand to this machine. We have already purchased all there, and we have full confidence that that will be a transformative offering in manufacturing, mainly in aerospace and automotive spare parts, but also in tooling, jigs, and fixtures. It's a completely different scale, different delivery, different value proposition, and that's why we already have customers that develop the machine with us waiting to start engaging and start operating the machine in real manufacturing. Of course, also other customers in the pipeline, except for Toyota. I'm not talking about only Toyota, but the top manufacturers in the world.
spk06: Got it. That's helpful. Thank you. My follow-up question relates to GrabCAD. How should we be thinking about the GrabCAD revenue opportunity with your customer base, particularly as you've begun expanding it to more of the product portfolio?
spk05: Thank you, Jim. GrabCAD is an essential part in our strategy. I would say in two different routes. One, we believe we need to give our customer the best experience and to make sure that any additive manufacturing operator has, when he's working, he is fully productive and has the best friendly operating system. So it's all about productivity and make the life of editing manufacturing operator much easier. And when we are talking about GrabCut, we first take the customer perspective. What's going on with software in our industry is that, sorry to say, but it's almost a mess because you need four or five different software in order to print one part. And our vision is to take our strength which is based on the fact that we are producing the system, we know the logs, we know the data, we know everything, we have the largest install base, and we have the best operating system, so those are the pillars. Now we are taking those pillars and we said, okay, let's make it a platform. Connect it to every partner that can make the life of the operator easier, like simulation partners, like... inventory, traceability partners, like dashboard partners, and also being able to connect to all our fleet on the other side. Now we take this GrabCat and we say, okay, we want to make your life easier. The way to make the life of our operators or customer easier is to smooth the way they are running the operation. And when we are doing this with GrabCat, we are bringing new products to the market. The forecast of software in our industry gets to $3 billion in the next five years. And we will capture this part that is not the manufacturing enterprise system, but those parts that really make the operator life more productive and easier. We have great growth margin there, and we already launched two products. AM, what we call OpenAM. So if you buy our software, subscription-based, you can use other materials. And we launched what we call GrabCut Print Pro, which has fantastic features that increase the productivity. For example, what we call the Accuracy Center, where you can use AI to close the loop between the end-use parts and the file. And you put it together, you are becoming more productive because you print much more accurate parts. This is the direction. It's going really well. Just as an anecdote, in the last quarter, 50% of our sales in SAS and in FDM, we attached to the sale the GraphCAD print row. So I'm very optimistic about GraphCAD. It will be an essential part in our recurring revenues going forward.
spk06: Thank you, and congratulations in what's clearly a difficult environment on a lot of levels. Thank you. Thank you.
spk03: Thank you. Thank you. Next question is coming from Greg Palm from Craig Hallam. Your line is now live.
spk01: Hey, this is Danny Egerich on for Greg today. Thanks for taking the questions. I kind of just want to start by digging into more broad-based what you're seeing and maybe the implied Q4 guide, I get kind of the $5 million takeout from the divestments. But on the F3300 delay, I mean, were you expecting a decent size contribution in Q4? Or how much of it is just related to a broader sales cycles lengthening and some order push outs into 2024?
spk04: So we'll not be getting into the specific numbers of the F3300 contribution for Q4, but as you all mentioned, this is a significant product and a significant launch. So once we reach the commercial launch, we did expect a contribution to Q4, and that has an impact on our Q4 guidance.
spk00: Danny, if you own it, by the way, you asked about the order push-out. So the delay had nothing to do with order push-outs at all. It clearly was only related to making sure we got the best product out.
spk01: Yep, got it. Okay, I think, yeah, my order push-out was kind of more broad-based and not necessarily related to the 3300, but that makes sense. I guess maybe shifting over to kind of the medium-term targets that you got out there, I think most of those are
spk04: below the revenue line we're kind of fiscal year 24 just wondering if feel like you're still confident that you'll be able to achieve all these you know maybe just assuming that that the macro you know stays consistent for you know the near term or next couple quarters Danny a good question and the the answer is that we have confidence and the main reason is that most of those measures are within our control and I explained we've created an infrastructure both on the cost side, on the gross margin side, on the cash flow side, that are within our control. So even in a challenging macro environment, we do have the levers and we do have the infrastructure to maintain low OPEX and to improve our cash flow. So the 50% plus gross margin in 2024, the operating cash flow positive in 2024 and the ability to maintain good OPEX level as a percentage of revenue, that's something that we're very focused and believe that can be achieved even in a macro, challenging macro environment.
spk01: Got it. That's helpful. Maybe just one more touching on dental. I think last quarter you had mentioned a top five denture producer had or was committed to
spk05: um acquiring system but what what's the update on that did that hit um and maybe progress on some other potential sales within that space uh thank you for the question uh you know in one sentence it's the highest revenue quarter in dental ever so i think that's a good reflection of where we are our strategy is working both on the true dent side but also on the replenish in replenishing of the portfolio, both on the printer side, but also on the material side. It's really working well. Also on the regulatory front, we are receiving on time the approvals that we are waiting for. And we will see more growth there, especially because we are focusing on what we call restorative dental. So we are less sensitive to the current macro environment where you have discretionary sectors like the aligners and others where are quite sensitive to inflation, interest rate, income. On our end, we are focusing on restorative, on dentures, on removable dentures, on models, on crown and hinges in the future. And we do it with a truly disruptive use case. So there is no me too in our offering. Nothing here. It's about innovation. Again, making the life of the dentist and the technician much easier, multi-material, multi-colors, high aesthetic, almost no labor. We are transforming this restorative sector.
spk01: Great. I will leave it there. Thanks.
spk03: Thank you. Next question is coming from Ananda Barua from Loop Capital. Your line is now live.
spk02: Hey, thanks, guys, for taking the question. And our thoughts are certainly with you all and everyone with all that's occurring in your neck of the woods. I guess a couple for me if I – yeah, you're very welcome. A couple for me if I could. I guess just to start like on the macro and bigger picture, what's a useful way for us to – think about as macro, say, clears up, you know, begins to improve whenever that occurs, 24 going into 25. Key milestones, or I'll use the term milestones, but key milestones, key occurrings with your industrial folks, the auto announcements are obviously, you know, quite exciting. So inside of auto, but even more broadly, aero and general industrial, what's a useful way for us to think about the dynamic signposts that kind of need to occur or will be occurring that can continue to amplify the activity into those environments?
spk05: Thank you, Ananda. Mainly, a big thank you for your support. We don't take it for granted. And really, I want to thank all our customers and industry peers. The support we are receiving over the last month and a half is amazing and worth mentioning, so thank you. So maybe I'll start with the macro situation, which I believe are the main factors that will put us and the entire industry back on track. And then I will relate to the specific milestone for strategies in specific vertical. So I'll start with the macro. What is the, you know, those factors that really impact us? And it's very clear that those are two, I would say. The uncertainty, immediately, because we are going to manufacturing. And I will explain when I get to strategies. We are going to manufacturing. Simple but laser-focused strategy. When you go to manufacturing, you're challenging the status quo. And when there is uncertainty, the tendency of the largest manufacturer in the world to change the way they're doing things is lower by definition. At the same time, there is this interest rate pressure because at the end it's capex and there is a cost of the capex is the interest rate. And it's all starting with inflation and so on and so forth. But what we see now is that the inflation is tabling, starting with the US. So we are positive on this side. And also we see that no matter what happened in the new state of the world, not with a 0% interest rate, but with 3% or 4%, also in this world, the large manufacturers need to start a new cycle of innovation and production. And we see, and I have plenty of stories on those. And when they are starting this new cycle, they are looking at additives. So those are the milestones macro-wise and by, I would say, leading manufacturers. Each one of them has its own story, but if it goes to electric vehicles, or it goes to a new airplane, or a new rocket, or whatever, we are there. And this is the place where we can shine. Why, as Stratasys, we can shine? Because they are looking at digital manufacturing in their new journey. And this is what we have done for the last almost four years. We developed the best solution for real polymer manufacturing. You take the stuff, And we do it, by the way, in two directions. One is the best building blocks, hardware, material, software, and the other one is the tailoring of those building blocks into real solutions per use case. So you take the stuff. We believe this is the best cost per part in the industry. The best cost per part, you can do bulk parts. No one else can do them. And then we take them to machine components. This is a use case. And you will see that we will be more and more in those machine components. You take the P3. The path properties are unique. Accuracy is unique. So we target connectors. And we have unique results there. You take FDM. We have proven use cases in spare parts, aero and auto. And you see it also in jigsaw and tooling. This is not one machine, not two machines. We're talking about hundreds of machines that are doing it already. You take PolyJet. We took them to use cases. We are transforming the PolyJet from prototyping into use cases which are really manufacturing, like dentures and removable dentures. You take the new stereolithography. We are focusing on investment casting. We are focusing on wind tunnels. For example, F1. The majority of the F1 players are using our material and our machines. So the direction is clear. What you need to look when you look at the future and the milestone is that we are making progress in those manufacturing use cases. And we do it through digital solution. And by the way, we're using a lot of AI in that because we want to make sure that the accuracy is there. And also in the F-3300, by the way, it's a new suite of sensors and we make sure that those send so we capture the data, and we will leverage the AI solutions that we developed together with the Riven guys to improve the file quality.
spk02: That's a lot of super helpful context. I really appreciate that. I'll leave the floor there because I'm sure there's more questions, and that was really helpful. Thanks so much. Thank you. Thank you.
spk03: Thank you. Next question is coming from Brian Drab from William Blair. Your line is now live.
spk08: Good morning. This is Tyler. I'm for Brian. I appreciate you guys taking my questions. I just want to start it with you guys mentioned that you had your record high recurring consumables revenue, and obviously there's a lot of printer utilization. Can you just touch on what end markets you're seeing the greatest utilization in?
spk05: So great question. So we have five technologies. And what we have done over the last three years is that we made sure that we are matching the hardware with the best material portfolio. So no one in the industry has a larger polymer material portfolio than Stratasys. So we started with FDM and PolyJet. Then we acquired Covestro, and Covestro brought to us also the stereolithography, liquid resin, some DMP liquid resin, that one of them we already launched, an amazing new material with unique durability outside in tough weather, and also powder. So the strategy is very clear. We build a full solution, we make sure we have enough recurring revenue, and that's the place of the material. So when we look at the material, We want to make sure that we have material that are tougher, stronger, with the right properties for manufacturing, because we have a clear, solid strategy, and we need also the material to support this strategy. And this is where we see also the increase in demand. We are less focusing on rapid prototyping, although we are selling quite a lot there, but we are focusing on real manufacturing. So this is the direction, and manufacturing is, by definition, four to five times more consumption, what we call unit economic, more consumption per unit, per machine, than rapid prototyping. So this is the place we see the growing demand.
spk08: I appreciate the color on that. And just a quick question for the Covestro acquisition. Was that about $5 million in revenue for the quarter?
spk04: Yes, we mentioned the... In the past, the run rate for Covestor is roughly $20 million a year. In this quarter, it was roughly $4.5 million impact on the quarter.
spk08: Okay. Appreciate that. I'll pass it on.
spk03: Thank you. Next question is coming from Jacob Stephan from Lake Street Capital. Your line is now live.
spk07: Yeah. Hey, guys. Thanks for taking my questions. I just kind of want to focus on the – divestitures you made here in the quarter. You know, I guess I'm just trying to get a sense on, you noted they were running at kind of an operating loss. You know, how much can we kind of expect operating margin left here?
spk05: Hi, Jacob. Welcome to the team of analysts.
spk07: Yeah, thank you.
spk05: So, Let me start with a few sentences about SDM and why it's important in the big scheme of strategies. And then I'll let Eitan share the specific data. So we call it SDM 2.0. Why? Because SDM is critical for our success going forward. We are going to manufacturing, and SDM is manufacturing. And we focus SDM this year. only on additive manufacturing with our technologies. We restructured it. We moved from, I know, when I started, we had eight sites to three sites, very large sites with scale, very productive, based on our technologies, the SAF, the FDM, the Origin, the PolyJet for manufacturing solutions, and also teralithography, like investment casting, real manufacturing. So that's the idea. And once you have a strategy, we decided to divest the others that are not meeting the strategy, which is mainly the Uritan business that we had in California and the laser metal that we had in Austin. And this is part of the overall commitment of Strategist to profitability. We are the only public company, the only profitable public OEM company with positive cash flow, and we'll keep doing this. We'll keep improving the quality of the business and to deliver on our forecast, as we did for the last 12 quarters. So we are very strong, but we are strong because we are doing those step-by-step, disciplined steps to improve the quality of the business, and I'll let Eitan share the data. Sure.
spk04: So, Jacob, I guess the... As we mentioned, the impact of those two divestments, first of all, only one of them impacted the Q3 result, and that was roughly $1.5 million impact on the revenue in the quarter. We expect the impact on 2023 of the divestment of the two businesses to be roughly $5 million on revenue. As you mentioned, those two businesses were loss-making and negatively impacted our total profitability. So we expect that the investment of those two businesses will have positive impact both on our gross margins and our bottom line. But we won't get into the specific details. I would just say that, you know, the numbers that you see for 2024 and will also be on Q4 on gross margins and other aspects, also benefit or enjoy those two-day investments. That's one of the pillars.
spk07: Okay. That's helpful. And then maybe just kind of on the strategic alternatives, I guess, what's the timeline here? When do you kind of expect things to be, I guess, wrapped up?
spk05: You know that we cannot comment it. It's at the board level, but I can just share the frame in a sense. We announced it. We announced that we are in a process of strategic alternatives. This process started. We are engaging. We have good interactions. We are engaging. And, you know, we are doing the best for our shareholders, and we are taking the time to do it. There is now a war in Israel, and still we are doing the best to make sure that we are there and we are enhancing the shareholder value through this process.
spk07: Okay, understood. That's all I had. Thanks, guys. Thank you.
spk03: 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.
spk05: So I would like to thank you for joining. I would like to thank our team for an amazing work and for really maintaining the business and doing much better than anyone else in this industry. So I want to thank the Stratasys team, and I'm looking forward to updating you again next quarter. Thank you.
spk03: 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.
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