Stratasys, Ltd.

Greetings, and welcome to the Stratasys Q3 2024 earnings conference call and webcast. At this time, all participants are in listen-only mode. If anyone should require operator assistance, please press star zero on your telephone keypad. A question and answer session will follow the formal presentation. You may be placed into question queue at any time by pressing star one on your telephone keypad. We ask you please ask one question, one follow-up, then return to the queue. As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to Jonah Lloyd, Chief Communications Officer and VP of Investor Relations.

Please go ahead, sir. Good morning, everyone, and thank you for joining us to discuss our 2024 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 provided 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 2023 year. Please also refer to that annual report along with our reports filed with or furnished to the SEC throughout 2024 for additional operational and financial details. Reports on Form 6K that are furnished to the SEC on a quarterly basis and throughout the year provide updated current information regarding the company's operating results and material developments concerning our company. 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?

Thank you, Yonah. Good morning, everyone, and thank you for joining us. Last quarter, we shared that we were taking decisive actions to better align our business with the realities of today's market. Importantly, beyond these actions, we remain agile, financially strong, and well-positioned to benefit from the eventual turn in the cycle. We are committed to the financial execution of our plan and have transformed the company by removing costs and streamlining the business to focus on the largest industry targets where we see the most opportunity for growth, particularly in manufacturing applications across automotive, defense, aerospace, medical devices, and dental. For example, the F3300, our most recently launched technological innovation, has generated excitement from the market and is expected to help us expand our presence in factory floor manufacturing across multiple industries. In dental, where 3D printing is already a standard method, our proven true dent solution is highly regarded for its groundbreaking disruption in both cost and fit when it comes to dentures. Additionally, Our suite of specialized software offerings is starting to gain traction, which we believe will drive increased high margin revenues in the coming years. Our key target industries demonstrate not just the greatest growth potential in our opinion, but also the most significant overall TAM for additive manufacturing, and they are in the early stage of adoption. While we appreciate that we now must deliver on the initiatives we have put in place in a sustained manner and that it will take time, we are pleased to share that we are already starting to realize benefits. Following 10 quarters of positive adjusted earnings per share, as challenging market conditions persisted further, we incurred only minor losses on an adjusted basis in the first half of this year. Now, as a result of our transformative action and without the tailwind of any market recovery to this point, we quickly return to profitability on an adjusted basis in the third quarter. These results demonstrate our team's ability to execute a comprehensive undertaking, an attribute that continues to set strategies apart. Now let me dive a bit deeper into our results for the third quarter. Our business continues to demonstrate its fundamental strength through improved margins and our ability to maintain a robust balance sheet. we were able to deliver our eighth quarter in a row of year-over-year growth from our recurring revenue consumables sales. And similar to the second quarter, the resilience in consumables was primarily driven by FDM technology utilization. This underscores two key takeaways. The stability of our recurring revenue model and our customers accelerating transition from prototyping to manufacturing applications. As customers increasingly leverage our solutions to optimize cost and enhance operational efficiency, we are well positioned to expand our manufacturing presence with upcoming product innovations. We believe our focus on furthering customer enablement through additive education and investment will make a big difference. As our customers enhance their understanding of how to fully utilize additive manufacturing design and workflow benefits in tandem with other traditional processes. Our strategy for driving long-term shareholder value centers on targeted innovation across materials, knowledge, and workflow solutions in high growth target industries that benefit from emerging megatrends. Those include addressing supply chain risks, on-shoring, new mobility, customization, sustainability, and a non-stop drive for greater efficiency and lower costs across the manufacturing spectrum. Through disciplined ongoing investment in technology, and material development, coupled with a focused approach to key end users, we are laying the foundation for strategy's next leg of growth, once the current down cycle inevitably subsides. During the third quarter, we achieved a number of milestones and new product introductions. We continue to drive demand for our new flagship F3300 industrial platform, which we showcased at the International Manufacturing Technology Show in Chicago in September. Designed for superior performance, the F3300 delivers high-quality, durable thermoplastic parts with unmatched accuracy. It delivers faster print speeds with industry-leading repeatability and significantly reduces downtimes. making it the premier offering in its class. We continue to generate interest and order for the F3300 and our already shipping system to key customers, leading companies across automotive, aerospace, and defense sectors, along with commercial and industrial manufacturers. During the third quarter, we launched our new Origin 2 printer, along with the Origin Cure post-processing system, While our primary focus is on expanding additive manufacturing at scale, this solution helps a subset of our customers focus on the growing demand for injection molding quality for short production runs. A great example of a target industry for this technology is connectors. Where manufacturing costs are high and the production runs are in line with what this particular technology can deliver. This is one of many compelling opportunities for us and for our customers, such as TE Connectivity, who serve the aerospace, automotive, and other sectors. We also launched our Stratasys NEO build processor for investment casting, a unique solution designed in collaboration with Materialize to accelerate the production of high-quality investment casting master patterns. Developed for the Neo 450 and Neo 800 SLA printers, the new build processor delivers up to 50% faster file processing and significantly enhanced print speed. Streamlining the 3D printing workflow for manufacturers and service bureaus in the aerospace and other demanding industries. Given our focus on returning value to shareholders, in September, our board of directors approved a $50 million share repurchase plan, which we have already started to execute. We are committed to maximizing shareholders' value while maintaining a strong balance sheet and are taking additional steps to unlock value including seeking to monetize certain high-value assets. I'd like to take a moment to provide additional details on the critical strategic initiatives that we have implemented recently. On last quarter's call, we unveiled a plan designed to reinforce our industry leadership and ensure sustainable profitability across market cycles. Our action plan centers on on two critical objectives. Realigning our operational costs with current market dynamics through a workforce reduction of 15% and intensifying our focus on accelerating customer adoption by eliminating implementation barriers. These measures aim to create a more resilient business model that consistently generate profits and positive cash flow. Our implementation of the restructuring plan is ahead of pace, as evidenced by the improvement in operating margins that Eitan will discuss in a moment. We are on the track to achieve our target of $40 million in annual cost savings, starting in the first quarter of next year, while also enhancing our go-to-market strategy to focus on the highest growth products, materials, and software solutions. These actions are designed to help us align costs with current conditions, build a long-term profitable, cash-generating business, and stay agile during downturns, while being ready to respond quickly when customers' spending returns. Importantly, we are committed to delivering increased profitability and cash flow in 2025 that we discussed on our last call. We are confident that once current headwinds subside, renewed access to capital will spare customer spending to more accurately reflect the expressed high demand for our solutions. Over to you, Eitan.

Thank you, Yoav. and good morning, everyone. This quarter demonstrated the resilience of our operating model, a key differentiator relative to peers in our sector, as well as the fast actions of our team as we delivered improved growth margins and bottom-line profit despite year-over-year pressure on revenues. These results were thanks, in part, to yet another quarter of year-over-year growth in consumable sales and faster-than-anticipated progress on our cost control initiatives, enabling us to increase our profitability expectation for the year. Now let me get into the details of our numbers. For the third quarter, consolidated revenue was $140 million compared to $162.1 million in the same quarter in 2023 due to persistent softness in capital equipment spending. Product revenue in the third quarter was 94.1 million compared to 113.2 million in the same period last year. Within product revenue, system revenue was 31.7 million, a sequential improvement from the second quarter, yet off compared to the $51.5 million we produced in the same period last year. Consumables revenue grew 1% to $62.4 million compared to the same period last year. As you have mentioned, this is our eighth straight quarter of year-over-year growth. Our ability to consistently grow consumables sales despite the changing backdrop signals that the utilization rates of the systems we have sold remain robust. It's important to note that we continue to expect consumables demand to be resilient for the foreseeable future, despite recent weakness in hardware sales, as the install base continues to be well utilized. Service revenue, including strategies direct, was 45.9 million. compared to $48.9 million in the same period last year. Absent divestitures, service revenue was off a bit more than half a percent. Within service revenue, customer support revenue was up 1.3% compared to the same period last year. Now turning to gross margins. Gap gross margin expanded to 44.8% for the quarter. compared to 40.5% for the same period last year. Non-GAAP growth margin also grew to 49.6% for the quarter, compared to 48.3% in the same period last year. And it's the highest since Q4 2019. The improvement versus the prior year period was driven in part by a greater mix of consumables and higher margins at Stratasys Direct due to their vestiges. GAAP operating expenses were $88.2 million, compared to $108.4 million during the same period last year. The improvement in expenses was primarily due to lower costs related to prospective and potential mergers and acquisitions, defense against a hostile tender offer, proxy contests, and related professional fees. Non-GAAP operating expenses were $69.6 million, compared to $74.2 million during the same period last year, due primarily to lower employee-related costs, including early benefits from the cost-saving initiatives announced last quarter. Non-GAAP operating expenses were 49.7% of revenue for the quarter, compared to 45.8% for the same period last year. Regarding our consolidated earnings, GAAP operating loss for the quarter was $25.5 million compared to a loss of $42.8 million for the same period last year. Non-GAAP operating loss for the quarter was $0.1 million compared to operating income of $4.1 million for the same period last year. The change reflects the lower overall revenue offset somewhat by the improved gross margin and lower employee-related costs. Gap net loss for the quarter was 26.6 million, or 37 cents per diluted share, compared to a net loss of 47.3 million, or 68 cents per diluted share, for the same period last year. Non-gap net income for the quarter was 0.4 million, or one cent per diluted share, compared to net income of 2.4 million or 4 cents per diluted share in the same period last year. Adjusted EBITDA was 5.1 million for the quarter, compared to 9.8 million in the same period last year. We also improved our cash utilization during the quarter, as we only used 4.5 million of cash in our operations during the third quarter, compared to 12.7 million in the same quarter last year. Year-to-date, our operating cash flow remained positive. We ended the quarter with 144 million in cash, cash equivalent, and short-term deposits, compared to 150.9 million at the end of the second quarter this year. Our balance sheet remains strong and is expected to improve as the impact of our cost-saving measures accelerates in the fourth quarter of this year and beyond, strengthening our ability to act on value-enhancing opportunities. Now let me turn to our outlook for 2024. We are reiterating our expectation that full-year 2024 revenue will range between $570 to $580 million. We are raising the margins and profit forecast. From a gross margin perspective, we now expect full year 2024 to be slightly higher than what we shared on our last call, in a range of 49% to 49.2%. For 2024, we expect our operating expenses to range between $276 to $278 million. We expect non-GAAP operating margins to range between 0.6% to 1.3% for the full year. We anticipate a GAAP net loss of $105 to $90 million, or $1.48 to $1.27 per diluted share, a non-GAAP net income of $2.1 million to $5 million, or $0.03 to $0.07. Adjusted EBITDA is expected to be in the range of $25 million to $28 million for the year. Capital expenditures are expected to range between $15 to $20 million for the year. And while we are not providing a formal 2025 outlook, to Yoav's point on the actions we are taking to align the business to current condition, we would expect to generate 8% EBITDA margin even if there was no revenue growth compared to 2024. And if we can achieve even slightly moderate revenue growth, given the operating leverage in the business, we could reach at least 10% EBITDA margin. With that, let me turn the call back over to Yoav for closing remarks.

Thank you, Eitan. With our effective implementation of key initiatives to transform the companies since the end of the second quarter, we have streamlined operations, improved margins, and tightened our focus to the most compelling use cases. We are enabling our customers to more easily ramp their adoption of additive manufacturing with enhanced go-to-market engagement and better education for their system users. We are laser focused on delivering increased profitability while preserving our strong balance sheet. With our market-leading systems, software and consumables, we are poised to outperform when capital spending returns. Stratasys has been a leader in additive manufacturing for decades, and with the actions we have taken, we have repositioned the company to extend that leadership in the years ahead. Our customers continue to expand the use of our systems and solutions. Through this turbulent point in the cycle, we are setting the stage for a return to significant growth, expanded profitability, and value creation for our shareholders. With that, let's open it up for questions.

Operator?

Thank you. And now I'll be conducting your question and answer session. If you'd like to be placed into question Q, please press star one on your telephone keypad, and as a reminder, please ask one question and one follow-up, then return to the queue. Once again, that's star one to be placed into question Q. Our first question is coming from Jim Rusciutti from Niedermann Company. Your line is now live.

All right, thank you. So if I look at the implied revenue guidance for Q4, which is up sequentially, Your EPS guidance seems to suggest a break-even, kind of a break-even quarter. And so my question is, are you anticipating some pullback in gross margins where we've obviously seen some nice improvement? Or maybe is there something else in OPEX, higher trade show expense or some other factors? And then I have a quick follow-up.

Thanks, Jim, for the question. So let me help you maybe and everyone to think how to model Q4 in the full year. As you probably saw, we've updated the annual 2024 EPS to $0.03 to $0.07. When you take the first nine months EPS and you deduct that from the annual EPS, you get to a Q4 that is in the range of positive $0.08 to positive $0.12 for Q4 only. So I'm not sure about the math.

It's my mistake. I apologize. I may have just had some bad news.

Thank you for clarifying. For sure. But actually, it helps me, if that's okay, to highlight that this is exactly the change we announced last quarter. We said that Q3 will start to benefit the savings but Q4 is going to be significantly positively impacted by the restructuring, and it is translated into that relatively high EPS level in Q4.

No, thank you for clarifying that. Follow-up question just relates to, look, I know you're not giving any kind of specific guidance beyond Q4, but the fact that you're showing some year-over-year improvement, that you showed year-over-year improvement in Q4, is there any reason for, that wouldn't be the case in Q1, you know, from a year-on-year standpoint. Obviously, there's going to be the normal seasonality sequentially from Q4 to Q1. But just wondering how we might be thinking about the early start to the new, you know, to next year. Just, you know, the market's still uncertain, I know. Thank you.

Thanks, Jim. So, as you noted, actually, as a To continue from my last answer, when you take the actual three quotas and the full guidance on the revenue, basically the derivative is Q4 that is between 148 to 158, as you noted. This is partly a seasonality. Q4 has been strong for us and for most of the industry over the years. So it's a seasonality, it's a pipeline that we see, but it's too early to say how the first half of 2025 would look like, and we're not guiding, of course, yet about 2025. Thank you.

Thank you. Next question today is coming from Troy Jensen from Cancer of Estero, July. Does that last?

Hey, gentlemen. Congrats on the good cost cuts and good results here.

Thank you.

Hey, so first of all, guys, just on the consumables, I know you've had, you know, the great year-over-year growth, you know, eight consecutive quarters, but on a sequential basis, it's been down two quarters in a row, and we're only at kind of, I'd say the year-over-year growth rate has kind of declined from kind of 12% to 1%. So can you just talk about any concerns of that going negative here in Q4, or, you know, what's going to get us back to kind of, you know, high single-digit kind of growth in consumables?

Hey, Troy, thank you for the question. I think this is something that differentiates strategies. We have a very solid recurring revenue model, very solid, which helps us, especially in those challenging times. If I look at consumer growth, first of all, the fact is that it grows year over year, and this growth is a reflection of the solid revenue stream. One thing for sure, it is growing year over year, and we can see it's a trend. and it is supported by the fact that we are going to manufacturing, that we have a large install base, and this install base is growing year over year over year, and the fact that we are going to manufacturing support higher utilization, and we are also selling more high-end equipment that consume more faster. So a new system will always consume more than an old system, and this is a very healthy trend. Quarter by quarter, it could be lumpy. But year over year, we are committed for growth. And we are putting out new material regularly. So this is part of the ongoing business. Every quarter, we have more material, you know, on top of the fact that we have already the largest portfolio of materials.

Okay. All right, and just a second question. I believe last week there was another round of workforce reductions. Chris, was this a new initiative, or was this kind of the continuation of what you guys said three months ago?

I don't know. Maybe you reduced workforce, but we did not. We had one restructuring, and of course there are some ongoing regular course of business of people leaving and we are recruiting, but there was one restructuring, one move, we executed it, ahead of plan, which helps us already in Q3, although we didn't plan for it. And it's put us in a great position, both commercially, financially, and in terms of the cash position that we finished the quarter better than we expected.

Understood. All right, guys. Good luck going forward.

Thank you. Next question is coming from Greg Palm from Craig Hallam. Your line is now live.

Yeah, thanks for taking the questions, and congrats on the better results here. Maybe just to start thinking back on the last 18, 24 months in this cycle, just thinking about just software manufacturing, policy uncertainty, you've had inflation, interest rates, all that stuff that we've talked about. Any way to kind of rank, order things? the importance of some or all of those. And I guess where I'm going with this is even in an environment where maybe rates don't come down, you know, if we've got at least sort of policy certainty in a little bit sort of better manufacturing activities, does that give you more confidence that, you know, maybe you can see some of this pent-up demand sort of flush through the pipeline? Just kind of curious to get, you know, sort of your broader thoughts going into 2025.

So, great question. Thank you for the question. As you said, it's all about the current macro environment. In high-cost capital environment, our customers don't have the urgency to invest in new, innovative technologies. And that's what we are facing. This is reality. So, the macro is the main issue, no doubt. But still, there are significant light out there, lights out there, like the utilization of our equipment and our machines. So we see that this technology is needed and quarter after quarter, it is more important for our customers. And we use this time to strengthen already the best portfolio in the industry and to make sure that we will be ready when the positive turn will come. And what we believe, as you mentioned, this is a cycle, but the megatrends are there. And we are talking about the same megatrends for years, but we are more focused now on capturing the benefits from them. We are talking about the need for resilient and agile supply chain. We are talking about onshoring, especially now with the new geopolitical environment. We are talking about localization of manufacturing. new mobility trends, customization, especially in medical and dental. Dental for us is a huge thing, especially with our dentures. We're talking about overall digitalization of manufacturing. Those megatrends are there no matter what is the level of the interest rate. So I believe, we believe, it's only a matter of time and we just need to be ready when the market will change, will turn. We are investing to increase enablement, education, to increase the use of our technologies in proven use cases. And when I'm saying proven use cases, I mean a use case where we know that additive, especially our solution, is better than the traditional one. We have a great ROI, but there is no appetite from the customers now to adopt it because of the macro environment. And we have Many examples, mainly in aerospace, in automotive tooling. For example, we have an automotive tooling player that has tens of our machines, a North American player. He has tens of our machines, but you know how much of his overall tooling spend is going to additive? Only less than 1%. And tooling is a $12 billion addressable market. And when we are talking with our customer and we ask them, what is the potential of entity if they said 25 to 27%? And now we are in 1%. So in macro, we have a better macro condition. I believe in an upside. Actually, you know what? A tremendous upside.

Got it. Yep, that's helpful. If I could just shift gears on the gross margin guidance specifically, I guess I appreciate, I think a lot of us appreciate the conservatism. I think the implied guide for gross margin for the year means that Q4 gross margin is going to be flat to down on, you know, obviously much higher revenue levels than what you just put up and maybe a little bit of benefit from restructuring. So I guess is there a mix, you know, a mix issue relative to Q3 or is it just more out of conservatism?

Thank you for the question. First of all, the Q4 growth margin, at least based on our forecast, is going to be slightly higher than Q3. That's why the full year total guidance will be between 49 to 49.2, but we have confidence in the ability to achieve it. We plan, we expect to sell more hardware in Q4. So to your point, you mentioned that, that will impact the mix. However, we are very excited about the ability to grow hardware in this environment. So it's a matter of mix. We're moving step by step and increasing and improving our growth margin. The 49.6% that we had this quarter is the highest growth margin since Q4 2019. So almost a record for the last five years. And in general, you can see that from the last few quarters, our growth margin is strong, is stable, and we believe that with the restructuring and with all the other things that we're doing, we will continue to improve it and increase it in the near future.

Okay, yeah, that's a good point. And I guess just last one, maybe a clarification. Did you say you've already started buying back stock? I thought I kind of heard that and just kind of curious to hear what your thoughts around of sort of the pace and usage of that authorization.

Sure. We've started to purchase shares in Q4 and we will update you as part of the Q4 results that are going to be part of our, of course, financial reporting process. But we do that gradually and we find the right balance between the purchase of shares and securing our cash position. But to your question, we've started the process.

Understood. Okay. I will leave it there. Best of luck. Thanks.

Thank you. As a reminder, that's star one to be placed in the question queue. Our next question is coming from Brian Drab from William Blair. Your line is now live.

Thank you. I don't know if you made any comments on the 3300, but can you update us on – how that rollout is going. I think on the second quarter you said you're hoping to sell a few more of those in the second half of the year than the first half. Thanks.

Thank you, Brian, for the question. In two words, it's going well. Going well. This is our flagship in industrial solution. It's a whole platform starting with the F3300. It definitely, and we hear it from our customers, delivers superior performance for industrial users. So we have sold, we shipped to a variety of markets. The first customers are highly trusted ones, very professional, like Toyota, BAE Systems, Nissan, and many others. And definitely there will be kind of a flywheel effect because when those customers are buying a machine and adopt it, it's a trigger for others because they want to stay competitive. And this machine delivers, you know, double the speed of any other machine on this segment. So it's going well. We have a nice pipeline and backlog. And we are very optimistic and we keep investing in expanding this platform.

Okay, thank you. And then just one other question for now. I mean, clearly the election results are very recent, but the discussions around, you know, the potential outcome and tariffs and that have been ongoing for months. So I'm just curious how you think about the opportunity for onshoring and a focus on U.S. manufacturing to help Stratasys And have you had any discussions with customers where you actually see kind of the wheels in motion of some of these customers maybe making moves? And in what end markets might you benefit in this kind of scenario? Thanks.

Thank you. Great question. No doubt that the latest results support the megatrends. Those megatrends that I already mentioned about – localized manufacturing, on-shoring, it is clear that this is a tailwind for us. You know, I don't want to share anything from customers now, but just a year ago, I participated in a conference of CEOs and discussing the impact of the US-China relationship. And it was clear there that Additive has what to offer and this decoupling from China. And I guess now, and I'm not getting into politics, it's even strengthening this topic. So we are optimistic.

Okay, thank you very much.

Thank you. Next question is coming from Jacob Stefan from Lake Street Capital. Your line is now live.

Hey, guys. Thanks for taking the questions. You know, I'll kind of ask a similar broader macro question in a little bit different way. But, you know, obviously we've had two rate cuts since you last reported the change in administration. And, you know, there's also been an acquisition of one of your competitors. I'm just curious, you know, maybe you could kind of help us, I guess, quantify or, you know, qualitatively maybe, you know, how are you seeing demand trends in some of your your newer product lines with the Origin 2 and maybe Neo and maybe contrast that to the H350?

I would say, thank you for the question. I would say the demand is there. In some cases, we have more leads, depends on the country and the technology and the use case. In some cases, we have even more leads than we had in the past before the downturn. which is unbelievable. The problem is not the leads or the engagement or the interest. The problem is the sales cycles. It takes customers much more to make a decision. As I said, there is no agency here now to adopt new technologies and invest capital. So the demand, that's what we always say, the pent-up demand is there. Got it. We believe that those megatrends plus the changes in the market, and you mentioned very important two changes. One is the election and the economic atmosphere. And the other one is the fact that there was excess supply in additive manufacturing, which was not sustainable. And now many companies are pushed out of the market And it's healthy. It's a process of being more mature as an industry and focusing on what is important to our customers. And that's what we are doing. I'll give you an example. We are focused on automotive. So we are going to the most difficult customers that have the highest requirements, for example, Formula One customers or motor racing customers. And we proved the point that our technologies, like wind tunnel, where we are already more than 60% of the Formula One with this, or end-use parts for automotive and short-run automotive producers, in-car racing. Once you prove it there, it's only a matter of time when we'll open up to the mass manufacturing. And we'll shift our focus from proving the use cases and the advantage of these use cases to mass production.

Okay, thank you. And then maybe just switching to the restructuring initiative. Appreciate all the color on that, but now that you're kind of a few months into it and it's tracking well ahead of expectations, are you seeing any other areas where maybe you can take additional costs up without any additional layoffs? Or do you feel like this, you know, The $40 million is kind of the only significant change you'll make. Thanks.

Thanks, Jacob, for the question. So first of all, we're always focused on efficiency and very tightly monitor our costs. The restructuring plan has a significant headcount-related savings, but there are also other savings. As we mentioned also on the last quarter's earning call, this restructuring plan was driven by a strategic change or update. So there are projects that are no longer part of our strategy and where fields were canceled. We shut down certain locations. There are different cost savings that are non-headcount related and we're very focused on completing these areas and that's why we said that we expect only at the beginning of next year to achieve the fully annualized impact of the 40 million that we promised the market. As you mentioned, we're ahead of the plan. It helps us to shift to profitability already in Q3, which is better than we promised last quarter and expected. significant savings will be realized in Q4. That's why we have confidence on the ability to deliver significant EPS in Q4. That will, of course, will be translated to positive cash flow once those savings are materialized to significant cash flow impact in 2025, which is important. And that will put us in the best commercial and financial position in the market. As we mentioned earlier and also last quarter, once the 40 million annualized savings are achieved, that will be translated into 8% EBITDA, assuming that there is no change in the revenue levels. And if revenue levels will increase, that could get us very quickly to double-digit EBITDA, which is very meaningful and critical for us and, of course, for the market.

Appreciate it, guys. Thanks.

Thank you. Next question today is coming from Alec Valero from Loop Capital Market. Is that live?

Hey, guys. Thanks for seeing my question and congrats on the results. I actually have a quick follow-up on the annual cost savings. So, I believe you guys mentioned in your previous earnings call that you have a target of 15% headcount reduction by the end of this year. I guess my question is, like, you mentioned you're ahead of plan. So I understand that. But can you give any sort of, like, remark on, like, how much percent there is left for this year?

Thank you, Alex. So maybe I'll elaborate a little bit about what does it mean to be a head of plan. So first of all, out of the 40 million, as I mentioned earlier, out of the 40 million saving target, significant portion is headcount, but again, there are many other initiatives that are non-headcount related. Again, a few examples is closing certain locations where a global company that... and acquired a few businesses in the last few years. This is part of the optimization, and that generates significant cost savings. There are other projects that are no longer part of our focused strategy, and there are a few other examples. But again, I want to emphasize it's not only headcount related. So when we say that we are ahead of the plan, And of course, you've experienced many companies that announce restructuring. We're actually quite proud about our ability to execute what we've announced on August 29th on the second quarter earning call to be able to very quickly execute this plan and to achieve some of the savings already in Q3, which means one month after we announced it as part of the Q2 earning call, That's something that we're very proud of and of course came with a lot of effort, but it's still only a small part of the annual target saving. That's why in Q4 we're certain we have much more confidence on the ability to achieve much bigger significant portion of the annualized level and to generate those high EPS that I mentioned earlier.

Yeah, that's super helpful. Thank you for that. Just as a quick follow-up, change it up a bit here. Can you guys maybe say a few key milestones that we should look out for for Trudent moving into the next quarter and beyond?

That's a great question. We are very proud in our Trudent solution. It's so unique that we are going and when we are meeting dentists, they are amazed from what you can do. Just as an anecdote, you can reduce the number of visits with the dentist from six to eight to two, and still the customer or the patients will feel more comfortable with the new dentures. Practically, this is the, you know, the spearheads of restorative dental. We are the first one, the best, and the most aesthetic monoblock dentures in the market. So I want to thank our teams. By the way, I want to thank our teams also for their structuring. This is a record execution, what they have performed. But when I'm talking about the milestone, you need to look at two things that we are doing. It's the penetration to clinics and the regional penetration. Those are two axes that we have. So one important milestone that we will take it from North America, U.S., to EMEA and APAC, and this is very soon. The second thing is that when we are talking about penetrating dentists, it's about creating credibility and education with the leading institutions and labs, starting with the US and moving to Europe. And that's what we are doing. And you will see, step by step, we are showing the solution. And we are improving the solution all the time, by the way, in terms of aesthetic and translucency. It's getting better and better every day. We are going to present it in the IDS show in late March, which is the biggest dental show in the world, like 180,000 participants in Germany. And we expect to see more regions, more clinics, credibility of being able having credentials from the top dentist institutions, and then getting also to many different bodies that adopt dentures. For example, we have interaction with the government, for example, for the Army. This is just as an example. But in short, we go to more regions to get the certification. and we are opening up more clinics through new credentials.

Awesome. Thanks so much for that, guys. Appreciate it.

Thank you. Next question.

Please proceed. Go ahead. One more thing. Sorry. One more thing. This is about dentures. Another super important use case for us is government and defense. This is a growing segment and will keep growing. Some may say, unfortunately, but it keeps going. We are very strong there. We are the leader in aerospace and defense. And there are strong milestones that we put in front of us in terms of opening up new applications in defense. And you will see it as well.

Thank you. Our next question is a follow-up from Jim Rusciutti from Niedermann Company. Your line is now live.

And you've actually touched on, I think, the question I'm going to ask. Just with respect to where you're seeing some of the early signs of recovery, you're highlighting, I think, some, at least you sound encouraged by what you're seeing in dental. You seem to be more optimistic, clearly, on the aerospace and defense. I don't know if you're already seeing that translate into systems today. But, you know, that's what I'm trying to get a sense of your end markets. Where might you see, are you seeing more signs of recovery? And maybe conversely, you know, just from an investment standpoint, where are customers in some other verticals, maybe automotive still a little bit more cautious?

I would say in this order, government and defense, aerospace, automotive two links, Dental and medical.

Okay. Helpful. Geographically, any changes in demand trends that you saw in the quarter?

Not really. Not really. Like, you know, it started in the U.S., then it moved to EMEA and APAC, but currently it's a soft hardware market.

Okay. And maybe if I could slip one final one in. You seem to be seeing some nice progress with GrabCAD Print Pro. I'm wondering, is there any way to think about the revenue contribution in this area of the business as we look out over the next year?

Jim, that's a good question. We put a lot of effort around our software solution. As you mentioned, revenue is increasing. is growing significantly. I'll just remind everyone that software is coming with the highest growth margin out of the different streams. The attachment rate is very promising and we're very proud of. When it becomes big enough, of course, we will provide more granular data around the revenue, but the progress and the trend is very promising and we're very excited about it.

Let me even be, may I, Eitan? Let me be even more specific. We are selling software. And there is a growth year over year in our sales. And as you know, software is a great way to lock in customers for the long term. Because those are recurring revenues and you push more features and you have direct relationship with the customers. And the nice thing that we are selling more GrabCads, mainly the Pro and the premium solutions of GrabCads. We have Print Pro and Streamline Pro. The reason we are selling more, I meet many customers every week, every quarter. And the nice thing, for me, it was like, wow, we have a great software. When they asked me, can you put your software on other OEM players? And this is a great proof point how good is our software solution.

Got it. Thank you. Congratulations on the quarter. Thanks. Thank you.

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.