Stratasys Q4 2024 Earnings Call Transcript

Quartr
Provided by Quartr
March 5, 2025

There are 9 speakers on the call.

Operator

Greetings, and welcome to the Stratasys Q4 twenty twenty four Earnings Conference Call and Webcast. At this time, all participants are in a listen only mode. As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to Yonah Lloyd, CCO and VP of Investor Relations. Yonah, please go ahead.

Speaker 1

Good morning, everyone, and thank you for joining us to discuss our twenty twenty four fourth quarter and full year financial results. On the call with us today are our CEO, Doctor. Yoav Zeif 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 be available and can be accessed through the Investor Relations section of our website.

Speaker 1

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 reports on Form 20F for the 2023 year and for the 2024 year, which will be filed with the SEC within the coming few days. Please also refer to our operating and financial review and prospects for 2023 and 2024, which are included as Item five of our annual reports on Form 20F for 2023 and 2024.

Speaker 1

Please also see the press release that announces our earnings for the fourth quarter of twenty twenty four, which is attached as Exhibit 99.1 to a report on Form six ks that we are furnishing to the SEC today. 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.

Speaker 1

I will now turn the call over to our Chief Executive Officer, Doctor. Yoav Zeif. Yoav?

Speaker 2

Thank you, Yonah. Good morning everyone and thank you for joining us. In 2024 and early twenty twenty five, we took several key steps to enhance our leadership and strengthen our position at the forefront of additive manufacturing. Despite the industry wide challenges due to macro headwinds, our recent commitment to right size the company and deliver profits and cash flow was executed successfully, further demonstrating the resilience of our operating model and effectiveness of our team. We also shared with you our strategy to be laser focused on the most compelling applications, particularly ones that center around full scale production.

Speaker 2

As we share each year, in 2024, we generated 36% of our revenues from manufacturing, up from 34 in 2023 and up from just over 25% when we started tracking in 2020. We expect to see this percentage grow every year to a point where the majority of our business will be derived from end part manufacturing. The strength of our offering is our ability to deliver measurable value through best in class solutions that enable our customers to scale their additive manufacturing operations effectively. These solutions are the growth engines that will drive our revenue and profits over time and our customer trust is reflected in the continued strong levels of engagement despite prolonged capital spending constraints. This challenging environment resulted in revenues being off 6.9% for the year after backing out divestments, yet our adjusted gross margin for the year expanded by 100 basis points to 49.2%, reflecting our continued focus on cost controls and operating efficiencies.

Speaker 2

Importantly, in the fourth quarter, we delivered $14,500,000 of adjusted EBITDA, a 9.6% margin and $0.12 adjusted EPS. We remain confident that when capital spending constraint eased, our operational efficiencies will result in sustainably higher profitability in the coming years. We continue to maintain a healthy balance sheet of $150,700,000 in cash and equivalents and no debt. This provides stability and optionality that will support our growth through both organic investment and accretive acquisition opportunities. This financial strength will be bolstered by the upcoming $120,000,000 investment in Stratasys by Fortisimo Capital, which is targeted to close in second quarter.

Speaker 2

At that time, we look forward to welcoming Fortisimo's Founder and Managing Partner, Yuval Cohen, to join our Board, who brings more than thirty years of successful innovation driven investing experience. Now let me touch on some of our fourth quarter and more recent updates. Fused Deposition Modeling, the technology invented by Stratasys and commercialized under the Stratasys FDM trademark is the world's most popular three d printing technology and we continue to innovate and enhance its capabilities for production at scale. As an example, in the fourth quarter, we launched the Fortus FDC Filament Dryer, a cabinet system that uses Stratasys patented FDM technology to maintain drying conditions for storage of consumable filament materials, increasing printer uptime by up to 2.7 times while eliminating moisture related printing defects. This system designed for continuous operation represents a breakthrough in manufacturing efficiency for our large scale production customers and is a key addition to our end to end solution that our customers have asked us to deliver.

Speaker 2

We continue to expand FDM's capabilities to address our target applications. We launched polycarbonate ESD, a specialized material that addresses critical needs in electronic manufacturing, particularly for tools and fixtures requiring electrostatic discharge protection. And we have enhanced our UZM 9,085 material with expanded layer height capabilities and new color options. These materials are significant enabler for our defense partners that manufacture spare parts and we have already seen an uptick in materials sales to the U. S.

Speaker 2

Air Force as a result. Additionally, for Origin P3 DLP platform, we have added more than 30 new materials, including validating a new material by Forward AM specifically designed for injection molding tooling. This exemplifies our commitment to production grade manufacturing solution, positioning P3 to deliver injection molding quality across various applications from automotive components to precision flow adapters. We also announced several partnership and customer success updates. I'm particularly excited to highlight a key customer win with Arcelo Metal, one of the world's largest steel manufacturer.

Speaker 2

Their adoption of FDM with GrabCAD software at their European Research Center demonstrate the versatility and effectiveness of our solutions in traditional manufacturing environments, where they have achieved significant reductions in lead time and enhanced design capabilities for tooling. Previously unattainable through conventional machining methods. Switching to automotive, where we continue to set trends, we were named the official three d printing partners of NASCAR. This multi year agreement makes Stratasys the exclusive provider of three d printing solutions for NASCAR in the creation of parts, tools and to aid in accelerating design. This represents further penetration into the racing sector as more parts produced by traditional technologies will now come from our system.

Speaker 2

In aerospace, 3E EOS, a leader in electro optic system announced that it significantly expanded its line of strategy systems, including the addition of multiple FDM three d printers, bringing its fleet to 15. Its wide array of capabilities includes our F3300, Neo 800, F900, F770, OriginOne MODES and SAF Technologies. 3E is establishing a dedicated additive manufacturing center to support prototyping, tooling and production and its extended use of additive will allow the company to produce critical components much more quickly and at a saving of roughly 40% versus traditional manufacturing methods. And to help further drive customer success, we are announcing the promotion of Andreas Langfeld to the position of Chief Revenue Officer. Based in our Germany office, Andy has been with Stratasys for over fifteen years.

Speaker 2

Since 2018, he has managed our EMEA business, transforming it into a stronger contributor under his leadership and was recently appointed Head of our APAC business as well. As CRO, Andy will enhance our global go to market strategy to help ensure customer satisfaction and retention and further build on the long term partnership with our resellers ecosystem. With Endy in this role, we look forward to further strengthening our position and accelerating the widespread adoption of our solutions. Now switching to Dental, we were excited that the TRUDE NT resin is available for sale in Europe as a CE Mark class one medical device. TRUDE NT is now set to deliver a scalable, efficient and high quality solution for denture production for dental labs and clinicians across Europe, which is expected to be nearly a $2,500,000,000 opportunity by 2028.

Speaker 2

Interest in the TRUDE NT resin is already strong with many customers committed to onboarding early this year. And in our medical business, we recently announced the results of joint research conducted with Siemens Healthineers, which demonstrated the unprecedented accuracy of three d printed medical imaging phantoms to replicate human anatomy. By offering patient specific anatomical models that accurately replicate anatomy and pathologies, hospitals and imaging centers can enhance the calibration and performance of CT scanners ensuring more accurate diagnostics, improve patients' outcome and lower costs. Turning to software, I am excited to share some significant developments that strengthen our product offering and demonstrate our commitment to innovation. Our new GrabCAD IoT platform is transformative solution to help our customer improve their utilization and uptime by providing accurate real time data, predictive maintenance and a more efficient support line.

Speaker 2

This represents a major step forward in digitizing customer interactions across our entire ecosystem of three d printers, software and services. And we are pleased to note that GrabCAD's print software suite now supports all five of our core technologies. This unified software approach streamlines operations for our customers and reinforce our position as a comprehensive end to end solutions provider. To sum up, time and again, some of our most exciting use cases are in the most demanding environments and under the most unforgiving conditions from high speed auto racing to space travel to the advancement of state of the art medical techniques. We continue to deliver differentiated products and solutions to customers as we further penetrate production applications at scale.

Speaker 2

The stage is set for return to growth based on accelerated adoption of additive manufacturing as macroeconomic conditions slowly improve. I will now turn the call over to Eitan to share the financial results and our initial outlook for 2025. Eitan?

Speaker 3

Thank you, Yav, and good morning, everyone. Our fourth quarter results reflect solid execution against the ongoing backdrop of adverse macroeconomic factors and related pressures. Our customer engagements remain strong and we believe will translate into meaningful growth once headwinds abate. As a reminder, the cost saving initiatives we announced last year took effect primarily in the fourth quarter. As we review both the quarterly and annual results, the fourth quarter results are more indicative of the future impact of these initiatives on an annualized basis.

Speaker 3

In general, our results demonstrate the resilience our diversified offering provides throughout the cycle enabling us to raise our profitability and cash flow expectations for 2025. Now let me dive deeper into the numbers. For the fourth quarter, consolidated revenue of $150,400,000 was down 3.8 as compared to the same period last year. Product revenue in the fourth quarter fell by 4.8% to $105,100,000 compared to the same period last year. Within product revenue, systems revenue was off slightly declining 1.5 to $46,700,000 compared to the same period last year.

Speaker 3

As constrained capital budgets continue to impact customer buying behaviors for new system. Consumable revenue in the fourth quarter was $58,400,000 down 7.3% compared to $63,000,000 in the same period last year. Service revenue was $45,300,000 dollars for the fourth quarter of twenty twenty four, relatively flat compared to $45,900,000 in the same period last year. Within service revenue, customer support revenue was relatively flat compared to the same period last year. For the full year 2024, consolidated revenue declined 8.8% to $572,500,000 compared to $627,600,000 in 2023.

Speaker 3

After backing out the Stratosys Direct Service Bureau divestments, the revenue decline was 6.9%. Product revenue in 2024 was $392,000,000 compared to $433,700,000 in 2023. Within product revenue, system revenue in 2024 was $140,300,000 compared to $187,700,000 in 2023. Consumables revenue was up 2.3% to $251,700,000 in 2024 compared to February in 2023. We expect consumables revenue in 2025 to increase over 2024.

Speaker 3

For the full year of 2024, service revenue was $180,500,000 compared to $193,900,000 in 2023. After backing out the stress's direct service bureau divestments, twenty twenty four service revenue was flat year over year. Within service revenue, customer support revenue in 2024 was flat compared to 2023. Now turning to gross margin. GAAP gross margin was 46.3% for the quarter compared to 44.7% for the same period last year.

Speaker 3

Non GAAP gross margin was 49.6% for the quarter compared to 48.8% for the same period last year. The year over year improvement in gross margin was the result of operational efficiency and cost saving efforts. GAAP gross margin was 44.9% for the full year 2024 compared to 42.5% for the same period last year. Non GAAP gross margin improved 100 basis points to 49.2% for the full year as compared to 48.2% in 2023. The full year improvement in non GAAP gross margin was a result of operational efficiency and cost saving efforts.

Speaker 3

GAAP operating expenses were $79,400,000 for the quarter compared to CNY 64,100,000.0 during the same period last year as a result of non recurring revaluation gain that reduced GAAP operating expenses in the fourth quarter of twenty twenty three. Non GAAP operating expenses improved, decreasing to $65,200,000 for the quarter compared to $74,300,000 during the same period last year, as we benefited from our cost saving initiative. Non GAAP operating expenses were 43.4% of revenue for the quarter compared to 47.5 for the same period last year, driven primarily by the cost saving measures associated with the restructuring plan we announced in the second half of twenty twenty four, the financial effect of which were realized in the fourth quarter of twenty twenty four. For the full year, non GAAP operating expenses were 48.4% as revenue as compared to 46.2% in 2023, primarily due to lower revenue in 2024. In absolute dollar terms, non GAAP operating expenses were $13,300,000 lower in 2024 as compared to 2023, due in part to the cost saving measures from our restructuring plan.

Speaker 3

Regarding our consolidated earnings for the quarter, GAAP operating loss for the quarter was $9,700,000 compared to operating income of $5,700,000 for the same period last year, due primarily to the non recurring revaluation gain that reduced GAAP operating expenses in the fourth quarter of twenty twenty three. Non GAAP operating income for the quarter was $9,400,000 compared to $2,000,000 for the same period last year. The increase reflects the lower OpEx as a percentage of revenue driven by the cost savings. GAAP net loss for the quarter was $41,900,000 or $0.59 per diluted share compared to a net loss of $15,000,000 or $0.22 per diluted share for the same period last year. During the quarter, we took a non cash impairment charge of $30,100,000 or $0.42 per share related to our investment in Ultimaker, a key cause for a larger GAAP net loss in the quarter.

Speaker 3

Non GAAP net income for the quarter was $8,500,000 or $0.12 per diluted share compared to net income of $1,600,000 or $0.02 per diluted share in the same period last year. Adjusted EBITDA was $14,500,000 for the quarter compared to $7,700,000 in the same period last year. This equates to 9.6% EBITDA margins compared to 4.9% in the fourth quarter of twenty twenty three. Regarding our consolidated earnings for the full year 2024, GAAP operating loss was $85,700,000 compared to a loss of $87,600,000 for 2023. Non GAAP operating income for the year was $4,900,000 compared to $12,600,000 in 2023.

Speaker 3

This equates to 0.9% non GAAP operating margin compared to 2% in 2023. GAAP net loss for the year was $120,300,000 or $1.7 per diluted share compared to a net loss of $123,100,000 or $1.79 per diluted share for last year. Non GAAP net income for the year was $4,200,000 or $0.06 per diluted share compared to $7,700,000 or $0.11 per diluted share last year. Adjusted EBITDA was $26,000,000 in 2024 compared to $35,000,000 in 2023, reflecting lower revenues that more than offset the improvement in margins. We generated $7,400,000 of cash in our operations during the fourth quarter compared to a use of $7,700,000 of cash from operations in the same quarter last year.

Speaker 3

This resulted in positive free cash flow in the quarter. The improvement was due to improvement in our working capital and we expect further improvement in 2025 as we benefit from fully realizing the cost saving measures from our restructuring plan. For the full year, we generated $7,800,000 of cash from operations compared to using $61,600,000 of cash in 2023. During the quarter, we repurchased 266,000 shares of stock at an average price of $7.5 per share for a cost of approximately $2,000,000 We had approximately $48,000,000 remaining capacity on our share repurchase authorization at year end. We ended the quarter with $150,700,000 in cash, cash equivalents and short term deposits compared to $144,000,000 at the end of the third quarter of twenty twenty four.

Speaker 3

Our balance sheet and cash generation profile remain strong, supporting our interest to capitalize on value enhancing opportunities. As Yav mentioned, our strong balance sheet and cash position are set to be further enhanced with a prospective $120,000,000 investment from Fortisimos. Now let me turn to our outlook for 2025 based on the expectation that the global softness in capital equipment purchasing will continue. We expect 2025 revenue to be in a range of $570,000,000 to $585,000,000 with revenues growing sequentially each quarter through the year, resulting in higher revenues in the second half of the year as compared to the first. We expect the first quarter to have the softest revenue and margin profile on a relative basis to the rest of the year.

Speaker 3

Non GAAP gross margin for 2025 is expected to be in a range of 48.8% to 49.2% with the second half stronger than the first half based primarily on the expected rise in revenue throughout the year. In 2025, we expect our non GAAP operating expenses to range between $254,000,000 to $257,000,000 Continued improvement in profitability is an important objective. And for 2025, we expect to see growth across the profit metrics. For 2025, we expect non GAAP operating margins to be in the range of 4% to 5% of revenue with the second half stronger than the first half based on the anticipated rise in revenue throughout the year. We expect a GAAP net loss of $68,000,000 to $53,000,000 or $0.93 to $0.72 per diluted share and non GAAP net income of $20,000,000 to $26,000,000 or $0.28 to $0.35 per diluted share for 2025.

Speaker 3

Adjusted EBITDA for 2025 is expected to be in the range of 7.8% to 8.5% of revenue or $44,000,000 to $50,000,000 We expect our capital expenditures for 2025 to range between $25,000,000 and $30,000,000 Finally, in 2025, we expect to deliver improved operating and free cash flow at higher levels than 2024. With that, let me turn the call back over to Yoav for closing remarks. Yoav?

Speaker 2

Thank you, Eitan. Before we move to questions, I want to take a moment to acknowledge our global team. Their professionalism, dedication and hard work continues to drive strong customer engagement and excitement for our solutions. I have personally met many of our key customers across industries over the last few months. The resounding message is that the increased use of additive manufacturing in their businesses is most certainly expected once spending constraints are lifted.

Speaker 2

We also see and feel the enthusiasm and excitement at all of the largest trade shows and industry events. There is no question that when our solution ramps and deliver the exceptional capabilities, our significant growth and corresponding operating leverage and margin expansion will follow. We have taken the difficult but necessary step to right size the business for today without sacrificing R and D resources for innovation and while maintaining the ability to scale quickly as capital spending eases. We believe that as the next growth phase of additive manufacturing emerges, we are well positioned to lead for today and into the future. We are excited for 2025 and beyond all for Stratasys.

Speaker 2

With that, let's open it up for questions. Operator?

Operator

Thank you. We'll now be conducting a question and answer session. Our first question is coming from Craig Palm from Craig Hallum. Your line is now live.

Speaker 4

Yes, thanks. Hey, everyone. Maybe just a little bit more kind of color on kind of what you're seeing out there in the marketplace, customer feedback given everything going on? And then can you just kind of help us a little bit more with kind of the cadence of the year? It sounds like revenue building sequentially, but any more detail on how that looks from a modeling standpoint would be helpful.

Speaker 2

Hi, Greg. Thank you for the question. That's a super important question, because we are in a time period of a downturn in our industry and everything looks dark and great. But this is not the case with our customers. Just three weeks ago, we had a customer advisory board in Florida, the top corporate in the world, the leaders of additive manufacturing in those companies, 14 of them.

Speaker 2

And we are forgetting as an industry and as a capital market, we are forgetting the basics and the value proposition of additives, because in manufacturing, there are requirements that only additive can deliver. For example, low volume, high mix, special geometries and assembly of parts, consolidation of parts, ensure the supply chain resiliency, personalization, improve sustainability, only additive can do it and especially in a world of uncertainty and geopolitical tension and trade wars. So we are still focusing on the high interest rate and the constraint of capital expenditure that we forget that long term the world will manufacture manufacturing will be digital and this digitization process will benefit the entire industry. So when we are talking with customers, back to your question, they are saying to us, focus on what you are doing, reliability, accuracy, OEE, the effectiveness of our commitment, the total cost of ownership and enable our engineers to use more additives. So I'm very optimistic.

Speaker 2

Yes, we feel the short term constraints, but over time I see us going out of there and our customers are happy with our solution. The F3300 has great feedback. We expect to sell more in 2025. We expect to expand our reach within those same customers by the way to new sites. It will be gradual because we are in a downturn period, but it has nothing about the long term of this industry or or even the midshore term.

Speaker 4

Yes. Okay. That's helpful. And then as it relates to the gross margin guide for 2025 specifically, I'm wondering what are you building in terms of negative impacts or headwinds from either logistics or tariffs? Obviously for the year it implies a lower gross margin relative to the run rate in the second half of twenty twenty four.

Speaker 4

So I was just curious if you can give us a little bit of what your built in assumptions are?

Speaker 3

Thanks, Greg for the question. It's Seitan. So first of all, I'll start saying that our actual 2024 gross margin was in 2024 was 49.2%, which is an improvement of 100 basis points compared to last year. And I think you fall out for quite many years. That's a very solid gross margin for Stratasys and also in general for the industry, which enable us to grow and also to invest to grow the business further.

Speaker 3

Now as far as it's concerned with 2025, I'll say a few things. First of all, we kept the gross margin in very similar level for 2025, but then it's a mix of different things. We continue to invest of course in the business and in growing the business and in the production. On the other hand, there will be some savings from the restructuring plan that we introduced last year. Many significant part of that was already achieved, but there are still some savings that will come in 2025.

Speaker 3

The mix of products of course impact the 2025 gross margin. But overall as you can see very solid, continue to be 49% in the 49% level, which is very good and very promising for the future. And within 2025, when you think about the quarter in 2025, it will improve sequentially quarter by quarter throughout 2025. And maybe a word about the tariffs, Joerg?

Speaker 2

So I think the tariff has two sides to it. One is how it impacts us and the other one is how it impacts our customers. In terms of us, we are I would say thank God, but it's time for a long time of planning. Vast majority of what we are doing is in a secured zone, so we are quite immune. Most of our FDM is being produced in The U.

Speaker 2

S. So it has no the tariff has no impact on it. And the rest of our production, most of it is in Israel, which has a free trade agreement. And FDM is our largest business and U. S.

Speaker 2

Is our largest region. So we are in a good shape regarding the tariffs. Then I'm looking at our customers on the other side, this is a huge opportunity for us, because no matter how what's the level of the tariff, if you bring the machine to the specific country and you produce onshore near the customer, you don't pay the tariff, which we see here a global opportunity. Just a week ago, I was with a large, actually a large logistic customer, port operator, and they see the uncertainty and they have an interest to see how they are creating capabilities in additive to handle the uncertainties, the geopolitical tension, the potential broken supply chain and also the impact of tariffs. And this is coming from our customers.

Speaker 4

Yes. It seems like it could be a big opportunity. I will leave it there. Look forward to seeing you all next month at Rapid. Thanks.

Speaker 3

Thank you. Thanks, Greg.

Operator

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

Speaker 5

Good morning, guys. This is Tyler here for Brian. Thanks for taking my questions. Just starting off, I wanted to know, I I know you're mostly exposed to The U. S, but is there anything to note for organic revenue growth in 2025?

Speaker 5

Are there any anticipated FX headwinds or recent divestitures that we should think about? And then I'll have a follow-up.

Speaker 3

Thanks, Taylor. So other than a relatively small impact of one of the SDM businesses, the Stratosys Direct businesses that we divested in the middle of twenty twenty four, There is nothing significant as far as it's concerned with divestments or inorganic as you model. On the FX side, of course, we do have business in Europe. And based on how the euro behaves throughout 2020, '20 '20 '5 that could have some impact and we are also operating in countries like Israel. However, we have normally and I think we've discussed this in the past, we hedge a significant part of our exposure on the most significant currencies that are not U.

Speaker 3

S. Dollar. So the impact is relatively small.

Speaker 5

Okay. Thank you. And in your slide, you said the denture market opportunity by 2028 is $2,500,000,000 dollars That's on a global basis, correct? And then could you provide your estimate of the total TAM today? And how will you capture more share in this market?

Speaker 5

And what differentiates you from the other additive competitors? Thank you.

Speaker 2

Thank you, Tyler, for the question. So we are very proud in our denture solution. Practically, we are the one innovating a new solution for denture, which is monobloc dentures with very high aesthetic, low price and the ability completely to transform the business model of dentures, which today dentists don't like dentures, to be honest, because it's between six to eight meetings, more days, and you need to come back and see the time that the patients feel that it's really fitting, the dentists already lost a lot of money. And we are coming with a new solution with a very large target like $2,500,000,000 in Europe and another $5,000,000,000 to $6,000,000,000 in The Americas. And we are the leader here in terms of being ahead of the industry in terms of the technology.

Speaker 2

We believe that it will still be gradual over next year, but we have also large plans how to penetrate the market. We already signed several large dentures with several large dental companies and the adoption of dentals is so core to our three d printing industry, we believe that we will be able together with some organic and inorganic moves to create a position ahead of competition and ahead of the entire dental industry because practically we are disrupting it. And it's an industry that knows how to adopt additive. And now we are timing with a very simple high end solution, we are very optimistic.

Speaker 5

Okay. Appreciate it. I'll pass it along.

Operator

Thank you. Our next question is coming from Troy Jensen from Cantor Fitzgerald. Your line is now live.

Speaker 6

Hey, gentlemen. Congrats on the fourth quarter results.

Speaker 3

Thank you.

Speaker 6

Hey, so I guess maybe Eitan for you. Consumables are down 7% year over year, but they've also been down consecutively three consecutive quarters here on a sequential basis. And I'd guess the installed base has been growing right as you're shipping more systems into the customer. So can you just touch about consumables and why they declined three consecutive quarters?

Speaker 3

Sure. Thanks Troy. So maybe I'll start saying that I think that in the last year throughout the discussions with the analysts on the earnings call, we always discussed a range of consumable as a quarterly average kind of run rate. Q4 was lower than that average run rate, but it was I consider Q4 as an outlier. It does not reflect, it does not represent what we see for the future for the quarter of twenty twenty five.

Speaker 3

Actually in 2025, we're already more than two months into the quarter. We actually see that we're back on track to levels that are similar to last year and will be higher than the Q4 numbers that we announced today. And when I think about the full year of 2025, we expect and that I think also address your question, We expect 2025 full year to be higher than the 2024 full year and that's after 2024 was already higher by $5,600,000 from the full year of 2023. So we do see utilization increasing and we do expect 2025 to have overall higher consumable compared to 2024.

Speaker 6

Great. Perfect. And also for you, Eitan, I just want to talk about long term investments and it was down 40,000,000 sequentially. What's in that? Is this all just equity investments?

Speaker 6

Is there any financial instruments? Is the $32,000,000 loss that you talked about, is that the reason for the $40,000,000 decline?

Speaker 3

Thanks, Troy. So this one item is largely related to our equity investment in Ultimaker. We as you remember, we divested that business two point five years ago and that was part of our strategic decision to not to play out on the low end and to focus on manufacturing and mass production. So that's something that's a business that we do not control. But of course, from an accounting perspective, we have to take our share in that situation and that's what we did, but it's nothing more than that.

Speaker 6

Okay. But the $80,000,000 is that all just equity in Ultimaker or is there other things in there?

Speaker 3

Where do you see $80,000,000

Speaker 6

in the balance sheet? In the long term investment category?

Speaker 3

No, that's so we invest in quite many minority investments, but each one of them is a very small portion similar to what you see others are doing and these are opportunities that we are involved with and when it become more interesting and relevant, we decide whether we want to increase our position or not.

Speaker 6

Got you. So it's all equity not financials. Okay. And then for you all, just can you talk about this acquisition targets? Obviously, you're raising more capital and you guys are profitable and have a decent balance sheet.

Speaker 6

So hardware, software, materials, I mean, what interests you most?

Speaker 2

Whatever will announce shareholder value more. And we have a strategy, a very clear strategy. We are very proud of the vote of confidence from Fortissimo. They are really well established and successful investors in technology and innovation. And remember, they decided to invest in Stratasys with a significant premium and a low cap, which it's a sign that there are opportunities out there and the best operator to capture those opportunities is strategy.

Speaker 2

And by the way, we also demonstrated it because we committed at the end of Q3 last year, after a tough start of H1, we committed to savings, we were committing to profitability and cash flow and we delivered on all of them. 49.6% margin, 9.6% EBITDA, $7,400,000 of cash flow. It doesn't exist in our industry. We are the top performer and operator in this industry. And then you combine it with an investor that sees the opportunities in the market and said, where I should put my money in order to capture those opportunities.

Speaker 2

And you want to put your money where there are execution capabilities and in a company that is consistent because you look at our guidance, we are growing slowly, but we have a strong business model. We secured the $40,000,000 of savings that we committed to. And next year in our guidance, measure by measure, we are better year over year. And now we just need to wait to the manufacturing sector to come back to normal. And you will see growth, you will see growth in revenue, there will see profitability.

Speaker 2

And there are plenty of opportunities out there, and we learn a lot about this industry over the last few years. Really, you know it. We have had the opportunity to widespread due diligence across the industry. So we have good understanding what's going on out there, who are the right targets and which one of them will better support our long term strategy and create a lot of value to our shareholders in the short term and in the long term. And you know also market prices of the assets are more favorable these days.

Speaker 2

So when you combine the operational capabilities, the profitable model that we have with the recurring revenue, the strong balance sheet now is ProteSimo with focused strategy on manufacturing and use cases, and the overall proven abilities of three d printing, Stratasys is the right solution and we know and we have a plan what to do with the money.

Operator

Thank you. Our next question is coming from Jim Ricchiuti from Needham and Company. Your line is now live.

Speaker 7

Thanks. Most of my questions have been answered, but I just want to follow-up on the way you're viewing 2025. It sounds like you're assuming obviously continued challenging market conditions. And does that offset benefits from new products? And maybe if you could talk a little bit about the market verticals that you have perhaps more confidence in?

Speaker 7

It sounds like dental being one of them, but I don't want to put words in your mouth. And which markets you might be more cautious on or geographies?

Speaker 2

Thank you, Jim. Yes, we are cautious. And what we see is a soft market. This is the reality, but it's only a cycle. There are ups and downs in these cycles.

Speaker 2

We are now in a down period. But as I said, the fundamentals of the value proposition of three d printing is there and the customers know it. Okay, this is the most important thing. Then getting to 2025, we have quite good pipeline visibility and we have confidence in our guidance, but it takes into consideration the softness of the market. So we have pipeline visibility.

Speaker 2

We see the customer engagement even in such a downturn, 14 this is just an example, 14 top executives from 14 top corporates came from all over the world to Florida to sit with us and tell us what they are looking from our solutions. So there is an engagement there. We are also improving our offering constantly. As you said, there are new products. This year, a lot of focus on material and software, and we believe this is very profitable part of our business.

Speaker 2

And again, the current geopolitical situation in 2025 is a great tailwind for the industry and for us, a great tailwind. Okay, now there is kind of the entire political environment is kind of looking for what's next. But it will stable and it will be a new state of the world. And in this new state of the world, the basic value proposition of additive will be enhanced because with geopolitical, with dynamics, with uncertainty, with this type of world, it's a great support for additive. And I'll give you now example for the verticals, because that's a great question.

Speaker 2

Definitely dental because this is a vertical of early adopters and we focus on dentures, we believe the best solution there. Then it's all about aerospace and defense, because the world is highly concerned about the stability and the budget of aerospace and defense are skyrocketing and we see more also in Europe now. We have we are the leader in aerospace and defense spare parts. Then it's about tooling, which is a huge opportunity to $12,000,000,000 market, and we are the leader also in tooling. And I would say those are the three, aerospace defense, tooling and Dental.

Speaker 7

Okay. Thanks for that color. When you talk about pipeline visibility and you talk about the way you're viewing second half, first half, do you actually have relatively good visibility that gives you the confidence about second half? Or are you just assuming, like a lot of folks, that we see some improvement in the macro environment?

Speaker 2

So, it's both. We believe macro will be better in the next half because of less uncertainty. Things will be clearer. But we also have a pipeline and we have stages in the pipeline and we have probabilities of this pipeline. The unknown is the sales cycle.

Speaker 2

Over the last two point five years, the sales cycle increased for the entire industry and also for strategy. But with the current sales cycle, we have good visibility and that's the way we build our guidance. Who knows? We don't have the crystal ball. If sales cycle will double themselves, probably we will not be in a good shape.

Speaker 2

But if they will reduce and get back to normal, we'll be in a better shape. And what is important that we are solid and strong also with flat revenues. That's the way we build the company. So we achieved our commitment in a challenging environment. We have

Speaker 4

really

Speaker 2

unheard of EBITDA in our industry with a strong business model with improved performance also in a soft market that's what we expect for next year. Now think for a minute what will happen once the manufacturing sector will be back to normal because at the end, you need to manufacture. Then it's a completely different story.

Speaker 7

Got it. Thank you.

Operator

Thank you. Next question is coming from Nanda Brulla from Loop Capital Markets. Your line is now live.

Speaker 8

Yes. Hey, good afternoon guys. Thanks for taking the question. Happy New Year. And congrats on the solid results here.

Speaker 8

I guess a bigger picture one if I could. To the extent that you guys have thought about this or have had conversations about this, this whole idea that's popped up over the last twelve months more prominently AI factories and factory automation with GenAI, if that continues and I give it continues to be propagated increasingly, if that were to manifest as that manifests, how does like what impact does that have on your production businesses? Does it help it? Does it hurt it? Is it neutral?

Speaker 8

Just in any context around that, we'd just love to get your early thoughts on that. Thanks.

Speaker 2

Thank you, Ananda, for the wishes and also for the question. AI is essential for us. We acquired a company called Riven that are developing an AI. We have already a product that correct the deviation of the valve. You scan it, you put it back, and we build a big database and you can practically anticipate the deviations of the printing and correct it before printing.

Speaker 2

But this is only one example. We have a whole set of use cases that we are working on. It's based on Riven, we build a group of people that are focusing on AI and I believe AI will be essential in additive manufacturing and also the transition within manufacturing, taking a step back and looking at the big picture, the transition from analog manufacturing to digital manufacturing has to go somehow through three d printing, because we are versatile. We are working with a file and AI can build the file. AI can manage the files.

Speaker 2

So this is like an integral part of the future. The future of manufacturing grows with AI and we are one of the tools that will make this transition much easier and we are investing in it. I'll give you a few use cases, for example, predictive maintenance is an important feature that we are working on. AI can do amazingly well there because we have all the data from the machine because we have this we just launched this new IoT platform, it's in the script. And we discussed it with our customers, with our customer's advisory board.

Speaker 2

What do they want to see in AI? And we have a whole list, and we focus on three of them. Of course, I will not share it here, but we are working with our customer to enable them to adopt additive and digital manufacturing together. Bottom line, AI centric production system will strongly support additive, I have no doubt.

Speaker 8

And that includes thanks for that detail. And that includes the increased use of robotics in manufacturing processes as well?

Speaker 2

I assume so, yes. And by the way, robots or the whole robot industry is our significant customer of us because we you need to change the end of arm replacement and to be versatile with the functionality of the robot and most of them are doing it with three d printing, mainly with FDM.

Speaker 8

Thank you. Thanks a lot, guys.

Operator

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.

Speaker 2

So, thank you. Before thanking everybody, I want to invite everybody that is online to visit us at the Rapid Show in April in Detroit. We will demonstrate very important solutions there and also many of our customers will be there. So, you can hear from our customer firsthand what do they think about Stratasys. So, thank you for joining us.

Speaker 2

Looking forward to updating you again next quarter.

Operator

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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Earnings Conference Call
Stratasys Q4 2024
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