SSYS 2022Q1

Greetings. Welcome to Stratasys' Q1 2022 Conference Call and Webcast. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. Please note this conference is being recorded. I would now like to turn the conference over to your host, Mr. Yonah Lloyd, Chief Communications Officer and Vice President of Investor Relations. You may begin.

Good afternoon, everyone, and thank you for joining us to discuss our 2022 First Quarter Financial Results. On the call with us today are our CEO, Dr. 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 also be available and can be accessed through the Investor Relations section of our website. Please note that some of the information you'll hear during our discussion today will consist of forward-looking statements, including without limitation those regarding our expectations as to our future revenue, gross margin, operating expenses, taxes, and other future financial performance and our expectations for our business outlook. All statements that speak to future performance, events, expectations or results are forward-looking statements. Actual results or trends could differ materially from our forecast. For risks that could cause actual results to be materially different from those set forth in forward-looking statements, please refer to the risk factors discussed or referenced in Stratasys' Annual Report on Form 20-F for the 2021 year. Please also refer to our operating and financial review and prospects for the 2021 year and for the first quarter of 2022, which are included as Item 5 of that Annual Report and in Exhibit 99.2 to the report on Form 6-K that we are furnishing to the SEC tomorrow, respectively. Please also see the press release that announces our earnings for the first quarter of 2022, which is attached as Exhibit 99.1 to a separate report on Form 6-K, that we are furnishing to the SEC today. In order to obtain updated information throughout the year concerning our quarterly results of operations and the risks and other factors that most impact those results, please see the quarterly earnings press releases and our quarterly operating and financial review and prospects, each of which will be attached as an exhibit to a report on Form 6-K that we will furnish to the SEC on a quarterly basis over the course of the year. Stratasys assumes no obligation to update any forward-looking statements or information which speak as of their respective dates. As in previous quarters, today's call will include GAAP and non-GAAP financial measures. The non-GAAP financial measures should be read in combination with our GAAP metrics to evaluate our performance. Non-GAAP to GAAP reconciliations are provided in tables in our slide presentation and today's press release. I will now turn the call over to our Chief Executive Officer, Dr. Yoav Zeif. Yoav?

Thank you, Yonah. Good afternoon, everyone and thank you for joining us. Today, I will touch on the highlights of our first quarter and share insights on a number of key milestones achieved so far in 2022. I will then hand it off to Eitan to discuss our financial results and outlook in more detail. The first quarter was our strongest in six years, a great start to an exciting year for Stratasys. We delivered solid results that include contributions from across all platforms to drive top-line growth and improved margins. All of our technologies grew, and I'm happy to say that all of our key businesses showed improvement compared to our pre-COVID first quarter of 2019. We are particularly excited by the early momentum from our new Origin P3, H350 SAF and NEO systems, designed specifically for high-volume production of end-use parts. Our focus on execution is yielding results that demonstrate how our strategy to grow our leadership position in polymer 3D printing is working. Our revenues of $163.4 million were up 22% versus the prior year quarter. We see particular strength in systems which grew 37% and we ended the quarter with a robust balance sheet that included over $475 million of cash and no debt. During the first quarter, we expanded our penetration further into applications for aerospace, automotive, and fashion, tailoring industry-specific solutions. For example, working with our partner Lockheed Martin, we uniquely qualified a high-performance and tailored material for aerospace end-use parts. In Automotive, Radford Motors is now the second auto OEM using all five of our technologies for design, prototypes, tooling, and final parts used in vehicle production. We also officially launched the commercialization of our fashion solution with Techstyle, the industry's first 3D printer designed specifically for printing direct to garments and other end products. It opens unlimited possibilities for the fashion industry to personalize and customize premium textiles, clothing bags and accessories, footwear, and many other fashion applications. I would like to highlight three important milestones reached since the close of the quarter that we expect will contribute to our ongoing efforts to outperform. First, we announced the creation of the new entity comprised of MakerBot and Ultimaker. With our focus on industrial, healthcare, and production-scale polymer 3D printing for manufacturing, we determined that MakerBot, a desktop solution, fell outside of our core businesses. The transaction serves several purposes. It allows us to further concentrate our efforts to grow our leadership position in our area of focus. It has a margin accretive benefit on our business, and our commercial agreement provides us access to entry-level 3D printing users, allowing us to potentially realize incremental synergies without distracting our resources. We believe that the desktop sector is growing at a healthy pace, and that the new company will be a leading force in that industry and we view our investment as having the potential to realize incremental long-term value for our shareholders. Second, we recently published our inaugural report on environmental, social, and governance activities, which we believe is the first report published to GRI standards in our industry by an OEM. This report outlines our commitment to ESG and establishes benchmarks for future targets. Our sustainability priorities include design for responsible production and consumption, transparency, people-first initiative and social impact programs. We are also focusing on renewable energy projects, quality education, industry innovation, and climate action. The 3D printing industry is ideally situated to drive innovation and improvement in manufacturing from a sustainability perspective, and Stratasys is aiming to lead those efforts. I encourage visiting our website to review the report. And third, last week, we hosted our annual flagship manufacturing virtual event, where we announced a number of new product updates, which will strengthen our market-leading offerings and the value potential our products can bring to customers. PA-12, the most popular industrial 3D printing material is expected to be available later this year for our H350 printers. Also for the H350, we announced the upcoming availability of polypropylene, which is very popular in traditional manufacturing, but not widely available in 3D printing. This material further demonstrates the competitive superiority that our SAF technology provides in powder bed space with respect to materials, speed, accuracy, cost per powder, and total cost of ownership. In FDM, we are upgrading our F123 Series with the launch of the F190CR and the F370CR systems. CR means composite ready and includes the new Nylon CF10, a carbon fiber material that is both exceptionally strong and light, thereby extending the end market opportunities for the F123 Series. We also announced our first Stratasys validated FDM materials from third-party materials partner which our channel will begin to sell in the second half of 2022. It's a great example of our open materials ecosystem approach beginning to bear fruit. With our P3 technology, we are adding GrabCAD Print Software to Origin, completing the integration efforts to have a single platform across all of our co-manufacturing systems. We announced the availability of the first origin-compatible materials from our origin open material license. And importantly, we launched Origin Local, an offline non-cloud version, which is ideal for use by certain defense and government applications. When you consider all of these developments along with the new product that we recently launched, you can see why we are so excited about the future. Every execution on our strategy builds momentum; customers continue to permanently replace a number of their traditional manufacturing choices with our additive manufacturing solutions, expressing their long-term confidence in Stratasys. The recent supply chain and related issues have been a catalyst across the industry to rethink how they manage their product lifecycle. We see it happening with leading companies such as General Atomics, which invested in both Stratasys and Stratasys Direct and has been expanding its additive manufacturing program for unmanned aerial vehicles beyond tooling to end-use parts. They have a goal to increase the percentage of parts using additive on their UAV drones to 50% on their smaller ones and mid-single percent on the larger ones. We see it with healthcare companies like Medtronic, which has moved from machine tools to 3D-printer tools with Stratasys because they can create more accurate and complex paths while reducing cost by 80%, saving millions of dollars. And we see it with transportation giants like Alstom, which is 3D printing spare parts, tens of thousands of them, so far. As part of its industry of the future program, reducing its dependence on outside suppliers, while reducing lead time by 95%. There are many more such changes taking place across industries and we believe that this clearly shows the path that manufacturers have owned as they make their production lines more efficient, less costly, more sustainable, and simply better with Stratasys. We are also encouraged to see the U.S. Government and large manufacturers step up to help more companies get involved in our industry through the Additive Manufacturing Forward Program. This initiative was announced by the White House earlier this month and reflects their belief in 3D printing's benefit to the manufacturing economy. This includes building more resilient supply chains and onshoring manufacturing to help grow the economy. The program is specifically designed to help suppliers to companies like Raytheon and Lockheed invest more in additive manufacturing; GE Aviation, Honeywell, and Siemens are also some of the initial participant companies. While many of our largest customers are building out sophisticated advanced manufacturing centers, it's their suppliers who manufacture a lot of their end-use parts. This program helps incentivize more companies to invest in additive manufacturing given large OEMs are now committing to purchasing additively produced parts. The program will also provide training, technical assistance, and standout development, all things needed to help additive manufacturing go mainstream, and Stratasys has the full solution and broadest portfolio to support this initiative. With that, I will now turn the call over to our CFO, Eitan Zamir to share the financial results and update our outlook for 2022. Eitan?

Thank you, Yoav, and good afternoon, everyone. We're pleased to have delivered a strong start to 2022. The revenue growth, especially just 36.7% growth in our system sales along with our improving margin position us to build momentum through the balance of the year and beyond. For the first quarter, total revenue was $163.4 million, a 21.8% increase from the prior year period, driven by growth from all technologies and primarily by strength in systems. On a constant currency basis, total revenue increased 24% versus the prior year quarter. Important to note is that all key businesses were higher than the pre-pandemic first quarter of 2019, resulting in total revenue being 5.2% higher as compared to that period. Product revenue in the first quarter was $113.1 million, an increase of 45.2% compared to the same period last year or 27.8% on a constant currency basis. Within product revenue, system revenue increased 36.7% to $54.5 million compared to the same period last year and increased by 39.3% on a constant currency basis. System sales reflected the highest first quarter total in five years, strengthened by the launch of the Origin One in mid-February and the first full quarter of H350 sale. Importantly, the higher margin consumable business showed revenue increase by 16.1% to $58.6 million compared to the same period last year, an increase by 18.8% on a constant currency basis. Consumables revenue also exceeded the first quarter of 2019, as well as the fourth quarter of 2021, reflecting the impact of strong system sales throughout 2021, and their expected flow-through as initial materials are replenished. Service revenue was $50.3 million, an increase of 14.8% compared to the same period last year, and slightly higher than the first quarter of 2019. On a constant currency basis, service revenue increased by 16.1%. Within service revenue, customer support revenue increased by 10.1% compared to the same period last year, an increase by 11.7% on a constant currency basis. We note that 2022 is a year of strategic execution, following the important acquisition we made in the past two years to strengthen our technology portfolio and ensure we could provide comprehensive solutions across the entire polymer application space. These investments are already contributing to revenue, putting us ahead of the curve and increasing our competitive advantage in the 3D printing industry. Now turning to gross margins. GAAP gross margin was 42.6% for the quarter compared to 41.4% for the same period last year. Non-GAAP gross margin was 47.3% for the quarter compared to 46.7% for the same period last year. Margin improvement year-over-year was driven by higher revenues in systems, consumables, services, and improved operational efficiencies. This was partially offset by macro issues related to logistical challenges and availability of materials. GAAP operating expenses were $89.3 million, an increase of $15.3 million or 20.7% from the same period last year. Non-GAAP operating expenses were $75.3 million, an increase of $10.1 million or 15.5% compared to the same period last year. Non-GAAP operating expenses were 46.1% of revenue for the quarter, our lowest Q1 OpEx as a percentage of revenue in seven years compared to 48.6% for the same period last year. The $10.1 million year-over-year increase in operating expenses on an absolute basis was driven primarily by the impact of three acquisitions Xaar 3D, Origin, and RPS, as well as higher commissions based on higher revenue. We were pleased to see the efficiency of our model, where the additional operating expenses reflected only a 35% incremental cost instead of the historical range in the mid to high 40%. Regarding earnings, GAAP operating loss for the quarter was $19.6 million compared to a loss of $18.4 million for the same period last year. Non-GAAP operating income for the quarter was $2 million compared to a loss of $2.6 million for the same period last year. The difference reflects our business scalability and improved operational efficiencies, which resulted in better gross margin and lower operating expenses. GAAP net loss for the quarter was $20.9 million or $0.32 per diluted share compared to a net loss of $18.9 million or $0.32 per diluted share for the same period last year. Non-GAAP net income for the quarter was $1.2 million or $0.02 per diluted share compared to a loss of $3.8 million or $0.06 per diluted share in the same period last year, adjusted EBITDA of $8.1 million compared to $3.5 million in the same period last year, reflecting our improved profitability levels. We used $16.1 million of cash from operations during the first quarter compared to generating $22.8 million of cash in the same quarter last year. The use of cash was driven by deliberately increased inventory purchases and an increase in accounts receivable. We ended the quarter with $475.6 million in cash, cash equivalents, and short-term deposits compared to $502.2 million at the end of the fourth quarter of 2021. We remain well-funded and well-positioned to capitalize on value-enhancing market opportunities as they arise. Now let me turn to our outlook for 2022. I would note that our guidance continues to include full year anticipated contribution from MakerBot, as the announced business combination with Ultimaker has not yet closed. We expect the transaction to be margin accretive upon closing and we plan to update our outlook later this year. Today, we are tightening the revenue range from our previous guidance for 2022 revenue. It is now $685 million to $695 million. While we are encouraged by the level of engagement with our customers and confident in our growth potential, we are also monitoring global issues that can have an impact, such as the shutdowns in parts of China, currency fluctuations, and continued other supply chain constraints. We continue to expect revenue to grow sequentially each quarter throughout the year, with the second half of the year notably stronger than the first half. Revenue growth for the second quarter is expected to be low to mid-teens as a percentage over the second quarter of 2021. From a gross margin perspective, we continue to expect full year 2022 to be flat to slightly higher as compared to 2021, with the second half stronger than the first half, based primarily on higher revenue. We expect the second quarter to be relatively flat to the second quarter of last year. As a reminder, we view the current gross margin situation as temporary. When headwinds caused by logistics and material macro issues pass, and we continue to execute on our long-term plan, we expect our margins to add back over 50%. In 2022, we continue to expect our operating expenses to be approximately $20 million to $25 million higher than 2021, primarily due to the impact of owning Xaar 3D for the full year, higher costs that result from higher sales and investment in new growth drivers, such as Origin One and healthcare. Operating expenses are typically higher in the second quarter as compared to the first quarter due to the normal timing of compensation expenses. And while the absolute dollar value of these expenses will grow, we expect to see the percentage of revenue remain flat or even improve slightly throughout the year. While the first quarter came in stronger than expected, we recognize that the supply chain and other macro issues could impact our revenues and costs. So we continue to guide non-GAAP operating margin to be slightly above 2% for the full year. Longer-term, we expect operating margin to achieve double-digits as our growth plan unfolds. We continue to anticipate a GAAP net loss of $74 million to $67 million or $1.11 to $1.00 per diluted share. And non-GAAP net income of $10 million to $13 million or $0.14 to $0.19 per diluted share. Adjusted EBITDA is still expected to be in the range of $38 million to $41 million and capital expenditures in the range between 20 and 25 million.

Thank you, Eitan. Our strong start to the year and the strategic moves we continue to make demonstrate that we are executing on our plan. The powerful combination of our new technology offering, expanding the material and software solutions, strong balance sheet, and our dedicated talented team positions us well to execute on our strategy with excellence. We will continue to grow our top and bottom lines, improving profitability over time due to increasing scale. As I noted earlier, we are relentless about our focus to grow our leadership position in polymer additive manufacturing. Our results over the past two years clearly reflect that our strategy is working. With that, let's open it up for questions. Operator?

Our first question is from Greg Palm with Craig-Hallum. Please proceed with your question.

Yes. Congrats on the progress here. Yoav, you've been a big believer in having this kind of full product portfolio across different kinds of polymer technologies. And curious, now that everything is launched in the market, are you seeing that synergies in line with what you expected, or are they better? I mean, you mentioned the second auto OEM that's using all five, but curious if you think you're capturing more wallet spend with some of the existing customers as well?

Thank you, Greg, for the question. As we wrote in our script, the strategy is working well. The ability of Stratasys to leverage our infrastructure, our go-to-market, our expertise in polymer, and our cutting-edge technologies to build out our ecosystem to platforms, which are the materials and the software with cutting-edge technology capturing the synergies across technologies, but also within customers with the same go-to-market, it works and we are very encouraged by that, because we really put in place our differentiation and our uniqueness to work, and it worked.

Yes, Greg, it's Yonah. What I would add on that is, it's very encouraging to see how customers are actually making that permanent switch from their traditional manufacturing to additive. We highlighted a few of the customers in the slides, but there are dozens and dozens and I think that really is the strongest demonstration from the market that they believe in the technology and that we can help them improve their production lines. We look forward over the course of the next quarters and years to building and building on that, because that's how you start to disrupt traditional manufacturing and begin to take away the $13 trillion addressable market piece by piece.

Yes, completely agree. And it goes beyond just the five technologies; it's the ability to create a solution with the material which is open, validated, with the software, with the service, and put everything together around this package, which is practically connecting everything with the software. It would be very difficult for competitors to meet this offering to our customers.

Yes. That makes a lot of sense. My follow-up was going to be along those lines, in terms of who or what you think you're displacing. It sounds like maybe it's more a byproduct of displacing traditional technologies. But if all of a sudden, you've got customers that are using all five of your technologies, presumably you're displacing some competitors in the additive field as well. What are your thoughts on that versus traditional?

We are focusing on delivering value to our customers. We believe that using one platform of material, software, and service with five technologies, along with our expertise and application engineering, is the best value that we can deliver, and very competitive in the marketplace. That’s what will take us forward. In some cases, we see customers replacing other additive manufacturing providers, but we are focusing on adding value and not on taking out other systems or other providers.

Our next question is from Troy Jensen with Lake Street Capital. Please proceed with your question.

Congrats on the 22% growth here, it's pretty impressive. So first clarification for Eitan. Could you give us the dollar amounts again for systems and consumables?

You mean the total revenue after Q1?

Yes. Total system revenues in Q1 and consumable revenues in Q1.

So total system is $64.5 million and total consumables is $58.6 million.

Awesome. And for Yoav, polypropylene, I guess to my knowledge that material isn't available at all in the industry, and I think you said it wasn't widely available. So I guess I'm curious, is it real polypropylene or polypropylene-like? Am I correct in thinking that it's not really available?

So it is available, but we believe that our offering will be a much better one in terms of accuracy, speed, and cost per part, because of the versatility of our machine and the ability to have great thermal control which is very important from polypropylene. For many years, I was managing plants where the main input was polypropylene. It's a great material and it's really a great step into manufacturing. This is the most common plastic out there.

Yes. I totally agree. And am I correct that it was just the H350 that this is on?

Yes. You are right.

Well, congrats on the great results and I'll see you tomorrow.

Our next question is from Wamsi Mohan with Bank of America. Please proceed with your question.

Congrats on the strong results, really nice revenue growth. I was wondering if you can talk a little bit about gross margins. I think you guys alluded to both macro challenges and availability of material. So can you help us think through how much are gross margins pressured by inflation and supply chain issues currently? Because I understand your target is to be significantly higher. What sort of pressure are you currently absorbing?

So thank you, Wamsi, it's a good question. I mentioned in the script that in Q1, we had approximately a little bit more than 200 basis points compared to Q1 2021. That's the impact of the inflation and material cost. We did compensate with price increases, but we are really focused on delivery to our customers. That's our focus and we're able to mitigate some of these pressures and costs with price increases as I mentioned.

Okay. I'm also trying to understand the EBITDA bridge as it pertains to the second half versus the first half. If I just look at your OpEx guide increase for the year of $20 to $25 million, you already have about $10 million of that increase absorbed in Q1, and you already said Q2 is going to be up sequentially. So is it right to think that most of this OpEx increase is front-end loaded for you in the year? If so, if the back half OpEx is relatively flat, and you're already doing $8 million in EBITDA, why would you not see much stronger EBITDA leverage in the back half of the year? Because you're annualizing already to $32 million EBITDA and your low-end of your guide is $38 million. But your OpEx is so much front-end loaded. So can you just help me think through the moving pieces on this EBITDA bridge?

That's a good question. When you look at 2021 spread over the quarters, there was a difference between the different quarters and OpEx increase in the second half of 2021 that was partially related to the Xaar acquisition and other items that we've mentioned in previous calls. So the change in the increase that you see in Q1 versus Q1 does not necessarily reflect the trend for the next quarter. I hope that addresses your question. Then on the improved EBITDA or the kind of EBITDA that we guide, as mentioned in the script, we are very confident about our ability to meet our numbers and our guidance. But we do take into account the challenges, the macroeconomic challenges and the high uncertainty in the current market. We embedded that into our bottom-line guidance. As we move throughout the year, we will be able to update further if those conditions improve.

Maybe one thing, I would just want to leverage your question just to thank our operations team for your question about supply chain, because they did a fantastic job. I know many companies in and out of our industry that couldn't deliver or meet revenue targets because of supply chain issues. Our team did fantastically well. We are sourcing globally, but they found so many creative ways to deliver. And I thank them for that. Despite the fact that we put delivery as the first priority, we improved gross margin; all the flows for our up-scale.

Our next question is from Paul Chung with JPMorgan. Please proceed with your question.

So just on consumables, should we kind of expect some acceleration here maybe after such a strong rebound in system sales over the last couple of quarters? How typical is the lag for reorders for some of these newer systems? And then just on utilization rates from your installed base for consumables, where do you see kind of pockets of strength there on both materials and applications?

Thanks, Paul, for the question. You saw the increase in our hardware this quarter and also in the last few quarters. The higher the hardware growth, the more consumables and services will follow. We already started to see those fruits in this quarter, where consumables were the highest since Q2 2018. We expect to continue to see this growth coming from our new products.

Okay, great. And then follow up on the U.S. government initiative here, you have a slide pointing that out. Are your discussions kind of accelerating from some of those key companies in aerospace in this slide? Do you get a sense or maybe kind of possible government funding involved or are you seeing any catalyst from the policy side?

Thank you for the questions, Paul. We have a long relationship with the government, specifically with the U.S. government. We believe that government is a catalyst for the adoption of 3D printing because it's such a good fit for long sustaining programs for spare parts. We showed it with our Navy air deal, which is a long-term deal and we are supporting it. We are seeing more of those deals going forward. We have a lot of appreciation for the U.S. government as a catalyst for the adoption of additive manufacturing. The ability to leverage our relationships with corporate America and leading aerospace and auto players like Lockheed Martin and others to build a package that addresses not only the leading company but many suppliers is unique to Stratasys. When someone wants to step into additive to manufacture, it involves training, support, and we need to guide those small suppliers to meet the requirements and the certifications. We believe that the combination of corporate America, the government, and our infrastructure and capabilities can be a great success. It's a journey, but we are happy to start stepping into it.

Our next question is from Jim Ricchiuti with Needham. Please proceed with your question.

Question, just given where we are middle of May, wondering what you've seen in terms of demand? You obviously had a strong Q1 in terms of top line growth. But I'm just wondering in light of some of the macro challenges that we're hearing about, are you seeing any change in demand either in specific verticals or geographies, or are you seeing the same level of demand exiting the quarter that you saw in Q1?

Jim, thank you for the question. To date, demand is strong and it doesn't mean that we as leaders of this company are not looking all over and planning for the future. We are looking at what's going on in the capital market and in other markets, but it's clear to us. Today, demand is strong. This is why we build our inventory; you can see it in the report. We build out inventory because the demand is strong and we need to meet the demand. We are not driving blind, and of course, we are cautious, but thankfully the demand currently is strong.

And a separate question in a somewhat unrelated area. I just wanted to follow up on the new products that you've introduced into the textile printing market. I wonder if you could talk a little bit about the strategy for this product. It seems like it's a different channel. And to what extent is this more of a gradual introduction in terms of planting a flag in this market?

It's a great question. As I mentioned, we have four growth engines: the cutting-edge technologies, the five technologies, software, material, and service. But nothing will work if we don't cross the chasm of this industry from prototyping to manufacturing. You can cross the chasm only with use cases. Fashion is a great use case with huge potential; our addressable market is the high-end fashion market. We are talking about luxury goods and high-end fashion because we can do something that no one else can do. With our PolyJet technology, we can have design, we can work with the best house brands in the world and we are already doing it. We already have some fantastic results, and we are talking about thousands of items, like shoes and garments that are already there. Of course, it's just the beginning of the beginning. But we are going to show it in the Milan show, I think it's in June. It's super exciting, because it's a mass market, and it's real manufacturing; it’s real manufacturing with material jetting that no one believed was possible, but we made it happen.

And are you going direct or using a channel partner here?

Yes. We are doing both and we are also using service bureaus. This industry often works with outsourced high-end manufacturers, so we are doing both. It's really exciting; I invite you to come and see at the Milan Fashion show; it's amazing.

Got it. Congrats on the quarter, by the way.

Our next question is from Ananda Baruah with Loop Capital. Please proceed with your question.

Congrats on the strong execution and to give results the following day. You're welcome. Could you remind us to the extent you can give us context on for the second half of the year, over the remainder of the year, what you guys will be doing in terms of new products across the platform? I think a quarter or two ago, you had mentioned that you had new products coming out throughout 2022. That would be great.

Yes, this is a great question. Thank you, now it’s clear. We had last week our manufacturing event, experiencing Stratasys manufacturing. Within this event, we were very clear on the new products. The focus now is to take what we have and make sure that it's suitable for manufacturing. It starts with two new materials, the PA-12 and the polypropylene for the SAF technology. We have overall 16 new materials. I don't want to specify everything, but launching 16 materials in one year is remarkable. We are making sure that we are following our strategy. It's not only about the cutting-edge machine; you have to also consider the software and the material and the service to be successful. From my perspective, this is real additive manufacturing 2.0; because it’s not about the technology. It's about solving the customer's problem. This is 2.0, and you can beat 2.0 AM only if you have the full solution. I'm proud to say that we have the full solution.

That's great. Looking forward to seeing the rest of the year.

Our next question is from Noelle Dilts with Stifel. Please proceed with your question.

Congrats on the good quarter. It seems like you're pretty satisfied with your current hardware technologies and offering. But can you revisit if there is anything you feel you need to add on that front? And if you could just generally speak about your M&A priorities?

Noelle, thank you. It's a great question. We are not satisfied at all with what we have. That's not our nature here; we're not satisfied with anything. For each one of our technologies, we have a five-year roadmap to ensure that we will be at the forefront of this technology for many years to come. We spend a very high level of R&D to make it happen. Having said that, and by the way, it's in our five-year plan, our annual operating plan in each of our technologies. But let's put this aside; we also understand that we must invest in material, software, and improving our service because we are taking our solution and those technologies to manufacturing. This is a completely new set of requirements from the customer side. So that’s exactly what we are doing. In terms of technology to get back to your question, we are investing; we have an arm that we should probably announce in more detail. This arm invests in technologies to ensure that we are not only innovating internally but also externally to secure our polymer leadership position. We invested in companies like Genera, 9T Labs, and InkBit, which are really the new generation of AM, and we will make sure that they will be part of our offering as well.

And Jim asked this question a bit, but could you expand a little bit on what you're seeing from a geographic trend perspective?

Geographic trends.

We set aside the lockdown in China that obviously impacted the entire world. We see strong demand across all our geographies and a very strong quarter for our EMEA business, but also in our other businesses strong demand.

We have reached the end of the question-and-answer session. And I will now turn the call over to CEO, Dr. Yoav Zeif for closing remarks.

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

This concludes today's conference and you may disconnect your lines at this time. Thank you for your participation.