stratasys (ssys) q2 2018 results - earnings call

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Stratasys Ltd. (NASDAQ:SSYS) Q2 2018 profit call at 8: 30 a. m. on August 1, 2018, ETExecutivesYonah Lloyd-Stratasys Ltd. El Chalan jaglon-Stratasys Ltd. Lilach Payorski-Stratasys Ltd. David Reis -Stratasys Ltd. Analysis people David in Jack Ryan. LLLPBrian P, a financial group. Drab - William BlairLLCTroy D. Jensen - Piper Jaffray & Co. Shannon S. Cross - Cross-study of Mohan Ibuprofen Suspension Drops Bank of AmericaCraig- Hallam Capital Group Limited LLCAnanda Baruah-Needham Circular capital marketCowen & Co. LLCHendi Susanto- Gabelli & Company, Inc. Ladies and gentlemen, today is a good day for operators and you are welcome to attend the 2018 Stratasys earnings conference call in the second quarter. At this time, all the participants were listening. only mode. We will have a question later-and- The answer link and instructions will be held at that time. This call is being recorded as a reminder. I \'d like to transfer the call to Yona Lloyd now. You may begin. Yonah Lloyd -Stratasys Ltd. Thank you, Michelle. Good Morning, everyone. Thank you for discussing with us our financial performance for the second quarter. Today we are talking to the interim CEO, Elan Jaglom; David Reese, vice chairman and head of our board of directors Oversight Committee; Lilach Payorski, chief financial officer; Cody Burke, Director of Investor Relations I will remind you that on the web address provided in our press release, today\'s call can be accessed online, including a prepared slide presentation. In addition, a replay of today\'s call will be provided, including access to the slide presentation, and can be accessed through the Investor section of our website. Please note that some of the information you will hear in our discussion today will include forwarding- Includes, but is not limited to, statements on revenue, gross profit margin, operating expenses, taxes and future business prospects. Actual results or trends may differ greatly from our predictions. For more information, please refer to the risk factors discussed by stratasy in the Annual Report on Form 20- F. February 28, 2018 report to SEC on 2017 and our report on Form 6 K, and the associated press we provided to the SEC today about our revenue for 2018. Stratasys is under no obligation to update any forwarding- Statements or information as of their respective dates. As in previous quarters, today\'s call will include GAAP and non- GAAP Financial indicators. The non- The GAAP financial indicators should be combined with our GAAP indicators to evaluate our performance. Certain non- GAAP-to-GAAP reconciliation is provided in our slide presentation and in the form contained in today\'s press release. Now, I want to transfer the call to our interim CEO, Elan Jaglom. Elan? El Chalan jaglon-Stratasys Ltd. Thank you Yonah. Good Morning, everyone. Thank you for attending today\'s conference call. We are satisfied with the second quarter results, which is in line with expectations. We observed high- After a slowdown in the first quarter, terminal systems ordered and reverted to more typical ordering behaviour in key vertical industries such as our North American aerospace, automotive and government. In addition, the growth in consumables and service revenue has improved compared to the previous quarters, and we are satisfied with this. I\'ll be back on the phone later to update us on our search for a new CEO and other key developments. David will provide more details about the highlights of the quarter. But first, I will transfer the call to our CFO, Lilach, who will review the details of our financial results. Lilach? Lilach Payorski-Stratasys Ltd. Thank you, Elan. Good morning, everyone. Total revenue for the second quarter was $170. 2 million, compared with $0. 17 billion in the same period last year. GAAP operations lost $1 in the second quarter. 9 million, compared with operating losses of $5 million in the same period last year. Non- GAAP operating income for the second quarter was $10. Operating income was $11, or 6 million. The same period last year was 1 million. Product revenue for the second quarter was $118. 4 million, down 2. Compared with the same period last year, 2%. In terms of product revenue, system revenue fell by 8 this quarter. Compared with the same period last year, 2%. Revenue from consumer goods increased by 4. Compared with the same period last year, this figure is 8%, reflecting our strong use of the system installation Foundation. Service revenue for the second quarter was $51. 8 million, an increase of 5. Compared with the same period last year, 8% was driven by high customer support revenue growth and direct manufacturing performance improvement of Stratasys. Customer Support revenue increased by 9 in service revenue. Customer Support revenue includes revenue generated primarily by maintenance contracts on our system. Compared with the same period last year, 6% is mainly driven by the growth of the system base we installed and the increase in the additional rate of our service contracts. The gross profit margin of GAAP is 49. This quarter was 1%, the same as the same period last year. Non- The gross profit margin of GAAP fell to 52. Driven by the product mix, the second quarter was 5%, compared with 53% in the same period last year. Non- Gross profit margin of GAAP products fell to 59. 6% compared 59. The same period last year was 9%, which was also driven by the product structure. Non- The gross profit margin for GAAP services is 36. Compared with the same period last year, 2% flat. The operating expenses of GAAP decreased by 3. 2% to $85. Compared with the same period last year, the same quarter was 6 million. Non- The operating expenses of GAAP decreased by 0. 5% to $78. Compared with the same period last year, the second quarter was 7 million. Compared to $10, the company received $13 million in cash from operations in the second quarter. Cash generated in the second quarter last year accounted for 6 million. We ended the second quarter with $346. Cash and cash equivalents were $7 million, compared to $346. The end of the first quarter of 2018 was 5 million. Inventory fell to $0. 117 billion compared to $120. The first quarter of 2018 was 1 million. Accounts receivable increased to $123. $5 million, compared to $119. As of the end of 2018, 8 million days of sales performance or DSO at 12- Income behind the month 68. To sum up, as we begin to observe the recovery of high returns, the results of income are in line with expectations. Sales of North American terminal systems. We are satisfied with the continued revenue growth of consumables and services, which demonstrates the strength of the recurring revenue generated by our leading installation base. We are committed to long-term and sustained investment. Support our technology leadership and long-term initiatives to expand our target market. We continue to maintain the trend of generating positive cash from our business activities and believe that we maintain a healthy balance sheet and are fully prepared to take advantage of the opportunities to move forward. We reiterate our annual guidance issued earlier this year. I want to transfer the phone to Elan now. El Chalan jaglon-Stratasys Ltd. Thank you, Lily. After recently serving as interim CEO, I would like to take a moment to thank our outgoing CEO Ilan Levin for his contribution over the 18 years he has spent with us, first at Objet, then Stratasys. The board of directors of the company has appointed a supervisory committee to help support the management of the company during the transition period prior to the appointment of a successor. The committee is vice president of the company (sic)[Chairman] David Reese, board member, executive director and former CEO; Former chairman and founder, Scott Clapham, along with other directors; Dov Ofer was the CEO of the printing industry and has extensive operational experience. The company\'s board of directors has also set up an executive search committee composed of me and the chairman of the compensation committee, Victor livintal, to help identify a new executive. We are in the process and look forward to announcing the new CEO after we complete the search. I would now like to ask David to provide more detailed information about the results of the quarter. David? David Reis -Stratasys Ltd. Thank you, sharp. As Lilach points out, we are high about us. Driven by North American customers in the government, aerospace and automotive sectors, the second quarter focused on end-production products. As we pointed out in our last conference call, we did not see a change in the overall level of engagement in these vertical areas and continue to see an increase in the commitment of these key customers to adopting additive manufacturing technologies. In the second quarter, we released several announcements showing our continued leadership in additive manufacturing, including a quick new product introduction that we discussed at our last conference call. We are pleased to share that the initial interest in our new solution has been significant, including multiple global installations of our Fortus 900 Pro and Fortus 900 aircraft internal certificates (sic)[Certification] Solution to provide the performance and traceability required for production flight Use valuable parts of ULTEM 9085 and get the highest FDM repeatability, complete materialand- Process traceability and a powerful set of statistics. In addition, we saw the additional placement of the J700 Dental 3D printer in the dental laboratory to produce a clear alignment to solve an application that has matured from the qualification stage, it is now characterized by incremental unit sales to the base installed by the customer and a stable recurring income from consumables. We are pleased with the market\'s response to the products we recently announced and believe that looking forward to the future, our technology roadmap and investment strategy will accelerate the development of the project to expand our addressable market, including our new metal additive manufacturing platform, advanced composites, software and application development, and further development of our limited differential and bunching technologies. We believe that this effort will continue to lead to the development of products, which will enable our customers to design and manufacture products with confidence, and ensure that we drive adoption and growth of customer engagement and collaboration in a more in-depth way. I would now like to transfer the call to our vice president of investor relations, Yonah Lloyd, who will provide you with further details on our 2018 financial guidance. Yonah? Yonah Lloyd -Stratasys Ltd. Thank you, David. Our guidance on 2018 is as follows: Total income is between $0. 67 billion and $0. 7 billion GAAP net income is between $16 million and $27 million or $0. 30 to $0. 50 per share after dilution. GAAP\'s net loss was $41 million to $25 million or $0. 75 to $0. 46 per share after dilution. Non- GAAP operating profit margin 4. 5% to 6%. Capital expenditures are projected at $30 million to $40 million, from $40 million in previous guidance to $50 million. Our guidance reflects an increase in investment in R & D, tools, materials and additional resources, designed to expand our addressable market by accelerating our development efforts for new metal additive manufacturing platforms based on our FDM and PolyJet technologies and specific go-to- Market initiatives to deepen customer engagement. We believe in this slope. An increase in operating costs for guidance will provide the basis for long-term operationsterm growth. Non- GAAP earnings guidance does not include a share of $32 million to $34 million for the projected Amortization of intangible assets and $17 million to $19 million Restructuring and other related costs of $7 million to $9 million, including $4 million to $5 million Adjustment of general accounting standards in the United States. Estimated non 2018 of the GAAP tax rate is affected by the deferred tax asset continuing non-cash valuation allowance, and we expect that deferred tax assets in the United States will be on record for the yearS. losses. Given the continued negative impact of non-record tax incentives on our expectations in the United StatesS. Our net income and tax losses for important quartersto- Our non The Company believes that the GAAP tax rate GAAP operating income will be the best measure of our 2018 performance. Generally recognized accounting principles between appropriate adjustments and non- GAAP financial measures are provided in the form at the end of our press release and slide presentation and are listed in detail about non- GAAP Financial indicators. Operator, you can open the problem phone now. Question-and- Session operatour answers the first question from Hanna finance by David Ryzhik. Your line is open. David Ryzhik - Susquehanna Financial Group LLLPThanks thank you very much for answering this question. With regard to the North American government aerospace orders, in the last quarter of the conference call, it sounds like the team is still trying to understand why the pace in these areas is slowing. Have you fully identified these reasons and can you share them if they fully support us? Then go ahead and if you can share some color about the demand status of these vertical industries so far in 3Q and how we should think about it, I have a follow up suggestionup. Thanks. David Reis -Stratasys Ltd. Yeah. Hi, David. Good morning. It\'s David Reese. I think, first of all, we don\'t know how to explain the slowdown in the first quarter, which may be a bit random. Still, as you mentioned, we do see a major recovery in the second quarter. In the government sector, this may be related to slow government spending. In any case, we did see an increase in demand in these vertical industries in the second quarter. I can\'t say what happened in the third quarter, but we are planning on it. So we are optimistic that what we saw in the first quarter was a one-off event. We see a strong demand from existing customers who are buying more systems for applications and manufacturing that are passing or have passed the qualification process. So we are optimistic about this part of the market. David Ryzhik - LLLPGreat, a group of Susquehanna. Thanks, David. Can you provide an update on the expected operating expenditure for the second half of the year, especially on the pace of R & D spending for the rest of the year? Lilach Payorski-Stratasys Ltd. Good morning, David. Thank you. It\'s Lilach. So, obviously, the second part of the year is-compared to the first part of the year, we have experienced seasonality from an income perspective. This proves the growth of the second part of revenue this year, and we will obviously see some fluctuations in operating expenses to solve this problem. From a R & D perspective, we continue to invest at the same level as our plan in R & D to increase our addressable market and introduce new products to the market. We said at the beginning of the year that this is an initiative, like 2018, and we will continue to do so in the second half of this year as well. David Ryzhik - Thank you very much to Susquehanna Financial Group. The next question comes from Brian Blanche of William Blair. Your line is open. Brian P. Drab - William Blair LLCHi, thank you for answering my question. So the first question is about guidance. You have paid $0 in the first half of this year. 20 in the adjusted EPS, the price of hitting the lower end of the guide in the second half was only $0. The third quarter and the fourth quarter totaled 10. I\'m just wondering what scenario you might imagine that would produce that result, or is it just conservatism? Why not improve the low end of the guidance? Lilach Payorski-Stratasys Ltd. Yeah. As we say, our expectations are twofold. In the instruction, there is-I understand your $0 math. 27 (00:18:26)plus the $0. But we will be within our guidance. Keep in mind that the third quarter is seasonal and traditionally less seasonal in terms of income. Therefore, we expect operating activity margins to decline slightly in the third quarter from an operational perspective. Therefore, we are always confident that we will remain within the scope we have set for this year. Brian P. Drab - William BlairLLCOkay. As you said, revenue and profit margins in the third quarter may fall from the second. How is this explained? Lilach Payorski-Stratasys Ltd. Revenue and profit margin, yes, because (00:19:13). . . Brian P. Drab - William BlairLLCOkay. What is the impact of foreign exchange on income in the second quarter? Lilach Payorski-Stratasys Ltd. Do you ask about the monetary effect in the second or third quarter? Brian P. Drab - William Blair In the second quarter, how much did money contribute to income? Lilach Payorski-Stratasys Ltd. Yes. In the second quarter, if you compareover- This year, the impact of foreign exchange on annual income is about $2 million. over-year. Brian P. Drab - William Blair Thank you very much. The next question comes from the consequences of operatotour Troy Jensen. Your line is open. Troy D. Jensen - Piper Jaffray & Co. Yeah. I would like to welcome back, David. David Reis -Stratasys Ltd. Thank you. Troy D. Jensen - Piper Jaffray & Co. Hey, so, David, maybe it\'s from you. I think I \'d love to hear your thoughts on the direction of Stratasys since you left. I think I always thought you were more of a technology. Focus on people, really push the company to new technologies, such (00:20:12) The project you are working on. But, Elan, when you see that they seem to be more focused on the solutions of limited and PolyJet, recently you have given up a lot of opportunities to enter some new markets, SME technology, so I \'d love to hear what you think or what the board thinks about the direction of Stratasys? David Reis -Stratasys Ltd. I think it\'s a story,00:20:37)long time. First of all, we will continue to follow the direction of the past year or two until the CEO takes office. In general, you can see from the numbers that we are very confident about the future of the company, and we are taking steps to invest heavily in the R & D and development of new products and technologies. I think the overall strategy has not changed over the past few years. The market changes with better things. The overall strategy has not changed. We are very determined to develop our business in three very active directions in the past few years, investing heavily in development, manufacturing products and tools so that our customers can enter the development or manufacture of fixtures, tools, and at the end of the day Using parts, we are making very good progress and I think it is clear that about half of our large box machines have been sold to customers in the company, over time, they go deep into these specific applications, so that\'s the strategic side. Another problem is that we still have strong confidence in the rapid prototyping business, which is obvious in the release of F123 machines, we replaced this dimension in this uPrint machine, we have achieved great success there. In terms of our development and the MakerBot line of business, we still stress very much that we are confident that this will begin with, and I can tell you that MakerBot is implementing our plan for this year and doing better. We believe this is a very important market, and we have invested a lot in R & D. Third, as we promised many years ago, we are doing now. We are very active in very specific areas and we think it will also be a very profitable part of the metal market and hope to have good announcements in this area in the coming years. This is our overall strategy. Troy D. Jensen - Piper Jaffray & Co. Okay, David. Just to focus on the growth of the product, it has dropped by 8%-over- It\'s just a hybrid FDM and PolyJet from a year to now. So what is it in the other direction? I mean what you really need to see. . . David Reis -Stratasys Ltd. Yeah. Troy D. Jensen - Piper Jaffray & Co. . . . Accelerated product growth for LLC and PolyJet? David Reis -Stratasys Ltd. Yeah. So, yes, that\'s one of the things we\'re obviously a little disappointed with because our hardware sales are down. We see two things happening in the market. On the one hand, as I mentioned earlier, we see more and more traditional, very large customers around the world buying hardware, especially big boxes, which is a signal, indicates that customers who actually adopt the technology are going through the qualification process. They believe in Stratasys, believe in what we are selling and buy more and more from us. You can see very strong gains-some parts of the aerospace, automotive, dental market. So we know that our products are effective. The reason we see some of the declines is that the market is flooded with many other products today and I am very confident that there will be improvements in the coming quarters. If you look at it from the eyes and standpoint of our clients, I don\'t blame them, and of course they are trying and testing anything on the market, including new entrants I believe we have at least one of the most powerful products in the industry. With all due respect, you sell more than anyone else. I believe that the market will mature over time and adopt some new technologies, but over time we will go back and buy more and more Stratasys devices, because we will launch more new products, there are more advanced products in all areas we are good. So I hope it\'s a short time. The term phenomenon, we will see this level of recovery in the coming years and quarters. The next question comes from Shannon Cross, a cross-study. Your line is open. Shannon S. Cross - Thank you very much for accepting my question. I would like to ask about the competitive environment, I don\'t know, David, given that you are. . . David Reis -Stratasys Ltd. Yeah. Shannon S. Cross - Cross Research Limited. . Come back and see. . . David Reis -Stratasys Ltd. Yeah. Shannon S. Cross - Cross Research Limited. . What has happened in the past few years. How do you see things sorted? What should you do to upstart (00:25:49) What is the most concerned? Where do you think your best position is, like-I don\'t know the overall view of the competitive environment? David Reis -Stratasys Ltd. I think-I\'m going back to the company for six to seven weeks every day, so I\'ll be back learning soon. So I will share with you what I know now. I don\'t think so- I think all of us are lucky that our market is growing. Different segments grow at different rates, but overall the market is growing and we see growth in many areas of our business. I think it may sound a bit strange to some of you in general, and in terms of products and technology, I don\'t think the problem today is competition. For example, we have some share in the wallet competition, which will disappear as people spend more on 3D and additive manufacturing technologies. Head-to- If you look at the products we offer today, your high High-end Fortus machines, high-end, very high-resolution PolyJet machines, we have no real competition. No one can produce very similar parts as we did using the J750, and no one can produce similar parts as we did today on Fortus 900 and Fortus 450. So to this extent, this is not competition. As I said, I think we are lucky that the market is expanding. I think all the companies, many of the participants, have found their own problems in this very, very future big market. In the short term, we have some competition in the share of wallet and the share of thinking, which I think will be solved by itself after the market crystals. By the way, for people on phones that have more history in the industry, I think we saw a similar phenomenon in the desktop market in 2012, on the market of both. If you take a closer look today, you will find that it is getting better today and the number of competitors will drop. The market will select three, four, five competitors on a global scale, they will provide whatever they need, and I think similar phenomena will be high There is no doubt that the company will take advantage of technology and a wide range of products, and Stratasys will be one of the three, four leading competitors. Shannon S. Cross - Cross-research and talking to clients, or maybe a bit early, but I\'m just curious, what do you think is the biggest hurdle right now compared to a few years ago? We won\'t make it on a large scale, but at least for a while, but, compared to the situation in the past few years, the manufacturing utilization of 3D is higher? David Reis -Stratasys Ltd. This is a very good question. Let me give you an example. If you look at Aerospace, I think in many places of aerospace, both civilian and military, it is very much desirable to adopt AMA technology (28:58) What is the good reason for manufacturing costs, weight, efficiency, you can say so. Time has come for the adoption and identification of these technologies-Aerospace for example, OK, aerospace-and, by the way, medical space. This is a very, very long period, for example, assuming that I am a large aircraft manufacturer, I decided to use Fortus technology for internal design, OK, what some very big companies are actually doing. This will be a big game, a big game on the next generation of aircraft, as the current aircraft is ready for mold. Today, when you have the mold in your hand, it doesn\'t make sense to print a part of the inside plastic part on the plane. Therefore, with time, designers need to consider time when building the next aircraft, and the next fighter will take a few years. Now, if you read, I\'m sure you will, we \'ve made good progress with all the major players, but not because they think it\'s a great technology or Stratasys is not good enough The natural cycles of these industries are sometimes 5, 10, and 15 years. In many cases, we are waiting for the next cycle to make it a mainstream technology. So this is just an example, but if you look at the medical field, you\'ll see similar phenomena like regulation and FDA approval. So the cycle of entering the manufacturing industry-which, by the way, is true for all of our competitors; This is not a unique strategic situation-it is a long one. But I don\'t think the vision of being a very, very big industry has diminished by the need for more time. By the way, this gives us time to develop better technologies, and when they are going to adopt it, we will provide something that is more efficient than we are now. Shannon S. Cross - Thank you for your cross-study. The next question comes from Wamsi Mohan, Bank of Ibuprofen Suspension Drops, USA. Your line is open. Wamsi Mohan - Thank you, silver Ibuprofen Suspension Drops. So in answering a previous question, you said, look, I mean, if you look at the desktop market a few years ago, there are a lot of smaller competitors. They were all washed away. But you don\'t think that today\'s competitive environment is more from companies with more resources, which aim at a larger pool of profits, they have a big desktop-like supplier of China-made desktops than the competitors you see? So, when you look at the competitive space, do you think there are more risks to growth and the company\'s long-term profit situation at the high end? I have a following. up. David Reis -Stratasys Ltd. Yeah. First of all, my comment is-I will answer your question in a second-my comment on the desktop has nothing to do with the nature of the competitor, however, the overall haze in the market in 2012 is that when you have so many products, it is not clear who is doing what and what is good for what. So this is my comment. About High The last part of the market I thought that if-I don\'t even want to mention names-I would be stupid compared to GE, HP and other major players that have entered the market in the last few years. However, Stratasys is not a small company. I am not comparing myself to HP, but we are definitely a big player in this regard. I think we have the technology, the resources and the people who can fight in this market and have a good fight for big companies, by the way, today big companies are much smaller than us, but I will not tell you that it will be an easy battle. But I think we are big enough to continue to compete and stay ahead, despite the big engine. I think we are quite optimistic about it. Wamsi Mohan - Ibuprofen Suspension Drops Bank of America Thank you for your clarification. And then like a follow-up In such an industry, a typical problem is that as companies with larger resources enter the market, companies like you are very good at what you do, and have been there for a couple of years now, and as a quick means of acquiring technical expertise, it looks very attractive, expanding the footprint, and big companies can help you scale. So, how the board looks at trade -- As you look to the next few years, the trade-off between independence and being part of a larger organization? David Reis -Stratasys Ltd. I think today\'s belief is that we still have a long way to go as an independent company. We are in the early stages of realizing our vision and dreams for the industry. Now that we have 25 or 30 years of history, I think we are still in the early stages from an industry perspective. I think, from a value point of view, we believe that as a position, we can create very great value in the next few years. alone company. I think that is the general view today. Wamsi Mohan - Bank of America Ibuprofen Suspension Drops. Thanks. The last one, if I can, I mean, so far, what is the impact of the tariff and trade dispute on Stratasys? Thank you. Lilach Payorski-Stratasys Ltd. There is no significant impact specifically related to this, and we continue to monitor the situation and address it. Wamsi Mohan - Very thank Bank of America Ibuprofen Suspension Drops. The next question is Greg Palm from Craig. Hallum Capital. Your line is open. William palmCraig- Thank you, harum Capital Group. You commented on the power of North America, but I think you can also comment on your other geographical locations? David Reis -Stratasys Ltd. Yes. We are on schedule in Asia. Europe is a little slower. But I don\'t see anything dramatic, okay? Therefore, the overall situation of the company is largely the overall situation in different regions. As Europe was a little slower in the first half, we hope to recover in the second half. William palmCraig- Harum Capital Group Ltd. Okay. Then service sales increased by millions in the second quarter, compared to the last 8 to 10 quarters I would say. Can you give us a more detailed introduction to the drivers there? Lilach Payorski-Stratasys Ltd. Yes, customer support is a feature of the system foundation we have installed and the ability to provide extended services to our customers. So we certainly saw a good attraction there, and we also saw a good momentum in Stratasys Direct manufacturing, our parts business. We see that due to the recent organization and the interesting synergies between the organization and the US organization, the growth of the organization has improved and the organization basically sells hardware. Therefore, we have maintained a good momentum in terms of service. Yonah Lloyd -Stratasys Ltd. Greg, remind us that what we did earlier this year was that we brought the SDM business under Rich Garrity, which manages the US business. He really helped create some crosses. The functional synergy we mentioned last time. So we have seen some impact in the second quarter and look forward to more. William palmCraig- To be clear, has there ever been such a situation in Hallum Capital Group LLCAnd, perhaps anything in the big order or SDM, or-do you feel good about the momentum of the future? Lilach Payorski-Stratasys Ltd. No, there\'s nothing special about an order. This is definitely a good momentum and is looking forward to achieving this in the future. William palmCraig- Harum Capital Group Ltd. Thanks. The next question is Jim Ricchiuti from Needham & Company. Your line is open. Jim Ricchiuti - Li Qi company. Why don\'t we go back to the previous question about system revenue? In the past six quarters, we have seen four quarters of decline. My question is, it sounds like you think things will get better. But beyond that, when we consider the consumable part of the business, you still show moderate growth in this area. At what point should we be concerned that the decline you see in system revenue starts to adversely affect the consumable business, or do you see some areas of business that are really starting to drive the consumable business? Thank you. David Reis -Stratasys Ltd. So hi. It\'s David. Jim Ricchiuti - Needham & Company, LLCHi, David. Nice to talk to you. David Reis -Stratasys Ltd. Hi. How are you? I think the increase in consumables indicates the increasing adoption of this technology in different areas. There is a reason for the increase in consumables. As I said before, from the reasons I mentioned earlier, we don\'t expect-we want and expect the portfolio of market products to be more concrete in the coming quarters, as well as new products from Stratasys from different regions, we hope to stop and hope to reverse the decline in hardware sales, OK? So, you ask me if, mathematically speaking, the decline in hardware sales will affect the growth of consumer goods, and the answer is certainly yes. Mathematically speaking, it can happen at a point in time. Hopefully we won\'t get it from the two reasons I said. We work very hard on R & D and as you know, these things take time. We have increased our R & D budget. We have good products. Another part, I hope that the market can be rationalized. People like our old customers, our old customers will go back to buy stratasy\'s products, the quantity will be higher, and they will be purchased directly. Jim Ricchiuti - Needham & Company, do LLCAre have some apps or markets that drive some of the consumables business during the trading period? David Reis -Stratasys Ltd. Yeah, we see high-end FDM side. We see very good growth in some dental applications that are related to manufacturing. Jim Ricchiuti - LLCOkay Needham & Company. Thanks a lot. The next question comes from Ananda Baruah of Loop. Your line is open. Ananda Baruah - Guys, LLCHi, the revolving capital market. Thank you for answering this question. Welcome back, David. (00:41:24) Just a little bit here. David, there are a few people, if you can, you mentioned earlier, and I think I mentioned it again, you believe, in the near future, you think customers will summarize countless products and start making choices, which will have a positive impact on the sales of stronger participants. Can you talk to something or what makes you have this intuition? Is there anything specific about this? Or based on past experiences? And then I did. up as well. Thanks. David Reis -Stratasys Ltd. I apologize. I don\'t think I\'m talking about the near future. I\'m talking about the future. Yes, the rationale and approach I think is that we do see customers who adopt our technology in several vertical areas coming back to us and buying more and more machines. By the way, both are high. The final prototype of the manufacturing side and the manufacturing side. So my assumption with me is that they know what they\'re doing. So if they decide to adopt and sell the technology, go through the qualification process, say, and decide to buy two, three, four Fortus 900, this means that these machines are actually creating profits and good returns on investment for these customers. Now, the percentage of customers using these technologies around the world as a percentage of potential customers who can adopt them is small, okay? So we have many customers around the world who either buy the look and look of different technologies in AMA or are in the experimental stage (00:43:33)market. So, because we saw-I think we also said on the previous phone that about half of the sales of our big box machines go to our installation base, okay? So, I don\'t see any good reason why, over time-and I don\'t think I \'ve said that either-over time, there may be many other customers who should follow some of the big names you are familiar with and decide to adopt our technology, OK, as a leader in their industry. There are a lot of followers in the process, as I explained before, why does it take time, OK? So maybe it\'s a big difference compared to our competitors, and we have evidence that our customers are adopting these technologies and scaling them up. I think our competitors, to a large extent, are three or four years behind when people buy our technology to experiment and see what they can do. That\'s why-again, I say I\'m cautiously optimistic and again, I don\'t think it\'s short term. I think it\'s a medium/long- Long term outlook for the industry as a whole, not the upside down results for the third quarter, fourth quarter, and first quarter. Ananda Baruah - The cycle of capital markets. Very helpful. Most specifically, thank you. Then go back to the guidance and what is implied in the second half of the year, and one of the reasons is-may just be conservatives, but, which one is one of the second softer reasons implied, that is, to guide the lower half of the EPS range? Are you increasing your investment in some areas? If so, can you talk about what these areas are? Thank you. Then I gave it to you. Lilach Payorski-Stratasys Ltd. Thank you. So this is a combination of a few things. First, the third quarter is a weak quarter in terms of revenue. So the first and third quarters are weaker than the second and fourth quarters, so in our experience in the next quarter, the revenue side may see a weaker revenue outlook. From an operational perspective, we will continue to invest in R & D and those initiatives that we believe will drive our company forward, both from the R & D perspective and from the go-to-market. So if you combine the two, your operating margin in the third quarter will drop slightly, in terms of how you model the second part of the year. The next question comes from James Young of Cowen. Your line is open. James Dev. Cowen & Co. LLCHi, thank you for answering my question. So, as a perfect addition to the last answer, you mentioned that the gross profit margin in the third quarter should be lower than in the second. I want to know how much of this is due to a quarterly decline in system sales. over-quarter? Or, in other words, is it due to mixing, or is it due to some movement of edges in different categories? Lilach Payorski-Stratasys Ltd. Can you repeat this question? James Dev. Cowen & Co. I\'m sorry. You mentioned that the gross profit margin in the third quarter should be lower than in the second quarter. I am asking, how many of them are due to the mix between systems, consumables and services, and how many are due to changes in the distribution of profits in different segments? Lilach Payorski-Stratasys Ltd. Okay. I would like to clarify that there is no mention of a decline in gross profit margin. It was mentioned that operating margins had fallen. Therefore, we do not expect any major changes in the gross margin trend. Clearly, gross margin is due-from a cost perspective, there are various vectors for gross margin, product mix, and cost changes in the life cycle of the product. Therefore, there must be a variety of vectors in the gross margin. But we don\'t expect anything in the third quarter to suggest a decline in gross profit margin in the third quarter. Overall, our operating margin will be slightly lower than what we experienced in the second quarter, as we will start with a weaker revenue perspective and we are continuing to invest in R & D initiatives, we maintain a similar speed on the cost of other operating levels. James Dev. Cowen & Co. I apologize to you. I think earlier you said on the phone that gross profit margin would drop in the third quarter. So I apologize. Lilach Payorski-Stratasys Ltd. That\'s fine. James Dev. Cowen & Co. LLCNow, like I want to say, if you start to re- Disclose or disclose the unit shipment again as you did before. This will be very helpful in the modeling process. I have a few more questions about room service. What is the capital expenditure in the second quarter and what is depreciation? Lilach Payorski-Stratasys Ltd. Capital expenditure for the second quarter was $5 million. Depreciation, we will reply you about this number. The next question is from Hendi Susanto of Gabelli & Company. Your line is open. Hendi Susanto - Gabelli & Company, Inc. Good Morning Alan, David and Lily. My question is Annual revenue guidance means sales growth in the second half of 2018 was between 3% and 12%. Given that the third quarter is a soft quarter, how should we consider potential scenarios that help Stratasys generate growth at the high end or at the midpoint of that interval? Lilach Payorski-Stratasys Ltd. Yes, the third quarter is a traditionally weak quarter, but the fourth quarter is also a quarter where revenue is traditionally very strong. So we do expect the overall performance of the second part of the year to be stronger than the first part of the year. This is the change we are looking forward to-this is what we are looking forward. We are pleased with the signs of recovery that we have seen in North America, although our focus is primarily on government, automotive and aerospace, and we do have a very heated channel discussion and engagement with our customers, this leads us to the belief that we will be able to achieve this established goal in the second half of this year. Therefore, starting in the second quarter, we are confident that we will be able to achieve the above guidance. Hendi Susanto - Gabelli & Company, Inc. Even within the middle point and upper limit of the boot? David Reis -Stratasys Ltd. Guidance. Lilach Payorski-Stratasys Ltd. Yes, we will meet the scope of guidance. We have not specifically discussed whether it is high-end or mid-point. Hendi Susanto - Gabelli & Company, Inc. Got it. That\'s helpful. Thank you very much. At this point I would like to transfer the call back to Elan Jaglom for any closing remarks. El Chalan jaglon-Stratasys Ltd. Okay. Thank you for joining us today. We look forward to talking to you again next quarter. Thank you. Thank you all for attending today\'s meeting. This does end the program and you all may be disconnected. Everyone, I wish you all a good day. Make your rapid prototyping business rapid prototyping business. Invest in professional rapid prototyping business services. For more info, check out huhd的站点.

stratasys (ssys) q2 2018 results - earnings call

1 stratasys (ssys) q2 2018 results - earnings call Mon Mar 02, 2020 12:56 pm

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