stratasys (ssys) q3 2018 results - earnings call transcript

Stratasys Ltd.Stratasys Ltd.NASDAQ:SSYS)At 8: 30 a.m.on November 1, 2018, etexecuesyonah Lloyd-2018 revenue call for the third quarterStratasys Ltd.El Chalan jaglon-Stratasys Ltd.Lilach Payorski-Stratasys Ltd.

David Reis -Stratasys Ltd.AnalystsTroy D.Jensen -Piper Jaffray & Co.Brian P.Drab -William BlairMohan-Ibuprofen Suspension Drops Bank of AmericaCircular capital marketCross -Cross-study LLCHendi Susanto-Gabelli & Company, Inc.

David Ryzhik -LLLPBen Z, financial group.Rose -War road Research Co.Ltd.Good morning, ladies and gentlemen, welcome to the third quarter 2018 Stratasys earnings call.As a reminder, this conference call is being recorded.

I would like to transfer the phone to your host Yonah Lloyd now.Yonah Lloyd -Stratasys Ltd.Thank you.Good Morning, everyone.Thank you for discussing with us our financial performance for the third quarter.

Today we are talking to the interim CEO, Elan Jaglom; David Reis, vice chairman and head of our board of directors Oversight Committee, joined by telephone; And our chief financial officer, Lilach Payorski.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 accessible through the Investor Relations section of our website.Please note that some of the information you will hear in our discussion today will include forwarding-Outlook statements, including but not limited to statements regarding our expectations for future earnings, gross margin, operating expenses, taxes and other future financial performance, and our expectations for the business outlook.All statements relating to future performance, events, expectations, or results are forward --Look at the report.

Actual results or trends may differ greatly from our predictions.Risks that may lead to significant differences between the actual results and the results specified in the forward,Looking at the report, please refer to the risk factors that stratasy discussed in the Annual Report on Form 20-F.February 28, 2018 report to SEC on 2017 and our report on Form 6K, and the relevant press release we have provided to the SEC today regarding 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 happy with our third quarter results, which show high-End-system orders that began in the previous quarter, as well as improvements made directly by Stratasys, and steady growth in recurring consumer goods and consumer support revenue.I will be back on the phone later to provide an update on our search for a new CEO, and David will provide more details on the quarter's highlights and other key developments.But first, I will transfer the call to our CFO, Lilach Payorski, who will review the details of our financial results.

Lilach? Lilach Payorski-Stratasys Ltd.Thank you, Elan.Good morning, everyone.Total revenue for the third quarter was $0.billion, compared to $155.

The same period last year was 9 million, up 4% year on year.After adjusting the entity to sell our divestiture this quarter, in a similarfor-As with basis, total revenue grew by 6%.GAAP operating income for the third quarter was $3.million, while operating losses of $6.The same period last year was 9 million.

Non-GAAP operating income for the third quarter was $8.Compared to $8 in operating income, it was 2 million.The same period last year was 1 million.Product revenue for the third quarter was $109.million, increase 1.

compared with the same period last year, 3.does not include entities that have been stripped.In terms of product revenue, the system revenue for the quarter was flat from the same period last year, but increased by 3.after adjustment for the entity being stripped.Revenue from consumer goods increased by 2.

Growth of 6% over the same period last year, an increase of 4.does not include entities that have been stripped.Service revenue for the third quarter was $52.million, an increase of 10.Compared to the same period last year, due to the growth of customer support revenue and the strong performance of Stratasys Direct Manufacturing, the figure was 4%.

In service revenue, customer support revenue has increased by seven times, including revenue generated primarily by maintenance contracts on our system.Compared to the same period last year, 4% was mainly due to the increase in the number of systems we installed and the increase in the additional rate of service contracts.The gross profit margin of GAAP is 48.Compared with 48, the quarter was 7%.The same period last year was 3%.

Non-The gross profit margin of GAAP is 52.Compared with 52, the third quarter was 1%.Driven by our sources of income, it was 5% in the same period last year.Non-Gross profit margin of GAAP products increased to 60.compared 59.

Driven by the product structure, the same period last year was 6%.Non-The gross profit margin for GAAP services is 34.compared with 36.The same period last year was 3%, reflecting an increase in our investment in customer service and support operations.GAAP operating expenses fell 8% to $75.

Compared with the same period last year, the third quarter was 6 million, mainly due to net income from divestment.Non-GAAP operating expenses increased by 3.to $76.Compared with the same period last year, the third quarter was 3 million, reflecting our continued investment in long-term R & D.Including the advancement of our core LLC and bunching technology, as well as our new metal additive manufacturing platform, advanced composites, and software and application development.

Compared to $4, the company generated $5 million in cash from operations in the third quarter.Cash generated in the third quarter last year accounted for 6 million.We ended the third quarter with $348.Cash and cash equivalents were $9 million, compared to $346.The end of the second quarter of 2018 was 7 million.

Inventory increased slightly to $118.million, compared to $0.billion in 2018.Accounts receivable increased to $129.million, compared to $123.

As of the end of second quarter of 2018, 5 million days of sales were not completed or DSO was at 12-The monthly income is 71.To sum up, our income results are in line with expectations and reflect highTerminal system sales.We are satisfied with the continuous improvement made directly by Stratasys, which contributes to the growth of overall service revenue.Our ongoing revenue growth in consumer goods and customer support is encouraging and demonstrates the continued health of the system base we have installed.We are satisfied with our operating expense control, which resulted in a reduction in G & a as we increased our long-term investmentSupport 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.I want to transfer the phone to Elan now.El Chalan jaglon-Stratasys Ltd.Thank you, Lily.As we pointed out in our last call, the board of directors of the company has set up an executive search committee composed of me and our compensation committee chairman Victor livintal to assist in the identification of new Chief Executive Officer.

Vic and I have been actively interviewing candidates, some of whom have gone deep into the process and we have met or talked with other members of the board.We believe that the people on our shortlist are strong leaders with relevant global operations experience, and we look forward to announcing the new CEO after completing 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.

In the first quarter, we were satisfied with the continued commitment we observed from our customers, which was reflected in the highThe continued growth in terminal production systems and recurring revenue for consumables and services is notable, although we experienced a decline in system sales at the beginning of the year.We are satisfied with the increase in customer commitment.As customers go beyond the qualification and validation phase of the app and expand their capabilities in a real production environment, we continue to see.For example, in the first quarter of last year, we talked about how Siemens Mobile developed the use of Stratasys FDM 3D printing technology by producing customized final production parts for German transport service providers.In mid-On September, Siemens Mobile announced the opening of its first digital railway maintenance center in Germany-Siemens mobile RRX railway service center.

The new repair warehouse is expected to serve more than 100 trains per month and provide the highest level of digital services in the railway industry, with Stratasys's advanced FDM 3D printer at the heart of their service operations.Increased inventory-sorryIn addition, on August, at the IMTS manufacturing exhibition, we showed multiple customers at the booth and highlighted the unique applications they solved today with our technology, including FedEx, they are working to deploy additive manufacturing facilities to locations closer to their customers as part of FedEx forwarding warehouse services to improve the efficiency of the supply chain.SLS (sic)[SSL]An aerospace customer who uses our FDM technology to quicklyHigh response customizationTemperature laying-Tools that used to be done with CNC.RockTandospirone Citrate Tablets Martin uses our new Antero PEKK advanced thermoplastic materials to make highly repeatable parts that meet the strict mechanical function and size requirements of space travel.And the Penske NASCAR department showed multiple 3D printing terminals.

Compared to multiple days using traditional machine methods, parts that can be created in one day using their production managers.In addition to the manufacturing applications that our technology can solve, we are excited about the progress we have made in developing new and innovative solutions, we believe this will expand our addressable market in advanced manufacturing in the coming years.We are pleased with the progress made in the development of new metal additive manufacturing platforms for short-term production, and expect that next year, as we move into various stages, there will be greater engagement with our development partners to commercialize.We are encouraged by the improvements in the performance and strategy of direct manufacturing.The SDM is benefiting from the organizational changes we made at the beginning of the year to directly incorporate them into the North American sales organization, and taking advantage of the synergy between our parts and hardware business and the strong growth in manufacturing orders under the leadership of metal parts production, our top customers have added more complex large projects and projects, aerospace in particularEspecially in the third quarter, we are pleased to see a significant increase in order size for several large customers and are increasingly relying on SDM to meet production parts and development needs.

As we discussed in the past, the combination of the SDM business has significantly shifted to more profitable additive manufacturing parts compared to traditional manufacturing.I would now like to transfer the call to Yonah, our Vice President of Investor Relations, who will give a more detailed account of our 2018 financial guidance.Yonah? Yonah Lloyd -Stratasys Ltd.Thank you, David.We are updating our guidance for 2018 as shown below.

Total revenues ranged from $0.billion to $0.billion, compared to the previous guidelines of $0.billion to $0.billion.

GAAP's net loss was $10 million to $2 million or $0.to $0.Compared to the previous guidance of a net loss of $41 million to $25 million or $0, the diluted $04 per share.to $0.per share after dilution.

Non-GAAP net income is between $27 million and $30 million or $0.to $0.Compared to previous guidance of net income of $16 million to $27 million or $0, the diluted share per share was $55.to $0.per share after dilution.

Non-The operating profit margin of GAAP is expected to remain at 4.to 6%.Capital expenditure is projected at $25 million to $35 million, compared with an earlier estimate of $30 million to $40 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.Non-The GAAP earnings guide does not include an estimated amortization of $34 million for intangible assets, a share of $16 million to $17 million-Net income from divestiture and restructuring based on $23 million to $22 million --Related expenses are between $6 million and $7 million, including tax revenue from non-tax-related negative $1 million to $1 millionAdjustment of general accounting standards in the United States.

Estimated nonThe GAAP tax rate of 2018 is subject to continuous non-We expect cash valuation subsidies for deferred tax assets to be recorded in the United States throughout the yearS.losses.Given the continued negative impact of non-record tax incentives on expectations in the United StatesS.The tax loss of our net income, and our non-The Company believes that the GAAP tax rateGAAP operating income is the best measure of our performance.Generally recognized accounting principles between appropriate adjustments and non-GAAP Financial indicators are provided in the form at the end of our press release and slide presentation with details about non-GAAP Financial indicators.

Operator, you can open the problem phone now.Question-and-Your first question is from Troy Jensen at Piper.Your line is open.Troy D.Jensen -Piper Jaffray & Co.

Hey, gentlemen, congratulate the improvement here.El Chalan jaglon-Stratasys Ltd.Thanks, Troy.Lilach Payorski-Stratasys Ltd.Thanks.

Troy D.Jensen -Piper Jaffray & Co.Hey, so fast, maybe for David, I think, or for Lily --The terminal system performed strongly this quarter.Have you seen this force in all vertical fields, and I think I'm trying to figure out when we really want to see a significant change in the Aerospace vertical? David Reis -Stratasys Ltd.So – okay.

So, for the second quarter in a row, we see power, mainly what we call government power, mainly military and aerospace.But I think if you look back, say four or five quarters, we will see the strength of all the manufacturing areas, including automotive, aerospace and military.Troy D.Jensen -Piper Jaffray & Co.Would you like to see a more meaningful acceleration of the aerospace business? David Reis -Stratasys Ltd.

I think-we talked about it last quarter.It takes time for the customer to move from testing and verification to actual production.In some companies, with the help of some partners, we see the process begin gradually.I think as customer confidence grows, we will see an acceleration in the use of molds and terminals in particularParts are used in these areas, especially in aerospace.Troy D.

Jensen -Piper Jaffray & Co.Okay.That's fair.But I want you, David.sorry.

Can you tell us what you think about the HP color release and whether this will affect PolyJet now, or do you think it will affect PolyJet in the coming quarters? David Reis -Stratasys Ltd.I don't think this will affect PolyJet at all, and I'm very happy to hear that HP is following us into the color market.I think the color will be the standard for prototyping in the next few years.This is a change of mentality of the user group.So I'm glad that other companies have entered the field as well.

I think technology-It is wise that from a technical and quality perspective, we are currently in the best position to lead this change.So I'm not worried about this.I am glad that other competitors have entered the field as well.Troy D.Jensen -Piper Jaffray & Co.

Okay.I will give up speaking if I can get another question, but can you talk about the material? I think they're two.maybe a little more when you take some divestiture into account.But-I mean, do you think the growth rate is sustainable or lower than the growth rate of historical trends? David Reis -Stratasys Ltd.Troy, I think there are two parameters for consumer consumption.

One of them is a direct derivative of the number of printers we sold in this quarter and last quarter.The other has to do with utilization, which is directly related to the number of applications we were able to provide the installation Foundation over time and improve the workflow and the like.So I think even though our machine sales slowed down in the first quarter, we are happy to see a rise in consumption.Directly related to it.So when we go back to the growth of hardware sales or more substantial growth, you see the growth of consumables.

We are making progress, not comprehensive, but many departments that improve applications and workflows, which leads to an increase in consumption.To sum up, I think I estimate that in the future, as we continue to restore hardware sales and continue to provide better workflow and application knowledge to our customers, we should see the growth of consumables.Troy D.Jensen -Piper Jaffray & Co.Perfect.

All right.Good luck and move on.David Reis -Stratasys Ltd.Thank you.Your next question comes from Brian monotony of William Blair.

Your line is open.Brian P.Drab -William BlairLLCHi.Thank you for answering my question.I just wanted to ask about the operating expenses first.

You showed this well on slide 10.R & D seems to have substantially increased by several million, with SG & a down a bit.Can you give us any help at the end of the quarter of 2018 and 2019? Lilach Payorski-Stratasys Ltd.Good morning.So, from the rhythm of operating expenses, from the point of view of revenue, usually the fourth quarter is also our strongest quarter.

So I would also like to see an increase in operating costs.In terms of R & D costs, this is consistent with our increased communication on core technology and ofdm technology as well as on metal investment earlier this year, and the addition of additional applications.The expenditure on R & D expenses is actually based on the life cycle and schedule of the project.So R & D doesn't necessarily have a specific seasonality, more like the project lifecycle I mentioned.Therefore, due to the seasonality of revenue, we expect operating expenses to be higher in the fourth quarter, and the speed of R & D may continue to maintain a similar level.

Brian P.Drab -William BlairLLCOkay.Got it.Can you then give me more updates on some of the technologies you are developing, especially in Evolve and Falcon, just a summary of this progress? This may also remind you of your ownership structure there and how these technologies and their potential success will affect your future results.Lilach Payorski-Stratasys Ltd.

So we reported earlier this year that we had divested Evolve.As a result, these results are not currently part of operating income.We basically share our share in the results of evolution.We maintain a minority interest in these entities.The results are basically below.

Therefore, we do not expect to have a significant result or impact on our finances.Brian P.Drab -William BlairLLCOkay.Just curious if you can comment on the reason why if these are such interesting technologies, why are they built this way, if you can benefit more from these exciting technologies, that would be great.I'm just curious.

Thanks.El Chalan jaglon-Stratasys Ltd.Brian? Next question...

El Chalan jaglon-Stratasys Ltd.Oh, okay.Go ahead.Sorry, go ahead.Your next question comes from the Wamsi Mohan line at Bank of America.

Your line is open.Wamsi Mohan -Bank of America Ibuprofen Suspension Drops.Thank you.Good morning.Thanks for the update of CEO search.

Sounds like you're a little close.Should we look forward to your announcement this quarter? It's hard to really underwrite this long-The long-term strategic direction of the company until you announce a new CEO who will either articulate the strategy or reiterate the strategy.So is this something fairly recent? I have a following.up please.El Chalan jaglon-Stratasys Ltd.

Yes, yes.So we have been actively looking for the CEO.As we have announced, we have interviewed some people, some very good candidates.That's not something I can say briefly, because I have to have a contract for that and we don't have a contract.So we do it very actively.

We are looking for a great leader with a strong investor background with global operating experience and we have some very good candidates.So we will do that when we are ready to announce it.We said it might take about nine months.We are within this scope, trust me, we want to do this as soon as possible and we will let you know once we have made some announcements.Wamsi Mohan -Bank of America Ibuprofen Suspension Drops.

Thank you.As follow-upUp, if you think the proposed Chinese tariff has any impact on your business, or the potential impact you hear from your customers, can you talk about it? Also, I would like to know if you can tell us if FX flows have any impact on your performance for the quarter and what you expect for the fourth quarter? Thank you.El Chalan jaglon-Stratasys Ltd.Okay, so Lily can handle it.So, Lily.

Lilach Payorski-Stratasys Ltd.Yes, thank you.Good morning.Therefore, we will certainly pay close and careful attention to all the changes that are taking place in the United States.S.

Changes in tariffs will change.At the moment, especially our business, we do not see significant impact from a cost perspective.But there may be some, but it will not be so important.We are addressing alternatives or any other alternatives from a cost perspective.What's the? Wamsi Mohan -Bank of America Ibuprofen Suspension Drops.

Lilach Payorski-Stratasys Ltd.The FX.Foreign exchange problem, we don't have this quarter-Foreign Exchange has not had such a big impact on us.The euro did not fluctuate so much.The impact was small, with revenues of about $500,000.

Wamsi Mohan -Bank of America Ibuprofen Suspension Drops.Thank you.Your next question is from Ananda Baruah at Loop Capital.Your line is open.Ananda Baruah -Yes, thank you for answering this question and congratulate you on the solid results achieved.

Can you, for us to summarize or go through what you want us to think is the 2019 driving force of the business and what you will focus on, if you guys can give us some of these people how to layer over the course of the year, it will also help? Then I followed up quickly.up.David Reis -Stratasys Ltd.Okay, David, let me get it.Good morning.

We believe it is possible for us to return to a reasonable growth rate in the third quarter.We will focus on two areas.One of them is our infrastructure and sales business.I think on a global scale, we can do better to improve our lead in sales and marketing.On the back of it, as you can see in our R & D budget, we are spending a lot of money developing a great product in all areas where we are active, with our SDM series, the manufacturing side has the best rapid prototyping system based on PolyJet Technology and re-manufacturing.

So next year and 2020 will launch very interesting products and improve overall operations in terms of global sales and marketing, and we hope this will pay off, even increased top line growth compared to what you saw in q3.Ananda Baruah -This is very helpful for the circular capital market.I appreciate it.Quick follow-up-up.Can you please remind us from a metal point of view, even at a higher level at this point, how do you see your division, relative to what has already happened, now that HP has revealed more, I just want to hear what you think about Stratasys difference? Thanks.

David Reis -Stratasys Ltd.Again, I can't spend too much money on this, but we are developing a unique technology that we believe in.But this must be proven in the coming quarters and years, which is well suited for remanufacture of metal parts.It is different from other technologies.I think it will be more suitable for production and cheaper.

As we said in the script, we are working with several important partners around the world to develop and finalize the exact way the system works.But we are advancing this process relatively.We will announce and provide more information when we are ready.Yonah Lloyd -Stratasys Ltd.Ananda, I'm Yuna.

At the formnext exhibition in Frankfurt two weeks later, we will have some delegates from the metal team present and we will provide more details there.So if you or anyone else, of course, can get there on the phone, you will definitely get more information.Ananda Baruah -This is a great market for revolving capital.That's great.Thank you very much.

Your next question comes from the Shannon cross line of Cross Research.Your line is open.Shannon S.Cross -Thank you very much for accepting my question.I am curious about the service surcharge rate within the SDM, which I think includes warranty and maintenance.

Maybe you can talk about what you 've been doing to increase this.How big is this opportunity over time? Yonah Lloyd -Stratasys Ltd.Have you ever asked SDM or FDM, Shannon? Shannon S.Cross -This is cross-study, sorry.I asked people like you-service, it's not a limited company.

No.So basically, you can-I can see from your transcript and some of the records-your prepared comments, you start to increase your emphasis on the maintenance of your products and other services, which helps to drive the growth of some service revenue.Right? Lilach Payorski-Stratasys Ltd.Yeah.Yes, so-yes, we see-we see continued growth in service revenue, contract maintenance, and time and materials, due to increased attachment rates for customer purchase update maintenance, and an increase in installation base, maintenance.

So this is basically what we have experienced for several quarters in a row.Therefore, it verifies that our customers are using machines and requires our additional added value to be combined with maintenance that brings value to our customers.They choose to actually renew the contract and continue to work with Stratasys, who have a result service.Shannon S.Cross -I guess what I'm trying to figure out is within your installation base, is this an opportunity to enter and sell out of service to your installation base, that way there will be more incremental growth than you can see from the product-attach new product sales, or this is not the local base where we can expect you to be able to sign incremental services and contracts with the people currently installed.

David Reis -Stratasys Ltd.Sure.Lilach Payorski-Stratasys Ltd.Yes, of course.okay, David.

David Reis -Stratasys Ltd.Again, we need to remember clearly that a major part of our business is the supply of consumables to our customers.So the fact that we are all able to show our customers that a full service contract is good for them, which often leads to higher satisfaction, a derivative of the machine's off-duty hours, this means higher consumables.So it's all connected.Therefore, it is a huge effort to establish a full service contract, because we know from past experience that customers with full service will usually be happier; B, they have higher uptime, so they use more consumables.

So hard is a crossCorporate efforts generated in terms of revenue and it services, but also indirectly affect sales of consumer goods.Shannon S.Cross -Thanks, Cross Research.Then David, can you talk, I thought about 2018, at least one of the feelings I got from our conversation with your company is that for the industry, this is a year of pause and there are a lot of technologies under development.It is clear that metal is not something you have to want, but something that benefits directly.

David Reis -Stratasys Ltd.Yeah.Shannon S.Cross -So I think in terms of your conversations with clients and your position, you think we have reached the point where 2019 more benefits from all investments in 2018 and 2017, or do you think the industry is just a bit slow and stable so we shouldn't be looking for an inflection point? David Reis -Stratasys Ltd.Overall, I don't think the industry is slowing down.

I think some companies, including ourselves and some other major companies, find themselves in a different environment where competition is much more intense, at least on paper, by the way, it's not direct competition, it's more attention sharing, and in some cases pocket sharing is indirect competition.I think I hope that in the next year or two our customers will see this as well, so they will be able to make decisions faster, because one of the things we 've seen-and we talked about it on previous calls-is that the speed at which customers decide to buy devices slows down, because at least it looks like there are more and more products and the terms are confusing.So I think it may become clearer in the next year or two.I think the overall situation is likely to improve because at least at Stratasys we are developing and investing a lot of money to develop new and improved technologies.So I think this combination, you ask me again, it will happen to start on 2019, end on 2019, start on 2020, and end on 2020.

I think I hope and look forward to seeing improvements in the medium and short term.Shannon S.Cross -Thank you very much for your cross-study.Your next question is from Hendi Susanto at Gabelli.Your line is open.

Hendi Susanto -Gabelli & Company, Inc.Good morning Elan, David and Lilach thank you for answering my questions.El Chalan jaglon-Stratasys Ltd.Good morning, Hendy.David Reis -Stratasys Ltd.

Good morning.Hendi Susanto -Gabelli & Company, Inc.One question.Can you share some of the main reasons why you are canceling your annual income guidance? Lilach Payorski-Stratasys Ltd.Yes.

Now, after we have ended three quarters this year, and we have visibility for the rest of this year, we believe that we are adjusting the guidelines, narrowing it down to $0.billion to $0.billion will definitely give you some insight into what's going on in the fourth quarter.We believe this scope can be achieved.Remind you that the fourth quarter is traditionally our highest quarter from a seasonal perspective.

We are confident that we will be able to meet these narrow guidelines.One thing to note is that we may be close to $0.billion, but we still keep $0.billion within the $0.billion range.

Hendi Susanto -Gabelli & Company, Inc.Got it.Thank you.Very helpful.Operator your next question comes from David Ryzhik's collaboration with Susquehanna Financial Group.

Your line is open.David Ryzhik -Susquehanna Financial Group LLLPHi thank you very much for answering this question.I want to dig deep into the advantages of SDM parts.I think it's up 12% a year.over-year.

Maybe in your discussion with the customer, the added parts order is a feature that they test your system, which can lead to hardware sales, or do you think they are separate parts businessDid they let you see that power in the next few quarters, do you think it is sustainable? I have a following.up.David Reis -Stratasys Ltd.Maybe I will answer the first part first.We said in the script that a few quarters ago, we basically linked the SDM to our North American business, and one of the reasons we did this was to try to create synergies between the two sales infrastructure.

Obviously, we also said on the conference call that there has been an increase in production SDM on the digital side compared to tradition.Of course, some digital products use Stratasys equipment and products.I believe that when a customer wants to buy the number of these devices or for different reasons, it will also affect their purchase decisions --house.As for future projections, I think we should expect to benefit from the synergies between the two organizations.Hopefully the results will continue to grow.

David Ryzhik -LLLPGreat, a group of Susquehanna.Thank you, David.And hope to get the latest information of F123 and MakerBot, especially F123.On the F123 side, I would love any color there and on MakerBot it sounds like you guys have some new product introductions on the way.David, I would be happy to learn what you think about the desktop opportunity market, how do you see it, and what we expect from MakerBot over the next year? David Reis -Stratasys Ltd.

So, first of all, MakerBot's performance on different elements is consistent, even better than we expected.Obviously, I can't disclose information about the new product, but we have also done a lot of R & D work with MakerBot.As far as the whole market is concerned, I think in the coming quarters this market will also go through some rationalisation, and I expect MakerBot, which, by the way, is a major player there today, continue to be a major player in this market.Yonah Lloyd -Stratasys Ltd.David regarding your question on F123, we also have some exciting innovations and plans that are planned for next year.

So you have to keep an eye on that.David Reis -Stratasys Ltd.Yeah.David Ryzhik -LLLPOkay, financial group.Great.

Thanks again.David Reis -Stratasys Ltd.Thank you.Your next question comes from the Ben Rose series of battle road research.Your line is open.

Ben Z.Rose -War road Research Co.Ltd.Good morning, yes.Congratulate on the results achieved in the difficult market.

David, your question.Refer to what you said before as a market presence-the market is more competitive, but there are opportunities for growth.Last quarter, you talked about how HP and Stratasys can fight HP more directly.I would like to know if Jet Fusion has been on the market for some time after HP tried to freeze the market before delivery, and do you now see that customers are more clear about your value proposition with respect to HP? David Reis -Stratasys Ltd.Yes – yes.

I think, I said it again just now.I think in the past few years, we have seen a lot of new competition coming into the market, initially and even today, there is some confusion about the different benefits of different products for a variety of industries and applications.I think what is good for customers to learn gradually.Again, I think we are lucky that our market is growing and I hope that this market will become a very large market in the next few years.I don't-I 've said it many more times, the problem is not direct competition, the problem is-for example, ofdm is a great technology for manufacturing.

There are a lot of areas in the manufacturing industry that may be the best technology, okay, there's almost no competition, okay.Nevertheless, customers are still hesitating when other participants enter the market.They have to learn, they have to test.I think we are in a process where each technology becomes clear to the audience and people will know where to place which technologies.Because I think the whole market will grow and continue to grow, I think direct competition will become less important.

Ben Z.Rose -War road Research Co.Ltd.Okay.Thank you very much.

El Chalan jaglon-Stratasys Ltd.Okay.Thank you for attending today's conference call.We look forward to the people attending the annual formnext exhibition in Frankfurt later this month.We are very happy to talk to you early next year.

Thank you.This is the end of today's conference call, ladies and gentlemen.Thank you for your participation and wish you a wonderful day.You can all disconnect.