Danny Eggerichs

Danny Eggerichs inquired about the specific drivers for the outperformance in Aerospace and Defense (A&D) revenue, sought updates on new laser sensing program wins and timelines, and asked for an explanation of the record-high product gross margin and the rationale for the guided sequential decrease.

Answer

CFO Joe Corso attributed the A&D strength to excellent execution on existing programs, particularly the ramp-up in amplifier sales for the HLSI-II program. He confirmed that new classified laser sensing programs are progressing, with one expected to enter a low-rate initial production (LRIP) phase in the second half of 2025. Regarding margins, Corso explained that Q2's record 38.5% product gross margin was driven by a combination of higher volumes, favorable mix, better factory absorption, and exceptional operational execution, noting the Q3 guidance is more conservative and does not assume a repeat of this level of outperformance.

Danny Eggerichs inquired about the specific drivers behind the better-than-expected Aerospace & Defense (A&D) revenue, the timeline for new laser sensing program wins, and the factors contributing to the record product gross margin in Q2.

Answer

CFO Joseph Corso explained that the A&D outperformance was due to strong execution on existing programs, particularly increased amplifier sales for the HLSI-II program. He noted that new classified laser sensing programs remain on track for the second half of the year. Corso attributed the exceptional 38.5% product gross margin to a combination of higher volumes, favorable mix, better factory absorption, and strong operational execution, which are not forecasted to repeat at the same level in Q3.

Danny Eggerichs from Craig-Hallum Capital Group, on for Greg Palm, inquired about the factors driving confidence in the significant second-half step-up for the core Protective Packaging Solutions (PPS) business. He also asked about the automation segment's projected EBITDA drag for the second half and if a quarterly breakeven point is anticipated.

Answer

Chairman & CEO Omar Asali explained that confidence in the second-half PPS outlook is driven by large enterprise wins in North America being installed for the peak season, stabilizing trends in Europe, and new wins in Asia Pacific. He also highlighted an imminent multi-year, nine-figure automation deal with a major North American customer. EVP & CFO William Drew added that the automation backlog is robust and largely contracted. Regarding profitability, Drew stated the automation segment will see a small drag in Q3 but is expected to be approximately breakeven in Q4 2025.

Danny Eggerichs, on behalf of Greg Palm, asked for more detail on geographic performance, specifically the March weakness in Europe/APAC and subsequent stabilization. He also questioned the timing of automation projects pushed from Q1 to Q2, the confidence in the 50% annual growth target, and the expected gross margin trajectory for upcoming quarters.

Answer

Chairman and CEO Omar Asali confirmed robust North American growth, contrasting it with softness in Europe and mixed results in APAC, but expressed confidence in overall volume growth. He attributed automation project shifts to normal timing variations and reaffirmed the 50% growth target, citing strong demand from large accounts. CFO William Drew addressed margins, forecasting a sequential improvement from Q1 to Q2, with more significant gains in Q3 and Q4 as pricing and cost initiatives take full effect.

Danny Eggerichs, on for Greg Palm at Craig-Hallum, asked for more color on the rebound in consumables sales and customer utilization, and also inquired about capital allocation priorities following the Fortissimo investment.

Answer

CFO Eitan Zamir noted that consumables revenue returned to the $62-$63 million level, driven by higher utilization as customers shift more toward manufacturing. He reiterated the expectation for full-year 2025 consumables revenue to exceed 2024. CEO Yoav Zeif stated that the primary use of the new capital is for inorganic growth (M&A), positioning Stratasys to lead industry consolidation. He stressed that any acquisition must align with their strategy of focusing on proven use cases, recurring revenue, and profitability.

Danny Eggerichs from Craig-Hallum Capital Group asked for an update on demand from a geographic perspective, seeking to identify any pockets of strength or lagging regions. He also inquired about activity from REITs in the current interest rate environment and the performance of the builder-developer channel.

Answer

President and CEO William Boor identified the Southeast and Texas as continuing to be strong markets, while noting that Florida remains a laggard. Regarding REITs, he explained that demand for filling existing communities is expected to be solid, whereas new development projects might be more sensitive to capital costs. He confirmed that the builder-developer channel, similar to communities, continues to trend upward as a percentage of total business.

Danny Eggerichs, on for Greg Palm, inquired about the potential timing for achieving profitability in 2025 and asked for more detail on the size and opportunity of the Application Innovation Group (AIG).

Answer

CEO Jeffrey Graves stated that while he couldn't give a specific number for 2025 profitability, he is encouraged by rising application interest and cost management opportunities that could lead to positive EBITDA during the year. He clarified that the AIG's revenue is not material to the P&L, but its 26% year-to-date revenue growth is a critical positive indicator of future customer demand, especially in markets like semiconductors and data centers.

Inquired about the revenue contribution from the Automation Alley deal, whether it was a previously delayed deal, and the current state of the broader demand environment and sales cycles.

Answer

The Automation Alley deal for 125 OnyxPro units was smaller than the analyst's estimate and was not a previously delayed deal; other large deals are still in play. The company's Q4 sequential growth was not dependent on this single deal. The demand environment remains challenging but is showing slight improvement, and sales cycles are getting slightly better.