Stratasys - Earnings Call - Q4 2024

Transcript

Operator (participant)

Greetings and welcome to the Stratasys Q4 2024 earnings conference call and webcast. At this time, all participants are in listen-only mode. If anyone should require operator assistance, please press star zero on your telephone keypad. A question-and-answer session will follow the formal presentation. You may be placed into question queue at any time by pressing star one on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to turn the call over to Yonah Lloyd, CCO and VP of Investor Relations. Yonah, please go ahead.

Yonah Lloyd (VP of Investor Relations)

Good morning, everyone, and thank you for joining us to discuss our 2024 fourth quarter and full year 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 be available and can be accessed through the investor relations section of our website. Please note that some of the information you will hear during our discussion today will consist of forward-looking statements, including without limitation, those regarding our expectations as to our future revenue, gross margin, operating expenses, taxes, and other future financial performance, and our expectations for our business outlook.

All statements that speak to future performance, events, expectations, or results are forward-looking statements. Actual results or trends could differ materially from our forecast. For risks that could cause actual results to be materially different from those set forth in forward-looking statements, please refer to the risk factors discussed or referenced in Stratasys' annual reports on Form 20-F for the 2023 year and for the 2024 year, which will be filed with the SEC within the coming few days. Please also refer to our operating and financial review and prospects for 2023 and 2024, which are included as item five of our annual reports on Form 20-F for 2023 and 2024. Please also see the press release that announces our earnings for the fourth quarter of 2024, which is attached as Exhibit 99.1 to a report on Form 6-K that we are furnishing to the SEC today.

Stratasys assumes no obligation to update any forward-looking statements or information which speak as of their respective dates. As in previous quarters, today's call will include GAAP and non-GAAP financial measures. The non-GAAP financial measures should be read in combination with our GAAP metrics to evaluate our performance. Non-GAAP to GAAP reconciliations are provided in tables in our slide presentation and today's press release. I will now turn the call over to our Chief Executive Officer, Dr. Yoav Zeif. Yoav.

Yoav Zeif (CEO)

Thank you, Yonah. Good morning, everyone, and thank you for joining us. In 2024 and early 2025, we took several key steps to enhance our leadership and strengthen our position at the forefront of additive manufacturing. Despite the industry-wide challenges due to macro headwinds, our recent commitment to right-size the company and deliver profits and cash flow was executed successfully, further demonstrating the resilience of our operating model and effectiveness of our team. We also shared with you our strategy to be laser-focused on the most compelling applications, particularly ones that center around full-scale production. As we share each year, in 2024, we generated 36% of our revenues from manufacturing, up from 34% in 2023 and up from just over 25% when we started tracking in 2020.

We expect to see this percentage grow every year to a point where the majority of our business will be derived from end-part manufacturing. The strength of our offering is our ability to deliver measurable value through best-in-class solutions that enable our customers to scale their additive manufacturing operations effectively. These solutions are the growth engines that will drive our revenue and profits over time, and our customer trust is reflected in the continued strong levels of engagement despite prolonged capital spending constraints. This challenging environment resulted in revenues being off 6.9% for the year after backing out divestments. Yet, our adjusted gross margin for the year expanded by 100 basis points to 49.2%, reflecting our continued focus on cost controls and operating efficiencies. Importantly, in the fourth quarter, we delivered $14.5 million of adjusted EBITDA, a 9.6% margin, and 12 cents adjusted EPS.

We remain confident that when capital spending constraints ease, our operational efficiencies will result in sustainably higher profitability in the coming years. We continue to maintain a healthy balance sheet of $150.7 million in cash and equivalents and no debt. This provides stability and optionality that will support our growth through both organic investment and accretive acquisition opportunities. This financial strength will be bolstered by the upcoming $120 million investment in Stratasys by Fortissimo Capital, which is targeted to close in the second quarter. At that time, we look forward to welcoming Fortissimo's founder and managing partner, Yuval Cohen, to join our board, who brings more than 30 years of successful, innovation-driven investing experience. Now, let me touch on some of our fourth quarter and more recent updates.

Fused Deposition Modeling, the technology invented by Stratasys and commercialized under the Stratasys FDM trademark, is the world's most popular 3D printing technology, and we continue to innovate and enhance its capabilities for production at scale. As an example, in the fourth quarter, we launched the Fortus FDC filament dryer, a cabinet system that uses Stratasys' patented FDM technology to maintain drying conditions for storage of consumable filament materials, increasing printer uptime by up to 2.7 times while eliminating moisture-related printing defects. This system, designed for continuous operation, represents a breakthrough in manufacturing efficiency for our large-scale production customers and is a key addition to our end-to-end solution that our customers have asked us to deliver. We continue to expand FDM's capabilities to address our target applications. We launched Polycarbonate ESD, a specialized material that addresses critical needs in electronic manufacturing, particularly for tools and fixtures requiring electrostatic discharge protection.

We have enhanced our Ultem 9085 material with expanded layer height capabilities and new color options. These materials are significant enablers for our defense partners that manufacture spare parts, and we have already seen an uptick in materials sales to the U.S. Air Force as a result. Additionally, for the Origin P3 DLP platform, we have added more than 30 new materials, including validating a new material by Forward AM specifically designed for injection molding tooling. This exemplifies our commitment to production-grade manufacturing solutions, positioning P3 to deliver injection molding quality across various applications, from automotive components to precision flow adapters. We also announced several partnership and customer success updates. I'm particularly excited to highlight a key customer win with ArcelorMittal, one of the world's largest steel manufacturers.

Their adoption of FDM with GrabCAD software at their European Research Center demonstrates the versatility and effectiveness of our solutions in traditional manufacturing environments, where they have achieved significant reductions in lead time and enhanced design capabilities for tooling, previously unattainable through conventional machining methods. Switching to automotive, where we continue to set trends, we were named the official 3D printing partners of NASCAR. This multi-year agreement makes Stratasys the exclusive provider of 3D printing solutions for NASCAR in the creation of parts, tools, and to aid in accelerating design. This represents further penetration into the racing sector as more parts produced by traditional technologies will now come from our system. In aerospace, 3E EOS, a leader in electro-optic systems, announced that it significantly expanded its line of Stratasys systems, including the addition of multiple FDM 3D printers, bringing its fleet to 15.

Its wide array of capabilities includes our F3300, Neo 800, F900, F770, Origin One models, and SAF technologies. 3E is establishing a dedicated additive manufacturing center to support prototyping, tooling, and production, and its extended use of additive will allow the company to produce critical components much more quickly and at a saving of roughly 40% versus traditional manufacturing methods. To help further drive customer success, we are announcing the promotion of Andreas Langfeld to the position of Chief Revenue Officer. Based in our Germany office, Andy has been with Stratasys for over 15 years. Since 2018, he has managed our EMEA business, transforming it into a stronger contributor under his leadership and was recently appointed head of our APAC business as well.

As CRO, Andy will enhance our global go-to-market strategy to help ensure customer satisfaction and retention and further build on the long-term partnership with our resellers' ecosystem. With Andy in this role, we look forward to further strengthening our position and accelerating the widespread adoption of our solutions. Now, switching to dentals, we were excited that the TruDent resin is available for sale in Europe as a CE marked Class 1 medical device. TruDent is now set to deliver a scalable, efficient, and high-quality solution for denture production for dental labs and clinicians across Europe, which is expected to be nearly a $2.5 billion opportunity by 2028. Interest in the TruDent resin is already strong, with many customers committed to onboarding early this year.

In our medical business, we recently announced the results of joint research conducted with Siemens Healthineers, which demonstrated the unprecedented accuracy of 3D printed medical imaging phantoms to replicate human anatomy. By offering patient-specific anatomical models that accurately replicate anatomy and pathologies, hospitals and imaging centers can enhance the calibration and performance of CT scanners, ensuring more accurate diagnostics, improved patient outcomes, and lower costs. Turning to software, I'm excited to share some significant developments that strengthen our product offering and demonstrate our commitment to innovation. Our new GrabCAD IoT platform is a transformative solution to help our customers improve their utilization and uptime by providing accurate real-time data, predictive maintenance, and a more efficient support line. This represents a major step forward in digitizing customer interactions across our entire ecosystem of 3D printers, software, and services.

We are pleased to note that GrabCAD print software suite now supports all five of our core technologies. This unified software approach streamlines operations for our customers and reinforces our position as a comprehensive end-to-end solutions provider. To sum up, time and again, some of our most exciting use cases are in the most demanding environments and under the most unforgiving conditions, from high-speed auto racing to space travel to the advancement of state-of-the-art medical techniques. We continue to deliver differentiated products and solutions to customers as we further penetrate production applications at scale. The stage is set for return to growth based on accelerated adoption of additive manufacturing as macroeconomic conditions slowly improve. I will now turn the call over to Eitan to share the financial results and our initial outlook for 2025. Eitan?

Eitan Zamir (CFO)

Thank you, Yoav, and good morning, everyone.

Our fourth quarter results reflect solid execution against the ongoing backdrop of adverse macroeconomic factors and related pressures. Our customer engagement remains strong, and we believe it will translate into meaningful growth once headwinds abate. As a reminder, the cost-saving initiatives we announced last year took effect primarily in the fourth quarter. As we review both the quarterly and annual results, the fourth quarter results are more indicative of the future impact of these initiatives on an annualized basis. In general, our results demonstrate the resilience our diversified offering provides throughout the cycle, enabling us to raise our profitability and cash flow expectations for 2025. Now, let me dive deeper into the numbers. For the fourth quarter, consolidated revenue of $150.4 million was down 3.8% as compared to the same period last year.

Product revenue in the fourth quarter fell by 4.8% to $105.1 million compared to the same period last year. Within product revenue, systems revenue was off slightly, declining 1.5% to $46.7 million compared to the same period last year, as constrained capital budgets continue to impact customer buying behaviors for new systems. Consumable revenue in the fourth quarter was $58.4 million, down 7.3% compared to $63 million in the same period last year. Service revenue was $45.3 million for the fourth quarter of 2024, relatively flat compared to $45.9 million in the same period last year. Within service revenue, customer support revenue was relatively flat compared to the same period last year. For the full year 2024, consolidated revenue declined 8.8% to $572.5 million compared to $627.6 million in 2023. After backing out the Stratasys Direct Service Bureau investments, the revenue decline was 6.9%.

Product revenue in 2024 was $392 million compared to $433.7 million in 2023. Within product revenue, system revenue in 2024 was $140.3 million compared to $187.7 million in 2023. Consumables revenue was up 2.3% to $251.7 million in 2024 compared to $246 million in 2023. We expect consumables revenue in 2025 to increase over 2024. For the full year of 2024, service revenue was $180.5 million compared to $193.9 million in 2023. After backing out the Stratasys Direct Service Bureau investments, 2024 service revenue was flat year-over-year. Within service revenue, customer support revenue in 2024 was flat compared to 2023. Now, turning to gross margins, GAAP gross margin was 46.3% for the quarter compared to 44.7% for the same period last year. Non-GAAP gross margin was 49.6% for the quarter compared to 48.8% for the same period last year.

The year-over-year improvement in gross margin was the result of operational efficiency and cost-saving efforts. GAAP gross margin was 44.9% for the full year 2024 compared to 42.5% for the same period last year. Non-GAAP gross margin improved 100 basis points to 49.2% for the full year as compared to 48.2% in 2023. The full-year improvement in non-GAAP gross margin was a result of operational efficiency and cost-saving efforts. GAAP operating expenses were $79.4 million for the quarter compared to $64.1 million during the same period last year as a result of non-recurring revaluation gain that reduced GAAP operating expenses in the fourth quarter of 2023. Non-GAAP operating expenses improved, decreasing to $65.2 million for the quarter compared to $74.3 million during the same period last year, as we benefited from our cost-saving initiative.

Non-GAAP operating expenses were 43.4% of revenue for the quarter compared to 47.5% for the same period last year, driven primarily by the cost-saving measures associated with the restructuring plan we announced in the second half of 2024, the financial effect of which was realized in the fourth quarter of 2024. For the full year, non-GAAP operating expenses were 48.4% of revenue as compared to 46.2% in 2023, primarily due to lower revenue in 2024. In absolute dollar terms, non-GAAP operating expenses were $13.3 million lower in 2024 as compared to 2023, due in part to the cost-saving measures from our restructuring plan. Regarding our consolidated earnings for the quarter, GAAP operating loss for the quarter was $9.7 million compared to operating income of $5.7 million for the same period last year, due primarily to the non-recurring revaluation gain that reduced GAAP operating expenses in the fourth quarter of 2023.

Non-GAAP operating income for the quarter was $9.4 million compared to $2 million for the same period last year. The increase reflects the lower OpEx as a percentage of revenue driven by the cost savings. GAAP net loss for the quarter was $41.9 million or $0.59 per diluted share compared to a net loss of $15 million or $0.22 per diluted share for the same period last year. During the quarter, we took a non-cash impairment charge of $30.1 million or $0.42 per share related to our investment in UltiMaker, a key cause for a larger GAAP net loss in the quarter. Non-GAAP net income for the quarter was $8.5 million or $0.12 per diluted share compared to net income of $1.6 million or $0.02 per diluted share in the same period last year.

Adjusted EBITDA was $14.5 million for the quarter compared to $7.7 million in the same period last year. This equates to 9.6% EBITDA margins compared to 4.9% in the fourth quarter of 2023. Regarding our consolidated earnings for the full year 2024, GAAP operating loss was $85.7 million compared to a loss of $87.6 million for 2023. Non-GAAP operating income for the year was $4.9 million compared to $12.6 million in 2023. This equates to 0.9% non-GAAP operating margin compared to 2% in 2023. GAAP net loss for the year was $120.3 million or $1.70 per diluted share compared to a net loss of $123.1 million or $1.79 per diluted share for last year. Non-GAAP net income for the year was $4.2 million or $0.06 per diluted share compared to $7.7 million or $0.11 per diluted share last year.

Adjusted EBITDA was $26 million in 2024 compared to $35 million in 2023, reflecting lower revenues that more than offset the improvement in margins. We generated $7.4 million of cash in our operations during the fourth quarter compared to a use of $7.7 million of cash from operations in the same quarter last year. This resulted in positive free cash flow in the quarter. The improvement was due to improvement in our working capital, and we expect further improvement in 2025 as we benefit from fully realizing the cost-saving measures from our restructuring plan. For the full year, we generated $7.8 million of cash from operations compared to using $61.6 million of cash in 2023. During the quarter, we repurchased 266,000 shares of stock at an average price of $7.5 per share for a cost of approximately $2 million.

We had approximately $48 million remaining capacity on our share repurchase authorization at year-end. We ended the quarter with $150.7 million in cash, cash equivalent, and short-term deposits compared to $144 million at the end of the third quarter of 2024. Our balance sheet and cash generation profile remain strong, supporting our interest to capitalize on value-enhancing opportunities. As Yoav mentioned, our strong balance sheet and cash position are set to be further enhanced with a prospective $120 million investment from Fortissimo. Now, let me turn to our outlook for 2025, based on the expectation that the global softness in capital equipment purchasing will continue. We expect 2025 revenues to be in a range of $570-$585 million, with revenues growing sequentially each quarter through the year, resulting in higher revenues in the second half of the year as compared to the first.

We expect the first quarter to have the softest revenue and margin profile on a relative basis to the rest of the year. Non-GAAP gross margin for 2025 is expected to be in a range of 48.8%-49.2%, with the second half stronger than the first half, based primarily on the expected rise in revenue throughout the year. In 2025, we expect our non-GAAP operating expenses to range between $254-$257 million. Continued improvement in profitability is an important objective, and for 2025, we expect to see growth across the profit metrics. For 2025, we expect non-GAAP operating margins to be in the range of 4%-5% of revenue, with the second half stronger than the first half, based on the anticipated rise in revenue throughout the year.

We expect a GAAP net loss of $68-$53 million or $0.93-$0.72 per diluted share, and non-GAAP net income of $20-$26 million or $0.28-$0.35 per diluted share for 2025. Adjusted EBITDA for 2025 is expected to be in the range of 7.8%-8.5% of revenue or $44 million-$50 million. We expect our capital expenditures for 2025 to range between $25 million and $30 million. Finally, in 2025, we expect to deliver improved operating and free cash flow at higher levels than 2024. With that, let me turn the call back over to Yoav for closing remarks. Yoav?

Yoav Zeif (CEO)

Thank you, Eitan. Before we move to questions, I want to take a moment to acknowledge our global team. Their professionalism, dedication, and hard work continue to drive strong customer engagement and excitement for our solutions.

I have personally met many of our key customers across industries over the last few months. The resounding message is that the increased use of additive manufacturing in their businesses is most certainly expected once spending constraints are lifted. We also see and feel the enthusiasm and excitement at all of the largest trade shows and industry events. There is no question that when our solutions ramp and deliver their exceptional capabilities, our significant growth and corresponding operating leverage and margin expansion will follow. We have taken the difficult but necessary step to right-size the business for today without sacrificing R&D resources for innovation and while maintaining the ability to scale quickly as capital spending eases. We believe that as the next growth phase of additive manufacturing emerges, we are well positioned to lead for today and into the future.

We are excited for what 2025 and beyond holds for Stratasys. With that, let's open it up for questions, Operator.

Operator (participant)

Thank you. Now, begin the question and answer session. If you'd like to be placed in the question queue, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you'd like to move your question from the queue. Once again, that's star one to be placed in the question queue. Our first question is coming from Greg Palm from Craig-Hallum. Your line is now live.

Greg Palm (Senior Research Analyst)

Yeah, thanks. Hey, everyone. Maybe just a little bit more kind of color on kind of what you're seeing out there in the marketplace, customer feedback given everything going on.

Can you just kind of help us a little bit more with kind of the cadence of the year? It sounds like revenue building sequentially, but any more details on how that looks from a modeling standpoint would be helpful.

Yonah Lloyd (VP of Investor Relations)

Hi, Greg. Thank you for the question, Yoav.

Yoav Zeif (CEO)

That's a super important question because we are in a time period of a downturn in our industry, and everything looks dark and great. This is not the case with our customers. Just three weeks ago, we had the Customer Advisory Board in Florida, the top corporate in the world, the leaders of additive manufacturing in those companies, 14 of them. We are forgetting, as an industry and as a capital market, we are forgetting the basics and the value proposition of additives because in manufacturing, there are requirements that only additive can deliver.

For example, low volume, high mix, special geometries and assembly of parts, consolidation of parts, ensure the supply chain resiliency, personalization, improve sustainability. Only additive can do it, and especially in a world of uncertainty and geopolitical tension and trade wars. We are so focusing on the high interest rates and the constraint of capital expenditure that we forget that long-term the world will manufacture. Manufacturing will be digital, and this digitization process will benefit the entire industry. When we are talking with customers, back to your question, they are saying to us, "Focus on what you're doing: reliability, accuracy, OEE, the effectiveness of our equipment, the total cost of ownership, and enable our engineers to use more additives." I'm very optimistic. Yes, we feel the short-term constraints, but over time, I see us going out of there, and our customers are happy with our solution.

The F3300 has great feedback. We expect to sell more in 2025. We expect to expand our reach within those same customers, by the way, to new sites. It will be gradual because we are in a downturn period, but it has nothing about the long-term of this industry, or even the mid-short-term.

Greg Palm (Senior Research Analyst)

Yeah. Okay. That's helpful. Then as it relates to the gross margin guide for 2025 specifically, I'm wondering, what are you building in in terms of negative impacts or headwinds from either logistics or tariffs? Obviously, for the year, it implies a lower gross margin relative to the run rate in the second half of 2024. I was just curious if you can give us a little bit of what your built-in assumptions are.

Eitan Zamir (CFO)

Thank Greg for the question. It's Eitan.

First of all, I'll start saying that our actual 2024 gross margin in 2024 was 49.2%, which is an improvement of 100 basis points compared to last year. I think you follow us for quite many years. That's a very solid gross margin for Stratasys and also in general for the industry, which enabled us to grow and also to invest to grow the business further. Now, as far as it concerns with 2025, I'll say a few things. First of all, we kept the gross margin in very similar levels for 2025, but then it's a mix of different things. We continue to invest, of course, in the business and in growing the business and in the productions. On the other hand, there will be some savings from the restructuring plan that we introduced last year.

Many significant parts of that were already achieved, but there are still some savings that will come in 2025. The mix of products, of course, impacts the 2025 gross margin. Overall, as you can see, very solid, continue to be in the 49 level, which is very good and very promising for the future. Within 2025, when you think about the quarter in 2025, it will improve sequentially quarter-by-quarter throughout 2025. Maybe a word about the tariffs, Yoav?

Yoav Zeif (CEO)

I think the tariff has two sides to hit. One is how it impacts us, and the other one is how it impacts our customers. In terms of us, we have—I will not say thank God, but it is thanks for a long time of planning. The vast majority of what we are doing is in a secured zone. We are quite immune.

Most of our FDM is being produced in the U.S., so the tariff has no impact on it. The rest of our production, most of it is in Israel, which has a free trade agreement. FDM is our largest business, and the U.S. is our largest region. We are in good shape regarding the tariffs. I'm looking at our customers on the other side. This is a huge opportunity for us because no matter what's the level of the tariff, if you bring the machine to the specific country and you produce onshore near the customer, you don't pay the tariff, which we see here as a global opportunity.

Just a week ago—yeah, a week ago—I was with a large, actually large logistics customer, Ford operator, and they see the uncertainty, and they have an interest to see how they are creating capabilities in additives to handle the uncertainties, the geopolitical tension, the potential broken supply chain, and also the impact of tariffs. This is coming from our customers.

Greg Palm (Senior Research Analyst)

Yeah. It seems like it could be a big opportunity. I will leave it there. I look forward to seeing you all next month at RAPID. Thanks.

Yoav Zeif (CEO)

Thank you. Thanks, Greg.

Operator (participant)

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

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

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

Yoav Zeif (CEO)

Thanks, Tyler. Other than a relatively small impact of one of the FDM businesses, the Stratasys Direct businesses that we divested in the middle of 2024, there is nothing significant as far as it concerns with divestments or inorganic as you model. On the FX side, of course, we do have business in Europe, and based on how the euro behaves throughout 2025, that could have some impact. We are also operating in countries like Israel. However, we normally, and I think we've discussed this in the past, hedge a significant part of our exposure on the most significant currencies that are not US dollar. The impact is relatively small.

Okay. Thank you. In your slides, you said the denture market opportunity by 2028 is $2.5 billion.

That's on a global basis, correct? Could you provide your estimate of the total TAM today? How will you capture more share in this market, and what differentiates you from the other additive competitors? Thank you.

Thank you, Tyler, for the question. We are very proud in our denture solution. Practically, we're the one innovating a new solution for dentures, which is monoblock dentures with very high aesthetic, low price, and the ability completely to transform the business model of dentures, which today dentists don't like dentures. To be honest, because it's between six to eight meetings, models, and you need to come back, and till the time that the patients feel that it's really fitting, the dentist already lost a lot of money.

We are coming with a new solution with a very large summary, like $2.5 billion in Europe and another $5-$6 billion in the Americas. We are the leader here in terms of being ahead of the industry in terms of the technology. We believe that it will still be gradual over the next year, but we have also large plans how to penetrate the market. We already signed several large dentures with several large denture companies. As the adoption of dentals is so core to our 3D printing industry, we believe that we will be able, together with some organic and inorganic moves, to create a position ahead of competition and ahead of the entire dental industry because practically we are disrupting it. It is an industry that knows how to adopt additives. Now we are coming with a very simple high-end solution.

We are very optimistic.

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

Operator (participant)

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

Troy Jensen (Managing Director)

Hey, gentlemen. Congrats on the fourth quarter results.

Yoav Zeif (CEO)

Thank you.

Troy Jensen (Managing Director)

Hey, to look. I guess maybe Eitan for you. Consumables are down 7% year-over-year, but they've also been down three consecutive quarters here on a sequential basis. I'd guess the install base has been growing right as you're shipping more systems into the customers. Can you just touch about consumables and why they've declined three consecutive quarters?

Eitan Zamir (CFO)

Sure. Thanks, Troy. Maybe I'll start saying that I think that in the last year, throughout the discussions with the analysts on the annual scale, we always discussed a range of consumables as a quarterly average kind of run rate.

Q4 was lower than that average run rate, but I consider Q4 as an outlier. It does not reflect, it does not represent what we see for the future for the quarter of 2025. Actually, in 2025, we're already more than two months into the quarter. We actually see that we're back on track to levels that are similar to last year and will be higher than the Q4 numbers that we announced today. When I think about the full year of 2025, we expect—and that, I think, also addresses your question—we expect 2025 full year to be higher than the 2024 full year. That's after 2024 was already higher by $5.6 million from the full year of 2023. We do see utilization increasing, and we do expect 2025 to have overall higher consumables compared to 2024.

Troy Jensen (Managing Director)

Great. Perfect.

Also for you, Eitan, I just want to talk about long-term investments. It's down $40 million sequentially. What's in that? Is this all just equity investments? Is there any financial instruments? And is the $32 million loss that you talked about, is that the reason for the $40 million decline?

Eitan Zamir (CFO)

Thanks, Troy. This one item is largely related to our equity investment in UltiMaker. As you remember, we divested that business two and a half years ago, and that was part of our strategic decision to not play on the low end and to focus on manufacturing and mass production. That's a business that we do not control. Of course, from an accounting perspective, we have to take our share in that situation, and that's what we did. It's nothing more than that.

Troy Jensen (Managing Director)

Okay.

The $80 million, is that all just equity in UltiMaker, or is there other things in there?

Eitan Zamir (CFO)

Where do you see $80 million?

Troy Jensen (Managing Director)

In the balance sheet, the long-term investment category.

Eitan Zamir (CFO)

We invest in quite many minority investments, but each one of them is a very small portion, similar to what you see others are doing. These are opportunities that we are involved with. When it becomes more interesting and relevant, we decide whether we want to increase our position or not.

Troy Jensen (Managing Director)

Gotcha. It is all equity, not financials. For you all, can you talk about these acquisition targets? Obviously, you're raising more capital, and you guys are profitable and have a decent balance sheet. Hardware, software, materials, I mean, what interests you most?

Yoav Zeif (CEO)

Whatever will enhance shareholder value more. We have a strategy, a very clear strategy.

We are very proud of the vote of confidence from Fortissimo. They are really well-established and successful investors in technology and innovation. Remember, they decided to invest in Stratasys with a significant premium and a lock-up, which is a sign that there are opportunities out there, and the best operator to capture those opportunities is Stratasys. By the way, we also demonstrated it because we committed at the end of Q3 last year, after a tough start of H1, we committed to savings. We committed to profitability and cash flow, and we delivered on all of them: 49.6% margin, 9.6% EBITDA, $7.4 million of cash flow. It does not exist in our industry. We are the top performer and operator in this industry.

You combine it with an investor that sees the opportunities in the market and says, "Where should I put my money in order to capture those opportunities?" You want to put your money where there are execution capabilities and in a company that is consistent. You look at our guidance, we are keeping growing. Yes, slowly, but we have a strong business model. We secured the $40 million of savings that we committed to. Next year, in our guidance, measure-by-measure, we are better year-over-year. We just need to wait for the manufacturing sector to come back to normal, and you will see growth. You will see growth in revenue, then you see profitability. There are plenty of opportunities out there, and we learned a lot about this industry over the last few years. Really, you know it.

We have had the opportunity to widespread due diligence across the industry. We have a good understanding of what's going on out there, who are the right targets, and which one of them will better support our long-term strategy and create a lot of value to our shareholders in the short term and in the long term. You know, also market prices of the assets are more favorable these days. When you combine the operational capabilities, the profitable model that we have with the recurrent revenue, the strong balance sheet now with Fortissimo, with a focused strategy on manufacturing and use cases, and the overall proven abilities of 3D printing, Stratasys is the right solution. We know, and we have a plan what to do with the money.

Operator (participant)

Thank you. As a reminder, that's star one to be placed in the question queue.

Yoav Zeif (CEO)

We ask you, please ask one question, one follow-up, then return to the queue. Our next question is coming from Jim Ricchiuti from Needham & Company. Your line is now live.

Jim Ricchiuti (Senior Analyst)

Thanks. Most of my questions have been answered, but I just want to follow up on the way you're viewing 2025. It sounds like you're assuming, obviously, continued challenging market conditions. Does that offset benefits from new products? Maybe if you could talk a little bit about the market verticals that you have perhaps more confidence in. It sounds like dental being one of them, but I don't want to put words in your mouth. Which markets you might be more cautious on or geographies?

Yoav Zeif (CEO)

Thank you, Jim. Yes, we are cautious. What we see is a soft market. This is the reality. It is only a cycle.

There are ups and downs in these cycles. We are now in a down period. As I said, the fundamentals of the value proposition of 3D printing are there, and the customers know it. This is the most important thing. Getting to 2025, we have quite good pipeline visibility, and we have confidence in our guidance, but it takes into consideration the softness of the market. We have pipeline visibility. We see the customer engagement. Even in such a downturn, this is just an example. Fourteen top executives from 14 top corporates came from all over the world to Florida to sit with us and tell us what they are looking for from our solutions. There is an engagement there. We are also improving our offering constantly. As you said, there are new products.

This year, a lot of focus on material and software, and we believe this is a very profitable part of our business. Again, the current geopolitical situation in 2025 is a great tailwind for the industry and for us. A great tailwind. Now there is kind of the entire political environment is kind of looking for what's next. It will stable, and it will be a new state of the world. In this new state of the world, the basic value proposition of additive will be enhanced because with geopolitical, with dynamics, with uncertainty, with this type of world, it's a great support for additives. I'll give you now an example for the vertical because that's a great question. Definitely dental because this is a vertical of early adopters, and we focus on dentures. We believe the best solution there.

It is all about aerospace and defense because the world is highly concerned about the stability, and the budget of aerospace and defense are skyrocketing. We see more also in Europe now. We are the leader in aerospace and defense spare parts. It is about tooling, which is a huge opportunity. It is a $12 billion market, and we are the leader also in tooling. I would say those are the three: aerospace, defense, tooling, and dental.

Jim Ricchiuti (Senior Analyst)

Okay. Thanks for that color. When you talk about pipeline visibility and you talk about the way you are viewing 2nd half, 1st half, do you actually have relatively good visibility that gives you the confidence about 2nd half, or are you just assuming like a lot of folks that we see some improvement in the macro environment?

Yoav Zeif (CEO)

It is both.

We believe macro will be better in the next half because of less uncertainty. Things will be clearer. We also have a pipeline, and we have stages in the pipeline, and we have probabilities of this pipeline. The unknown is the sales cycle. Over the last two and a half years, the sales cycle increased for the entire industry and also for Stratasys. With the current sales cycle, we have good visibility, and that's the way we build our guidance. Who knows? We don't have the crystal ball. If sales cycle will double themselves, probably we're not being in a good shape. If they will reduce and get back to normal, we'll be in a better shape. What is important is that we are solid and strong also with flat revenues. That's the way we build the company.

We achieved our commitment in a challenging environment. We have really unheard of EBITDA in our industry, with a strong business model, with improved performance also in a soft market. That is what we expect for next year. Now think for a minute what will happen once the manufacturing cycle will be back to normal because at the end, you need to manufacture. It is a completely different story.

Jim Ricchiuti (Senior Analyst)

Got it. Thank you.

Operator (participant)

Thank you. Next question is coming from Ananda Baruah from Loop Capital Markets. Your line is now live.

Ananda Baruah (Senior Equity Analyst)

Yeah. Hey. Good afternoon, guys. Thanks for taking the question. Happy New Year. Congrats on the solid results here.

I guess a bigger picture one, if I could, to the extent that you guys have thought about this or have had conversations about this, this whole idea that's popped up over the last 12 months, more prominently, AI factories and factory automation with GenAI, if that continues and an idea that continues to be propagated increasingly, if that were to manifest as that manifests, what impact does that have on your production businesses? Does it help it? Does it hurt it? Is it neutral? Just in any context around that, we'd just love to get your early thoughts on that. Thanks.

Yoav Zeif (CEO)

Thank you, Ananda, for the wishes and also for the question. AI is essential for us. We acquired a company called Riven that is developing an AI. We have already a product that corrects the deviation of the parts.

You scan it, you put it back, and we build a big database, and you can practically anticipate the deviations of the printing and correct it before printing. This is only one example. We have a whole set of use cases that we are working on. Based on Riven, we built a group of people that are focusing on AI. I believe AI will be essential in additive manufacturing. Also, the transition within manufacturing, taking a step back and looking at the big picture, the transition from analog manufacturing to digital manufacturing has to go somehow through 3D printing because we are versatile. We are working with a file, and AI can build the file. AI can manage the files. This is like an integral part of the future.

The future of manufacturing goes with AI, and we are one of the tools that will make this transition much easier. We are investing in it. I'll give you a few use cases. For example, predictive maintenance is an important thing that we are working on. AI can do amazingly well there because we have all the data from the machine, because we just launched this new IoT platform. It's in the script. We discussed it with our customers, with our customers' advisory board. What do they want to see in AI? We have a whole list, and we focus on three of them, of course, and we'll not share it here. We are working with our customers to enable them to adopt additive and digital manufacturing together. Bottom line, AI-centric production system will strongly support additive. I have no doubt.

Ananda Baruah (Senior Equity Analyst)

Thanks for that detail.

That includes the increased use of robotics in manufacturing processes as well?

Yoav Zeif (CEO)

I assume so. Yes. By the way, robots or the whole robot industry are significant customers of us because you need to change the end-of-arm replacement and to be versatile with the functionality of the robot. Most of them are doing it with 3D printing, mainly with FDM.

Ananda Baruah (Senior Equity Analyst)

Thank you. Thanks a lot, guys.

Operator (participant)

Thank you. We have reached the end of our question-and-answer session. I would like to turn the floor back over for any further closing comments.

Yoav Zeif (CEO)

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

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

Operator (participant)

Thank you. That does conclude today's teleconference and webcast. Let me just connect your line at this time and have a wonderful day. We thank you for your participation today.