Stratasys Ltd (SSYS) 2020 Q4 法說會逐字稿

Good day, ladies and gentlemen. Welcome to today's conference call to discuss Stratasys' Fourth Quarter and Full Year 2020 Financial Results. My name is Jesse, and I'm your operator for today's call. (Operator Instructions) As a reminder, this conference is being recorded.

And now I'd like to hand the call over to Yonah Lloyd, Chief Communications Officer and Vice President of Investor Relations for Stratasys. Mr. Lloyd, please go ahead.

Good morning, everyone, and thank you for joining us to discuss our 2020 fourth quarter financial results. On the call with us today are our CEO, Yoav Zeif; and our CFO, Lilach Payorski.

I remind you that access to today's call, including the slide presentation, is available online at the web address provided in our press release. In addition, a replay of today's call, including access to the slide presentation, will also be available and can be accessed through the Investor Relations section of our website.

Please note that some of the information you 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 report on Form 20-F for the 2020 year, which we are filing with the SEC today.

Please also refer to our operating and financial review and prospects, which appears as Item 5 in that annual report as well as the press release that announces our earnings for the fourth quarter of 2020, which is attached as an exhibit to a report on Form 6-K that we furnished to the SEC today.

In order to obtain updated information throughout the year concerning our quarterly results of operations and the risks and other factors that most impact those results, please see the quarterly earnings press releases and our quarterly operating and financial review and prospects, each of which are attached as exhibits to reports on Form 6-K that we furnished to the SEC on a quarterly basis over the course of the year. Stratasys assumes no obligation to update any forward-looking statements or information, which speak as of their respective dates.

As in previous quarters, today's call will include GAAP and non-GAAP financial measures. The non-GAAP financial measures should be read in combination with our GAAP metrics to evaluate our performance. Non-GAAP to GAAP reconciliations are provided in tables in our slide presentation and today's press release.

Now I would like to turn the call over to our CEO, Yoav Zeif. Yoav?

Thank you, Yonah. Good morning, everyone, and thank you for joining us.

It is an exciting time to be a leader in the 3D printing industry. Both our industry and our company are expected to enter a meaningful, sustained trajectory of unprecedented growth in the years ahead. Additive manufacturing is experiencing increased demand from multiple sectors of the global economy, driven by secular change from industrial technology, automotive, health care and many other markets. Industry analysts project a forward 5 years CAGR in excess of 20%, with continued strong growth well into the end of the decade.

Turning to our results for the fourth quarter. We again delivered sequential quarterly improvement in both revenue, up over 11%, and operating cash flow, which was $23.7 million, our highest level since the first quarter of 2018. These are positive indications that we are in the early phases of a recovery from the impact of the COVID-19 pandemic. As we look ahead, we expect to be able to build on this momentum.

At Stratasys, we are well positioned to grow. We have a strong balance sheet with no debt that is set to support future growth. We believe that prudently investing capital back into the business will result in meaningful accelerated revenue, earnings and cash flow in the years ahead.

In August, we shared our new strategy to lead the polymer 3D printing market by delivering the most innovative next-generation technologies that address the fastest-growing manufacturing applications, all while leveraging the strongest go-to-market infrastructure in our industry. We are confident this is the right approach to position us to drive sustained revenue and profitability growth.

Manufacturing is by far the largest addressable market. We know firsthand from our existing business that manufacturing applications typically have higher utilization rates than prototyping applications. Manufacturing drives increased recurring revenue from consumables, which results in a higher value opportunity for Stratasys.

We have several key advantages that will help us successfully deliver on our strategy and enhance shareholder value. These include: the broadest offering with the most advanced innovative, best-in-class technologies for every step in the customer's product life cycle, from concept through manufacturing; unmatched market access to a network of over 200 channel partners, the largest and most experienced in the industry; deep application engineering expertise that helps drive innovation; a resilient business model designed to scale; and a growing software partner ecosystem to bring important added value to our customer base.

Turning to 2020. I want to recognize the hard work and the dedication of the entire Stratasys team as we have worked through the COVID-19 pandemic. Our resilient team continues to meet each challenge head on to create opportunities that have become catalysts for change. As we navigate through the challenging economic environment, we are emerging as an even stronger company.

I assumed the role of Chief Executive Officer 1 year ago. And since that time, we have achieved several important accomplishments, including the implementation of our new strategy around polymer, which is the biggest profit opportunity in 3D printing, in our view. Specifically, we aligned our business around delivering the most comprehensive solution for manufacturing applications. The acquisition of Origin, the best-in-class photopolymer solution for production-oriented applications that we believe will be a key growth driver as we'd be able to manufacturing solution and enhance our target market.

As we have previously communicated, while we plan to deliver the first sales through our channels later this year, Origin is going to be a more meaningful revenue growth driver starting in 2022 and is expected to generate up to $200 million in new annual business by 2025. We are excited about the opportunities that this platform can deliver to the market and the positive impact it should bring to our business.

The enhancing of the company's operating model to be application-centric, which creates focus and allow us to better leverage synergies. Cost rationalization that resulted in $30 million of annual run rate savings, enabling us to reinvest in higher profit areas of the business. And finally, the reconstitution of the management team and Board of Directors to strengthen our leadership and oversight.

The opportunity to increase the share of manufacturing within our overall revenue from the production of end-use part is significant. This is a multi trillion-dollar market, and we believe 3D printing penetration is in the low single-digit today. We are just getting started. Based on our estimate in 2020, we generated more than 25% of our revenue from manufacturing solutions. We believe that the share of our revenue for manufacturing will expand in the coming years as we begin offering our new manufacturing-focused products later this year that include photopolymerization and powder bed fusion. We also expect to add updated version of our high-end FDM system and health care and dental application solutions. We expect this to drive low double-digit growth in manufacturing revenue this year and over 20% annually in the medium to long term. We look forward to updating you annually on this metric.

Looking at some of the milestones of the fourth quarter. In addition to acquiring Origin in December 2020, we also advanced the development of a powder bed fusion platform to our joint venture with Xaar, which we continue to expect to launch in 2021. We expect this system to provide us entry into an extended set of manufacturing applications beyond what is available with our current system. And we look forward to providing more details soon.

We have also made great strides creating a software ecosystem that will help scale additive manufacturing and integrate with our customers' Industry 4.0 initiatives. For example, nTopology is helping both FDM and Origin customers design parts for advanced manufacturing quickly in ways not possible through traditional manufacturing. Our integration with KeyShot is now helping accelerate adoption of full color, multimaterial PolyJet 3D printing. And our GrabCAD SDK enables our FDM system to fully participate in the smart integrated factory floor.

Two weeks ago, we acquired RPS, a U.K.-based company with a top-quality stereolithography product line that complements our current portfolio. This technology is used for multiple applications including tooling, jigs and fixtures, investment casting, dental aligners, medical modeling and design engineering. We aim to be the first choice for polymer additive manufacturing, offering a full suite of solutions that can support the entire product life cycle from concept to production. With the RPS system in our portfolio, we are able to take advantage of new opportunities to offer more solution to our customers. We expect our acquisition of RPS to be slightly accretive to revenue and earnings by year-end.

We also recently announced the addition of carbon fiber to the materials available on our award-winning F123 printer Series. This offering delivers the strength and lightweight advantages of carbon fiber for tooling and other applications and can be an excellent replacement for heavier and more expensive metal parts now in the more accessible F123 platform.

In turn, customers are continuing to express their confidence in Stratasys. For example, in automotive, as we announced in November, Volkswagen is driving innovation within new vehicle design, thanks to our J850 printers. In consumer electronics, Google is seeing similar benefits for its Jacquard wearable platform. In aerospace, Boeing recently qualified our PEKK-based Antero 800NA thermoplastic so the high-temperature FDM material can now be used on flight parts. It is the first material from Stratasys qualified by Boeing for use in applications with elevated chemical resistance or fatigue requirement. These ongoing investments and partnerships help reinforce Stratasys as a leader in the industry and position us to grow for many years to come.

To sum up, as we begin 2021, the pandemic continues to pressure the industry and our business. However, we expect pent-up demand to begin emerging in the back half of the year. As we shared through 2020, the closing of our customers' offices and factories slowed the utilization of our system, directly impacting the rate of consumable usage and services. But based on the past 2 quarters of growth, especially in consumables, we are cautiously optimistic that this recovery will continue as we move through 2021.

I will now turn the call over to Lilach, who will share the financial results of the quarter. Lilach?

Thank you, Yoav, and good morning, everyone.

We are pleased to have delivered sequential recovery in the back half of 2020, with growth in revenue, gross margin improvement and strong cash generation along with inventory reduction. These are good signs that we are experiencing an economic recovery in the wake of the COVID-19 pandemic, and we look forward to the future as the macro economy rebuilds in the coming years.

For the fourth quarter, total revenue was $142.4 million and 11.3% sequential increase from the third quarter based on an initial rebound in both systems and consumables across all regions. This compares to $160.2 million for the same period last year, a decline of 11.1%, primarily due to the impact of the pandemic. On a constant currency basis, total revenue declined 12.6% versus the fourth quarter of 2019.

Product revenue in the fourth quarter was $99.2 million, a decrease of 9% compared to the same period last year or 10.7% on a constant currency basis. Within product revenue, system revenue decreased 8.3% compared to the same period last year and decreased 9.8% on a constant currency basis. Consumables revenue decreased by 9.6% compared to the same period last year and decreased 11.6% on a constant currency basis. Services revenue were $43.2 million, a decrease of 15.6% compared to the same period last year. On a constant currency basis, service revenues declined 16.6%. Within services revenue, customer support revenue decreased by 3.7% compared to the same period last year and decreased 5.6% on a constant currency basis.

GAAP gross margin was 46.4% for the quarter compared to 49.1% for the same period last year. Non-GAAP gross margin was 49.5% for the quarter compared to 52.4% for the same period last year. GAAP gross margin improved sequentially from Q3 by 750 basis points. Non-GAAP gross margin improved by 270 basis points primarily due to higher amount of systems and consumables in the sales mix.

GAAP operating expenses were $68.5 million, an improvement of $13.4 million or 16.3% compared to the same period last year. Non-GAAP operating expenses were $62.2 million, an improvement of $11.6 million or 15.7% compared to the same period last year. Non-GAAP operating expense was 43.7% of revenue for the quarter compared to 46.1% for the same period last year.

The improvement in operating expenses was due primarily to the proactive resizing measures we took in the second quarter of 2020. We also continued the cost mitigation efforts related to the pandemic through the balance of 2020, with the entire company working an effective 4-day work week.

From earnings perspective, GAAP operating loss for the quarter was $2.5 million compared to a loss of $3.3 million for the same period last year. Non-GAAP operating income for the quarter was $8.3 million compared to $10.2 million for the same period last year.

GAAP net income for the quarter was $11 million or $0.20 per diluted share compared to net loss of $2.8 million or $0.05 per diluted share for the same period last year. Non-GAAP net income for the quarter was $7 million or $0.13 per diluted share compared to $10 million or $0.18 per diluted share in the same period last year.

We generated $23.7 million of cash from operations during the fourth quarter, the highest amount since the first quarter of 2018, as compared to using $3.4 million of cash in the same quarter last year. This was driven by strong collections and reduction in spending and inventory levels.

We ended the quarter with $299.1 million in cash, cash equivalents and short-term deposits compared to $308.2 million at the end of the third quarter of 2020. We achieved this despite the cash portion of approximately $30 million related to the Origin acquisition.

We believe we are well positioned to effectively navigate the pandemic and to capitalize on value-enhancing market opportunity given our strong balance sheet with no debt, while focusing on cost control and cash generation.

Given the business dynamic and the uncertainty surrounding the timing and the extent of an anticipated recovery from the pandemic, we are providing the following information regarding our outlook. We are encouraged that our current quarter is tracking relatively similar to the first quarter of 2020, with notable positive growth in system sales, unlike the negative impact of the pandemic on system sales that we saw in the first quarter of 2020. Maintaining relatively flat sales, even without meaningful participation from key sectors, like automotive and commercial aerospace, drives our confidence in potential upside as we move through the year.

In those 2 industries, capital spending has not yet returned to pre-COVID levels and the utilization rate of our consumables, in general, across the entire business are still lagging due to COVID.

Looking ahead, assuming current consumption trends continue and the impact of the pandemic persists, we expect our second quarter to track growth in the mid teens compared to the second quarter last year. We expect to provide updated revenue guidance later in the year as we get more clarity around evolving economic conditions.

Turning to operating expenses. We made a strategic decision to invest for both the near term and the future by bringing back our team to a full-time schedule starting January 1. In current costs ahead of revenue growth expected to be generated from both the recovery of our con business and the launch of our new technologies. With our employee back full time, the associated expense of operating the business to support our growth ramp has also returned. This, plus the impact of our acquisition, along with resource allocation decisions made to help offset some of these incremental costs with support of future growth engines, will result in $25 million to $30 million in incrementally higher operating costs as compared to 2020, but still below our 2019 costs.

We believe that these strategic investments will yield material growth as the new technologies proliferate in the market, which will lead to significant operating leverage.

In closing, 2021 will be a year of investment for growth. The combination of these organic investments, along with our recent strategic acquisition, and specifically, the focus on manufacturing positions Stratasys to deliver substantial revenue and profitability growth in the future. We also expect that most of this future growth will come from manufacturing applications.

With that, let me turn the call back over to Yoav for closing remarks. Yoav?

Thank you, Lilach. I will conclude today's call by noting that we believe that the additive manufacturing industry is poised for a period of exceptional growth, and we expect Stratasys to lead the way in polymer 3D printing. Our internal reorganization, coupled with organic efforts and strategic acquisitions like Origin, position us to further broaden our leadership and to outperform over the long term.

With that, let's open it up for questions. Operator?

(Operator Instructions) Our first question is coming from the line of Shannon Cross with Cross Research.

I was curious, if you can give us a bit more color into what you're hearing from your customers that makes you comfortable about a second half recovery? And specifically, I'm curious, you've got 3 new platforms launching this year without a lot of trade shows or who knows how this is going to work. How confident are you that there will be a pickup that supports it? And then I have a follow-up.

Shannon, thank you for the question. It's Yoav. We feel confident because the world is kind of a bottleneck over the last year. We are engaging with our customers. We are there with them. We have constant interaction with them. Once the recovery is there and we start seeing the light at the end of the tunnel with like a whole set of projects that I would like to run.

Of course, it's coming also with the impact of their end market. But we are optimistic on this one based on what we receive from them and that are the list of projects that they have. And the way we look at it now, we are looking at a linear growth quarter-over-quarter.

Through the year, linear?

Yes.

Okay. And is there any particular segment or geography where you're seeing the most opportunity for improvement?

We see improvement across the board. Of course, health care is much stronger, and we see already the recovery and in some cases, even higher than initial pre-pandemic sales. And we see improvement going forward in our strongest segments, which are aerospace, automotive, education.

And geographically? And then that finishes my questions.

I would say that all -- we see recovery on all fronts across different territories. But as we already mentioned last year, Asia, then Europe and then the U.S. more or less, this is the sequence.

Our next question comes from Ananda Baruah with Loop Capital Markets.

Congrats on the solid results and good start to the year. Yoav, just a follow-up to Shannon's question, could you provide any additional context on what the growth trajectory as we move into the second half of the year could look like? I know it's a long ways away. But any context you could help us frame how you guys are thinking about it would be helpful. And then I have a follow-up.

We already mentioned it. I'm happy to repeat. The way we look at it, Q1 relatively flat, Q2 mid-teens. And then H2, where we are planning to launch the new platform, at H2, we see sequential growth, quite solid sequential growth.

Quite solid sequential. Okay. And then as we think about those remarks in the press release just around sort of growth accelerating in '22 and beyond. And you gave the metric about sort of longer-term manufacturing growth north of 20%.

Could you give us any other context around how, when you say accelerating '22 and beyond, how you'd like us to come to understand that? Accelerating, does that mean for manufacturing greater than the 20%? And then what about the rest of the business? Just any context there would be really helpful, given the language in the press release.

So we are doing our best to focus on sales as a company, but also to be sure that we are aligned with the market. And this is why we came with this new metric which is our share of sales to manufacturing. And we are currently over 25%, and that will be the main growth generator going forward. So we see it this year, growing, this year, growing in the low double-digit and then above 20% a year. And you add to it the whole market that is growing.

Also, we have the strongest in the market in prototyping, and that creates really very clear, strong growth engine for the future that will catalyst our growth where manufacturing is leading the way.

And manufacturing is, as you know, it's the DLP, the new Origin portfolio, which is best-in-class in terms of quality of parts and suitability for manufacturing, and the Xaar 3D platform, that's the SLA platform. So those are the growth engines we built on our infrastructure to pave the way of the industry into manufacturing.

Our next question comes from Jim Ricchiuti with Needham & Company.

Thanks for that metric on manufacturing in terms of their contribution last year. What would that have looked like in 2019, the percentage of your revenue that you were deriving from manufacturing?

So this metric, we are following and we build the methodology to follow it going forward. So we are not sharing anything backward-looking, but only forward-looking, but we think it's a very important metric for the entire industry as a whole as well.

I agree. Okay. Just with respect to the acquisition on the SLA side, how would you maybe contrast the Neo product that they have with your own V650? It sounds like is your existing SLA printer, is that mainly for prototyping? Is there a bigger opportunity with this acquisition to perhaps get into some more end-use manufacturing applications?

We are just complementing our offering. We have a strategy. We are following our strategy. Our strategy is to be the first choice polymer manufacturing for everyone across the whole product life cycle.

And since this is our strategy, the SLA and RPS, which is an amazing line of products, having enough suitable for our strategy in polymer. We complete our offering and it has both large prototyping application but a lot of also end-use parts, tooling, manufacturing like liners, like investment casting and also significant applications in health care, like health care, like medical modeling, for example, for large part, single material.

So it's a full completion of our product line, and we have a clear road map, which application, which machine, where we are going.

The next question is coming from Noelle Dilts with Stifel.

Congratulations on a good quarter in a tough environment. My first question, I was hoping you could just expand on how you're thinking about M&A moving forward and just touch on the pipeline of opportunities and where you see some opportunity to further complement your current offering?

We have a strategy and part of the strategy is in organic growth. We have very clear criteria, what we are looking for and how to invest and in what to invest and we'll keep evaluating potential investments that will maximum the value -- maximize the value both for the company and for our shareholders.

We are very attractive to startups with disruptive technologies because we are bringing the platform, and we are bringing the go-to-market. And we have the unique ability to shoulder their time-to-market. And this is an asset that you rarely find in our industry because we have all those amazing networks globally with experts across the globe.

And when we are approaching startup, it's not only about the money. It's not only about the cash. It's a lot about the prospect that we are bringing with us. And we also built a whole operating model that will allow us and allowing us right now to integrate those startups.

And then secondly, I understand the higher jump in operating expenses as we look at 2021 and things normalize. Could you speak to how you're thinking about some of that leverage moving in '22 and beyond that you referenced? Is there sort of a goal or a model that you're looking to target in terms of leverage on operating expenses as you move forward?

Noelle, it's definitely a good question. We are complementary to what you have mentioned that we have a strong infrastructure from a corporate perspective as well as go-to-market perspective that can be easily absorbed new technologies and new businesses. And we're definitely planning to leverage this and leverage and take advantage of scale as we move forward.

In 2021, you not necessarily can see that yet because our growth revenue level is not in the level that we still expect due to COVID. But as we go beyond '21 and '22 and '23, while production application revenue will grow, we will be able to leverage on that. We are not providing any specific metrics, but we do expect to see much more profitability going forward.

The next question comes from Greg Palm with Craig-Hallum Capital Group.

Yes. Great. I guess just starting -- the guidance commentary is very helpful. But specifically for Q2, it implies just slight revenue growth over Q1. Normally, you see a much bigger jump sequentially from Q1 to Q2. And I guess, I would think this year, based on your commentary, it might be disproportionately high, just sort of given where we are in the recovery.

So I don't know, maybe it's just timing related, your thoughts about the second half being stronger, but can you just help us understand why you're not expecting better growth sequentially in Q2?

Greg, the numbers do present a relatively low sequential compared to Q1. And we -- but we are definitely encouraged with the sequential growth that we saw in Q4 and the strong rebound of hardware that we're going to see in Q1. And what we expect also in the second quarter is continue to see this growth.

Remind you that COVID is still here, okay? It's not that we actually fall back with all our end market. The industry that are much more effective is the auto and the commercial aerospace. So we're cautiously optimistic regarding the future. And that's why we believe that to be cautiously optimistic now is provide mid teens for next year -- for next -- for the second quarter as compared to last year. But as the economic recover, we will come back and provide a better projection.

Yes. Okay. Understood. And maybe just a little bit more commentary on Origin would be helpful. I'm just kind of curious what the feedback has been from kind of the customer base from sort of the resellers. And if we look ahead, I mean, if you're successful in generating the $200 million of annual business, what's the cadence of that contribution look like maybe starting next year up until '25, which I think is the time line you provided so far?

Great question. Thank you. The first thing that happened after we announced about the Origin acquisition, I opened my e-mail box, and I received 2 e-mails from 2 important customers, complimenting us for the acquisition and asking for a call.

I know it's an anecdote, but this is a reflection of what's going out there. We are going to manufacturing. Origin is already being perceived as a leading next-generation DLP platform, focusing on manufacturing. They have installed base. They have machines out there, supporting manufacturing with an ecosystem of materials. And the moment they joined forces with Stratasys and our infrastructure, our customers and also new logos, what we call, are perceived as a big opportunity to advanced manufacturing. So this is the overall perspective.

In terms of revenues, we are going to launch the platform in the second half of the year, and we are very optimistic.

Our next question is coming from Wamsi Mohan with Bank of America Merrill Lynch.

Yoav, you're saying that the industry is entering an inflection point typically in tech markets. Inflection is driven by some change in technology, whether it is speed or quality or availability of materials.

What actually is changing in what your customers are doing that's giving you this confidence in surge in manufacturing? I mean, you noted Origin's portfolio is very good with DLP, but DLPs have been around for a long time to have an installed base. So what is it that you think? Is this more about distribution of technology from your perspective? Or do you think that there's something more fundamental, especially if this is an industry call on how there is such a large inflection in growth rates for manufacturing applications? And I have a follow-up.

I would say that it's a combination. We are in an inflection point because of few very important factors. One, the technology today is not similar to the technology 5 years ago. Also in DLP, DLP is a great example. When you get into the details of the technology, the speed, the accuracy, and mainly the material, it's a different ball game. This is a great example, but it's relevant for the entire industry. So the technology is ready to start stepping into manufacturing. That's a big change.

The second one is the realism of so many manufacturer out there. Post pandemic, we need to create versatility. We need localization. We need to make sure that we have flexibility and first response and ability really to face weather crisis, pandemic, the ability to localize things, not to have inventory. So this promise is currently brought to life. So this is the second change. And we are engaging with it, and it's very, very tangible, in every discussion that I have with a customer.

And thirdly, there is this issue of shifting into new products, new offerings. For example, electric vehicles. You'll need weight. The reducing weight is critical for the range of the battery, for everything there. And the manufacturers are looking for new ways of producing parts. And you can produce parts with additive manufacturing, geometries, mechanical properties, et cetera, that were not possible in the past. For example, moving from metal to carbon fiber and composite for the sake of weight. So if you take those 3, and there are many others, but if you take those 3, stronger, much better technology with the strong realism that supply chain can be broken and we need to react, plus the tech changes all over the world that required new parts, new geometries, new way of thinking about the physical aspect of product, that create together an inflection point.

If I could follow up. There are some of your competitors out there that claim that manufacturing is really much more centered around metals versus what you just spoke about, the shift to carbon fiber, say.

In your best guess on sort of what the addressable market splits are for manufacturing, how much would you say is manufacturing that would be subsumed by the metals additive manufacturing versus polymer? And thanks for giving the split of the 25% of revenue for manufacturing. How is that split between product, materials and services?

We are not analysts here on this one, and we are focusing on polymer, and I can be very sure. Of course, I can quote many analysts and many different studies that address your questions, but you can read it better than me.

In general, today, when you look at hardware, for sure, and also going forward, we are talking about 70%, around 70% polymer and 30% metal. This is in terms of revenue hardware, for example. Going forward, polymer is expected to grow a bit faster than metal, which was not the case in the last 5 years. Because many people experience metal. But there is one clear trend. Metal parts are being replaced with polymer part and not vice versa.

Our next question comes from Troy Jensen with Lake Street Capital.

I just want to follow up on Jim's question from earlier regarding the V650 -- excuse me, the RPS acquisition, the Element and how it relates to V650. I think that strategy, V650, was an open platform on materials. I'm just curious if RPS and Element are going to be close proprietary? And how much of the materials that -- that they use are internally manufactured versus partnered?

Troy, good to hear from you. And yes, very simple answer. It's going to be an open platform. But we are going to develop new materials, unique materials in partnership with third parties, actually, with the largest material companies in the world. We are working on it and it's going to be an open material system, what we call hybrid material model.

Right. Understood. And then just a follow-up. I know you're launching 3 new platforms here, Xaar, Element, RPS. Can you just talk about organic product development? And historically, you've shown an aluminum product and you had others kind of in development, but can we expect to see some internally developed products from Stratasys also?

Yes, for sure. We are keep investing in our business. We are building pipeline. Sorry, you wanted to ask something?

I was just going to say, new tech, new platforms? Or just enhancement of existing platforms?

Both, both, both. For example, in PolyJet, we just launched the J55, but this is a platform. So you will see shortly extension to this product line for different segments. We get -- this is an amazing machine in terms of reliability, in terms of quality of printing, in terms of meantime between failure. It's really unique, best-in-class with features and value to the customers that no one has. And we are keep investing in this platform. You'll see extension, bigger, smaller, different segments, et cetera.

FDM, we are going for manufacturing. This is the core strength of Stratasys. This is -- our core position in manufacturing is in FDM, and we are leveraging this position because we understand the need. We understand the ISOs. We understand the regulation, we understand the reliability, the service, and we are building the ultimate manufacturing machine in FDM for end-use parts. And we are investing in it, and you will see it in the future.

Our next question is coming from Brian Drab with William Blair.

I may have missed this because I was forced to join late today. But could you define exactly what we're talking about when we say manufacturing revenue? And does that include fixtures, tooling and other things used within a manufacturing environment as well as end-use parts? And if you are talking about end-use parts, can you give any specific examples of types of parts we're talking about?

The answer is yes. It's including everything which can be under the umbrella of end-use parts. So tooling is something people are using. So the -- everything, like part for robots, dental, align -- everything that is being used, and it's not a prototype, from our perspective, is manufacturing.

So you can take any example for aero, cabin parts or other parts for aero, automotive, electric vehicle parts, tooling for robots, carbon fiber for any heavy-duty tools or jigs and fixtures, medical modeling that we are doing with our PolyJet. We have the most unique capabilities of multi-material, multi-color to simulate real organ with our DAP, digital anatomic printing. This is also end-use parts. So our definition is end-use parts.

Got it. Yes. That's helpful. And then I just want to clarify, I didn't fully understand the answer or I didn't follow. But specifically for Origin, will that be maintained as an open materials or hybrid materials model as well as RP?

Yes, hybrid model, like we announced in December. It's going to be a hybrid material model, combining our material, partners' material and also the ability to use the machines for research and development of new materials.

Thank you. We have reached the end of our question-and-answer session. So I'd like to turn the floor back over to Yoav for any additional closing comments.

Thank you for joining us. Stay safe and healthy. Looking forward to updating you again next quarter. Thank you.

Thank you. Ladies and gentlemen, this does conclude today's teleconference and webcast. We thank you for your participation, and you may disconnect your lines at this time.