Good day, and welcome to today's Conference Call to Discuss Stratasys' Third Quarter 2022 Financial Results. My name is Donna, and I'm your operator for today's call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] I'd now like to turn the call over to Yonah Lloyd, Chief Communications Officer and Vice President of Investor Relations for Stratasys. Thank you. Mr. Lloyd, please go ahead.

Good morning, everyone, and thank you for joining us to discuss our 2022 third quarter 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 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 2021 year. Please also refer to our operating and financial review and prospects for 2021 and for the third quarter of 2022, which are included as Item 5 of our annual report on Form 20-F for 2021 and in Exhibit 99.2 to the report on Form 6-K that we are furnishing to the SEC today, respectively. Please also see the press release that announces our earnings for the third quarter of 2022, which is attached as Exhibit 99.1 to a separate report on Form 6-K that we are furnishing to the SEC today. Our reports on Form 6-K that we furnished to the SEC on a quarterly basis and throughout the year, provide updated current information regarding our operating results and material developments concerning our company. 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?

Thank you, Yonah. Good morning, everyone and thank you for joining us. Our results this quarter demonstrate the ongoing solid business performance and fiscal health of Stratasys. We delivered our highest third quarter revenue in seven years as well as five consecutive quarters of positive earnings, demonstrating our unique capabilities to generate profitable growth, and we believe we can continue generating sustained operating profitability for the foreseeable future, assuming no further material deterioration of the broader economic environment. It is a compelling time to be a leader in 3D printing. In fact, many of the challenges facing our target industries today, are the same factors that ultimately justify accelerating the transition from traditional to additive manufacturing. This includes the ability to adapt rapidly and cost effectively to logistics bottlenecks, higher transportation costs, new sustainability requirements and faster product innovation times. Stratasys continues to expand our customer reach across our technologies and our vision of the future of additive manufacturing is more robust than ever. We continue to have strong engagement with both our installed base and new customers for our leading FDM and PolyJet offering as well as our three newer technologies. However, the opportunities that we have, also come with some obstacles in the current macro space. Customers are facing challenges today that are impacting their purchasing behavior. The market has slowed, resulting in longer sales cycles and occasional deferral of orders. To that point, we remain laser-focused on controlling what we can to be best positioned to effectively execute sustained profitable growth. Importantly, we have a broad global diverse set of offerings across a multitude of systems and materials. The steady contributions from our organic technologies and the incremental revenues from our new technologies enable us to deliver consistent growth with improving margins. We also enhanced our results…

Thank you, Yoav, and good morning, everyone. We achieved solid results against an increasingly challenging backdrop in the quarter. And as we've shared, growth within our OEM business was even stronger, up almost 10% and on a constant currency as compared to the third quarter of 2021. We are particularly proud of the improvement in OpEx as a percent of revenue, which shows the progress that we are making on driving efficiencies across the platform. In general, our results demonstrate the resilience our diversified offering provides. Now, let me dive deeper into the numbers. For the third quarter, consolidated revenue of $162.2 million, was up 2% and revenue adjusted for divestitures and at constant currency, was up 7.8% from the prior year period. Product revenue in the third quarter rose by 3% and to $112.1 million compared to the same period last year or by 10.5%, excluding divestitures and on a constant currency basis. Within product revenue, system revenue grew by 7.7% to $56.3 million compared to the same period last year, an increase by 18.9%, excluding divestitures and on a constant currency basis. Consumable revenue declined by 1.4% to $55.8 million compared to the same period last year, but grew by 3.4%, excluding divestitures and on a constant currency basis. Aside from FX and MakerBot, consumable spending was impacted by the general slowdown in the market, especially for materials used for P3. Additionally, there is a natural lead time between hardware purchases and consumables. And given the lower hardware sales for the five years prior to 2021, it takes time for our installed base to drive sales back to the level before that time period. The good news is now that hardware sales have been growing again, we expect consumables to grow steadily beginning next quarter and beyond. Service…

Thank you, Eitan. The challenges our customers and our business face today in many ways, highlight the benefits of additive manufacturing going forward, resulting in confidence for the years ahead even as we navigate the current environment. With our robust balance sheet, we continue to invest in an expanded portfolio of hardware, materials and software solutions that should allow us to meaningfully increase our set of applications to capture a wider range of customers, a development and adoption of 3D printing growth and we drive additive manufacturing to scale. I want to thank our global teams for rising to the challenge and helping drive continued profitability as our business continues to grow. The relentless focus on execution and investment for growth and ongoing profitability today is expected to drive outperformance and create long-term shareholder value. With that, let's open it up for questions. Operator?

Thank you. The floor is now open for questions. [Operator Instructions] The first question today is coming from Shannon Cross of Credit Suisse. Please go ahead.

Thank you very much. I was wondering if you can just provide some more color on what your customers are saying in terms of both geographic as well as the size and vertical of customers in terms of the selling of purchases, but also where people are looking at investing, how customers are thinking about 2023 budgets in terms of CapEx? maybe timing of deferred purchases, do they expect that will come back fairly quickly, or is this a long time deferred kind of decision? Just whatever you can do to, sort of, frame the current outlook from a customer perspective? And then I have a follow-up. Thank you.

Thanks, Shannon. Thank you for the question. Yoav?

Well, we are optimistic. It's a challenging time, but the good side of challenging times that is crystallized the differentiation. And in those times, the guys that or the players that will shine are those that have those long-term relationships with strong installed base and are part of the daily activities of the customers, but also the part of their long-term plan. And in that sense, we're in a great position because we have direct discussion with our customers. They are long-term plans. Yes, there are delays. There is an economic global slowdown, no doubt. But it's not that they are going back and said, sorry, we are not interested. It's just about the base of adoption, but it exists. And we have a great example from this quarter like what we mentioned, the auto player, the automotive player OEM deal. It's a major deal, which is a continuation for a long-term plan. So long-term plans are exactly as we envision them with some delay. In terms of – and geographies, I would say automotive is doing well. Aerospace is gaining some traction, but in a slower pace. Education is doing very well. Defense is doing very well by government. And also the whole medical, dental is doing quite well. Of course, there are impacts there -- we see some impact there as well, but they are doing well. In terms of geography. Surprisingly, Europe is doing well, despite the fact that it's in the middle of the war and a lot of pressure on the FX. But in terms of real results, Europe is doing well. Also the US, but in all geographies, we see those, I would say, increasing or longer sales cycles.

Great. It sounds like you're probably gaining some share in Europe. Can you talk a bit more about the gross margin? What the drivers are? There are obviously many puts and takes between pricing and mix and commodity costs and all of that, if you could talk both on product as well as materials and maybe lay out a bit more about how you think gross margin will trend. Thank you.

HI, Shannon, it’s Eitan. Thanks for the great question. Starting with the results, as you probably saw, we improved our gross margin from Q3 2021, which was 48.2% and 48.5%, which is really a great success in terms of everything that is going on in the world. This improvement, this trend is, we believe, is sustainable. Again, we cannot speak about the macro, and we cannot expect exactly how things will go globally, but as far as it's concerned with us, managing our business, managing our operational efficiencies, increasing revenue, which naturally helps to improve gross margin. All these aspects that are within our control -- these are things that we're very focused, and you can see the results this quarter. Another thing to add, as we've discussed in previous calls, we've increased deliberately increased our inventory. That helps us to better balance the shipment fee to air and some other aspects that impact gross margin, and it impacts our COGS in a positive way, so we can better manage the logistics and the shipments, and that's something that we've been doing in the last few quarters. And also this quarter, and that's reflected in the good gross margin results. And we continue the trend -- this trend to -- we plan this trend to continue. Also taking into account the divestments and other elements, is the divestment of MakerBot, which positively impact our gross margin level.

Great. Thank you, so much.

Thank you. The next question is coming from Greg Palm of Craig-Hallum. Please go ahead.

Yes. Thanks for taking the questions here. I guess just kind of following up on the last thinking there. I'm just trying to figure out what your actual visibility levels are. Obviously, the last couple of weeks of a quarter or of a year-end are especially important for the business. And so I guess what I'm trying to figure out is, the reduction in guidance specifically a byproduct of some bigger projects that you think are going to get pushed out, or is it just the expectation that you might not get the same magnitude of a budget flush this year than you would have been in previous years?

Hi Greg. Thank you. We are in a good shape in terms of visibility. Stratasys is a very well-organized company, and we are running forecast and quite accurate one and models, and we're in good shape. The last few weeks of the quarter, it's all about unexpected delays. So this is the situation. So we have a longer sales cycle. We have a certain amount of delays because some of our customers are saying, okay, okay, but I'll take it next quarter. So, we baked it all in to our model, and we decided that we better be in a safer mode and adjust our plan and also to balance our inventory to make sure that we are learning quarter-by-quarter. But by this, I would say, longer sales cycles, and therefore, we adjusted the guidance. We don't see that the demand is moving. We just see a longer -- a longer sales cycle. So, it's relatively a small adjustment, as you can see, which when you calculate it, it's this uncertainty level that can happen at the end of the quarter in terms of delay. But if you take the overall guidance change that we have implemented it was 7% of our sales. So it's really smaller jump.

Yes. Understood. And I guess kind of looking forward, if we assume that this environment stays the same or potentially worsen. I guess what kind of levers do you have internally to sustain this level of profitability? And I guess, under a more challenging macro, are you still comfortable with your double-digit operating margin target looking out a couple of years, or is there a risk that, that gets pushed?

Yes.

Okay. Go ahead, Eitan. Go ahead.

Hi, Greg. So our long-term plan that we've discussed also in previous calls, we still stand behind it. We believe that we have created the right infrastructure to get to the over 50% gross margin and double-digit operating profit in the mid to long-term, doubling our addressable market that we've discussed in previous calls by the addition of the new technologies and everything else that we've discussed and we'll discuss today, that puts us -- gives us a lot of confidence on the ability to get to that result with respect to profitability. Naturally, it is impacted by the revenue growth, but there is a lot on management and building -- on building the right business model that as you can see in the last few quarters, that works. We managed to remain or to increase our profitability level even in a challenging environment, even with everything that is going on, you can see that this is the fifth consecutive quarter with profit and the profit actually increased compared to the last few quarters. So that's something that is -- a lot of it is within our control and our focus.

Okay. Makes sense. Appreciate that. Best of luck. Thanks.

Thank you. The next question is coming from Troy Jensen of Lake Street Capital. Please go ahead.

Hey, gentlemen. First off, congrats on good results here in a tough environment.

Thanks.

Maybe starting with you -- you're very welcome. I guess, I got a couple of questions on Covestro. So as you know, a lot of your competitors use the DSM Somos resins and their printers. And I don't think there's too many case studies of competitors, system companies using other system companies material. So I'd just love to know your conviction whether or not you can kind of maintain all of the DSM Somos revenues that are going through your competitors' business models?

Thank you, Troy. It's a great opportunity to share our vision about material. One of the most important obstacles in our journey to our manufacturing is all about materials. But here today are not sufficient, not in terms of mainly in terms of variety, but also in terms of, say, the profile of the material to replace real manufacturing. And here, we are in a journey to transform it. And Covestro is a super important growth engine for us for the future, both in South achieving three technologies in South, in DLP and powder because they have unique talent, know-how and patents that we will leverage with our new technology. So this is the big picture. Now to your question. Of course, we checked it from all possible angles, and we are going to grow this business and there is no -- I would even share with you that it's not that there is a retaliation from the customers. On the contrary, the moment Stratasys acquire, and we have more attention and more knowledge into additive manufacturing. They approach me proactively and want to look for collaboration and doing things together for the long-term. So we're in a good shape there. And you will see that our infrastructure will leverage Covestro both on the material side but also on the hardware side, because it's also a driver for hardware.

All right, perfect to look at that. So my follow-up, I guess, on the new products, I'm always focused on Origin and H350. I guess my checks always indicate that Origin is really doing extremely well for you guys. H350 may be a little bit more complex sale. I just want to get your thoughts on how those two products are meeting your expectations.

We are like you monitoring it, but on a daily basis. Good traction on both. There is a need in the market for those technologies, which is basic. And we have good technologies with very clear competitive edge in both of them. Both technologies are ramping up according to plan. Of course, the ramp-up of Origin is faster, very impressive and faster than SaaS because of the nature of the technology. It's technology that is easier to use when known in the industry where the high-speed sintering, the powder, the new powder or the future of powder is something quite new in our business, and we make sure that the ramp-up of SaaS, which meets our expectations and plans is a big success. So we ensure that the adoption is being done in the right way and our customers are successful. So, it's controlling and it's going well.

Keep up the good work, gentlemen.

Thank you. The next question is coming from Brian Drab of William Blair. Please go ahead.

Hi. This is Tyler Hutin on for Brian. Good morning. Thanks for taking my question. Just want to start off with the usage rate of your manufacturing machines. And I know, obviously, there's macro headwinds that would play into this. But as the hardware -- as your installed base picks up and you get more usage out of these manufacturing machines, does that give you any more visibility into your gross margin target of 50%? And then I have a follow-up.

I can answer. Tyler, thank you for the question. We are monitoring the utilization of our system through the connectivity mainly through GrabCAD, and we have a good -- by the way, it's a great dataset for us to understand what's going on in the market. We are not sharing it, but I can give the high-level direction, in terms, the high-level direction. Prototyping is more sensitive -- at least what we are seeing. Prototyping is more sensitive to slowdown in terms of utilization. Manufacturing is not sensitive. And overall, in terms of consumption of consumables, manufacturing, because it's an ongoing operation, consumed in our, what we call unit economic model, between three to five times than a prototyping. So, it's really a transformation in terms of our industry. And of course, it has an impact on the gross margin. I’d like to Eitan share it.

Yes. The utilization of manufacturing materials will definitely have a positive impact on our gross margin. We expect to see this more in the coming quarters and years as manufacturing -- and production becomes more and more towards manufacturing. And as we said in the past, when manufacturing percentage of our total revenue will grow, that will have a positive impact on our gross margin.

Okay. Thank you for that. And yes, you had nice even sequential improvement in gross margin, I was just wondering if you could quantify kind of what the macro headwinds were from inflation and supply chain disruptions, the headwind going towards gross margin? Thank you.

Sure. So, high level, as we mentioned, the net impact is a growth of from 48.2% to 48.5% year-over-year. But to your point, there were a more significant trends One is higher revenue had a positive impact on our gross margin. We increased prices, which over the year from Q3 2021 over the last year that had a positive impact on our gross margin. On the other hand, the cost and logistics had a negative impact of roughly 200 basis points, give or take. And we also have the positive impact of the exclusion of MakerBot was only one month only the month of September since the deal closed at the end of August, but that had a slightly positive impact on our gross margin. These are the main items that impacted the gross margin trend.

Okay. Thank you for all that and good luck going forward.

Thank you. The next question is coming from Paul Chung of JPMorgan. Please go ahead.

Hi, thanks for taking my question. So just on the OpEx side, you had a minimal bump this year. Can you talk about kind of the OpEx discipline you're driving here? And as we think about kind of the pace of OpEx growth maybe as a percentage of revenues next year, what do you think we should expect in what range? And what are some of the efficiencies you're kind of focus on next year.

Thank you. Maybe I'll start with the mid to longer-term OpEx as a percentage. As we plan and this is, in a sense, pure math, but there is a detailed plan to get there. So, the pure math, if we plan to reach double-digit operating income within the next few years, and we plan to get 50% plus gross margin. That means that OpEx will have to go to 40 level and maybe a little bit even lower, right? But that's a journey. And it is step-by-step improving -- continue to improving our scalability. If you will look on the last four, five, six quarters of OpEx as a percentage of revenue, you will see a continuing improvement. So 0.5% or maybe up to 1% every quarter, improvement -- the improvement of OpEx as a percentage of revenue down to a level of 45.8% that you see this quarter. This journey will continue. It will take a few years to get to the 40 levels. But we believe that this is -- we will continue to see improvement as we continue in our journey and as the business scales.

Great. That's super helpful. And then -- just a follow-up on the consumables purchases. Can you, kind of, quantify how below trend they are? And how are the teams looking to kind of drive consumables higher in the coming quarters and into 2023. And you mentioned the benefits of kind of strong system sales over the years over the last couple of years. So how does that kind of play in? And talk about the initial successes you're seeing with the expansion of consumables and what materials are seeing nice momentum and your expectations for kind of a gross margin uplift as well. Thank you.

Thank you for the question. We are optimistic about our consumable offering, and it will be a driver, one of the drivers which will increase our gross margin overtime. And we'll make sure that we are a company with a 50% -- above 50% gross margin and 10% operating income. So this is an essential part in our five years plan. In terms of the way we look at consumables, there is the long-term and the short-term. In the short-term, we have challenges because of the slowdown and because of, as I shared the impact on prototyping, most of the main reasons for the results of the consumable in Q3, where the which has an impact of around €5.1 million only in this quarter, some supply chain rollbacks, challenges, both in production and supply chain and the make divestiture, but we are coming back to growth in Q4, and that's the short-term. Now, I'll take it to the long-term. It is one of our growth drivers. That's why we are investing in Covestro. That's why we have an open material. We are leading the industry with our open material license. Hybrid model, this is why we just introduced now 13 new materials in FDM that usually will take us between three to four years, and we did it in one-shot just here for phone, high-end materials for manufacturing. And on top of it, there is this long-term impact we call it the life cycle impact. And what do we mean by the life cycle impact? This is the in and out consume consumption of materials in this pool. Looking at it, like, the baby boomers that were born in 45 and then in 2010, they went to pension and then you have a decline in their consumption, because they went and started their pension period or retirement period. Same here, you need to make sure that new hardware is getting in when hold you out there it's going out. We are very optimistic, because the model is working, and we will see growth going forward. But of course, the pool was not filled enough during the weak times of 2019 and 2020, especially the COVID time. But we are optimistic, consumable is essential for us, and it will drive our gross margin higher. On top of this, we are -- and that's one of the reasons of Covestro, but not -- the only one we are going to be disruptive with our material. And a good example is our denture material, and we are coming with a solution that we disrupt the market. We disrupt the market, because we have a property that does not exist today in this market.

Great. Thank you so much.

Thank you. The next question is coming from Wamsi Mohan of Bank of America. Please go ahead.

Yes, thank you so much. I know you're not providing an outlook here for 2023, but just given what your comments were about demand trajectory and macro caution and some customer deferrals. I was just thinking, is it reasonable to assume at this point in time, normal seasonality for the first quarter off of your fourth quarter guidance, or should we be anticipating something that's either better than seasonal or worst than seasonal? And I have a follow-up question?

Thank you, Wamsi. It's a bit too early to speak about Q1 2023 and the entire year of 2023. I can say that we are very confident about our ability to grow, but we should be mindful of the situation in the global markets and the macroeconomics. So providing a detailed forecast for 2023 will be -- it's too early for that. But I think it's important to note, we truly believe that we are -- with our diversified portfolio and the technologies that we have, we have the ability to grow in 2023. It's only a matter of being more mindful of the situation, the uncertainty that is currently in the world. And the profitability in addition to the revenue growth, the profitability, this is something that is more within our control. We believe that we should be able to sustain profitability and even improve it based on the model that we've built.

Okay. Thank you for that. As my follow-up, the cash on your balance sheet, and I know you have a very strong liquidity position, but the cash went down about $93 million. Can you talk about what all items bridge that because you've had divestitures and acquisitions in the quarter, and obviously, you're operating at elevated inventory levels? Can you just walk us through what are the moving pieces that got you to that cash level? And as we think about cash burn rate, potentially in a weaker demand environment. How should we think about the quarterly run rate of cash burn as well? Thank you.

Thank you, Wamsi. So cash flow, as a starting point, I would say that we started this journey with a significant cash balance with no debt, which is something that is one of our strengths, especially when we enter into this potential recession that puts us in a very, very good position to continue our journey and to continue to grow with that healthy cash position. With respect to the quarter and maybe a little bit some of the other questions that you raised. So with respect to the quarter, this quarter, we paid for certain M&A, for certain transactions, MakerBot is the largest in this quarter we paid, and that's something that was announced in the last few quarters in certain press releases as part of the investment in the new business with Ultimaker, both companies invested, strategic invested in this newer company roughly $47 million. We also invested as mentioned earlier on the call, in a few other businesses, which is roughly $10 million to $20 million that were invested in those smaller investments. And then, obviously, we have the operating cash flow that was €80 million. And we have other smaller items that are more on the normal, kind of, level CapEx and so on. That's basically the bridge that gets you to the roughly €90 million that were used this quarter. But the vast majority is M&A related, which is significant driver in our future and in our growth. With respect to the excess cash burn rate, and I would start with saying, if you look on the last few years, we had significant positive operating income -- sorry, positive operating cash flow in both 2020 and 2021. The two years of COVID, we generated roughly more than $60 million of positive operating cash flow combined, which reflects the -- our ability or basically reflect the trend of our business generates positive cash flow. The trend that you see this quarter and for the last few quarters is something that is deliberately and managed by us. It is focused on increasing inventory to put us in a better position to supply the demand. We have a few new technologies, as you know, and altogether, we believe that we need the right level of inventory to support the demand, to better manage our gross margins in an optimized way. I mentioned this, I believe, as an answer to one of the questions earlier. And that's basically the way we look at it. But on a normalized quarter, our business generates operating cash flow that's important to a strong sense

Okay. Thank you so much.

Thank you. The next question is coming from Ananda Baruah of Loop Capital. Please go ahead.

Yes. Good morning, guys. Thanks for taking the – I guess, good afternoon for you and good morning to us. Thanks for taking the question here. Two, if I could. Yoav, just going back to one of your earlier comments, sounds like you think manufacturing holds it better than prototyping going through macro here. Do you think that inside of manufacturing, do you think it's consumables or equipment sales, they would hold up better inside the manufacturing? And then I just have a quick follow-up. Thanks.

Good morning, Ananda. Thank you for the question. Yes, manufacturing is not sensitive because you become more critical for your customer. And -- of course, number one is consumables because they need to produce and only then hardware. So the moment they adopted the new technology, although is important, but still more sensitive than consumables to economic pressure. But overall, we are -- have been a does addressable market, and we have every month, every week, a greater position in manufacturing. That's what make us so resilient. And we are optimistic because we see that our customers are willing to explore and to take this journey with us.

Yes, that's helpful. I mean I -- it's actually going to be interesting because, well, I won't go into diet track, but it will be interesting to see sort of the contribution from the newer technology can allow you to grow through 2023 of macro really insistent. I think we're all looking forward to finding that out with you. Just a quick follow-up is on services revenue. How is that -- so if macro becomes very persistent as we go through 2023, how sticky is that customer support? Like what's really the driver, it's sort of at this $50 million level a quarter. Is this the right way to think about it regardless of what happens with macro just context there? And that's it for me. Thanks a lot.

Thank you, Ananda. Remember, in our model, materials and service are lagging after hardware -- and the most important driver to value our performance is hardware. If you don't have a box of the machine, at the customer place, you will not consume materials and you will not pay for service, a very simple equation. And when you look at it, -- the fact that, we transformed the ratio of hardware within our sales, and you see quarter-over-quarter-over-quarter for the last 10 quarters. We are increasing the sales of hardware means that we have good with service, because service is being driven by hardware. That's the bottom line. That's the model.

And if equipment takes a little bit of a hit for a few quarters from macro in 2023, it would seem -- what you just said would seem to suggest the installed base of the hardware could still support current service levels, current support levels. Would that be accurate?

Accurate. It's not the margin that drives it. It's the installed base, it's overall hardware in the pool.

Understood. Awesome. Thanks a lot. Appreciate it.

Thank you. The next question is coming from Jim Ricchiuti of Needham & Company. Please go ahead.

Thank you. Hello, Yoav, and Eitan. Wanted to go back to a comment you made about consumables, if I heard you correctly, growing in Q4. What I'm trying to do is reconcile that comment with what you're suggesting, I think, is continued challenging demand in prototyping. Are you anticipating just an acceleration in manufacturing-related consumables revenue? And -- or maybe is pricing playing a role in this?

Thank you, Jim, for the question. It's a process, and it's not in one or two quarters. We look at this more holistically. We look on the next quarter but also into 2023. When we think about the new technologies and you have related to this earlier about the lag period and the model, the – what we call the baby boom model, that we believe is very similar here. That's something that will take a few more quarters to be reflected on our financials. That's one of the growth engines or the reason we believe that consumable will grow in the next quarter, starting Q4. We do raise prices. I mentioned this earlier, we did this a few times during the last year, and we will continue to do that. So that's another element. Taking into account the Covestro acquisition that's something that will have a significant impact on our consumables, and on our business, as Yoav mentioned, not only the business that was acquired, but also the existing business and the other technologies that can benefit from that acquisition. When we take all this into account, we have a confidence about our ability to grow consumables. It might be a small or limited growth in Q4. But as we enter into 2023, we believe that we'll be able to see it more significantly a considerable growth.

Thank you. My follow-up is just on that $13 million of customer-related delays, how much of that was in Q3 versus Q4? And when you describe them as delays, the presumption is that these orders will come back in the next one to two quarters. Is that the case, or is there the risk that these longer sales cycles result in rolling delays as we think about the business over the next quarter or so?

All right. So Jim, maybe as a start, I would say that the €13 million that you related to FX is also part of it. So the headwinds that we see on the FX side are higher than the ones that were known three months ago, last time we spoke. So that's one of the elements within the $13 million. That's one comment. Second, that reduction reflects the uncertainty that currently exist in the market. This is the estimate that we put into our Q4 guidance, but it's hard to say exactly how much it will actually be. However, we do consider this as a delay. So it may be pushed into Q1 2023, that at least our expectation.

Thank you. The next question is coming from Noelle Dilts of Stifel. Please go ahead.

Hi. Thanks. A lot of my questions have been answered. So I just have one, but it's kind of multipart. So one, I was hoping you could just expand on how you're thinking about acquisitions in the current environment in the weaker macro environment? Are you a little bit more cautious given the economic headwinds, or do you think you might maybe accelerate some M&A just given that there may be assets out there that are attractively priced? And I guess the second part of this is, just it feels like they're we're in a period where, given where the group is trading, you could see some consolidation, whether that's across kind of the public companies or deal similar to what we saw with ICON and SLM. So if you could just give me some thoughts on how you're thinking about the potential for consolidation? That would be great. Thank you.

Thank you. Thanks for the question. We are in a great position in terms of our balance sheet to be deconsolidated of this industry. For two main reasons. One is the balance sheet position. But the other one is that in tough times and in macroeconomic challenges or slowdown, it's also an opportunity. It's an opportunity because it's differentiating, the strong player with strong infrastructure that can stand and win versus others that have more challenges. And I think that's a good opportunity just to share three factors that will make sure that we are the one that will capture the additive manufacturing opportunity in mass production because we are in the best position, both financially in terms of the infrastructure, in terms of the offering. And I want to relate to three very important factors. One is our foundation as a company. The second one is the fact that we have the most resilient business, as reflected in our profitability within the industry, and the third one is a promising future that we have and the leading position in attractive use cases. I will go one by one because it has implication to our position as the consolidator. The first one is the foundation. We are laser focused. We are going for polymer manufacturing, and we focus on the largest profit pool in this industry with differentiated technologies. We don't have even one machine that is a commodity, which is very unique, and it is reflected in our gross margin because if you are not differentiated, you have low gross margin. This is the name of the game. The other things in our fundamental is those five leading technology with those -- with clear competitive edge, put us in a position in front of the customer, where we are…

Great points. Thank you very much.

Thank you. At this time, I'd like to turn the floor back over to management, for any additional or closing comments.

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

Ladies and gentlemen, thank you for your participation. This concludes today's event. You may disconnect your lines. You'll walk off the Webcast at this time. And enjoy the rest of your day.