Stratasys Ltd. (SSYS) Q4 2019 Earnings Report, Transcript and Summary

Good morning, ladies and gentlemen, and welcome to the Q4 and Full Year 2019 Stratasys’ Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions]. As a reminder, this conference call may be recorded. I would now like to turn the conference over to your host, Mr. Yonah Lloyd, Vice President of Investor Relations.

Thank you, Ashley, and good morning, everyone. Thank you for joining us to discuss our 2019 fourth quarter and full year financial results. On the call with us today are our new CEO, Yoav Zeif; and our CFO, Lilach Payorski. I remind you that access to today’s call, including the prepared 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 Web site. 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 in Stratasys' annual report on Form 20-F for the 2019 year, which we are filing today with the SEC, as well as our report on Form 6-K and the related press release concerning our earnings for the fourth quarter of 2019, the latter two of which 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. Certain non-GAAP to GAAP reconciliations are provided in the table contained in our slide presentation and in today’s press release. Now, I would like to turn the call over to our CEO, Yoav Zeif. Yoav?

Thanks, Yonah. I'll start by expressing my excitement and enthusiasm to be serving as Stratasys’ new CEO at such a pivotal time for the company. Since joining Stratasys this month I have taken the opportunity to begin an in-depth review of the business, and am already impressed by the deep level of knowledge, professionalism, and dedication exhibited at all levels of the organization. I strongly believe in the solid foundation for growth that has been created at Stratasys, including an innovative and expanding product portfolio, disciplined financial management, and the industry’s leading distribution partners. Last month I had the opportunity to attend our annual global partner event where I met with many of our resellers. We believe that Stratasys has the strongest distribution channel in our industry, and I appreciate their input and their passion for mutual success; together we will have an exciting journey in the coming years. I would like to thank Elan Jaglom and the Board of Directors, and the oversight committee of David Reis, Scott Crump and Dov Ofer, for the exemplary work done under Elan’s leadership to guide the company through the transition period, laying the groundwork and building the infrastructure that will be the basis of our future growth. In addition, over the last several years, the company has implemented a culture of financial discipline led by Lilach Payorski and her team that has resulted in meeting our profitability targets and maintaining a healthy balance sheet. Starting in the back half of this year, we will introduce our next phase of growth with a notable step-change in our portfolio as we begin to launch a series of new products, including both manufacturing and design prototyping focused solutions. We plan to invest in the success of these new launches by increasing our go-to-market spending this year. We also expect to continue to see the steadily increasing adoption of our manufacturing-focused platforms in our target verticals of automotive, aerospace and healthcare. Our penetration into industrial manufacturing applications is among the deepest in the industry, and we plan to expand our leadership even further with our new solutions. Overall, I am extremely optimistic regarding the outlook of the business and believe that there is tremendous potential to drive significant near-term and long-term value for all of our stakeholders. I want to take the opportunity now, as the new CEO, to emphasize my strong belief that Stratasys will continue to lead the additive manufacturing industry as it moves through what we, and the industry analysts, expect to be a period of growth and adoption. We will continue to build on our key focus areas of design and engineering prototyping, manufacturing, healthcare and software; and we will work to generate a more effective operating model and to execute with excellence on our go-to-market strategy with the goal of offering the broadest, most innovative product portfolio and unique field-support service organization. As I continue to learn and familiarize myself with Stratasys, I look forward to meeting our customers, partners, investors and most importantly, our amazing employees worldwide, and to providing further updates to you during the course of the year. Now, I would like to turn the call over to our CFO, Lilach Payorski, who will review the details of our financial results. Lilach?

Thank you, Yoav, and good morning, everyone. 2019 was a year of market challenges, mainly stemming from ongoing market conditions. We took a conservative approach and continued to drive efficiencies and remaining committed to expense controls to meet our profitability objectives, while continuing to invest in our new product introductions. Total revenue in the fourth quarter was 160.2 million compared to 177.1 million for the same period last year. On a constant currency basis, total revenue declined 9.3%. For the full year 2019, total revenue was 636.1 million compared to 663.2 million for 2018. On a constant currency basis, full year revenue declined 3.1%. After adjusting for the sale of our divested entities during 2018, on a like-for-like basis total revenue declined 3.2% for the full year and 2.2% on a constant currency basis. Regionally, we saw mid-single digit year-over-year growth in our core Americas business for full year 2019, offset by the impact of macro weakness in Europe and Asia. In the Americas region, we are pleased with the growth we are seeing in our target verticals, as well as the share of new systems that are being sold into manufacturing environments. GAAP operating loss for the quarter was 3.3 million compared to an operating loss of 3.8 million for the same period last year. Non-GAAP operating income for the fourth quarter was 10.2 million compared to operating income of 12.8 million for the same period last year. GAAP net loss for the quarter was 2.8 million, or $0.05 per diluted share, compared to a net income of 6.3 million, or $0.12 per diluted share, for the same period last year. Non-GAAP net income for the quarter was 10 million, or $0.18 per diluted share, compared to non-GAAP net income of 11.3 million, or $0.21 per diluted share, reported for the same period last year. For full year 2019, GAAP net loss was 10.8 million, or $0.20 per diluted share, compared to a loss of 11 million, or $0.22 per diluted share, for fiscal 2018. Non-GAAP net income was 30.5 million, or $0.56 per diluted share, compared to non-GAAP net income of 27.8 million, or $0.52 per diluted share, reported for fiscal 2018. Product revenue in the fourth quarter was 109 million, a decrease of 12.5% compared to the same period last year, or 12.1% on a constant currency basis. For the full year 2019, product revenue was 430.7 million, a decrease of 5.6% compared to 2018. Excluding the divested entities and on constant currency basis, full year product revenue decreased 3.3%. Within product revenue, consumables revenue for the quarter decreased by 2.9% compared to the same period last year and decreased 2.4% on constant currency basis. On an annual basis, 2019 consumables revenue decreased 0.5% and increased 1.7% after adjusting for divestments and constant currency. Materials for our high-end platforms, such as design realism in PolyJet and advanced materials in FDM, including ULTEM and Antero, grew year-over-year, demonstrating customer adoption of our solutions for high-value applications. We also continue to see materials growth for our F123 platform. The decrease in the period was driven primarily by regional weakness in Europe and Asia, coupled with some decline in materials associated with our legacy platforms, which we believe will be offset over time by strong growth in materials demand that will come from our new products, as well as from systems that we have placed over the last few years. System revenue for the quarter decreased 20.6% compared to the same period last year, with no material change on a constant currency basis. Our system revenue were negatively impacted primarily by continued macroeconomic weakness in Europe and Asia, as well as declines in certain legacy product lines that we expect will be more than offset by our new product introductions. For full year 2019, system revenue decreased 10.8% and 8.3% after adjusting for divestments and constant currency. Service revenue in the fourth quarter was 51.2 million, a decrease of 2.6% compared to the same period last year, with no material change on a constant currency basis. For the full year 2019, services revenue was 205.3 million, a decrease of 0.7% compared to 2018, and relative flat on a constant currency basis. Within services revenue, customer support revenue increased by 1% compared to the same period last year, with no material change on a constant currency basis. For the full year 2019, customer support revenue increased 1.9% compared to 2018 and 3.1% on a constant currency basis. GAAP gross margin was 49.1% for the quarter, flat compared to the same period last year. Non-GAAP gross margin was 52.4% for the quarter compared to 52.2% for the same period last year. GAAP operating expenses decreased by 9.8% to 81.9 million for the fourth quarter as compared to the same period last year. For full year 2019, GAAP operating expenses decreased 2.6% to 325.4 million. Non-GAAP operating expenses decreased by 7.4% to 73.8 million for the fourth quarter as compared to the same period last year, driven by our focus on efficiency. We remain committed to our long-term strategy and we continue to invest in developing new products that we believe will expand our addressable markets. For full year 2019, non-GAAP operating expenses decreased 4% to 298.7 million reflecting our successful operational discipline and impact of divestments. The company used 3.4 million of cash from operations during the fourth quarter as compared to 18.7 million of cash generated in the fourth quarter last year, primarily due to proactive steps to increase inventory levels in order to improve fulfillment time and support product demand as well as to prepare for new product launches in 2020. We ended the fourth quarter with 321.8 million in cash, cash equivalents and short-term deposits compared to 347.1 million at the end of the third quarter of 2019. To recap, we are pleased with the full year growth we observed in our target verticals in the Americas. We successfully drove efficiencies through expense control, demonstrated by our stable gross margins and ability to meet profitability objectives while investing in new product introductions. Our balance sheet remains healthy and we are well positioned for future opportunities. I would now like to turn the call over to our VP of Investor Relations, Yonah Lloyd, who will provide greater details on our 2020 financial guidance. Yonah?

Thank you, Lilach. We are providing full year guidance for 2020 as follows. Revenue guidance of $620 million to $680 million. GAAP net loss of $30 million to $18 million, or $0.54 to $0.33 per diluted share. Non-GAAP net income of $25 million to $34 million, or $0.45 to $0.60 per diluted share. Non-GAAP operating margins of 5% to 6.5%. Capital expenditures are projected at $40 million to $60 million. We are committed to successfully introducing our new products and our guidance reflects increased investments earlier in the year in resources for specific go-to-market initiatives in order to support the planned launches that will begin in the back half of 2020, primarily in Q4. We believe that this increase in operating expenses will provide the basis for long-term growth. Additionally, our guidance range is longer than we typically provide, due primarily to the ongoing industrial macroeconomic issues globally, as well as uncertainty around the potential impact of the coronavirus. We are in the early stages of understanding if and to what extent we may be temporarily impacted by this, and we will provide additional updates later in the year. Non-GAAP earnings guidance excludes $25 million to $26 million of projected amortization of intangible assets; $26 million to $28 million of share-based compensation expense; reorganization and other expenses of $3 million to $4 million. Non-GAAP guidance includes tax adjustments ranging from $3 million to $4 million on the above non-GAAP items. The estimated non-GAAP tax rate for 2020 is impacted by the ongoing non-cash valuation allowance on deferred tax assets that we expect to record throughout the year on U.S. losses. Given the expected ongoing negative impact of not recording a tax benefit on U.S. tax losses on our net income, as well as significant quarter-to-quarter variability in our non-GAAP tax rate, the company believes non-GAAP operating income is the best measure of our performance. Appropriate reconciliations between GAAP and non-GAAP financial measures are provided in a table at the end of our press release and slide presentation, with itemized detail concerning the non-GAAP financial measures. Operator, please open the call for questions.

[Operator Instructions]. Your first question comes from Wamsi Mohan with Bank of America.

Yes. Thank you. Good morning. Yoav, congrats on the new role. Can you talk a little bit about how some of your past experience you’re going to bring to leverage into this new role, and what sort of changes do you want to drive? I know it’s still early days, but what sort of changes do you want to drive at Stratasys? And I have a follow up.

Thank you for the question. So, as I said, I’m very excited to be here. Huge opportunity in front of us both in terms of the industry perspective and also from internal perspective. I’ll go one by one. So what makes me excited about it and why I feel suitable and confident about the future? So I’m coming from a combination of consulting experience, deep consulting experience with the biggest corporate in the world, mainly around strategy and commercial aspect, and more than 12 years of experience as an executive across all different functions of the organizations. Both organizations I served were the leaders in their fields. So I’m bringing an experience in achieving global leadership, maintaining this global leadership and creating growth. So my focus was about growth engine. And I managed sales, R&D – complex R&D environments, like IoT, manufacturing activities I managed, mainly plans, business development. I really have a large perspective on global marketing, development, et cetera. So I have a very large perspective on how to manage global operations both for the strategic planning side of it, but not as important on the operational side and driving execution. Having all this experience in my background when I’m looking at Stratasys, really sky is the limit here. And first of all it’s a great privilege to be here because it’s a company that can really help change the world and will change the world going forward. As you said, it’s really early days. So if we give out a bit high level, but in general I think I have great foundations to build on. I’m going to leverage what we have from very professional knowledge people. I was deeply impressed by the dedication, the engagement and add to it the product portfolio, the innovation, the position that we have in the market, the go-to-market, we are there. Any more questions on this?

No, thank you. That’s very helpful. Thanks for the context. And maybe this one for Lilach as a follow up. When we see the overall guidance, it’s sort of roughly flat and I know you have a slightly wider range for the uncertainties in the market. But that does imply a meaningful recovery in product revenues relative to how you’re exiting 2019. So can you give us some context on what gives that confidence of that recovery in product revenues and how those product revenues – I know you’re very excited about the launch of new products in the second half of 2020. If you can give us some context of what percent of revenues either in second half of '20 or in '21 are going to come from these new product, that would be very helpful? Thank you.

Good morning. Thank you. It’s a great question. And you rightfully say that we had a wider range and this is mainly because of – like many other companies we are incorporating some of the uncertainty around the macro conditions, specifically with the coronavirus. Having said that, we are excited about our new product launches during the year, which we expect to be more impactful in the second part of the year, in H2. And if I would like to – if we talk about cadence of the revenue, we expect to have about 52% of the revenue come at the second part of the year with Q4 being materially the strongest and probably Q1 would be the weakest. It’s a difficulty seasonality for us but it’s also more influenced by the timing of our NPI by our new product introductions as well as the fact that Q1 already seems like being more impacted by the significant macroeconomic with the coronavirus. So this will be the main important revenue from a cadence perspective.

Just one thing on that, Lilach. Wamsi, it’s Yonah. It terms of the seasonality of the revenue itself, it will actually more likely ramp throughout the year with Q1 being the lowest quarter and ramping upwards across Q2 and Q3, and then of course with a material impact in Q4 primarily based on the new product launches.

Okay. Thank you very much.

Your next question comes from Troy Jensen with Piper Sandler.

Hi, guys. Thanks for taking my question and welcome Yoav. Just to follow up on the cadence. Could you talk about maybe Q1, should we expect normal seasonality or will be less than normal given Q4 wasn’t as strong? And then can you talk to just OpEx cadence? And then I have follow-up.

Okay. Good morning, Troy. In Q1 – we have a difficult seasonality. Q1 is usually the softest quarter of the year. But given the macroeconomic situation with the coronavirus, we’re actually anticipating that Q1 will be most impactful and will be naturally softer than what we would have anticipated. So the main impact will be in Q1. In terms of the cadence – regarding OpEx, okay. So regarding OpEx, yes, OpEx would be fairly evenly between H1 and H2 and slightly higher in Q2 and Q4 with Q2 being the highest in preparation for new product launches in H2. OpEx [ph] as a percentage of revenue will be highest in Q1 and decline as we move throughout the year.

That is perfect. Thank you a lot. With respect to new products, I guess I’m under the assumption that three to six-month sales cycles including new products. So if things are going to be second half impacted, are we expecting to see this in Q2 as they get launched or if they do get introduced in Q3, is it really going to have an impact on 2020 revenues?

Right. Hi, Troy. It’s Yonah. So we’re not giving specific guidance on the timing of the launch, but the timing of the launch will be primarily in the second half of the year with the impact on the top line being seen most significantly in the fourth quarter.

Okay. I guess that with RAPID might have been the perfect time to unveil this given that’s kind of the big industry trade show, but I understand you can’t touch on it. All right, understood. Thanks and good luck.

Your next question comes from Brian Drab with William Blair.

Hi. Thanks for taking my questions. I guess just to continue on with the new product discussion. I’m just thinking back to this call a year ago and some of the calls throughout 2019 and new products were the theme and the message was that new products were going to drive growth and accelerate growth was we entered 2020. I know there’s a lot of macro challenges right now. I’m just wondering when you look back at whatever those new products were; the 750, the 735 dental machine, are those – as you reflect on that, were those as successful as you expected and it’s just macro headwinds or were those not as impactful? And then why would – what are these new products that are coming this year that will materially move the needle whereas those did not?

Hi, Brian. It’s Yonah. So certainly there was an impact of the more global macroeconomic situation in being able to more successfully execute on the 2019 products. Also if you remember, David had called out in previous calls about the timing of launches being related to R&D and sometimes launch timings get pushed out to make sure that we’re putting the best product out into the market. So I think the confidence level for us now in 2020 given where we are in the R&D cycle for the new products that will be coming out later in the year is high and so it gives us the support information to say what we did in terms of the cadence and how it’s going to specifically impact us later in the year.

But some of those new products that were planned for launch didn’t launch is part of the issue, just to be clear?

Exactly right, correct.

Okay. And then can you give any update on your progress in the metal arena? Thank you.

Sure. In metal, we’ve talked about the Layered Powder Metallurgy which is a unique solution that we have. That’s going after the biggest alloy in the market, which is aluminum, the most difficult to cost effectively produce in 3D printing. And in fact we’ve got two early bird machines that are already deployed in Europe. One of them at a major automotive OEM, another one at a metal fit business. And very happy with the feedback that we’re getting from the deployments. In terms of timing, we have not yet announced when the LPM system is going to be in the market. So stay tuned for that.

Okay. Thanks for taking my questions.

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

Hi. Thank you. Can you hear me okay?

Yes, we hear you great, Jim.

Okay. Thanks. Just a question on the macro headwinds, because I’m just trying to get a better sense as to how you might be thinking about the impact now with coronavirus. So first off, is there any way you can give us some sense as to the magnitude of the weakness that you saw in the international business in Q4?

Jim, it was a little hard to hear at the end. Were you asking specifically on macro weakness in Q4 and then --?

Yes, I just want to get a better sense as to the weakness in Q4. Sorry, the magnitude of the weakness in the international business in Q4. And then to what extent your outlook – I would assume the outlook has softened versus what you were expecting further entering the year with the onset of the coronavirus spreading. So just trying to get a sense as to your full year guidance, how you might be thinking about that impact? As we’ve seen, conditions obviously get a little weaker.

Yes. So during 2019 and specifically towards the end of the year, the second part of the year, we experienced a significant weakness in Europe and as well as Asia. And specifically in those key verticals that we operate maybe the auto and parts business, there is several indicators of a wider difference. For example, in the European industry in general is struggling with 12 straight months of contraction in manufacturing and also other metal that we see. So this will significantly impact us in 2019. Given that those are the main target verticals, we believe that probably some of this will continue growing into as well as 2020. And if we couple [ph] on this, also the impact of the coronavirus where Wuhan is the major auto center in China for Chinese and Japanese [indiscernible] suppliers are located in this area. We believe that the coronavirus will impact most significantly this segment and can be more significant also on our customer base as well as our supply chain. As a result, we cautiously provided a much high – a wider guidance range and we’re watching this very carefully. We expect that in Q1 we’ll see a much softer result as those results are impactful. And hopefully things will go better towards the end of the year when we’ll be able to leverage on our new products in the second part of the year.

I’ll just add on that, Jim. We’re well positioned to return to growth when macro conditions improve. A reminder that we have a very high level of engagement and interest across all sectors. The products provide exceptional value. These are going to be critical products to the automotive industry going forward, general manufacturing going forward. So as the capital investment atmosphere resumes, we’re very well positioned to be able to take advantage of that at the time.

Okay. Thanks very much.

Your next question comes from Shannon Cross with Cross Research.

Thank you very much. Yoav, just on the big picture question. You had the opportunity to look at the business and the industry from an outsider’s perspective. So I’m curious as you’ve looked at it, what technology materials or customer sets do you think will be the biggest drivers of growth in coming years since – again, with your outsider perspective, I think it might be a unique opportunity to hear what you’ve seen? Thank you.

Thank you, Shannon, for the question. So yes, I have the advantage of being an outsider. Not anymore for the last six days, but I can give an outsider’s perspective. And that was one of the reasons I decided to take the position of the CEO. The key in business success – one of the most important keys for business success is to be in the right segment or in the right industry. This is the right industry. Of course there are macro conditions, there are some technological challenges but overall there is a clear value proposition how we can really transform both design but most importantly manufacturing, and I’m proud of the manufacturing. It’s a whole new story here. The ability, the flexibility, the [indiscernible] and the new mechanical properties in automotive, all those you cannot achieve with traditional processes. And we are just geared to do it and we will do it and definitely we are going for strengthening our design industry but also leading the industry into manufacturing. And the way to doing this is first we started at basic, but it’s a groundwork building and continuing to build on the foundation that we have here and then building clear strategies for the long-term, then derive the short term, building around it or restructuring an effective operating model is going to take us into and will help us to catch this wave and to [indiscernible] and to be there in the manufacturing and then going to focus and focus will be a word that I use a lot on this operating model and making sure that we are slowly reaching leverage of all the good assets that we have here. And then once you have the strategic plan here, the operating model supporting it, it’s all in our focus, focus in a passionate way really taking and restructure [indiscernible] allocation to create this step change and to really elevate the innovation. We are already [indiscernible] company. But we can do much more based on what we have here [indiscernible], the engagement, the education, we’ll do it. And lastly, I would say the last building block is all about leveraging the people and empowering this group –actually the best team in the industry. Just leveraging them and empowering them to do their jobs. Thank you.

Okay. Thank you. Yonah, you had mentioned I think that you have a high level of confidence and being able to launch at least within the timeframe that you’ve given by the end of the year for some of the new products. Just what leads you to believe that, what has changed relative to maybe when there has been some delays in the past just since the 2020 guide depends so much on fourth quarter? Thank you.

We talked a little bit before on the call about there was a R&D slowdown that caused some products to be pushed out '19 into '20. So clearly we get direction from the teams that are giving us the information in terms of when the products are available, at what stage they’re at, et cetera. It’s a very detailed process. Yoav mentioned earlier that he attended a reseller event that we had with hundreds of people for three days coming together and preparing for what 2020 is going to look like. A lot of information was exchanged. And the team across all of the categories within this company understand the timelines associated to each of the products and feel very good about the fact that we can say that they will be launching this year, and as we said in the back half of the year. More than that, we really can’t get into. Hopefully you and others on the call will – as Troy said earlier meet with us at RAPID, get to learn a little bit more about our thinking, see what we have the time, meet the management and continue to hear what our timeline looks like at that point, which is at the end of April in Anaheim. So looking forward to seeing you there.

We’ll be there. Thank you so much.

Your next question comes from Ananda Baruah with Loop Capital.

Hi. Good morning, guys. Thanks for taking the questions, two if I could. And Yoav, welcome aboard. Look forward to working with you.

Thank you.

You’re very welcome. For whoever wants to answer, much of the talk or the conversations through 2019 with the regards to the launch of the new products, your critical mass, was getting to double-digit revenue growth at some point as we would go through '20. Clearly macro impacts that. But would love to get your thoughts on in a macro stable environment, do you still believe that the new products at critical mass and maybe it’s in 2021 still has the potential to get the revenue growth back to double digits? And then I have a follow up. I appreciate it.

Good morning. So putting aside the macroeconomics situation, we do believe that by delivering those new products during 2020 it will create a meaningful growth and opportunity for us. Going forward, it’s an improvement of our technology FDM and PolyJet as well as adding additional addressable markets for us. So definitely this is the plan. It’s going to be a significantly growth driver.

Thanks for that. And do you also believe that it could be a multiyear growth driver, so this is a structural shift as opposed to just a one-time sort of adoption event of new products that have increased functionality and capability?

Yes, great question. It’s Yoav. It’s all about growth engine and we have in our hands growth engine here. Some of them are evolutionary and some of them are new technologies that we’ve take up, as I mentioned before, to the manufacturing space. So we’ll keep reading the manufacturing space as well. So it will be significant.

Yes, it’s very helpful. Thanks. And then just a quick follow up. When you guys were speaking about say Wuhan and the impact of coronavirus there, it sounded like you also mentioned – I’m going to paraphrase, correct me on this, but something about sort of supply chain but I took it in the context of your sort of ability to get your own products made. Is that accurate? And if it is accurate, should we be thinking about product in strength in any context for you guys as a result of coronavirus? Thanks.

Right. So, Ananda, it’s really not necessarily about our ability to get our own products as much as it is about the ripple effect of the coronavirus disruption that could cause a pause in investments throughout the ecosystem on supply chain. So we also have to think about our customers, the Tier 1 and Tier 2 suppliers, et cetera. So it’s a little bit wider and probably more impactful in that segment than it is specifically for our ability to get our own products, by the way. We’ve mentioned several times now that we’ve been building inventory for the last number of quarters and as it turns out it was a pretty smart thing to do. So it certainly gives us that in our pocket to not to worry about being able to supply our own products into the markets.

That’s very helpful, Yonah. Thanks a lot. I appreciate it, guys.

[Operator Instructions]. And your next question comes from Greg Palm with Craig-Hallum Capital.

Yes. Thanks. I guess just starting with the quarterly results, it’s not often where your Q4 revenue number isn’t the highest quarterly amount throughout the year. So you talked a little bit about where you saw some weakness geographically, but any certain end markets that were maybe a little bit weaker than what you thought and just curious how you saw the budget flush environment in sort of that cadence throughout the quarter?

Good morning. It’s a good question. The decline is mainly regional, not specifically in a specific vertical or market or segment specifically. It’s mainly regionally specifically in EMEA and specifically in Asia or specifically in China. This is the main decline where we see the decline comes from.

Okay. And then in terms of the increase in the go-to-market spending that you mentioned earlier, maybe I missed it, but what exactly are you doing here? Is it some build up of direct sales capabilities or what?

Hi. It’s Yoav. We want to make sure that we are successful with the new product introduction. That’s why we are supporting this by increasing the spending of the go-to-market. And as you know, it will show up in our SG&A. And we expect to increase this go-to-market spending in preparation for the new product introductions that will impact in the second half of the year. And increase will peak I guess in Q2 just to make sure that we are prepared.

Can you talk about where that money is actually going into? Is it sales, is it building up the direct sales force, is it marketing, it is – any more details on where that money is actually going will be helpful?

Introducing several products that is same here [p] it’s a significant [indiscernible] also the entire company, so it’s actually impacting all the organizations, but the main focus is also on preparing the go-to-market trading, so it’s mainly sales. And a lot of preparation around the go-to-market is where it’s marketing spending. Everything – all the Israeli application engineers, sales kit [ph], training, demonstration, shows, a lot of effort goes to have a very successful launch that will happen in the second part of the year.

Got it, okay. Thanks.

I am showing no further questions at this time. I would now like to hand the conference back for closing remarks.

Thank you. Thank you for joining today’s call. I’m pleased to be joining the Stratasys team and look forward to speaking with you all again next quarter and to meet you in the field.

Ladies and gentlemen, this concludes today’s conference. Thank you for your participation. Have a wonderful day. You may all disconnect.