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Stratasys Ltd (SSYS 2.66%)
Q3Â 2018 Earnings Conference Call
Nov. 01, 2018, 8:30 a.m. ET
Contents:
- Prepared Remarks
- Questions and Answers
- Call Participants
Prepared Remarks:
Operator
Good morning, ladies and gentlemen, and welcome to the Q3 2018 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 is being recorded.
I would now like to turn the call over to your host, Yonah Lloyd.
Yonah Lloyd -- Vice President of Investor Relations
Thank you. Good morning, everyone and thank you for joining us to discuss our third quarter financial results. On the call with us today are Elan Jaglom, Interim CEO; David Reis, Vice-Chairman and Head of our Board's Oversight Committee, joining by telephone, and Lilach Payorski, our CFO.
I'll 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 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 in Stratasys' annual report on Form 20-F for the 2017 year, filed with the SEC on February 28, 2018, and in our report on Form 6-K, along with the related press release concerning our earnings for the third quarter of 2018, which we have 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 Interim CEO, Elan Jaglom. Elan?
Elan Jaglom -- Interim Chief Executive Officer
Thank you, Yonah. Good morning everyone, and thank you for joining today's call. We are pleased with our third quarter results that showed a continued recovery in high-end system orders, which began the previous quarter, as well as improved results at Stratasys Direct Manufacturing and steady growth in the recurring, consumable and customer support revenues.
I will return later in the call to provide an update on our search for a new Chief Executive Officer and David will provide more details regarding the highlights of the quarter and other key developments, but first I will turn the call over to our CFO, Lilach Payorski, who will review the details of our financial results. Lilach?
Lilach Payorski -- Chief Financial Officer
Thank you, Elan, and good morning, everyone. Total revenue in the third quarter was $162 million compared to $155.9 million for the same period last year, up 4%. After adjusting for the sale of our divested entities this quarter, on a like for-like basis, total revenue was up 6%.
GAAP operating income for the third quarter was $3.4 million, compared to operating loss of $6.9 million for the same period last year. Non-GAAP operating income for the third quarter was $8.2 million, compared to operating income of $8.1 million for the same period last year.
Product revenue in the third quarter was $109.6 million, an increase of 1.1% compared to the same period last year and 3.8% excluding the divested entities. Within product revenue, system revenue for the quarter was flat compared to the same period last year, but was up 3.3% after adjusting for the divested entities.
Consumables revenue increased by 2.6% compared to the same period last year, and up 4.3% excluding the divested entities.
Services revenue in the third quarter was $52.4 million, an increase of 10.4% compared to the same period last year, driven by growth of customer support revenues and strong performance at Stratasys Direct Manufacturing.
Within services revenue, customer support revenue, which includes revenue generated mainly by maintenance contracts on our systems, increased by 7.4% compared to the same period last year, driven primarily by growth in our installed base of systems and improvement in our service contract attach rate.
GAAP gross margin was 48.7% for the quarter, compared to 48.3% for the same period last year. Non-GAAP gross margin was 52.1% for the third quarter, compared to 52.5% for the same period last year, driven by the composition of our revenue sources.
Non-GAAP product gross margin increased to 60.6%, compared to 59.6% for the same period last year, driven by product mix. Non-GAAP services gross margin was 34.5%, compared to 36.3% for the same period last year, reflecting increased investments in our customer service and support operation.
GAAP operating expenses decreased by 8% to $75.6 million for the third quarter, as compared to the same period last year, primarily due to the net gain from divestment.
Non-GAAP operating expenses increased by 3.4% to $76.3 million for the third quarter as compared to the same period last year, reflecting our continued R&D investment in long-term initiatives, including advancement in our core FDM and PolyJet technologies, as well as our new metal additive manufacturing platform, advanced composite materials and software and application development.
The Company generated $5 million cash from operation during the third quarter, as compared to $4.6 million of cash generated in the third quarter last year. We ended the third quarter with $348.9 million in cash and cash equivalents, compared to $346.7 million at the end of the second quarter of 2018.
Inventory increased slightly to $118.1 million compared to $117 million in the second quarter of 2018. Account receivable increased to $129.5 million, compared to $123.5 million as of the end of the second quarter of 2018, with Day Sales Outstanding or DSO, on 12-month trailing revenue at 71.
To recap, our revenue results are in-line with expectations and reflect the continuation of a recovery in high-end system sales. We are pleased with the continued improvement at Stratasys Direct Manufacturing, which contributed to growth in overall service revenue.
Our continued growth in recurring revenue from consumables and customer support is encouraging and demonstrates the continued health of our installed base of systems. We are pleased with our operating expense control, which resulted in a reduction in G&A, as we increase investments in long-term initiatives to support our technological leadership and expand our addressable markets.
We continue our trend of positive cash generation from operating activity and believe we maintain a healthy balance sheet and are well prepared to take advantage of opportunities moving forward.
I'd now like to turn the call back over to Elan.
Elan Jaglom -- Interim Chief Executive Officer
Thank you, Lilach. As we noted on the last call, the Company's Board of Directors has established an Executive Search Committee, composed of myself and Victor Leventhal, the Chairman of our Compensation Committee, to help identify a new Chief Executive Officer.
Vic and I have been actively interviewing candidates, a few of whom have gone deeper into the process and we have met or spoken with other members of our Board. We are confident that the people on our short list are strong leaders, with relevant global operational experience, and we look forward to announcing a new CEO when we have completed the search.
I would now like to ask David to provide more detailed information regarding the results of the quarter, David?
David Reis -- Executive Vice Chairman of the Board
Thank you, Elan. In the third quarter, we were pleased with our continued commitment we are observing from our customers, reflected in the strong sales of high-end production system, as well as ongoing strength in recurring revenue from consumables and services, which is notable despite the decline in systems sales we experienced early in the year.
We are pleased with the increased level of customer commitment we continue to see as customer move beyond qualification and validation phase around application, to expanding their capacity in true production environments.
As an example, we spoke in the first quarter of last year about how Siemens Mobility was pioneering the use of Stratasys' FDM 3D printing technology by producing customized final production parts for German transport services provider.
In mid-September, Siemens Mobility announced it has opened its first digital rail maintenance center, the Siemens Mobility RRX Rail Service Center in Germany. The new maintenance depot expects to service over 100 trains every month, and offers the highest level of digitalization in the rail industry, with advanced FDM 3D printing from Stratasys at the heart of their service operation.
Inventory increased -- sorry, additionally, in August, in IMTS manufacturing exhibition, we showcased multiple customers in our booth and highlighted the unique applications that they are addressing with our technology today including; FedEx, who are developing efficiency in their supply chain as they work to deploy additive manufacturing facilities closer to customers as part of their FedEx Forward Depot service offering.
SLS and aerospace customer using our FDM technology for rapid-response, customized, high-temperature layout tooling that previously would have been done with CNC; Lockheed Martin, leveraging our new Antero PEKK advanced thermoplastic to create highly repeatable parts that meet strict mechanical functions and dimensional requirements for space travel and, Penske's NASCAR division, showing multiple 3D printed end-used parts that their production managers can create in a single day compared to multiple days using traditional machine methods.
Looking beyond manufacturing applications hat our technology can address today, we are excited about our progress in developing new innovative solution across our FDM and PolyJet platforms that we believe will expand our addressable market in advanced manufacturing over next year.
We are pleased with the progress being made in the development of our new metal additive manufacturing platform for short run production and expect to have greater engagements with our development partners next year as we move through the stages toward commercialization.
We're encouraged with the improved performance at Stratasys Direct Manufacturing. SDM is benefiting from organizational change we made early in the year to bring it direct under our North America sales organization and leverage the synergy between our parts and our hardware business, as well as strong growth in manufacturing orders led by metal part, production and an increase in large, more complex projects and programs from our top customers, particularly aerospace.
Specifically, in the third quarter, we were pleased to see several large customers significantly growing their order size and increasingly relying on SDM for production parts and development needs. And as we have discussed in the past, the mix of SDM business has shifted significantly toward more profitable additive manufacture parts over those made conventionally.
I would now like to turn the call over to our VP of Investor Relations, Yonah, who will provide greater detail on our 2018 financial guidance. Yonah?
Yonah Lloyd -- Vice President of Investor Relations
Thank you, David. We are updating our guidance for 2018 as follows; total revenue in the range of $670 million to $680 million, compared to the previous guidance of $670 million to $700 million.
GAAP net loss of $10 million to $2 million, or $0.19 to $0.04 per diluted share, compared to previous guidance of net loss of $41 million to $25 million, or $0.75 to $0.46 per diluted share.
Non-GAAP net income in the range of $27 million to $30 million, or $0.50 to $0.55 per diluted share, compared to previous guidance of net income of $16 million to $27 million, or $0.30 to $0.50 per diluted share.
Non-GAAP operating margin is still expected to be in the range of 4.5% to 6%. Capital expenditures are projected to be $25 million to $35 million, compared the previous projection of $30 million to $40 million.
Our guidance reflects increased investments in R&D, tools, materials and additional resources aimed at expanding our addressable markets by accelerating our development efforts for the new metal additive manufacturing platform, further advancements based on our FDM and PolyJet technologies, and specific go-to-market initiatives to deepen our customer engagement.
Non-GAAP earnings guidance excludes $34 million of projected amortization of intangible assets; $16 million to $17 million of share-based compensation expense; net gains from divestitures of $23 million to $22 million; and reorganization-related expense of $6 million to $7 million; and includes between negative $1 million in tax expenses to $1 million in tax income related to non-GAAP adjustments.
The estimated non-GAAP tax rate for 2018 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 the table at the end of our press release and slide presentation with itemized detail concerning the non-GAAP financial measures.
Operator, you may now open the call for questions.
Questions and Answers:
Operator
(Operator instructions) Your first question comes from the line of Troy Jensen from Piper. Your line is open.
Troy Jensen -- Piper Jaffray & Co. -- Analyst
Hey gentlemen, congrats on the improving results here.
Elan Jaglom -- Interim Chief Executive Officer
Thanks, Greg.
Troy Jensen -- Piper Jaffray & Co. -- Analyst
So quickly maybe for David I guess or Lilach, high-end systems were strong this quarter. Did you see that strength across all verticals and I guess I'm trying to figure out when we really expect to see the aerospace vertical start to significantly inflect?
David Reis -- Executive Vice Chairman of the Board
Okay. So we saw strength in -- for the second quarter mainly what we call government is mainly military and aerospace, but I think if you look backwards let's say four, five quarters, we see strength in all the manufacturing areas including auto, aerospace and military.
Troy Jensen -- Piper Jaffray & Co. -- Analyst
Would you still expect to see a more meaningful acceleration in the aerospace business?
David Reis -- Executive Vice Chairman of the Board
I think when we talked about it last quarter also on the earlier, it takes time the aerospace for costumers to move from testing and validating to real production and this accompanies with certain partners we see this post starting gradually and I think this is -- customer will gain confidence, we're going to see acceleration of the use (inaudible) end used parts in those segments -- segments, specifically in aerospace.
Troy Jensen -- Piper Jaffray & Co. -- Analyst
Okay. That's fair. Other one for you David, sorry about that, could you just give us your thoughts on HP's color launch and whether or not that impacted PolyJet now or if you think it will in future quarters?
David Reis -- Executive Vice Chairman of the Board
I think that always it did not impact PolyJet and I was very happy to hear that HP is following us going into color. I think that the color will become the standard of prototyping in the coming few years.
And it's kind of mindset change in the user base and so I'm happy that other companies are going into this area and I think that technology-wise, we are by far in the best position to lead this change from point of view of the technology and quality. So I am not concerned about it and I'm happy that other competitors are going into this area.
Troy Jensen -- Piper Jaffray & Co. -- Analyst
Thank you. Just one more question and I'll seize the floor, but can you just talk about materials? I think they are up 2.6%, maybe little bit more when you talked about some divestitures but -- and that's growth rate that you think is sustainable or is that kind of below historical trends?
David Reis -- Executive Vice Chairman of the Board
Sorry, I think there are two parameters on consumable consumption. One of them is direct derivative of the number of printers we sold during the current quarter and last quarter and the other one has to do with the utilization, which is directly related to the number of applications, which we are able to provide our install base over time and improving workflows and so on so forth.
So I think that we happen to see that the consumption that goes up despite the fact that we had slower Q1 in machine sales and it's directly related. So we will go back to growth in -- almost substantial growth in hardware sales, we always see increase in consumables and we are doing progress, not all across the Board, but in many segments, improving the application and workflow side which is resulting in increased consumption.
To summarize, I think that I will estimate that in the future as we are going to continue recovering hardware sales and continue providing better workflows and application and knowledge to customers, that we should see higher growth in consumables.
Troy Jensen -- Piper Jaffray & Co. -- Analyst
Perfect. All right, well, good luck going toward.
David Reis -- Executive Vice Chairman of the Board
Thank you.
Operator
(Operator Instructions) Your next question comes from the line of Brian Drab from William Blair. Your line is open.
Brian Drab -- William Blair -- Analyst
Hi. Thanks for taking my questions. I just wanted to ask first on operating expense. You laid this out nicely on Slide 10. The R&D seems to have stepped up materially sequentially by a few million and SG&A is down, but can you give us any help on what to expect in the fourth quarter of '18 and into the quarter in '19?
Lilach Payorski -- Chief Financial Officer
Good morning. So in terms of cadence of operating expenses, usually Q4 is our strongest quarter also from a revenue perspective. So we would expect to see operating expenses going up as a results as well.
In terms of R&D expenses, it's going on with what we communicated earlier in the year in terms of our -- increase in our investment in the (inaudible) technology and the FDM technology and as well as in metal and additionally application.
The spending on R&D is really based on project life cycle and timing of the project. So not necessarily there is specific seasonality in R&D. It's more about as I mentioned about the project lifecycle. So we would expect OpEx in Q4 to be higher due to seasonality of the revenue as well as run rate on R&D will continue to be probably at similar level.
Brian Drab -- William Blair -- Analyst
Okay. Got it. And then can you give us little more of an update on some of the technologies that you're developing, specifically within Evolve and Vulcan and just a summary of how that is progressing and also maybe a reminder of your ownership structure there and how those technologies and their potential success could impact your results?
Lilach Payorski -- Chief Financial Officer
So, we reported earlier this year that we divested out Evolve. So, currently those results are not -- they're not part of the operating income. We are basically taking our share in Evolve results. We have maintaining minority interest in those entities and the results will be basically below the line and we are not anticipate to see a significant result impact on our financials significantly as a result of that.
Brian Drab -- William Blair -- Analyst
Okay. Just curious if you comment on why if those are such interesting technologies why there would be structured that way and I seems like it would have been great if you could have benefited more from those exciting technologies, I'm just curious?
Elan Jaglom -- Interim Chief Executive Officer
I am sorry. Go ahead.
Operator
Your next question comes from the line of Wamsi Mohan from Bank of America. Your line is open.
Wamsi Mohan -- Bank of America Merrill Lynch -- Analyst
Yes. Thank you. Good morning. Thanks for the update on the CEO search. Sounds like you're getting somewhat close. Is this something we should expect that you will announce this quarter? It's hard to really underwrite the long-term strategic direction of the company until you announce a new CEO that either articulates or reiterates the strategy. So is this something that's fairly near term and I have a follow-up, please.
Elan Jaglom -- Interim Chief Executive Officer
So we've been actively searching for a CEO as we've been announcing. We interviewed some people, some very good candidates. It's not something that I can say like because for that, I would have to have a contract and we don't have a contract. So, we are very actively doing it and we are looking for somebody who will be an outstanding leader with global operation experience, strong investor background and we have some very good candidates.
So when we are ready to announce, we will do so. We said it will take us maybe nine months or so. We're within this range and believe me, we want to do it as soon as we can, and as soon as we have some announcement, we'll let you guys know.
Wamsi Mohan -- Bank of America Merrill Lynch -- Analyst
Okay. Thank you. And as a follow-up, can you talk a little bit, if you think the proposed China tariffs are having any impact on your business or what you're hearing from your customers as potential impact?
And also, I was wondering if you could give us some clarity on whether foreign exchange movement has created any impact on your results in this quarter, and what you're anticipating for the fourth quarter as well? Thank you.
Elan Jaglom -- Interim Chief Executive Officer
Okay. So Lilach can handle it. So, go ahead Lilach.
Lilach Payorski -- Chief Financial Officer
Yeah. Thank you, good morning. So we definitely watch closely and carefully all the changes that are coming through the USA if there is a change in rules imposed and changes. And currently in specifically to all business, we do not see a significant impact a from a cost perspective, but there are probably going to be some, but it's not going to be so significant. And we are addressing alternatives -- so, any other alternatives from a cost perspective to address it. What was that?
Wamsi Mohan -- Bank of America Merrill Lynch -- Analyst
The FX
Lilach Payorski -- Chief Financial Officer
The FX question, this quarter we did not -- the FX didn't impact us. So significantly, there is no so significant fluctuation, on the euro. It's minor impact about $500,000 on the revenue.
Wamsi Mohan -- Bank of America Merrill Lynch -- Analyst
Thank you.
Operator
Your next question comes from the line of Ananda Baruah from Loop Capital. Your line is open.
Ananda Baruah -- Loop Capital Markets LLC -- Analyst
Hi. Thanks for taking the question, guys, and congrats on the solid results. Could you -- could you just, for us summarize our go-through, what you'd like us to think of as being the 2019 drivers of the business, and what will be the things that you guys will be focusing on. And if you can give us some sense of how, how those might layer kind of through the year, that would be helpful as well. And then I have a quick follow-up.
David Reis -- Executive Vice Chairman of the Board
Okay. I'll take it. It's David. Good morning. We believe and you saw it in Q3 that we had a potential to go back to reasonable growth rates and we are going to focus on two areas. One of them is on our sale infrastructure and sales operations.
I think globally, we can do better in order to improve our top line, both on the sales side and the marketing. On the back of it and as you saw with our R&D budget, we are spending significant amount of money to develop a great product in all the areas that we are active, the manufacturing side with our SDM line, with the best rapid prototyping systems based on PolyJet technology and MakerBot.
So next year and 2020 going to be about launches of very interesting products and improving the overall operation as far as sales and marketing globally, which we hope will result in return to even improve top line growth from what you see in Q3.
Ananda Baruah -- Loop Capital Markets LLC -- Analyst
David, that's very helpful. I appreciate it. And then just quick follow-up, can you just remind us from a metals perspective, how you view what your differentiation will be, even if it is a higher level at this point, kind of relative to what's been out there and now HP is the volatile -- more information as well. I would just love to get your thoughts on stress differentiation. Thanks.
David Reis -- Executive Vice Chairman of the Board
Again, I cannot explain too much about it. But we are developing a unique technology, which we believe that has to be proven in the coming quarters and years, that is very suitable for the remanufacturing of metal parts.
It's different than the other technologies. I think it will be more suitable to production, less expensive and as we said in the script, we are in the process of engaging with a few substantial partners around the world, together to develop, and finally, define the exact ways the system is going to operate.
But we are relatively advancing the process and when we are ready, we're going to announce and give more information.
Yonah Lloyd -- Vice President of Investor Relations
On the (inaudible) exhibition in two weeks in Frankfurt, we'll have some representatives there from the metal team and we'll be providing a little bit more detail there. So if you or anyone else of course on the call can make it there, you'll get certainly more information on that.
Ananda Baruah -- Loop Capital Markets LLC -- Analyst
That's great. That's great, thanks a lot guys.
Operator
Your next question comes from the line of Shannon Cross with Cross Research. Your line is open.
Shannon Cross -- Cross Research -- Analyst
Thank you very much for taking my question. I'm curious about, within SDM your attach rates for services and I assume warranty and maintenance in that and maybe you can talk about what up -- what you've been doing to increase that, and then how big this opportunity could be over time?
Elan Jaglom -- Interim Chief Executive Officer
Shannon, did you ask about SDM or FDM?
Shannon Cross -- Cross Research -- Analyst
Sorry, I asked about like your -- services business, not FDM, no. So basically what you can -- I saw from your transcripts and some of that, that your prepared remarks, that you were starting to increase the amount of attach you had of maintenance and other services with your products, I believe, which is helping to drive some of the services revenue, is that correct?
Lilach Payorski -- Chief Financial Officer
Yeah. We saw -- we see a continuous increase in growth in services revenue, a contract maintenance and material, maintenance as a result of increasing of attach rate of our customers to back those renewal maintenance as well as increase in our installed base.
So this is, basically we actually experienced this for more than couple of quarters in a while. So it validates let's say our customers are using the machine and it meets our additionally added value to bring together with the maintenance, that it brings value to customers, they choose to actually renew contracts and they continue to get the involvement with our (inaudible) and they have to be self services.
Shannon Cross -- Cross Research -- Analyst
And I guess what I'm trying to figure out is, within your installed base, is this an opportunity to go in and sell additional services into your installed base, so that there will be incremental growth above and beyond what you're seeing just from a product -- attach with new product sales, or is this not something where we can expect that you're going to be able to sign incremental services and contracts with people currently in your installed base?
Lilach Payorski -- Chief Financial Officer
Okay. Go ahead David.
David Reis -- Executive Vice Chairman of the Board
Again, we need to remember obviously that a major part of our business is providing consumables to our customers. So the fact that we are able to show our customers that full service contracts, at least put in usually resulting in higher level of satisfaction, which is a derivative of uptime of the machine, which translates to higher consumables.
So it's all connected together. So there is a big effort to sell full service contract because we know from past experience that customers which are full service contracts typically A, happier; B, their uptime is higher, and therefore they're using more consumables.
So the effort is a cross-company effort, which results both on revenue and the service side of it, but indirectly impacts also consumable sales.
Shannon Cross -- Cross Research -- Analyst
Okay. Thank you. And then David, can you talk a little bit, I think over sort of 2018 at least the feeling I got from our conversations with your company is that it was sort of a pause year for the industry and that there's a lot of technologies being developed, obviously metal was growing, not something you were necessarily directly benefiting from.
And so I guess, just in terms of your conversations with customers and your position. I mean do you think we're getting to the point where '19 is more of a benefit from all the investments made and '18 and frankly in '17 as well or do you think the industry is just, it's sort of slow and steady. So there, not necessarily in the (inaudible) we should look for?
Yonah Lloyd -- Vice President of Investor Relations
I don't view it as the notion that the industry is slowing. I think that some companies including ourselves and few other major players find ourselves in a different environment in which there is at least on paper, much more competition, which is by the way not direct competition.
Its more minds share and in some cases pocket share indirect competition. I think that and I hope in the coming one or two years, the picture will crystallize also in the eyes of our customers and the result of it we will be able to take decisions faster because one of the things that we saw and we talked about it in previous calls is there is a slowdown in the pace in which customers take decision to buy equipment because at least it seems that the offering is growing and further confusing.
So I think this part of it should kind of get clearer in the coming one or two years and I think there is a chance that the situation overall will improve because at least in Stratasys, we are working on and investing a lot of money in developing the new and improved technologies.
So I think this combination, again you asking me, it will happen beginning '19 and I think beginning '20 and the strength I think is that the short and medium term, I would hope and expect to see an improvement.
Shannon Cross -- Cross Research -- Analyst
Thank you very much.
Operator
Your next question comes from the line of Tim Stanton from Hendi Susanto from Gabelli. Your line is open.
Hendi Susanto -- Gabelli & Co. -- Analyst
Good morning Elan, David and Lilach and thank you for taking my questions.
Elan Jaglom -- Interim Chief Executive Officer
Good morning, Hendi.
Hendi Susanto -- Gabelli & Co. -- Analyst
One question, would you be able to share some puts and takes on your main reasons why you take down the top end of your full-year revenue guidance?
Lilach Payorski -- Chief Financial Officer
Yes. And now after we already concluded three quarters into the year and we have a visibility for the remaining of the year, we believe that adjusting the guidance and narrow the range to $670 million to $680 million is definitely provide a better visibility to you in terms of what's going to -- how it's going to look -- the fourth quarter will look like.
We believe this range is achievable. Remind you that the fourth quarter is traditionally our highest quarter from a seasonality perspective and we believe that we will be able to meet those narrow guidance. One thing to note is that we will likely be lending to $670 million, but still we keeping to $670 million to $680 million range.
Hendi Susanto -- Gabelli & Co. -- Analyst
Got it. Thank you. That's very helpful.
Operator
Your next question comes from the line of David Ryzhik with Susquehanna Financial Group. Your line is open.
David Ryzhik -- Susquehanna Financial Group -- Analyst
Hi, thanks so much for taking the question. Would love to dig deeper into the SDM parts strength, I think you grew 12% year-over-year. Maybe in your discussions with customers, are the increased parts orders a function of them testing your systems, which could lead to hardware sales or would you consider them kind of independent stand-alone parts business and have they given you visibility over the next few quarters? Do you think this kind of strength is sustainable and I have a follow-up?
David Reis -- Executive Vice Chairman of the Board
Maybe I'll answer the first part first. We said in the script that few quarters ago, we basically connected SDM with our North America operation and one of the reasons that we've done so is to try and create synergies between two sales infrastructure.
Obviously, and we said it also on the call, there is growth in SDM of production on the digital side compared to conventions. Some of the digital is using of course equipment and products and I believe it will have the impact on also customer decisions to buy those equipment when volume on different reasons.
They want to do it in-house. Elsewhere projections going forward, I think we should expect to benefit from the synergies between the two organizations. Hopefully, it will result continuous growth.
David Ryzhik -- Susquehanna Financial Group -- Analyst
Great, Thank you, David. And would love to get an update on F123 and make your specifically F123, on F123 side, just would love any color there. And on MakerBot, it sounds like you guys have some new product introductions on the way. David would love to get your thoughts on the market on desktop opportunity, how you view it? And what we can expect from MakerBot over the next -- over the coming year?
David Reis -- Executive Vice Chairman of the Board
So first of all MakerBot is performing in line or even better than what we expected the different elements. Obviously, I cannot disclose information about new product, but we have also substantial R&D operation going with the MakerBot.
With respect to the overall market, I think that also this market that will go through some rationalization over the coming quarters and I expect MakerBotm which is today by the way, a major player there to continue a major player in this market.
David Ryzhik -- Susquehanna Financial Group -- Analyst
And David, with regard to your question on the F123, we also have some exciting innovations and plans for that scheduled for next year. So you'll have to stay tuned on that one.
Yes. Okay, great. Thanks again.
Operator
Your next question comes from the line of Ben Rose from Battle Road Research. Your line is open.
Ben Rose -- Battle Road Research -- Analyst
Yes, Good morning and congratulations on the results in a tough market. Question for you, David, referencing what you said earlier, in terms of the market being there's more competition in the market, yet there's opportunity for growth.
You spoke last quarter about HP and how Stratasys wants to take the fight more directly to HP. I'm wondering if now that Jet Fusion has been in the market for some time after HP tried to freeze the market before its delivery. Are you now seeing customers more clear on what your value proposition is relative to HP?
David Reis -- Executive Vice Chairman of the Board
Yes, I think again -- I think that, you know there was in the past few years, we saw a lot of new competition entering the market and initially and even still today, there is some confusion about the different benefits of the different products for very large variety of industries and applications.
I think customers are gradually learning what is good for what and again I think that we are lucky we are in a growing market, in a market that will become a very large market, I hope in the coming few years.
And I don't again, I said many times, the issue is not the direct competition. The issue is SDM for example is a great technology for the manufacturing space. There is lot of areas manufacturing, but probably SDM is the best technology around OK with almost no competition OK.
Nevertheless, when other players are coming into the market, the customers are hesitating. They learn there to test and I think that we are in the process of each one of those technologies becoming clear to the audience and people will know where to place which technology and because I think the overall market will grow and will continue to grow and I think the direct competition will be less significant.
Ben Rose -- Battle Road Research -- Analyst
Okay. Thank you very much.
Yonah Lloyd -- Vice President of Investor Relations
Okay. Thank you all for joining today's call. We look forward to seeing those of you who will be attending the Annual (inaudible) Exhibition in Frankfurt later this month and we are happy to be speaking to you all early next year. Thank you.
Operator
Ladies and gentlemen, this concludes today's conference call. Thank you for your participation and have a wonderful day. You may all disconnect.
Duration: 47 minutes
Call participants:
Yonah Lloyd -- Vice President of Investor Relations
Elan Jaglom -- Interim Chief Executive Officer
Lilach Payorski -- Chief Financial Officer
David Reis -- Executive Vice Chairman of the Board
Troy Jensen -- Piper Jaffray & Co. -- Analyst
Brian Drab -- William Blair -- Analyst
Wamsi Mohan -- Bank of America Merrill Lynch -- Analyst
Ananda Baruah -- Loop Capital Markets LLC -- Analyst
Shannon Cross -- Cross Research -- Analyst
Hendi Susanto -- Gabelli & Co. -- Analyst
David Ryzhik -- Susquehanna Financial Group -- Analyst
Ben Rose -- Battle Road Research -- Analyst
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