Stratasys Ltd (SSYS) Q3 2021 Earnings Call Transcript

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Stratasys Ltd (SSYS -1.61%)
Q3 2021 Earnings Call
Nov 5, 2021, 2:00 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Greetings, and welcome to the Stratasys' Third Quarter 2021 Conference Call and Webcast. [Operator Instructions]

It is now my pleasure to introduce Yonah Lloyd, Vice President of Investor Relations. Thank you. You may begin.

Yonah Lloyd -- Vice President of Investor Relations

Good morning, everyone, and thank you for joining us to discuss our 2021 third quarter financial results. On the call with us today are our Chief Executive Officer, Dr. Yoav Zeif; and our Chief Financial Officer, Lilach Payorski. I remind you that access to today's call, including the slide presentation, is available online at the web address provided in our press release. In addition, a replay of today's call, including access to the slide presentation, will also be available and can be accessed through the Investor Relations section of our website. Please note that some of the information you will hear during our discussion today will consist of forward-looking statements, including, without limitation, those regarding our expectations as to our future revenue, gross margin, operating expenses, taxes and other future financial performance and our expectations for our business outlook. All statements that speak to future performance, events, expectations or results are forward-looking statements.

Actual results or trends could differ materially from our forecast. For risks that could cause actual results to be materially different from those set forth in forward-looking statements, please refer to the risk factors discussed or referenced in Stratasys' annual report on Form 20-F for the 2020 year, which we filed with the SEC on March 1, 2021. Please also refer to our operating and financial review and prospects for the third quarter of 2021, as well as the press release that announces our earnings for the third quarter of 2021, which were attached as exhibits to two separate reports on Form 6-K that we are furnishing to the SEC today. In order to obtain updated information throughout the year concerning our quarterly results of operations and the risks and other factors that most impact those results, please see the quarterly earnings press releases and our quarterly operating and financial review and prospects, each of which are attached as exhibits to reports on Form 6-K that we furnished to the SEC on a quarterly basis over the course of the year.

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

Now I would like to turn the call over to our Chief Executive Officer, Dr. Yoav Zeif. Yoav?

Yoav Zeif -- Chief Executive Officer

Thank you, Yonah. Good morning, everyone, and thank you for joining us. Today, Additive Manufacturing and Stratasys are at an inflection point. Industries around the world better understand the benefits and are increasingly adding 3D printing to their production plans. This is to a number of improvements that increased throughput capacity a growing range of high-performance materials and consistent part quality. Additionally, there are compelling economic and sustainability advantages and software workflow solutions that can support the shift from prototyping to manufacturing that is happening across industries. Parts can be lighter, equally strong, less expensive and personalized. And when considering the supply chain challenges in the world today, our customers are increasingly looking to flexible distributed Additive Manufacturing to overcome the logistics disruptions we are witnessing around the globe. In short, Additive Manufacturing is now viable for production of a wide range of end-use parts at volume scale for global distribution.

The investments we are making at Stratasys, along with the strategic initiatives we have undertaken are steadily driving revenue growth. Just over a year ago, I laid out our strategy to become the first choice for polymer 3D printing with a focus on the biggest addressable market manufacturing. This quarter, we truly accelerated execution of our strategy. We signed large-scale deals for manufacturing systems. We completed our acquisition of Xaar 3D, and we expected to see incremental upside as we prepare to launch two new mass production offerings, the Origin One and the H350. I will now walk you through the highlights of the quarter and some exciting recent achievements, Lilach will then provide financial details for the quarter and give an update on our outlook. The third quarter delivered revenue growth in all business lines and regions. Results were highlighted by top line improvement of 24% year-over-year. This was driven by growth of approximately 35% in systems and 27% in consumables.

Our Stratasys Direct Service Bureau is not yet at 2019 level, but was up over 25% from Q3 last year and is expected to continue growing. And importantly, system sales grew nearly 7% over Q3 of 2019, thanks in part to our manufacturing focus system. System sales typically lead to increased consumables and services that generate profitable revenue as customers ramp up their utilization. One of the many highlights of the quarter was our participation at the annual Rapid+TCT trade show, where I was honored to deliver the opening address. We secured significantly more leads than the 2019 event, even though there were less people at the show this year, with especially strong interest for our Origin system. In less than two weeks, we will be attending Formnext our industry's largest trade show, where we look forward to sharing more of our exciting new innovations across our portfolio of systems, materials and our open software platform.

During the quarter, our focus on manufacturing gained additional traction as we signed two major end-use part manufacturing wins. The U.S. Navy will purchase up to 25 F900 systems, materials and support services over five years for a total consideration of $20 million. The F900 is our largest FDM system, featuring the widest range of premium materials. We believe this is the biggest government additive manufacturing deal of its kind. This purchase advances the U.S. Department of Defense stated strategy for increasing its use additive manufacturing. It's allowed the navy to produce mission-critical parts closer to their point of need and demonstrate the ability to use distributed manufacturing with digital inventory and global deployment. The system will be used for producing end-use parts, tooling and training aids and will be part of the navy's aircraft maintenance program. The second major contract also for multiple F900 system is a repeat purchase from a leading global brand name, OEM.

It is also a multimillion-dollar multiyear award, and we expect to share more details at a later date. These two notable manufacturing awards demonstrate our outstanding reputation for excellence in both technology and service. Just as importantly, it shows the continuing deep penetration by Stratasys with leading manufacturers that are turning to our technology for true production of end-use parts. We believe there are many similar opportunities for scale additive manufacturing being considered across industries worldwide. To further strengthen our manufacturing focus, we acquired the remaining 55% share of Xaar 3D, giving us complete management of SAF product development. SAF technology is a major leap forward for powder bed manufacturing and is a significant improvement of other powder bed systems. We are excited to welcome the Xaar 3D teams to Stratasys. We have already deployed H350 system at better sites, including service bureaus. The feedback from our customers has been outstanding, with these early installation already printing end-use parts at volume scale. The H350 can also print many of its own part, enabling more efficient production capacity support.

Health care has been an increasing growth driver and has grown faster than any other end market for us over the past two years. 3D printing brings key benefits such as personalization for medical needs and mass customization for dental applications. During the quarter, we furthered our extension into dental, particularly through strong sales of our new DentaJet system. We continue to add new customers to our installed base as they appreciate our unique advanced features such as the ability to print a mix of parts on a single trade with unattended operation. On the medical side, our journey toward making our technology accessible at point of care started with the launch of our MediJet system last quarter, and we continue to expand our reach through partnerships. For example, we recently started working with Ricoh 3D to provide anatomical model at the point of care for hospitals across the U.S. with the help of integrated IBM Watson Health technology. This collaboration help clinicians see inside anatomy for greater visibility into patients' needs. It offers both clinical and economic benefits reducing barriers to entry that healthcare providers can encounter when setting up a 3D printing facility.

Stratasys J750, digital anatomy and MediJet printers create lifelike anatomical models. This reflects the pathologies of the patient and can be physically manipulated like human tissue. Hospitals can use our HIPAA compliance state-of-the-art technology on site or through an on-demand powered service. They can deliver more personalized care through better surgical preparation and patient education and can also improve medical training. And we have a similar agreement in Europe with Bone 3D to provide hospitals with on-site access to 3D printing through their Hospifactory project. Our Stratasys direct business really added an atomical modeling to its services with our J750 digital anatomy printers. Demand by medical device manufacturers and healthcare providers has been strong with well over 1,000 models already printed. The opportunities in healthcare will continue to expand, and we are often reminded how our advances touch and change people's lives. A few months ago, one year old twin girls were conjoined at the back of their head underwent a successful operation to separate them.

Stratasys technology was used extensively preparing both the medical team and the families with presurgical modeling to help ensure the positive outcome and reduce the time of the operation. We continue to develop other exciting healthcare use cases that we believe will have a significant impact and look forward to sharing more in the future. I would now like to update you on our software initiatives. We have been actively developing our software solution with several exciting milestones in the past few months. We introduced a new data security solution called ProtectAM to enhance cybersecurity of additive manufacturing as its role in government and defense applications grew larger and more essential. This solution is the first in additive manufacturing to work with Red Hat Enterprise Linux, the world's leading enterprise Linux platform and the platform preferred by the U.S. government. This is a great example of being tuned into a specific vertical need, in this case, the U.S. government and tailoring our solutions accordingly. We also recently announced the GrabCAD Additive Manufacturing platform.

The world is increasingly turning to software to help scale additive manufacturing. In a recent report, research firms SmartTech Analysis forecasted that the total global additive manufacturing software market will reach $3.3 billion by 2026, up from less than $500 million in 2020. We believe Stratasys can be a catalyst for this growth. Our new platform provides us with the opportunities to strengthen our leadership position in the additive manufacturing industry through this growing addressable market for a number of reasons. First, we are able to leverage our deep additive manufacturing expertise and existing relationship with many of the world's leading manufacturers. Second, we built our platform to be the best solution in the industry. It is enterprise-ready with the capability to integrate the entire digital trade from design through manufacturing. And third, it is also open. We are open to a broad set of additive manufacturing partner applications, giving our customers the freedom to use a wide range of software applications to our GrabCAD SDKs and yes, we are open to integration with many non-Stratasys 3D printers. Leading manufacturers tell us they want Stratasys to be their primary entity platform for Industry 4.0, recognizing our leadership position and open approach.

As a result, we anticipate software will be an increasing part of our revenues and profit stream, driven by recurring software license subscriptions and SDK licenses from partners and customers. It's a key part of our overall rapid growth plan for our manufacturing business. Finally, in the area of software design, we recently announced a collaboration with Adobe to make full color 3D printing easy and accessible for their large user base of Adobe Substance 3D Painter with no third-party software or tools needed, which had previously been required. Our multiple competitive advantages when coupled with our new product offerings will further advance our position as the leading provider of polymer 3D printing solutions. We have the broadest, most advanced polymer technology portfolio, a comprehensive enterprise-ready software platform to scale additive manufacturing for production, the leading global channel with over 200 partners, the largest team of engineers and customer support in our industry and the proven resilient business model designed to scale. We expect strong purchasing cycle to gain momentum as we bring new system to market, generating increased consumables service contract and software to drive recurring revenues and long-term profitability.

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

Lilach Payorski -- Chief Financial Officer

Thank you, Yoav, and good morning, everyone. We are pleased with the third quarter results that demonstrate our continued strength in growing our markets while also generating operating profit and cash. The revenue growth driven by 30.3% growth in our product sales is indicative of the inflection point we are experiencing. For the quarter, total revenue was $159 million, up 24.3% versus the prior year quarter. We saw increased performance across all revenue streams, in particularly encouraging system growth of 6.7% over Q3 of 2019. Improvement in the pace of our consumable sales was another key contributor. There was also strong performance from our manufacturing business, in particular, improvement from automotive and industrials in Europe. Additionally, both the new RPS systems and our Stratasys' direct service bureau delivered more than originally expected. I would also note that healthcare continues to be our fastest growing business, driven primarily by increasing dental opportunities. On a constant currency basis, total revenue grew 23.8% versus the third quarter last year. Product revenue grew 30.3% in the third quarter to $108.9 million compared to the same period last year or 29.7% on a constant currency basis. Within product revenue, system revenue grew 34.7% to $52.3 million compared to the same period last year and 34% on a constant currency basis. There was a particularly notable growth from our manufacturing system like F900, F770, the F370 driven by the new carbon fiber material and the new DentaJet.

The quarter also saw improved consumable utilization as revenue was 26.6% to $56.6 million compared to the same period last year and up 25.9% on a constant currency basis. Relative to the 2019 quarter, consumables were off by only 1.3%, showing a nearly complete reversal of the impact of the pandemic as our customers increase utilization of our systems. Service revenue was $50.1 million, up 13% compared to the same period last year and 12.8% on a constant currency basis. Within service revenue, customer support revenue increased over Q3 of 2020 by 7.2% to $29.5 million, flat on a constant currency basis. Importantly, it was up 5.7% compared to Q3 of 2019. Our Stratasys direct service bureau also continues to rebound, up 25.4% over Q3 of 2020. These are good indications of market recovery trends. Turning to margins. GAAP gross margin was 42.9% for the quarter compared to 38.9% for the same period last year. Non-GAAP gross margin was 48.2% for the quarter compared to 46.8% for the same period last year. We are pleased to see the positive impact on margins of our product sales, both sequentially and relative to last year. We are carefully monitoring the ongoing macro issues of high global logistic costs and inflationary pricing of raw materials, which have pressured margins.

Our top priority is to deliver our product in a timely manner. To help ensure this, we have increased production levels to offset sea and air delays in our planning process. We continue to evaluate a wide area of shipping options to ensure we can deliver goods with a minimal business impact. Given this situation, we expect gross margins for the fourth quarter to be similar to the third quarter. GAAP operating expenses were $90.1 million, a decrease of $364 million or 80.2% compared to the same period last year, where we recorded goodwill impairment. GAAP operating expenses, excluding goodwill impairment, was 56.7% of revenue for the quarter compared to 53.1% for the same period last year. Non-GAAP operating expenses were $74.9 million, an increase of $14 million or 23.1% for the quarter as compared to the same period last year. Non-GAAP operating expenses improved to 47.1% of revenue for the quarter compared to 47.6% for the same period last year and 49% for the first half of this year. 2021 has been a year of investment in our growth, particularly with the cost associated to return to a five-day work week and the acquisition of Origin and RPS.

Together with strong increase in revenue, opex went up in dollar terms, but is lower as a percentage of revenue. From an earnings perspective, GAAP operating loss for the quarter was $21.9 million compared to a loss of $404.3 million for the same period last year. Non-GAAP operating income for the quarter was $1.8 million compared to a loss of $1 million for the same period last year. GAAP net loss for the quarter was $18.1 million or $0.28 per diluted share compared to net loss of $405.1 million or $7.35 per diluted share for the same period last year. Non-GAAP net income for the quarter was $0.5 million or $0.01 per diluted share compared to a net loss of $3 million or $0.05 per diluted shares in the same period last year. We generated cash of $3 million from operations during the third quarter as compared to generating $2.6 million of cash in the same quarter last year. This represents five consecutive quarters of positive cash flow from operations, totaling $57.7 million an excellent achievement considering broader economic conditions. We ended the quarter with $519.9 million in cash, cash equivalents and short-term deposits compared to $522.7 million at the end of the second quarter of 2021. We are constantly reviewing opportunities that will accelerate our growth strategy and strengthen our leadership position.

Turning to our outlook for the fourth quarter. Based on current market conditions and assuming that the impacts related to pandemic of global supply chain constraints do not impact the economic environment further, the company is reiterating and updating its outlook as follows. We expect Q4 revenue to be approximately 16% higher than Q4 of last year, driven by continued growth in systems relative to Q4 of both 2020 and 2019. We expect our opex for 2021 to be approximately $36 million, higher than 2020 due primarily to now fully owning Xaar 3D in line with our investment strategy, along with higher operating costs relative to our higher revenues. As we have said throughout the year, we are in investment mode. One of our main differentiator is that our business model infrastructure is built to leverage as we scale. So the cost we are allocating today will drive increased revenue and profits in the future. We continue to expect our capital expenditures for all of 2021 to range between $24 million to $30 million. Stratasys is in a healthy position. We are executing on our strategy and our revenue are shifting from prototyping to manufacturing. This is expected to drive strong top line growth with more favorable mix of sales across systems, materials, software and services, enhancing profit in the coming years. Our balance sheet, together with our resilient business model will support the investments needed along the way.

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

Yoav Zeif -- Chief Executive Officer

Thank you, Lilach. Last month, Gartner predicted that by 2025, over 50% of all discrete manufacturers will be using 3D printers for the products they sell or service, up from 10% in 2019. That's why Stratasys is laser-focused on being the leader in polymer additive manufacturing as the industry continues to shift to additive manufacturing for end-use parts production. To achieve that mission, we now have solutions for every step in the product life cycle chain, design, prototyping, tooling, molds, all the way to end-use production at scale. There is no single comprehensive solution for every manufacturing application. Therefore, it is important to use the best technology for each specific manufacturing challenge, but manufacturers are also looking for efficiencies where systems can be interfaced and network with each other as well as with their existing infrastructure.

Only Stratasys provides the full range of best-in-class technologies for polymer 3D printing offering our customers the ability to choose the best fit for their applications. Our exceptional portfolio of hardware and materials, software platforms and partnership ecosystem, together with industry-leading global expertise sets us apart and allows our customers to achieve a powerful and efficient production environment. As I said earlier, Stratasys is truly at an inflection point, and we are quite excited for the coming years. The investment we are making, coupled with our fortress balance sheet, position us to build long-term value for all of our stakeholders.

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

Questions and Answers:

Operator

[Operator Instructions] Our first question come from the line of Greg Palm with Craig-Hallum. Please proceed with your questions.

Greg Palm -- Craig-Hallum -- Analyst

Great. Thanks for taking the questions. Congrats on the good results here.

Yoav Zeif -- Chief Executive Officer

Thank you.

Greg Palm -- Craig-Hallum -- Analyst

I wanted to maybe start with the revenue guide. It's a pretty specific number and a pretty uncertain environment. So maybe help us understand some of the assumptions behind that? Are you expecting that some of that contract with the U.S. Navy, I think the first eight of those were maybe expected to ship in Q4. So is that included, but just maybe a few assumptions behind the actual revenue guide would be helpful.

Lilach Payorski -- Chief Financial Officer

Hi. Good morning, Greg. Yes, I will be happy to share with you some of the assumptions that we have. So first of all, you touched about the U.S. Navy, yes, some of the U.S. Navy part of the backlog, and it's part of the expectation for Q4, that has been discussed. This is a multiyear deal, and we're going to see some of this impact in the H2. What we provided for Q4 is basically 16% higher than last year. And specifically, we have anticipated a nice growth in our systems relatively to Q4 last year as well as the Q4 in 2019. So we basically expected to see growth almost in all of our streams, all of our platforms, the continued trend, the strong trend that we saw at manufacturing platforms and offerings. We also expected to see growth coming from consumables as we see consumable pace picking up compared to last year as well as compared to 2019. We are expecting that most of the growth will come still from organic growth, and this is why we're definitely encouraged by that. To remind you that our P3 platform as well as SAF will introduce in the coming few months and impact 2021 just a little bit, and the majority of this impact will be in 2022

Greg Palm -- Craig-Hallum -- Analyst

Okay. That's really helpful. And that was going to lead me to my follow-up, which was diving into contribution from new products. So it doesn't sound like you have or you're least, you're expecting significant contribution from RPS, Origin, H350 in this year. So is that the sense and we should really be thinking about the ramp-up happening over calendar 2022?

Yoav Zeif -- Chief Executive Officer

Hi. Greg, thank you for the question. And thank you for investing so much in studying this industry and us as well. Yes, the answer is, yes. We will not have significant impact of the two new technologies. We have one technology out there already, the RPS, the SLA, which have really, really good traction. As for the other two, we are going to have some sales, practically we'll have the SAF outside there. Both of them are in better stage. SAF is already a few months into and we are going to outside at the end of this year, and we are now shipping an extensive data program for the P3. And we are very, very optimistic about it, but the significant impact will come definitely in 2022. And of course, we're looking forward to share more about those two exciting technologies.

Greg Palm -- Craig-Hallum -- Analyst

Interesting. I'll leave it there. Thanks.

Operator

Thank you. Our next questions come from the line of Troy Jensen with Lake Street Capital Markets. Please proceed with your questions.

Troy Jensen -- Lake Street Capital Markets -- Analyst

Well, first of all, congrats on just a great quarter. I guess my first question is going to go to Yoav. Specifically on the H350, it's our belief that HP discontinued -- excuse me, their 540 and their 580 product line, and they're just going with the production model of 5200 going forward. So I guess I'd love to hear your thoughts just on the opportunity in the mid-range for high-speed setting. Do you guys need to have a larger format one in the market, too, to compete margins what HP is doing that with the 5200? And then also post-processing [Indecipherable] that's one thing that I hear about that. It seems like HP may have thought of better so far for the high-speed setting, but go ahead, please.

Yoav Zeif -- Chief Executive Officer

Thank you, Troy. As always, a great question. So first of all, we have our own program and the H350 is only the first machine or system in a line of products. So let me be very clear here. We are very optimistic. We think that the SAF technology, it's a transformation. The whole agents set is transforming powder bed fusion practically because it gets us closer into real manufacturing. And we see it every day because already our beta sites are producing end-use product to end customers, and they are very happy. Now if I will relate specifically to the HP announcement, I think it's a good announcement for us overall because there is a segment that we'd be very happy to adopt our new technology, the SAF technology and the fact that we will be in this kind of midrange will give us a lot of points. On top of it, we are good enough to be here also very clear. We are good enough in terms of cost of part, quality of the part, accuracy to compete also with the largest system that we also will have in the future.

Troy Jensen -- Lake Street Capital Markets -- Analyst

All right. Perfect. And just my follow-up to -- you guys talked about this other leading global OEM win in the quarter. You made it sounds like it was a repeat customer. Is this the same customer that was announced like 1.5 years ago that came in with kind of a big chunky order also?

Yoav Zeif -- Chief Executive Officer

We cannot share the name. I'm sure you understand it. I can only share that this is what we dream of to be...

Troy Jensen -- Lake Street Capital Markets -- Analyst

I understand you cannot share the name, but can you just confirm it's the same guy?

Yoav Zeif -- Chief Executive Officer

I cannot relate to it. I can only say that this is what we dream of because when we are talking about manufacturing, it's about this relationship and partnership with major OEMs, where can -- we really can roll out global distributed manufacturing with the same practices, with the playbook, and this is exactly what we are doing. And I think this will be a great example for many other OEMs as well. And the fact that it's a repeating purchase just proven our point that those large OEMs are looking for an established player that can deliver, that has the certification and can support them globally. And we're trying to be humble, but this is Stratasys.

Troy Jensen -- Lake Street Capital Markets -- Analyst

I completely agree. Congrats. Good luck going forward and I will see you in January.

Operator

Thank you. Our next questions come from the line of Jared Maymon with Berenberg Capital Markets. Please proceed with your questions.

Jared Maymon -- Berenberg Capital Marketsa -- Analyst

Hi. Good morning guys. Nice job executing during the quarter. First question for me. You guys have made some great moves in the last year or so to expand the number of technologies and processes that you offer. So from here, I'm wondering kind of is your plan to buckle down and focus on developing and scaling those technologies in the consumables for those technologies? Or do you think there's some more room to go for adding additional processes and technologies in the near to midterm?

Yoav Zeif -- Chief Executive Officer

Hi, Jared. Thank you for the question. We have more than $500 million in the bank. We have a very clear strategy. We know where we are going. It's a growth strategy. And in order to accelerate the growth, we'll, first of all, make sure that those technologies are best-in-class and leading each one of the segments we are competing in. So this is number one priority. Then we would use our cash to accelerate and to have some technological shortcuts, which we identify many of those, and we believe that we will be able to accelerate this growth strategy. On top of it, of course, this is the whole essence of what we are doing. We are bringing to our customers the full package and the full package includes the technology, the system, the materials. We invest a lot in material, and we developed many, many more materials in many different ways.

And also, we are expanding our service to fit what a manufacturer expect from us. And on top of it, we'll make sure that all this is being connected through what we call our -- the base, the foundation is our software platform. We tie everything through the software platform, and we believe that will kind of make the offering perfect, suitable, beneficial for our manufacturing customers. So this is the strategy, and we will combine it with very extensive R&D in each one of the groups that are developing this technology plus extension through material and software and service, some of them organic and some of them inorganic.

Jared Maymon -- Berenberg Capital Marketsa -- Analyst

Got it. Thanks. And then there was a service bureau that reporting -- sorry, reported disappointing results last week, and they attributed that largely to supply constraints, particularly around labor and logistics. So I'm wondering, given that they have a big additive business, did you guys see similar headwinds across the business? And then particularly in SDM, did you see those same labor and logistics headwinds there?

Yoav Zeif -- Chief Executive Officer

So let me relate first. By the way, now I remember that I didn't answered Troy question about post-processing in HSS. We are developing it Troy, and we are going to introduce it in the coming year. So it's there. We are investing in it. It's integral part of our workflow. Now back to your question, I'm sorry. SDM, definitely, we are seeing an improvement there, a meaningful improvement, a year-over-year growth of over 25% in Q3 2021 versus Q3 2020. We have a -- we have the highest hand of the service bureau industry. We are working with the top customers, mainly in aerospace and automotive. And yes, we are seeing progress over the last few months versus a very big hit that we experienced during the pandemic. About headwind for SDM of logistics and supply chain, it was not meaningful in SDM in our service bureau, but we are definitely have like any other industrial company on earth, we have challenges of logistics and supply chain in our overall business. It's a daily fight.

I want to thank my operations team for really doing amazing things, so creative, and we are successfully delivering. We didn't have any delivery issues. But every day is a challenge, and definitely, there is uncertainty there. Having said that, we are one of those privileged industries there are -- that are not only suffering from the supply chain challenges, but also enjoying it long term because this is what brings to life, the all essence and the power of additive manufacturing. You want no more offshoring. You want to have digital inventory. You want to produce near the customer, and we see it every day in the level of engagement we have with the largest OEM on earth. So we fight every day, but we see the light and we see that the world of manufacturing is going to change and be much more digitalized than what we see now.

Jared Maymon -- Berenberg Capital Marketsa -- Analyst

Great. Thank you.

Operator

Thank you. Our next questions come from the line of Shannon Cross with Cross Research. Please proceed with your questions.

Shannon Cross -- Cross Researcha -- Analyst

Thank you very much. I wanted to dig a little bit more into the conversations that you had with customers at RAPID. I know you mentioned that you signed more -- it definitely seemed to us like the people who bothered to shop in Chicago were ones that were really, really interested in 3D printing. But I'm wondering, have you seen any change in the timing that they have in terms of the intensity of what they're looking at, the projects that they're focused on? Because it does seem like there's an inflection going on for your company as well as for the industry. So I'm just kind of curious as to what you heard. Thank you.

Yoav Zeif -- Chief Executive Officer

Thank you, Shannon, and thank you for coming to our booth in RAPID. You're very, very brave, I would say. Yes, it was a great opportunity to meet many manufacturers that understand really reading the global map and understand that they need to move forward and so have a change. And we see a completely different level of engagement. I would say that it's being reflected in two -- kind of two horizons. And one is the time line. And you can see it here with our Navy deal, for example, or with our OEM deal, suddenly, people -- the cycle is shorter. It's still long, but it's shorter because we're talking about long deals that involve service and software and material and support and -- but it's shorter. Definitely, the time line is shorter, still long, but shorter. And the second big difference is the level of engagement. So we used to engage with technicians, engineers like those champions that drive change or the change agents within organizations. Following the Rapid+TCT meetings, I had whole visit in the aerospace hub in Denver and the level of people that I met within the organization, CEO, C suite executive, it's completely different than what we used to have in the past, which means that we have more challenges because we need to make sure that we are delivering value and on time, but it means that it's much more -- those organizations are much more serious about 3D printing, which is great from our perspective.

Shannon Cross -- Cross Researcha -- Analyst

Thank you. That's helpful. And then I guess the other question I have from an inventory perspective, can you talk a bit about any backlogs, challenges you have? I mean, clearly, your inventory continues to come down. Just where you sort of set at the end of the quarter and maybe if you saw linearity during the quarter as well in terms of demand and bookings and signings? Thank you.

Lilach Payorski -- Chief Financial Officer

Yes. Good morning, Shannon. So from an inventory perspective, as other OEM and the manufacturers, we do suffer from raw material shortage for sure that the most important thing is really meeting the customer demand. So we are constantly increasing our inventory level, even though you see that at the end of the quarter, it actually went down compared to last quarter, but we are proactively taking steps in buying raw material for six or nine, or even 12 months ahead to make sure that we're going to meet customer demand and to meet the up demand that we see. So we're working very intensively in making it happen. Of course, we are trying to mitigate the issues of sea and air delays in our planning process, and we continue to evaluate a wider area of shipping option to ensure we can deliver goods in a minimal business impact. It may come with costs associated with that. But the objective is clear, meeting the customer demand. We're happy to report that so far, we were able to do that. And we have a good backlog going into Q4, and we do everything we can in order to meet the demand.

Shannon Cross -- Cross Researcha -- Analyst

Great. Thank you very much.

Operator

Thank you. Our next question has come from the line of Paul Chung with JPMorgan. Please proceed with your questions.

Paul Chung -- JPMorgan -- Analyst

Hi. Thank you for taking my question. Great quarter. So just on margins, can you quantify the component inflation and kind of freight costs hitting 3Q and 4Q? Just want to get a sense for kind of your normalized gross margins as we head into 2022. Can you kind of rebound back to the fiscal year 2019 levels in the low 50s next year?

Lilach Payorski -- Chief Financial Officer

Hi Paul, good morning. So yes, our gross margin has been pressured by the global logistic constraint as well as raw materials. First of all, we are definitely very happy to see the sequential improvement over the quarters. OK? And we believe that these trends will continue as we're going to continue to see hardware and consumable in the mix. We saw this impact in this quarter and also as compared to last year. If you compare to 2019, the impact of logistic cost as well as the raw materials is probably closer to the 2%-ish difference, at the same time, we are still not in a full capacity from production level. We still have a shortage in raw material. So this has also impact our level of production as well as investing in ramp-up of our production line, addressing the new platform.

So we still have a gap, obviously compared to our -- for 2019, we believe that when the market recovery, but it's not going to be a short term in terms of -- I'm talking about from logistics and raw material shortage. No one expects that next quarter, this is what's going to be the picture. It's going to be -- probably for the coming few quarters, we will be able to leverage a better gross margin as the global economic improved. At the same time, we are working also on improving our cost on our new platform as part of the product life cycle. And at that point, we are yet to provide guidance for 2022 in terms of our gross margin. With that, we believe that for Q4 specifically, our gross margin level will stay relatively similar to what we saw in Q3.

Paul Chung -- JPMorgan -- Analyst

Got you. And then just on quarterly opex, you're going to see a step up to the $80 million new run rate moving forward. So is that the right way to think about quarterly opex moving forward? And then assume Xaar revenue contribution is minimal, but how do we think about how that business scales over time as well?

Lilach Payorski -- Chief Financial Officer

Paul, can you please repeat your question, please?

Paul Chung -- JPMorgan -- Analyst

Yes. So just on the quarterly opex levels, we saw -- we're going to see a step up to $80 million kind of the -- is that the new run rate moving forward? Is that the right way to think about it?

Lilach Payorski -- Chief Financial Officer

Yes. So we are increasing opex in Q4 and definitely compared to last year, and this is basically because of the return to five days work week, the higher expenses as the markets recovered, we see a higher commission due to higher revenue. And we also include -- incur additional operating cost associated with the inclusion of our new business. RPS, Origin and now in Q4 we also adding Xaar, this is all part of our strategic investment going forward. I just remind you that 2021, it is a year of investment. It is a year of investment, and we are -- believe we are continuing to invest, but we are committed to show improvement in profitability in the near future.

Paul Chung -- JPMorgan -- Analyst

Great. And then lastly, on cash flow, you've been positive for last five quarters, a very good job there. So can we end fiscal year 2021 kind of in positive territory? Are there any working cap things we need to see like inventory investments or maybe reversal of accounts payable that might weigh on 4Q?

Lilach Payorski -- Chief Financial Officer

Yes. As we look to the fourth quarter of 2021, we are not providing guidance on the operating cash flow. But in 2021, we have stated that we expected the majority of our growth to occur in the second half of the year, and this is what we are delivering. So much of the cash flow benefit will come in 2022 and beyond. The preparation for the launch of the three significant NPI we recently introduced coupled with the safety stock. We are being -- to mitigate the raw material shortage is expected to increase our inventory level and related payments in the next few quarters, which will increase our operating cash outflow, would certain led in a cash inflow from collection after we started selling.

Paul Chung -- JPMorgan -- Analyst

Thank you very much.

Lilach Payorski -- Chief Financial Officer

I just want to point out that nothing out of the ordinary expected for Q4.

Operator

Thank you. Our next questions come from the line of Wamsi Mohan with Bank of America. Please proceed with your question.

John -- Bank of America -- Analyst

Hello and thanks for taking my question. This is John [Phonetic] on behalf of Wamsi. I just wanted to come back to the guide. You mentioned acceleration in revenue in '22 and beyond. Could you just provide more color regarding maybe like the magnitude and the key drivers, whether it's coming from products, services or even in certain end markets? And from that guide, how much it's predicated on the economic recovery? Thanks.

Yoav Zeif -- Chief Executive Officer

Okay. Thank you, John, and send our regards to Wamsi. We are still working under the same assumption suggesting an accelerated mode. So we have the same underlined very strong driver that boost 3D printing forward like the one that we already mentioned, the supply chain issues, but really, this is the perfect storm for us in terms of engagement, like I mentioned to Shannon. The fact that people are changing the way they are manufactured in terms of geometries and new technologies that are out there that we can provide those new parts and new products that are needed there like moving from metal to composites, for example. That's a very, very strong trend that we see out there. And the last one is the overall move into manufacturing, which is more customized and more personalized. And just to share with you an anecdote about those drivers, I met a customer lately in the aerospace and I spend like half a day there. And I asked them, OK, you are using our F900, this is the one by the way that we sold in the Navy deal. And they are using it for end-use parts, very high-end, customized -- one of the customer using for end-use parts and other for jigs and fixtures for aerospace, for space to be more precise. And I asked them, what is the ROI on our F900? And they told me between four to six months.

When I'm buying here in Stratasys equipment for production, it takes us -- we are happy with four to five years. And this is four to six months. I think this is the biggest example or reflection of what we are experiencing now. And our customers are so advanced, much more advanced than us in many cases, in some applications to take this forward, and we practically build a strategy that address exactly those needs, one to one. For each application, you need a different technology. We have all the needed technologies that will fit those challenges in polymers. Done. Then they need a variety of materials. We have those warehouse materials, and we are working in it, and we certify it and we make sure that it delivers the promise. Then the last thing is software. We need those -- the software that will carry the user from the design -- the early design and the conceptual design to the manufacturing and the production through this old trend through a software platform. Those are the growth engines. We have three new technologies. We have the basic core technologies of SDM and PolyJet, the best in the world. We have software and we have material, and we put all this with service that we can support 24/7 because we have such a big service organization, and this is the catalyst. And we will see this really coming to life next year. The details, of course -- this is a high level, the details we'll be happy to share in our next call.

John -- Bank of America -- Analyst

Got it. Thank you. And if I could squeeze in a quick follow-up. So in regards to the new products coming into the market in 2022, just wondering if we were to think about the contribution from these products relative to 2021, how much growth do you expect them to contribute? Thank you.

Yoav Zeif -- Chief Executive Officer

Great question, but you know that our policy is not to share these type of details in 2021. We get to the quarter in 2022 -- early 2022, and we'd be happy to discuss it.

John -- Bank of America -- Analyst

Got it. Thank you.

Operator

Thank you. Our next questions come from the line of Jim Ricchiuti with Needham & Company. Please proceed with your question.

Jim Ricchiuti -- Needham & Company -- Analyst

Hi. Good afternoon. Congratulations on the quarter. And maybe just as a follow-up to the prior question, and you may not be able to answer it. But if we think about the newer products, the H350, the P3, and I realize you can't be granular, but can you tell us if you anticipate those products ramping in the earlier part of 2022? Or is this -- is the expectation that your optimism, the scale-up in that takes place more in the second half?

Yoav Zeif -- Chief Executive Officer

We are now in the process of closing our budget or AOP for next year. So even if I want to give you the exact numbers, I don't know them yet. So we are very authentic on this one. We have beta sites, many beta sites with H350. We are on the verge of launching it. The beta sites are very happy they are producing end-use parts to end customers, very large OEMs, by the way. We get very good feedback from the end user. So from the automotive company, from the consumer good companies, from the aerospace companies that are using our part, this is very encouraging. We are going to launch it. We'll ramp it up next year, and I believe it will be a significant revenue stream next year and definitely as a product line in the next five, six years.

Jim Ricchiuti -- Needham & Company -- Analyst

That's helpful. And if I could, just on the Stratasys direct business, you're seeing -- well, there appears to be a nice recovery there. And presumably, some of that is just the industry recovery. But I'm wondering if you're also potentially taking some share there? Or is this just a case of a broader industry recovery that you're benefiting from?

Yoav Zeif -- Chief Executive Officer

No. First of all, it's really a very nice recovery, 25% year-over-year, and also we see very good booking data, which is great. In terms of are we gaining share or not? I believe it's less gaining shares because we are in a very unique high-end -- I would say, using a metaphor, in the luxury goods of this space of this industry. We are working with the highest quality certified part. Not many -- We are not in the quick part business. So not many service bureaus out there are really competing with us. So we are very dependent on the aerospace, automotive. When they are going up, we have our fair share and more.

Jim Ricchiuti -- Needham & Company -- Analyst

So the key drivers are aerospace, space and auto and just your strong position in those key verticals with the advanced equipment you have, is that a way to think about what's happening there?

Yoav Zeif -- Chief Executive Officer

Yes.

Jim Ricchiuti -- Needham & Company -- Analyst

Thank you.

Operator

Thank you. Our next questions come from the line of Brian Drab. Please proceed with your question.

Brian Drab -- William Blair & Company -- Analyst

Hi. Thanks for taking my question. I just wanted to ask about opex again and see if you could give -- I don't know how to ask this question in a way that you'll answer it. But for 2022, I'm just wondering, can you give any guidance around -- directionally around opex? You mentioned, Lilach, 2021 an investment year, but I would assume 2022 continues to be an investment year and then more trade shows, more travel and entertainment, etc, type of expenses coming back. So I'm just wondering -- the Street is now modeling up like 6% growth in opex for 2022. And I'm just having flashbacks from like 2013, 2014, when things were starting -- it really seemed like they were going well and everything is picking up, and then opex was up like $100 million plus the next year. So can you just give us some comfort that -- is opex going to grow in line with like an expected revenue growth? Or does opex grow slower than revenue in 2022? Is $80 million the right kind of run rate to think about? Or is it higher than that? Like any sense for that because this, I think, is the biggest variable in the model right now.

Lilach Payorski -- Chief Financial Officer

Yes. Good morning, Brian. You definitely can appreciate it at this stage of -- you probably can appreciate that at this stage, we are not specifically providing guidance on 2022, and we will come back at the end of February to address it. But for sure, I can share with you in terms of directionally the way we view our business model, we're definitely looking to see the opex as a percentage of revenue is going down. We already demonstrated this even in this quarter, OK? And definitely, this is -- directionally, this is what we are planning into. We are committed to steadily improve our profitability, and we will see the impact over time. In terms of how much of that will be in 2022 and how much will be more in the long term, it's more further -- too detailed. It's true that this year, 2021 was a year of investment. We include three new platform as part of our broader portfolio, and we are planning to invest in broaden those technology also in the future, but all along, we are planning to see a leverage model as part of our business model.

Brian Drab -- William Blair & Company -- Analyst

Okay. Thank you. Thanks. And then I don't know if you said this, but how much did acquisitions, within the last 12 months, contribute to revenue in the third quarter, whether it's RPS and Origin, etc?

Lilach Payorski -- Chief Financial Officer

Brian, as I commented before, in Q3 or in the last three quarters, we didn't see yet the impact of P3 and SAF. We do -- we had some impact, definitely a very nice impact of RPS. We're very encouraged by the reception of this product in our market, in our customers. It's open for us in new markets, new applications. We are not providing specifics on each of the -- on the specific numbers on this opportunity. But definitely, it was a growth driver as well as a, like I said, a door opening. So the majority of this...

Brian Drab -- William Blair & Company -- Analyst

So you can't give a collective -- sorry, Lilach, you can't collectively, though, give the contribution from acquisitions, just so we can -- and maybe foreign exchange just so we can have an organic revenue growth number to put in the model? I'm asking just like the dollars from total -- from acquisitions dollars swing from FX, just so we can get the exact organic revenue growth, which I'm sure was a nice number. I'm just trying to get to the number.

Lilach Payorski -- Chief Financial Officer

So we are not providing the specific dollar value associated with our acquisition of RPS. But definitely, it was a good traction. And the most important thing is apart from just how much in the specific quarter. I think the multiproduct things take away to take from RPS is how it's actually open for us market and the opportunity and the demand and the discussion that we are having around this product is so significant, and this is what the essence of what needs to be focused on. If you ask me specifically about FX, you definitely can see in the numbers, so the impact compared to 2020, it's about $2.8 million between Q3 2021 to Q3 2020.

Brian Drab -- William Blair & Company -- Analyst

It's a positive, I mean, added to revenue?

Lilach Payorski -- Chief Financial Officer

Yes, it is.

Operator

Thank you. Our next question has come from the line of Greg Palm with Craig-Hallum. Please proceed with your question.

Greg Palm -- Craig-Hallum -- Analyst

All right. I'm just going to ask one more follow-up and just try to take a stab. I know you're not guiding for fiscal 2022, but I guess if we think about guidance for this year, which you've said includes very little contribution from the three new products. It assumes revenue is down about 5% from the 2019 levels, right? So $605 million versus the $636 million. So I guess what I'm trying to figure out is based on your visibility into next year, would you expect your core business -- so mostly FDM, PolyJet, so excluding the contribution from the three new products, would that have increased to pre-COVID or 2019 revenue levels next year, if you're following the thought pattern there?

Yoav Zeif -- Chief Executive Officer

Okay, Greg. Simple answer, yes, we expect it to grow. And you can see it also, most of our growth came from the core businesses. We enter new application. We came with the full solution approach and it works. And we took them to manufacturing, and we'll keep doing it.

Greg Palm -- Craig-Hallum -- Analyst

Okay. So that would get you to at least 5% growth. And then if we layer on whatever we think is contribution from new products, I mean my assumption is you'd probably be disappointed if you weren't growing somewhere in the double digits next year, is that at least a fair characterization?

Yoav Zeif -- Chief Executive Officer

You know that we are not providing guidelines now. We are optimistic. We are growing with all business lines, with the core, with the acquisition, and we didn't really put into the market, the new two most promising technologies that we have. So I'm optimistic. We keep working out, keep sweating and make sure that we will be the leader in polymer 3D printing with a full package and solutions.

Greg Palm -- Craig-Hallum -- Analyst

All right. Fair enough. I thought I'm gonna [Indecipherable]. Thanks and good luck.

Operator

There are no further questions at this time. I would like to turn the call back over to management for any closing comments.

Yoav Zeif -- Chief Executive Officer

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

Operator

[Operator Closing Remarks]

Duration: 72 minutes

Call participants:

Yonah Lloyd -- Vice President of Investor Relations

Yoav Zeif -- Chief Executive Officer

Lilach Payorski -- Chief Financial Officer

Greg Palm -- Craig-Hallum -- Analyst

Troy Jensen -- Lake Street Capital Markets -- Analyst

Jared Maymon -- Berenberg Capital Marketsa -- Analyst

Shannon Cross -- Cross Researcha -- Analyst

Paul Chung -- JPMorgan -- Analyst

John -- Bank of America -- Analyst

Jim Ricchiuti -- Needham & Company -- Analyst

Brian Drab -- William Blair & Company -- Analyst

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