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Stratasys (SSYS 2.66%)
Q4 2023 Earnings Call
Mar 07, 2024, 8:30 a.m. ET
Contents:
- Prepared Remarks
- Questions and Answers
- Call Participants
Prepared Remarks:
Operator
Good day, and welcome to today's conference to discuss Stratasys' fourth-quarter and full-year 2023 financial results. My name is Kevin, and I'll be your operator for today's call. A question-and-answer session will follow the formal presentation. [Operator instructions] And we ask that you please ask one question and one follow-up.
And now, let's turn the call over to Yonah Lloyd, chief communications officer and vice president of investor relations for Stratasys. Mr. Lloyd, please go ahead.
Yonah Lloyd -- Chief Communications Officer and Vice President of Investor Relations
Good morning, everyone, and thank you for joining us to discuss our 2023 fourth-quarter and full-year financial results. On the call with us today are our CEO, Dr. Yoav Zeif; and our CFO, Eitan Zamir. I would like to remind you that access to today's call, including the slide presentation, is available online at the web address provided in our press release.
In addition, a replay of today's call, including access to the slide presentation, will 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 Reports on Form 20-F for the 2022 year and for the 2023 year, the latter of which will be filed with the SEC in the coming few days. Please also refer to our operating and financial review and prospects for 2022 and 2023, which are included as Item 5 of our Annual Reports on Form 20-F for 2022 and 2023. Please also see the press release that announces our earnings for the fourth quarter of 2023, which is attached as Exhibit 99.1 to our report on Form 6-K that we are furnishing to the SEC today. Stratasys assumes no obligation to update any forward-looking statements or information which speak as of their respective dates.
As in previous quarters, today's call will include GAAP and non-GAAP financial measures. The non-GAAP financial measures should be read in combination with our GAAP metrics to evaluate our performance. Non-GAAP to GAAP reconciliations are provided in tables in our slide presentation and today's press release. I will now turn the call over to our chief executive officer, Dr.
Yoav Zeif. Yoav?
Yoav Zeif -- Chief Executive Officer
Thank you, Yonah. Good morning, everyone, and thank you for joining us. In the fourth quarter, we once again demonstrated that the diversity of our offerings and the strength of our go-to-market operations can deliver profitable results. We achieved these results in what has continued to be a capex-constrained environment for our customers and a challenging chapter for our industry.
I am particularly pleased to report that we delivered another record quarter of consumables revenue, a testament to strong usage of our systems. We also achieved our 10th consecutive quarter of profitability on an adjusted basis, which reflects the discipline of our business model that differentiates us in our sector. Stratasys is laying the foundation for meaningful use cases that will significantly contribute to our financial performance. Our suite of offerings features best-in-class technologies that allow our customers to advance their use of additive manufacturing and increasingly broaden applications into manufacturing at scale.
As our new branding states, we make additive work for our customers, and we see that playing out every day, whether it is the strong utilization of systems they purchased from us in the past or in the continued high level of engagement we see today for new systems incorporating cutting-edge technologies. As the macro business environment continue to improve and capital spending patterns return to normal, we expect the pent-up demand to reaccelerate growth, particularly in our system sales. We delivered solid revenues in 2023 of $628 million, down 3.7% versus 2022, but up 1.3% after excluding the MakerBot divestiture and the two businesses we divested from our Stratasys Direct service bureau, showing remarkable resilience against a severely capex-constrained environment for our customers. We improved our gross margin for the year, despite the modest change in revenues, reflecting our focus on cost controls and operating efficiencies.
And we delivered $0.11 in adjusted EPS in 2023. We are confident that as our new technologies ramp and our operational efficiencies continue, gross margins and profitability will strengthen in 2024 and beyond. We continue to maintain a healthy balance sheet that provides stability through challenging times and optionality to support our growth through both organic investments and accretive acquisition opportunities. And as we shared each year, in 2023, we generated 34% of our revenues from manufacturing, up from 32.5% in 2022.
We expect to see this metric grow stronger as the global business conditions improve to a point where the majority of our business will come from end-part manufacturing at scale. Now, let me touch on some of our success stories for the quarter, starting with our industrial business. Thirty-five years ago, our founder, Scott Crump, invented FDM 3D printing, which remains, by far, the industry's most popular technology. Since its introduction, Stratasys has consistently been the leader for industrial FDM manufacturing.
And in the fourth quarter, we brought another major technology innovation to market with the F3300 printer, our first FDM printer on a platform designed to support scalable production. The F3300 doubled the speed of existing technology with greater reliability and operating efficiency while being geared toward manufacturing at higher volumes. We work closely with our customers for several years to deliver this new system and are proud that Toyota is our first customer. The F3300 can be used for production of parts, fixtures, and prototyping applications to help bring new products to market faster.
Our F3300 pipeline is strong with accelerating interest and engagement levels, and we look forward to sharing more customer wins. Also in automotive, we recently launched an initiative to help Daimler Truck North America produce more manufacturing support parts and functional prototypes by adding our H350 system paired with GrabCAD Print Pro to their existing portfolio of Stratasys printers. Daimler expects to see significant improvement in their prototyping and a shift to manufacturing starting this year. Our new line of stereolithography printers had a strong finish to the year, including orders from Whirlpool and multiple service bureaus in the U.S.
and Europe. And already in 2024, PartsToGo, a German service bureau that had two Neo printers, purchased four more systems enabling them to produce high-quality, accurate, and repeatable parts for their customers' industrial level application needs. We also made further inroads in the Formula One racing community with multiunit sales of Neo SLA systems to Toyota, F1 McLaren, and other industry leaders for use in wind tunnel testing and tooling. This is particularly promising in that it demonstrates our technology's ability to deliver accuracy, consistency, and reliability at the highest level of automotive standards.
We expect this will result in transferability to mainstream automotive manufacturing. While the Neo system is exciting for its use in prototyping and tooling today, the real competitive advantage will come with the next version expected in 2025, which will shift the focus of that technology to end-part manufacturing. Further on in automotive, we increased our exposure to automotive interior design with our PolyJet technology through collaboration with Mercedes-Benz, Maserati, Volkswagen, and Stellantis. All in all, we are on the path for what we believe will be serial production use cases for the automotive industry.
Next, I'd like to provide some highlights on our dental applications and key milestones. Dental continues to be one of the largest and most exciting growth avenue for the 3D printing industry and for Stratasys in particular. As a reminder, our activities are focused on dentures and other non-discretionary restorative spending. In 2023, dental continued to grow, and we expect this trend to accelerate.
This growth came two ways. First, we further expanded our customer base with new product offerings to address a broader range of applications in a more economically beneficial way, including dentures, implant models, surgical guides, and other parts used in fixed restoration cases. Our TrueDent solution, rolled out during the first quarter of 2023, is a great example of how customers can use 3D printing to replace conventional manufacturing technologies. Pairing TrueDent resins and workflows with our J5 DentaJet printer allows the creation of a full, permanent monolithic denture.
No other technology in the world is able to provide this at scale. This pairing also enables us to lower production costs and labor for labs by more than 50% while improving form, fit, and function for the patients. Leading lab networks and dental support organizations, or DSOs, in the U.S. and Europe, who are new customer for Stratasys, have begun deploying this offering to better serve their patients and have provided us with excellent feedback on clinical outcome and patient satisfaction.
As a real-life example of just how disruptive and impactful TrueDent is, last month, we announced our partnership with Express Dental of Oklahoma at a two-day event where dental services are provided for free to those in need. Over 55 people had their mouths scanned on the first day and, the very next day, went home with a brand new set of dentures courtesy of TrueDent. This level of speed, accuracy, and low cost has never been possible at scale until today. We plan to roll out new business models and partnerships to help accelerate adoption of additive manufacturing in dentistry and expect this business to meaningfully accelerate in the years to come as we continue to win business from conventional manufacturing.
And second, we delivered growth in dental to our existing customers, expanding their fleet and increasing utilization of our resins on our newest platforms. This was a significant contribution to our revenue growth in consumables in 2023. Now, switching to medical, where some of the most exciting opportunities for future growth are being developed. During the quarter, we announced a partnership with Siemens Healthineers to carry out a landmark research project.
This project is designed to develop new state of the art solutions for the advancement of medical imaging phantoms through computed tomography imaging. These are used around the world to evaluate and ensure optimal performance of CT scanners. We also announced that the University Hospital Birmingham in England has been using tailored 3D printing cutting guides to improve surgical outcomes for head and neck cancer patients, produced exclusively using our J5MediJet printer. This success demonstrates that our technology enabled the creation of vital, highly accurate, patient-specific cutting guides ahead of surgical procedures.
And I would be remiss if I didn't express my pride in Stratasys winning the Medical, Dental, or Health Care Application category at the prestiged 3D Printing Industry Awards in London in December, where our J5 DentaJet, MediJet, and J850 Digital Anatomy printers beat out a field of nine competitors. Turning to software. We have a long-term plan to monetize our software offering and create new streams of recurring revenue by adding value through new features and products to our free GrabCAD platform, both for use with our own systems and for those who partner with us. In 2023, we demonstrated early success in our channel's ability to sell software alongside new printers.
A major attribute for the new software is the ability to help service bureaus and internal 3D print shops rapidly and accurately estimate the cost and time of printed parts. And we have intensified our effort to expand a subscription software business with the pro version of our popular GrabCAD software. GrabCAD print is used by over 85% of our customers and over 40,000 users worldwide. GrabCAD Print Pro is targeted at helping users achieve 3D printing that is faster, more accurate, and more economical with the ability to print multiple parts for multiple customers on multiple printers simultaneously.
GrabCAD Print Pro is currently available on FDM and SAF system. And a few days ago, we announced we are now in the process of adding it to PolyJet. We expect to support it across our full suite of technology offerings once we add it to the P3 and Neo in the future. And turning to new materials.
We have recently announced our Origin One DLP system, which is building a leading position for production of manufacturing aids, particularly in the automotive industry. We recently introduced our new Somos WeatherX 100 material. This is our first material using SAE automotive industry standards that is tested for weatherability, UV, durability, and dimensional accuracy. With the introduction of this and additional material during 2024, we plan to strengthen our position in DLP and open more manufacturing use cases.
Before I turn the call over to our CFO, Eitan Zamir, a word regarding the strategic review we announced in the third quarter of 2023. The comprehensive process is ongoing, and our board of directors is considering and evaluating all avenues to maximize value. As we announced previously, we do not intend to disclose further developments on the strategic review process unless and until we determine that such disclosure is appropriate or necessary. To sum up, even against the challenging backdrop, we continue to deliver differentiated products and solutions to customers across a wide array of end users, setting the stage for increased growth based on accelerated adoption of additive manufacturing as macroeconomic conditions improve.
I will now turn the call over to Eitan to share the financial results and our initial outlook for 2024. Eitan?
Eitan Zamir -- Chief Financial Officer
Thank you, Yoav, and good morning, everyone. We achieved solid results in the fourth quarter against what has continued to be a challenging backdrop of adverse macroeconomic factors and related pressures. We are confident that the high level of demand we are seeing in our customer engagements will translate into meaningful growth once these headwinds abate. In general, our results demonstrate the resilience our divestified portfolio provides, which led to our 10th consecutive quarter of profitability.
Now, let me dive deeper into the numbers. I will note that after a number of years of volatility, the impact of currency on year-over-year comparisons for 2023 was much more muted. As such, I won't be highlighting comparisons in constant currency. For the fourth quarter, consolidated revenue of 156.3 million was down 1.9% as compared to the same period last year, but was up 1.3% when adjusted for the divestitures of our metal and urethane businesses from the Stratasys Direct service bureau.
Product revenue in the fourth quarter declined by 0.7% to 110.4 million compared to the same period last year. Within product revenue, system revenue was down by 13.7% to 47.4 million compared to the same period last year. And constraint capital budgets continue to impact customer buying behavior for new systems. Consumables revenue was up by 11.9% in the fourth quarter as compared to the same period last year to a new record of 63 million.
The increase reflects continued strong utilization of our customers' existing systems and contribution from the acquisition of Covestro in April 2023. Service revenue was 45.9 million for the fourth quarter of 2023, down 4.6% as compared to the same period last year. Excluding the divestitures that took place in our Stratasys Direct business, service revenue grew 3.6% year over year. Within service revenue, customer support revenue grew by 1.6% compared to the same period last year, continuing to reflect solid utilization of existing systems.
For the full year 2023, consolidated revenue was down by 3.7% as compared to 2022, but was up 1.3% when accounting for the impact of the MakerBot and Stratasys Direct service bureau divestitures. Product revenue in 2023 decreased by 4.1% and was down by 1.1% excluding the MakerBot divestment. The decline compared to 2022 is primarily due to a reduction in hardware sales that more than offset record consumables. Within product revenue, system revenue in 2023 decreased by 16.4% compared to 2022.
Consumable revenue was another record, up by 8.2% in 2023 compared to 2022. For the full year of 2023, service revenue declined by 2.8% compared to 2022 and was up 1.3% after backing out the two Stratasys Direct divestitures. Within service revenue, customer support revenue in 2023 was up by 4.5% compared to 2022, reflecting continued strong utilization of existing systems by our customers. Now, turning to gross margins, GAAP gross margin was 44.7% for the quarter, compared to 43.1% for the same period last year.
Non-GAAP gross margin was 48.8% for the quarter, compared to 48.4% for the same period last year. The year-over-year improvement in gross margin was the result of better contribution from Stratasys Direct, including higher margins for the lower revenue that resulted from divesting the two businesses from Stratasys Direct, as well as improvement in freight, which more than offset lower hardware gross margin. GAAPgross margin was 42.5% for the full year 2023, compared to 42.4% for the same period last year. Non-GAAP gross margin improved 20 basis points to 48.2% for the full year as compared to 48% in 2022.
The full-year improvement in non-GAAP gross margin was a result of better contribution from consumables and Stratasys Direct along with lower shipping costs, which more than offset lower hardware contributions. GAAP operating expenses were 64.1 million for the quarter, compared to 67.1 million during the same period last year, reflecting the reduction of M&A-related liabilities, elimination of operating expenses of the two Stratasys Direct divested businesses. Non-GAAP operating expenses were 74.3 million for the quarter, compared to 72 million during the same period last year. Non-GAAP operating expenses were 47.5% of revenue for the quarter, compared to 45.2% for the same period last year, driven primarily by our acquisition of Covestro.
For the full year, non-GAAP operating expenses were 46.2% of revenue as compared to 45.9% in 2022, primarily due to lower revenue. In absolute dollar terms, non-GAAP operating expenses were 8.8 million lower as compared to 2022 due in part to the divestiture of MakerBot, lower commission, and currency exchange related costs, partially offset by the addition of Covestro and higher merit compensation. Regarding our consolidated earnings for the quarter. GAAP operating income for the quarter was 5.7 million, compared to operating income of 1.6 million for the same period last year.
Non-GAAP operating income for the quarter was 2 million, compared to 5.1 million for the same period last year. The decrease reflects the higher opex as a percentage of revenue. GAAP net loss for the quarter was 15 million, or $0.22 per diluted share, compared to a net loss of 2.4 million, or $0.04 per diluted share, for the same period last year. Non-GAAP net income for the quarter was 1.6 million, or $0.02 per diluted share, compared to a net income of 4.6 million, or $0.07 per diluted share, in the same period last year.
Adjusted EBITDA was 7.7 million for the quarter, compared to 10.7 million in the same period last year. Regarding our consolidated earnings for the full year 2023. GAAP operating loss was 87.6 million, compared to a loss of 57.2 million for 2022. The wider loss reflects 32.9 million of the one-time advisor costs related to M&A activities as well as various one-time restructuring costs, partially offset by the previously mentioned reduction of M&A-related liabilities.
Non-GAAP operating income for the year was 12.6 million, compared to 13.5 million in 2022. This equates to 2% non-GAAP operating margin, compared to 2.1% in 2022. GAAP net loss for the year was 123.1 million, or $1.79 per diluted share, compared to a net loss of 29 million, or $0.44 per diluted share, for last year. This increase includes the previously mentioned one-time cost plus a 13.9 million non-cash impairment related to our 2022 investment in the MakerBot merger with Ultimaker along with the previously mentioned M&A expenses.
As a reminder, the 2022 GAAP net loss included a 39.1 million benefit from the 2022 merger I just referenced. Non-GAAP net income for the year was 7.7 million, or $0.11 per diluted share, compared to 10.3 million, or $0.15 per diluted share, last year. Adjusted EBITDA of 35 million, compared to 36.1 million in 2022, reflected our overall lower revenues that more than offset the improvement in margins. We used 7.7 million of cash in our operations during the fourth quarter, compared to use of 18.1 million of cash from operations in the same period last year.
Excluding the one-time costs related to the M&A activity noted earlier, we generated approximately 7 million in operating cash flow. We ended the quarter with 162.6 million in cash, cash equivalents, and short-term deposits, compared to 184.6 million at the end of the third quarter of 2023. Our balance sheet and cash generation profile remained strong, supporting our interest to capitalize on value-enhancing opportunities as we navigate through the near-term challenges. Now, let me turn to our outlook for 2024.
Based on the perspective that the softness in global capital purchasing conditions continues to be challenging, but we expect to see improvement in the back half of the year. For comparison purposes, 2023 revenue, excluding divestitures in annualizing Covestro, was approximately 616 million. We expect 2024 revenue to grow to a range of 630 million to 645 million with revenues growing sequentially each quarter through the year, resulting in notably higher revenues in the second half of the year as compared to the first. Non-GAAP gross margin for 2024 is expected to improve to a range of 49% to 49.5% with the second half stronger than the first half based primarily on the expected rise in revenue throughout the year.
In 2024, we expect our operating expenses to range between 292 million to 297 million, slightly higher than 2023. Continued improvement in profitability is an important objective. And for 2024, we expect to see a return to growth across the profit metrics. For 2024, we expect operating income to be in the range of 2.5% to 3.5% of revenue with the second half stronger than the first half, based on the anticipated rise in revenue throughout the year.
We expect a GAAP net loss of 88 million to 72 million, or $1.24 to $1.01 per diluted share, and non-GAAP net income of 9 million to 14 million, or $0.12 to $0.19 per diluted share, for 2024. Adjusted EBITDA for 2024 is expected to be in the range of 40 million to 45 million. We expect to see EBITDA reach 15% of our revenues longer term as our margins improve over time. We expect our capital expenditures for 2024 to range between 20 million and 25 million.
Finally, we expect to deliver positive operating cash flow for the full year excluding any further one-time cost related to M&A activities. With that, let me turn the call back over to Yoav for closing remarks. Yoav?
Yoav Zeif -- Chief Executive Officer
Thank you, Eitan. I want to thank our global team for their professionalism and dedication to help drive continued profitability as our business grows and creates long-term value for our customers and all our stakeholders. I am particularly proud of our Israeli employees and their families, many of whom were called to military service for most of the fourth quarter, as well as our employees worldwide who stepped up valiantly to carry the additional workload. This effort helped ensure that our business operation was uninterrupted with no material impact.
We continue to differentiate ourselves from the sector with the strongest combination of best-in-class technologies and unparalleled go-to-market infrastructure and an ongoing focus on operating efficiencies. Our customers are currently challenged by macro conditions that constrain their spending, slowing their pace of purchasing our product that can advance their transition to digital manufacturing at scale. However, we view these challenges as only a delay in the inevitable widespread and faster adoption of additive manufacturing. One needs to only look at the continued high utilization of existing systems and the strong levels of engagement to share our optimism.
We are excited for what 2024 and beyond holds for Stratasys as we continue to lay the foundation for expanded applications to drive accelerated growth. With that, let's open it up for questions. Operator?
Questions & Answers:
Operator
Thank you. We'll now be conducting a question-and-answer session. As a reminder, we ask you please ask one question and one follow-up. [Operator instructions] And we ask you please ask one question and one follow-up.
Our first question is coming from Greg Palm from Craig-Hallum. Your line is now live.
Danny Eggerichs -- Craig-Hallum Capital Group -- Analyst
Yeah, thanks. This is Danny Eggerichs on for Greg today. I guess, I'll just start with consumables. Pretty strong quarter.
Obviously, a record number. Doesn't sound like it, but any signs pointing to potential drawdowns on inventory at customers, or do you feel like you got pretty good visibility there and you can continue that kind of growth throughout 2024? And then, I guess, what was Covestro contribution in the quarter?
Eitan Zamir -- Chief Financial Officer
Hi, Danny. So, maybe I'll start -- it's Eitan. I'll start from the end. Covestro, I believe we've mentioned in the past, it's roughly 4 million to 5 million a quarter, and we're in that range also in Q4 2023.
And we believe that the next year will be similar if not growing. And then on the second question --
Yoav Zeif -- Chief Executive Officer
Maybe -- maybe I'll add something here. Thank you for the question, Danny. So, I think we -- actually, It's a reason for celebration as an industry because consumables are the indication that someone is really using our equipment and that additive manufacturing is adding value. And that's what we are doing in Stratasys.
So, it's a record $63 million of consumables this quarter, $246 million for the entire year. And the most important thing that we see increase in machine utilization. And it's so important because consumables are the key to really penetrate manufacturing because you have more materials to penetrate more applications and more use cases. We just introduced a new material for the Origin.
It means that we open up completely new applications for weatherability, application where you need durability, you need better performance, you need better material, you need better parts. That -- this is part -- essential part of our strategy, and we see that it works. On top of it, we also see that Covestro is adding value to Stratasys across different technologies because the WeatherX is a Covestro material that we adopted for our Origin platform. And it's also, of course, contributing to the gross margin because we have a higher gross margin on material.
So, to sum up, material is key to penetrating into manufacturing. It brings more growth, higher gross margin, and we see that it's growing with and without Covestro. And we believe that it will keep growing going forward.
Danny Eggerichs -- Craig-Hallum Capital Group -- Analyst
Yeah, no, that's good. That makes sense. Maybe just switching to systems. I think you had mentioned that you're kind of expecting maybe a bounce back in demand in the second half.
Is that baked into 2024 revenue guidance? And if so, how much?
Yoav Zeif -- Chief Executive Officer
So, definitely it is part of the plan, but with a very -- in a very thoughtful way where we make sure that like we were exactly within the guidance. In 2023, we want to make sure that we are exactly within the guidance, also in 2024. So, when we say a number, it is banked, but it's also with high level of certainty. And when you talk about certainty, hardware practically is the most sensitive offering that we have in this industry.
And it's across the board, not us. All players are seeing it. It's sensitive offering because it is sensitive to the macro backdrop, to the economic uncertainty, and also to the interest rate. It creates capex constraints with the largest companies in the world.
However, I believe it is not a long-term phenomenon because there is so far you can postpone investment if you are competing in your market like an automotive player. At the end, they will need to invest in new lines. They will need to invest in your design. And we'll need to compete with EV that is coming from the east.
So, we see this pent-up demand, and we believe that the situation that we are facing now is only temporary. And the moment we start seeing some recovery -- and we're talking about recovery. We see the, you know, kind of the spring of recovery. Very small signs, but they are there.
We see flattening sale cycles in some -- in some hardware, it's even shorter sales cycle. We see improved pipeline mainly for the second half, and we also see uh PMI, the Purchasing Managers Index, a bit better mainly in the U.S. It's the first time in January that the PMI index crossed the 50 range, and it means that U.S. B2B market is not contracting anymore.
It's not growing yet, but soft contracting. So, we believe that all those good signs will create the first step of recovery. And then release the pent-up demand that is still there, and we have the F3300 exactly on time. And we are going to launch it, Q2 -- in the end of -- around Q2, ready to address this pent-up demand.
So, practically, in one sentence, we worked really hard over the last two years of tough macroeconomic conditions to make sure that we are ready to capture this pent-up demand.
Danny Eggerichs -- Craig-Hallum Capital Group -- Analyst
Yeah, understood. That's all very helpful. I'll leave it there. Thanks.
Operator
Thank you. Next question is coming from Troy Jensen from Cantor Fitzgerald. Your line is now live.
Troy Jensen -- Cantor Fitzgerald -- Analyst
Hey, gentlemen, congrats on the good results here. And I love all this pent-up demand comments on the same page as you guys. Quickly --
Yoav Zeif -- Chief Executive Officer
Thank you, Troy.
Troy Jensen -- Cantor Fitzgerald -- Analyst
Yeah, yeah, very welcome. So, quickly you, all, did you give the percentage of sales that are going into production applications? I think I heard part of it, but if you could clarify that, it would be great.
Yoav Zeif -- Chief Executive Officer
Yes, thank you for the question. So, we have a very simple laser-sharp strategy. We are going for manufacturing. And we are going for manufacturing with the new technology, very innovative like the F3300 that really disrupt the FDM market with new use cases like the denture, with consumables that open up new applications with differentiated software.
We can talk about it later. And with FDM as a tool. So, when we are looking at that, practically, what we are saying that the entire market is ready for us to really get into the new area of additive manufacturing. We are measuring this because if you are not measuring it, all this is one big story.
So, we are taking each one of those drivers, and we are measuring how it helps us to get into manufacturing. We were 32.5% of our sales were to manufacturing. This year, 34%. What does it mean? It means that we are in the right direction.
It means that we are taking the right steps, the strategy is working, but it also means that the B2B market in manufacturing is heavily constrained by capex. But eventually, the majority of our printed parts will be in manufacturing, green and used parts.
Troy Jensen -- Cantor Fitzgerald -- Analyst
Yep, totally agree, and thank you for those numbers. A follow up here then for Eitan. I know you guys are proud and talked frequently about this 10 consecutive quarters of non-GAAP profits. You know, I'd point out that you've also had eight consecutive quarters of negative cash flow from operations.
So, you know, looking at your guidance, if you guys are going to do 1% to 3% operating margins in any given quarter, in any given year, it's going to imply further cash usage. So, can you just talk about cash generation goals or cash flow positive? When do you think we'll hit the targets like this?
Eitan Zamir -- Chief Financial Officer
Thanks, Troy, for the question. So, I'll start saying that in the last two quarters, so Q3 2023 and Q4 2023, we actually had positive operating cash flow when excluding one-off payments related to the M&A, including at the penalty to DM. So, our business in Q3 and Q4 this year, so not like last year, 2023, not in the future, actually proved that the business can generate positive operating cash flow when you exclude these one-offs. Together with that, maybe you saw -- but you'll see in the last two quarters our inventory levels went down.
This trend will continue in 2024. It will improve our working capital for the next year. So, to your question, we're positive about our ability to generate positive operating cash flow in 2024. Excluding one-offs, our business will generate positive in 2024.
Troy Jensen -- Cantor Fitzgerald -- Analyst
Awesome. All right, guys. Well, good luck, and keep up the good work here.
Operator
Thank you. Next question is coming from Jim Ricchiuti from Needham and Company. Your line is now live.
Jim Ricchiuti -- Needham and Company -- Analyst
Hi. Thank you. So, it sounds like you're fairly pleased with the progress you're making in the dental market. I wonder if you would -- if you might be able to share with us what the level of revenues are in this vertical, and maybe what the growth rate was last year versus 2022?
Yoav Zeif -- Chief Executive Officer
So, thank you for the question. We are not sharing the exact numbers. I can only say that uh, we grew significantly in dental, and we are focusing on the restorative sector of the dental market, which practically, it's really non-discretionary. If you have a problem, you have to deal with it.
And our focus is denture. And we believe in this area because we are disrupting the market. We are disrupting the market in a way that creates significant value to each one of the stakeholders. You take the value chain, you start with the patient, it's simply more convenient, easy to use.
We have great results and great feedback. We are talking about tens of thousands of people already walking with our dentures, the TrueDent. You take the dentist, we reduce the visit significantly from four to five to one to two. You take the labs that are producing, we dramatically reduce the cost because we save on labor.
So, this is the idea for us in dental. Additive manufacturing can transform dental because, practically, we are disrupting this market and make it digital. And our focus is on the restorative market, and we are developing unique business model to capture more of this value that we are creating along the value chain to each one of the participants.
Jim Ricchiuti -- Needham and Company -- Analyst
Thanks for that. Hopefully, down the road, we have a better idea of the contribution it's making to the business. But maybe shift gears. Eitan, how should we be thinking about Q1 seasonality? Q4 was atypical, right, in terms of the seasonal weakness given the weak capital spending environment.
Is Q1 -- do we think about Q1 the way we normally would in terms of the seasonal decline from Q4?
Eitan Zamir -- Chief Financial Officer
Yes. Thanks, Jim. So, the answer is yes. We expect -- we believe that the seasonality that is typical to our industry will continue in 2024 with gradually increase in revenue and profitability throughout the year.
And so, that trend will continue.
Jim Ricchiuti -- Needham and Company -- Analyst
OK, thank you.
Operator
Thank you. Next question is coming from Ananda Baruah from Loop Capital Markets. Your line is now live.
Ananda Baruah -- Loop Capital Markets -- Analyst
Yeah. Good morning, guys, or good afternoon for you. And thanks for taking the question. I guess, you know, I'd love to get some context for is signposts inside of your key businesses as distinct from macro.
If you can give us some context around them that you're looking for to catalyze adoption, you know, in important areas of your businesses. And signposts could be -- it's even anecdotal, things that your customers or different industry sectors are working on maybe particular sort of technical thresholds that they're looking for to move beyond to catalyze adoption. That'd be awesome. Thanks.
Yoav Zeif -- Chief Executive Officer
Thank you for the question. We are catalyzing the adoption by being super frank with ourselves. We are going to manufacturing, but we are going to manufacturing in a structure where we build the whole structure and framework, what does it mean, manufacturing, together with our customers. And we are going one by one to make sure that we are achieving it.
And the way to do it goes through two avenues, I would say. One is use cases. We identify the use cases where only additive can deliver, and we deliver value. The second one is we do it with our customers.
We have a customer advisory board. We do it with our customers, with customers like Toyota, like Siemens, like McLaren, Daimler, the U.S. government. We make sure that we are not inventing or dreaming about use cases.
We do it with our customers. We develop the end-to-end solution that include both the hardware, the software, the material, also a specific service that they need. We put it all under one umbrella of software, and we do it with them. This is the way to ensure adoption because you are not trying -- we are not trying to reduce the cost of Toyota Corolla by $50.
We are identifying with our customers the applications and the use cases. And there are many. I put an example of the dentures where we created significant value, but many other uh applications like fashion, like aerospace, drones, for example. We are working with our customers to design better drones that save on energy and make sure the distance of the drone is much longer.
So, those types, we are doing with our customers. And it's a use case by use case together with the customer. For example, the EV, we are working with customer on -- on solution -- like a solution for electric vehicle and so on and so forth. The key here, do it with your customer per use case where only additive can do it.
A good example is also Toyota and F3300.
Ananda Baruah -- Loop Capital Markets -- Analyst
So, that's super helpful, and it gave me -- it leads -- it gave me an idea for a follow-up, which I think really will get at maybe unpacking a little bit more of the heart of my question. That -- that's a super, super good tee up. And this might be a little bit of a challenging question just because I'm sure different industry -- different customers in different industries have -- are in different places. But I guess, is there any general context you can provide around in the process you just described? How much until you really can catalyze up the revenue opportunity in your -- in your key segments? How much is more dependent on you guys forwarding the technologies, particularly the thresholds, versus how much of it is you have the technologies sort of relatively to where they need to be to be dangerous? It's really a matter of time and just getting into the design cycles and going through the design cycle process, which I know can take some years depending on category.
And that's it for me. Thanks.
Yoav Zeif -- Chief Executive Officer
So, it's a great question. Very hard to relate to because average will kill everything here. It's like every application and every use case is a story by itself. Some applications, some use case, we already have the full solution end to end.
Take the dentures for example. You take tooling, jigs, and fixtures. We have the right software. We have everything.
It's ready. It's about the customer adopting it based on their cycles. You take other application, we still have a way to go like in medical, for example. In fashion, we have a way to go to make sure that the customers are really adopting it together with that.
The connectors, for example, we are there, but the customers still need us to hold his hand. But demand is strong. We see the engagement because the customer -- the customer advisory board that I mentioned, they wouldn't spend days with us if they wouldn't understand, and that -- there are things that they can do with additive that they cannot do with anything else. And it is creating competitive advantage for them.
So, I'm not going to give you an average. I can just say that, one, we are engaging, and we are working with customers, different levels, depends on the different use cases. But we are not talking about 10 years or 15 years. It's not something which is -- you know, it's not biological.
It's not like we need to wait someone to grow up 15 years. It's something that can take between one year or a few months to maximum three years, maybe a little bit more. Those applications that we are focusing in. And the second thing is that the demand is there, and it's kind of the growth paradox.
We are struggling as an industry take step by step by step, but we are progressing in the right way. And the moment they will adapt it, either in the new cycle or for new products, we will see the growth coming in a big way.
Ananda Baruah -- Loop Capital Markets -- Analyst
Yes. Yeah, we've seen it before. That's super helpful. I really appreciate it.
Thanks.
Yoav Zeif -- Chief Executive Officer
Thank you.
Operator
Thank you. Next question is coming from Brian Drab from William Blair. Your line is now live.
Blake Keating -- William Blair and Company -- Analyst
Hi, good morning. This is Blake on for Brian. I just wanted to ask about the revenue guidance. Can you talk -- you mentioned that you set out guidance that you can hit.
Can you talk about the different dynamics that you get -- that get you to the high end versus the low end of the range?
Eitan Zamir -- Chief Financial Officer
Hi, Brian. Sorry, Blake. Hi, Blake. So, I'll touch on some of the trends that kind of help us think about the low end and the high end.
One is the launch of the F3300 that is going to be a significant growth driver in 2024. We've not launched it as you know, but we actually see a huge demand and a significant backlog that start to pile up. So, a successful year for F3300 can take us from the low end to the high end. So, that's one growth engine.
The other one that also Yoav mentioned earlier is consumable. That's something that we have high certainty that it will continue to grow in 2024, but of course, it depends. Software is another growth engine that it takes time to reach the high revenue level that start to be very meaningful but still something that comes with very high margins and increased significantly in 2023. We believe that the trend will continue.
And, of course, above all, there is also the macro question that, of course, can impact whether we are at the lower or the high end or somewhere on that scale based on the -- what the macro will be in 2024.
Yoav Zeif -- Chief Executive Officer
Yeah. And just to add to what Eitan said for a more strategic perspective. When we are coming with such type of guidance, it's based on the foundations that we build. We truly believe that we are ready to capture the next phase of growth, like I talked with Ananda.
And we are ready because, practically, we are leading the industry in terms of performance and customer preference. We are growing, yes, not a lot. But in a declining market, we have record consumable sales with higher utilization. We increased our market share over the last three years.
We demonstrate financial -- actually, unique financial stability in terms of profitability, gross margin, no debt, cash flow. And we have a strategy with five growth engines of the new technologies, the new use cases, the consumable, the software, and SDM is a driver into manufacturing. And we build over the last three years foundations like the go-to-market, the diversified portfolio, the relationship with our customer, the Siemens and the Toyota and the U.S. government of the world that makes us ready for this.
That's why we have the comfort and the confidence to come with that guidance in a tough time because we are ready.
Blake Keating -- William Blair and Company -- Analyst
Understood. I appreciate all the color. And then just lastly for me. So, you guys talked about a couple of opportunities with the P3 systems and Origin with new materials and software.
Can you update us on progress with Origin and those systems? At the time of the acquisition, you said you expected up to 200 million in incremental revenue within five years. Since you are a little over halfway, I was just wondering if you had an update on that progress. And then what markets are you seeing the most demand for those systems?
Yoav Zeif -- Chief Executive Officer
Definitely the market for the Origin and the staff, which are our arrowhead for manufacturing. The market, our industrial market, high end, high parts properties, very demanding, and that's what we are doing. Both P3 and SAF are focusing at the high-end market, the automotive, the aerospace, and high-end industrial because no one can match the quality of the part that we have. We used the last two years to make them much more reliable.
I can say that now, they are meeting all Stratasys standards and are aligned with the standard of FDM, which we are very proud of. And now, it's all about material because we want to open up new industrial applications. So, it's the WeatherX, which is very unique in the market. You can put it outside in the sun, in the rain, it will work.
And same with SAF, it's the P12. It's new materials like polypropylene in the future, where only SAF can do it because of the thermal control that we have. So, it's a very simple strategy. We go for high-end industrial.
This is Stratasys. We go for the high end. We go with those technologies that we put a lot of energy and brain into the innovation of those systems, and we do it with unique material.
Blake Keating -- William Blair and Company -- Analyst
Got it. Thank you. I'll pass it along.
Operator
Thank you. Next question is coming from Jacob Stephan from Lake Street. Your line is now live.
Jacob Stephan -- Lake Street Capital Markets -- Analyst
Hey, guys, thanks for taking my questions. Apologies if this has been asked already. I'm just jumping between calls this morning, but maybe you could talk about some of the bigger platform systems, the F3300, H350, and just kind of compare the sales cycles and also just kind of the demand pipeline of the Origin and kind of Neo Systems.
Yoav Zeif -- Chief Executive Officer
Thank you, Jacob, for the question. No doubt, the bigger the system, the longer the sales cycle. That's an easy one. But also is where we shine in Stratasys because this is our focus.
What we promise and deliver to our customer is the reliability, the parts property, the lower cost per part. And then we see nice -- I would say nice but a bit longer sales cycle that can -- sales cycle in Stratasys can go from one month to practically five months or six months, and in large deal, even a year. Deals like with the government and others. But on average, the nice thing that we see since Q4 -- Q3, Q4 last year, that the second derivative of the sales cycle is better.
So, it's flattening, and in some hardware and some type of product, also shortening sales cycle. F3300, I'm happy to share. It's a bit easier because it's disruptive, and its created a lot of excitement in the market because we are bringing something that doesn't exist. We are bringing large format FDM with all the qualities of Stratasys, but double the speed and almost half the cost.
It's an expensive system, but the ROI is very short because of it. And there are new things that the customers can do that they couldn't do with other machines. So, despite the fact that it's a high cost, high price machine, we see better sales cycle, at least at the beginning.
Jacob Stephan -- Lake Street Capital Markets -- Analyst
Got it. That's helpful. And then maybe just one more kind of vertical related. What are you seeing in kind of the aerospace market? It seems like there's been a lot of investment and focus around this market, but maybe you could just kind of touch on your strategy there and also what -- any progress that you've made.
Yoav Zeif -- Chief Executive Officer
It's one of our top verticals. It's nothing new here. And it's one of our top verticals because of our quality and experience there and really unique knowledge and solutions that we are bringing. We also -- we are the first one to introduce new materials into this area and to certify them together with certified bodies starting with the U.S.
But the most important thing that we are delivering there, we have real success on the ground with the government, with NAVAIR and with the Air Force and with NASA. And we have all advisory committee that few -- advisory committee, I mean customer advisory committee that leading figures from the industry are contributing what is really needed for them. So, bottom line, aerospace, we have -- I don't want to say number one, but probably number one position there, supported by the experience from the government, customers that are developing with us unique applications together. We are practically partnering on projects, and we believe that the new FDM platform will be their leading solution for aerospace.
Jacob Stephan -- Lake Street Capital Markets -- Analyst
Got it. That's helpful. Thanks for the color. Good luck going forward here, guys.
Operator
Thank you. We've reached end of our question-and-answer session. I'd like to turn the floor back over to Yoav for any further closing comments.
Yoav Zeif -- Chief Executive Officer
Thank you for joining us. Looking forward to updating you again next quarter.
Operator
[Operator signoff]
Duration: 0 minutes
Call participants:
Yonah Lloyd -- Chief Communications Officer and Vice President of Investor Relations
Yoav Zeif -- Chief Executive Officer
Eitan Zamir -- Chief Financial Officer
Danny Eggerichs -- Craig-Hallum Capital Group -- Analyst
Troy Jensen -- Cantor Fitzgerald -- Analyst
Jim Ricchiuti -- Needham and Company -- Analyst
Ananda Baruah -- Loop Capital Markets -- Analyst
Blake Keating -- William Blair and Company -- Analyst
Jacob Stephan -- Lake Street Capital Markets -- Analyst
