Stratasys Ltd
NASDAQ:SSYS
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Stratasys Ltd
Earnings Call Analysis
Summary
Q2-2024
In Q2 2024, Stratasys faced a 13.6% year-over-year drop in revenue to $138 million due to weak hardware sales, yet delivered improved margins. Product revenue dropped 14.2%, but consumables rose by 6.3%, signaling robust system utilization. Gross margin expanded to 49%, supported by strong consumable sales. Operational expenses decreased notably, reflecting strategic cost control efforts. The company projects full-year 2024 revenue between $570-$580 million and anticipates maintaining a high gross margin of about 49%. Expecting growth in the second half due to an improved sales pipeline, Stratasys is restructuring to achieve an 8% EBITDA margin and positive cash flow by Q4 2024.
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Hello, and welcome to the Stratasys' Q2 2024 Earnings Call and webcast. [Operator Instructions] As a reminder, this conference is being recorded.
It is now my pleasure to turn the conference over to Yonah Lloyd, Chief Communications Officer and VP of Investor Relations. Yonah, please go ahead.
Good morning everyone and thank you for joining us to discuss our 2024 second quarter financial results. On the call with us today are our CEO, Dr. Yoav Zeif and our CFO, Eitan Zamir. I would like to remind you that access to today's call including the slide presentation, is available online at the web address provided in our press release.
In addition, a replay of today's call, including access to the 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 2023 year.
Please also refer to our operating and financial review and prospectus for 2023 and for the second quarter of 2024, which are included as Item 5 of the annual report on Form 20-F for 2023, and in Exhibit 99.2 to the report on Form 6-K that we are furnishing to the SEC today, respectively. Please also see the press release that announces the company's earnings for the second quarter of 2024, which is attached as Exhibit 99.1 to a separate report on Form 6-K that we are furnishing to the SEC today. Reports on Form 6-K that are furnished to the SEC on a quarterly basis and throughout the year provide updated current information regarding the company's operating results and material developments concerning our company.
Stratasys assumes no obligation to update any forward-looking statements or information, which speak as of their respective dates. As in previous quarters, today's call will include GAAP and non-GAAP financial measures. The non-GAAP financial measures should be read in combination with our GAAP metrics to evaluate our performance. Non-GAAP to GAAP reconciliations are provided in tables in our slide presentation and today's press release.
I'll now turn the call over to our Chief Executive Officer, Dr. Yoav Zeif. Yoav?
Thank you, Yonah. Good morning, everyone and thank you for joining us. In the second quarter of 2024, we delivered margin improvement and maintained a healthy balance sheet, despite continued softness in hardware sales. Our results reflect the resilience of our business model, the challenges our customers continue to face from high interest rates, macroeconomic uncertainty and reduced capital equipment spending. We once again delivered growth in consumables that reflected strong utilization for existing systems, demonstrating the power of that recurring revenue stream.
It is important to note that the utilization of consumables came primarily from our FDM technologies, validating that our customers are continuing their shift from prototyping to manufacturing applications, helping them more effectively manage costs, and drive efficiency. This bodes well for the future as we look to expand on the manufacturing floor, with exciting new solutions that we plan to introduce.
To ensure, we continue to deliver long-term value for our shareholders, our ongoing priority is our commitment to innovation in materials, knowledge and workflow to address the strongest adoption opportunities. By prudently investing in technology and materials, while also streamlining and focusing on key end-use applications, we are positioning Stratasys for its next phase of growth for our company. During and subsequent to the second quarter, we achieved a number of milestones and new product introduction I'd like to share.
One of the most exciting successes in the quarter was solidifying our partnership with aviation manufacturing pioneer AM Craft, aligning our 2 companies' efforts to grow the capability and demand to design and additively manufacture EASA-certified aircraft sustainment parts. Aviation is a great example of the value that additive manufacturing can bring. Aircraft have long lives and require continuous repair and improvement. The low volume, high mix nature of the parts aftermarket presents supply, cost and logistical challenges to keep planes in the air and thus producing revenue.
Additive manufacturing helps solve those challenges, often providing improved power design within region and on-demand manufacturing in aviation hubs at competitive and often lower cost than traditional supply. AM Craft holds an EASA part 21G production organization approval, making it a qualified provider of airworthy part to the aviation industry. Together, we look forward to supporting the development of their global production capability and market awareness.
During the quarter, we introduced new SAF HighDef printing capabilities. With the launch of our H350 version 1.5, which provides additional applications and use cases for a growing set of manufacturing end users, without compromising speed or quality. This updated H350 has recently started shipping. To complement that launch, we announced the commercial availability of our new ground-breaking material, SAF Polypropylene for use in both the original and the upgraded H350. Developed in partnership with BASF, this exciting new material is designed to provide superior quality and lower cost per unit.
The material is ideal for use in high volume manufacturing applications like auto, medical, consumer, sports and industrial, while maintaining exceptional quality across the entire build. In medical, we launched the J5 Digital Anatomy 3D printer, a major step forward to address the growing demand for cost effective, high-fidelity anatomical models. The new printer will enable hospitals, medical device manufacturers and research institutions to improve patient outcomes through enhanced surgical planning, streamlining operations, and bringing products to market more quickly.
We also announced the enrolment of the first patient in a landmark clinical study to assess the use of 3D-printed models for orthopedic oncology. We co-sponsored the study with Ricoh USA, seeking to demonstrate potential improvement in surgical outcomes such as reduced blood loss, shorter operating times under anesthesia, and decreased risk of procedural complications. The study is expected to last 12 months and involve up to 150 subjects across 3 sites. This is just the latest example of how the power of additive manufacturing is an excellent solution to improve patient outcomes.
Now I will turn to one of the most important parts of our future growth suite of offering, software. Our software provides value to our business and allows customers to work with many different technologies, both ours and others, thereby increasing the overall total addressable market. Software contributes to our revenues, as both a standalone offering and included when we sell printers. The cornerstone of our software is the GrabCAD Print Pro for print preparation and GrabCAD Streamline Pro for operations. GrabCAD Print Pro is available across FDM, SAF and most recently PolyJet. Adding PolyJet adds that large installed base of 3D printers to GrabCAD. Demand for Print Pro remains robust with a number of multi-year licenses sold.
GrabCAD Streamline Pro works with FDM and PolyJet customers who need to scale 3D printing prototypes, tooling and end-use parts. We include the software with new printers as part of the initial purchase and after 1-year free trial, the license is available for purchase. Launched in the first quarter, Streamline Pro has really hit the ground running and is building momentum. Also, as part of our software platform, we introduced part on demand by GrabCAD, a new integration that synchronizes the company's software with Stratasys Direct, our parts service bureau, allowing customers to access its fleet of printers and expanding their network of manufacturing with Stratasys, a pre-certified producer.
And finally, I'm excited to share that we have launched our new GrabCAD IoT platform featuring connected service and advanced reporting and alert. The platform demonstrates our customers' first Stratasys digital transformation capabilities, enabling value-added services through advanced supervisory control and data acquisition.
The GrabCAD IoT platform offers a high-quality software solution that ensures dependable, robust and secure, near real-time data collection. It improves printer uptime, speeds up issue resolution and boosts value for our Streamline Pro users. These new features have launched on our PolyJet J3 and J5 system and we expect to expand them across our fleet of printers over time.
Now I'd like to highlight some milestones subsequent to the quarter's end. First, we announced our plan to move our US headquarters in Eden Prairie to a single, newer leased facility a few minutes away. The new facility provides us with more space to enhance collaboration and creativity, while improving efficiencies. Given the huge multibillion-dollar, total addressable market dental represents, it remains a major area of focus.
We recently introduced the DentaJet XL solution, our latest innovation in dental 3D printing technology. This new printer is high speed, designed to further improve lab productivity and reduce cost. The DentaJet XL produces, simultaneously and at scale, highly accurate models for crowns, bridges, implants, and aligners, as well as surgical guides. As a reminder, our TrueDent solution delivers a real, tangible value proposition for dentures, representing the only mono-block, full-color solution in 3D printing, creating realistic dentures for patients, and driving game-changing economics to our customers. Due to its substantial cost savings, we are in active discussions with leading dental channels, including some of the largest DSOs in the United States, and look forward to continued strong performance in this industry.
And finally, we recently announced that our collaboration with CollPlant has advanced to a preclinical trial where the study will test the ability of printed breast implants to promote the growth of natural tissue and completely degrade over time and without triggering an immune response. This would be a revolutionary alternative for both reconstructive and aesthetic procedures that represent a significant opportunity to serve the $3 billion breast implant marketplace. This is inspiring work, as we push the boundaries of innovation to improve lives and advance healthcare.
Now turning to our Board strategic review process. After a comprehensive review of a wide range of strategic alternatives to unlock shareholder value, the Board determined that implementing various restructuring actions will best position Stratasys to maximize value for our shareholders. These actions will support our efforts to retain and build on our additive manufacturing leadership. They will serve to strengthen our industry-leading balance sheet and robust business model to more effectively weather all market cycles, positioning us for outsized profitable growth in the years ahead.
We expect the restructuring actions to produce approximately $40 million in annual cost savings beginning in the first quarter of 2025, which is expected to generate an annualized EBITDA margin of 8% at current revenue levels. The initiatives are focused on 2 important areas. The first is to adjust our cost structure to better match current market conditions, primarily through a headcount reduction of approximately 15% by the end of this year, which will drive the majority of the expected savings.
Second, we are strengthening our effort to increase market penetration by helping our customer overcome barriers to wider additive manufacturing adoption. We will utilize our scale and breadth of technology to focus our go-to-market effort on the main growth drivers of our business.
Over the past few years, we have seen continued penetration of additive manufacturing with applications across multiple sectors such as aero and auto for tooling and parts, dental for various uses, medical for pre-operative needs, and others. However, penetration has not accelerated as expected. We continuously assess our business operations to ensure that we are optimally aligned with market conditions and have been closely monitoring this prolonged cycle of reduced client capital spending, which is stretching longer than anticipated.
We are making it easier for customers to more broadly adopt additive manufacturing by addressing the total cost of ownership, which is largely influenced by material consumption. We are also increasing resources to better educate and support our customers, engineers who are still learning to fully utilize additive manufacturing design and workflow benefits, and we will increase our effort to standardize additive manufacturing to better align with traditional manufacturing processes.
We are also focusing on applications where additive manufacturing presents the most compelling benefits relative to conventional methods. Over the past years, we have shared some of these innovations with you, such as the manufacturing focused F3300 printer, proven dental solutions such as TrueDent, and our suite of specialized software offerings. These steps are designed to help us align costs with current conditions, build a long-term and significant more profitable cash generating business, and stay agile during downturns, while being ready to respond quickly when customer spending returns.
When the right technology is used for the right applications, our customers are happy and we generate recurring business. As an example, one of the world's largest automotive OEMs has purchased dozens of our systems over time and typically see an ROI on printer purchases within 12 months. So when deployed properly, the technology delivers and can lead to increasing demand over time.
As we have noted consistently in recent quarters, customers' utilization, engagement level and demand continue to be strong despite the current purchase constraints of our customers. Our diverse portfolio of hardware, consumable and services, including our part business, strengthens our resilience, especially during extended period of reduced capital spending. We are confident that once current headwinds subsides, renewed access to capital will spare customer spending to more accurately reflect the expressed high demand for our solutions.
While we cannot control macroeconomic factors or end market conditions, we are committed to managing what we can, with a strong balance sheet and disciplined strategy. These decisions reflect our responsibility to both fiscal and human capital and we are confident that these changes will help us achieve our targets of leading this industry and delivering a consistently and more profitable cash flow positive company, proving the strength of additive manufacturing as a foundation for innovation and business success.
While these restructuring actions mark the conclusion of the formal strategic review process, the board and management are always open to continue exploring opportunities that would potentially benefit our shareholders.
Over to you Eitan.
Thank you, Yoav and good morning, everyone. We continue to face the challenges, the macroeconomic environment is presenting to our customers, which is driving weakness in their CapEx spending. Despite the year-over-year decline in revenues, we delivered improved gross margin thanks in part to strong consumable sales and a relentless focus on cost controls.
Now let me get into the details of our numbers. For the second quarter, consolidated revenue of $138 million was down 13.6% compared to Q2 2023. Product revenue in the second quarter was $93.6 million compared to $109.1 million in the same period last year or down by 14.2%. Within product revenue, system revenue was $29 million, down by 40% compared to $48.3 million in the same period last year, with longer sales cycle a key contributor.
Consumables revenue grew 6.3% to $64.6 million compared to the same period last year. As Yoav mentioned, the ongoing strong performance of consumables signals that the utilization rates of the systems we have sold remain robust. It's important to note that we expect consumables demand to be resilient for the foreseeable future despite recent weakness in hardware sales, as the installed base continue to be well utilized. Service revenue, including Stratasys Direct, was $44.4 million compared to $50.7 million in the same period last year, reflecting a decrease of 12.2%. Absent divestitures, service revenue was down 2.4%. Within service revenue, customer support revenue was down 3.8% compared to the same period last year.
Now turning to gross margins. GAAP gross margin expanded to 43.8% for the quarter compared to 41.5% for the same period last year. Non-GAAP gross margin also grew to 49% for the quarter compared to 48.5% in the same period last year. The improvement versus the prior year period was driven in part by a greater mix of consumables and high margins as Stratasys Direct due to divestitures. GAAP operating expenses were $86.5 million compared to $99.9 million during the same period last year. The reduction in expenses was primarily related to lower costs related to prospective and potential mergers and acquisitions, defense against hostile tender offer, proxy contest and related professional fees.
Non-GAAP operating expenses were $70.9 million compared to $72.5 million during the same period last year, due primarily to lower employee-related costs. Non-GAAP operating expenses were 51.3% of revenue for the quarter compared to 45.4% for the same period last year.
Regarding our consolidated earnings, GAAP operating loss for the quarter was $26 million compared to a loss of $33.7 million for the same period last year. Non-GAAP operating loss for the quarter was $3.2 million compared to operating income of $5 million for the same period last year. The change reflects the lower overall revenue and increase in OpEx, as a percentage of revenue, offset somewhat by lower employee-related costs.
GAAP net loss for the quarter was $25.7 million or $0.36 per diluted share compared to a net loss of $38.6 million, or $0.56 per diluted share for the same period last year. Non-GAAP net loss for the quarter was $3 million or $0.04 per diluted share compared to net income of $2.5 million or $0.04 per diluted share in the same period last year.
Adjusted EBITDA was $2.3 million for the quarter compared to $10.6 million in the same period last year. We used $2.4 million of cash in our operations during the second quarter compared to the use of $23.2 million of cash for operations in the same period last year, including $3 million of capital expenditures. Free cash flow for the quarter was negative $5.4 million. We ended the quarter with $150.9 million in cash, cash equivalent and short-term deposits compared to $161.1 million at the end of the first quarter this year. Our balance sheet remains strong and we are well capitalized and well-positioned to identify and capture value enhancing market opportunities.
Now let me turn to our outlook for 2024. We expect the ongoing challenging backdrop to persist for the remainder of the year, continuing to cause delay purchases and longer sales cycle. We are optimistic that our hardware sales in the second half will grow as compared to the first half due to our improved pipeline, expected higher government sales and continued strength in dental.
Based on our first half results and current visibility of our near term opportunities, we're adjusting our full year guidance as follows: We now expect full year 2024 revenue to range between $570 million to $580 million. We expect third quarter revenue to slightly improve sequentially from the second quarter this year.
From a gross margin perspective, we now expect full year 2024 to be in a range of 48.7% to 49%. For 2024, we expect our operating expenses to range between $276 million to $278 million. We now expect non-GAAP operating margins to be between 0.5% to 1% for the full year. We anticipate a GAAP net loss of $106 million to $91 million, or $1.50 to $1.29 per diluted share and non-GAAP net income of $1 million to $4 million or $0.01 to $0.05 for the full year. Adjusted EBITDA is now expected to be in the range of $24 million to $27 million for the year. Capital expenditures are now expected to range between $20 million to $25 million for the year.
With that, let me turn the call back over to Yoav for closing remarks. Yoav?
Thank you, Eitan. In summary, we are continuing to differentiate ourselves during challenging times for industry and makes the hard yet necessary adjustment to maintain and accelerate our leading position. Our investment in new and exciting technologies is advancing, as evidenced by the products we are bringing to market that will serve our customers well, as they accelerate their adoption of additive manufacturing.
We spoke in the past of an inflection point where additive manufacturing graduated from a prototyping niche to becoming a cornerstone of the manufacturing process, and we continue to see signs of this momentum, as we march ahead. We look forward to return to strong growth from the pent-up demand in system sales when the current environment eases. In the meantime, will continue to deliver the excellence our customers deserve as industry leaders in technological innovation, service and reliability.
And thanks to our robust balance sheet, diversified product and software offering, the cost saving initiatives we are announcing today and the large and growing opportunities ahead, we look forward to delivering relative outperformance and enhance shareholders value.
With that, let's open it up for questions. Operator?
[Operator Instructions] Our first question is coming from Greg Palm from Craig-Hallum.
A couple ones I guess. I want to first start with the strategic alternatives process. I know you formally wrapped it up. But as you look back on it, curious if you learned anything during this process. Presumably you were talking with lots of industry players. But for example, did you get a better sense of what's needed to drive better profitability across the industry? More importantly, has your view on consolidation changed at all? Just going forward, can you just give us a little bit of sense on the process and what you learned?
What we have learned, we were involved in few opportunities, analyzed them in depth. Bottom-line, we are investing in strategies. I think this is the bottom-line and this is the key learning from the entire process. We have the right technologies, we have the right focus on the right use cases. We have unique assets and we better put our money to create shareholders value in creating value through the assets that we have through taking our solution to the market. And I have no doubt, despite the challenges, the macroeconomic challenges and the challenges with the hardware, the Stratasys is the best company in the industry.
We still believe in consolidation, but with reasonable multiples and valuations, because we still believe in scale. But with the current situation, the board came to the conclusion that we better invest in services.
And then my second question on the pent-up demand, are you able to quantify exactly what's out there? And for example, does utilization trends give you any insight into the timeline where certain new customers may need to actually be forced to invest in new systems? I know we're all cognizant of the macro and manufacturing cycle and whatnot, but just sort of wondering what kind of visibility you have over the next 6 months to 12 months?
So as you know, we are not quantifying because this industry fall many times into the trap of promising. But I can share observations from the market. Post-Covid, people bought people, customers, businesses bought significant large quantities of machines and not all of them were utilized. And now that interest rates are high, they are focusing on ramping up those machines, increasing utilization. And we can see it, we can see that in key use cases, the utilization is going up, it's not an accident that our consumables are increasing quarter-over-quarter, year-over-year, with similar utilization in the high end machines.
Very strong utilization that we didn't experience in the past. And this is by definition also balancing the old install base that we have. And we still increase the number of spools or kilograms that we are selling in material. Once interest rate will be released a bit, I believe we will see this pent up demand. Because there are 2 effects to the increased utilization.
One, you will need more machines because there is so much one machine can give you in terms of capacity, but not less important. Customers learn how to work with additive, as part of their manufacturing solution. And the moment they are there and the moment more people within the organization know-how to operate it, how to design for additive, we are in a much better place because this is one of the most important constraints. So CapEx will be released and we will be there ready to sell.
Next question is coming from James Ricchiuti from Needham & Company.
So it looks like with the second half you, are assuming sequential improvement in revenues. I would have thought your gross margin outlook would have been a little better in the second half. So talk to us a little bit about what drives that. Is that just a higher mix of hardware? And with that, wouldn't the new products contribute to better margins on the hardware side? Thanks.
So you actually hit it on the head. When we think about gross margin. First of all 49%, very solid gross margin for Q2, when we think about the second half of the year, it is mainly a mix of hardware consumable and services. And the changes, the differences between 49% to 48.8%, these are really small differences that can be impacted by different mix, by specific deals. So I think the bottom-line is that we believe that the second half of the year and the full year of 2024, we will maintain high gross margin at the 49% levels, which I think is very promising also for the future. And when you take into account the restructuring and the savings that will come from the restructuring as you model the next year, this percentage will even increase further.
And just with respect to the hardware pipeline, you kicked off a couple of areas where you feel that there's -- that gives you the confidence in the improvement in the second half, government dental. Talk to us a little bit about where you have more confidence and where it's still a little uncertain.
So Jim, maybe at the start I'll say that when you look on the model, on the guidance, we actually used a very, very moderate growth for the second half of the year compared to the first half. When we think about the offering and the changes in the second half, first of all, we have the F3300 that we've just launched and we expect to be stronger in the second half of the year.
We have TrueDent that is improving and growing and some other offerings. We also have a better visibility to the pipeline for the second half and we see a stronger pipeline. And maybe last but not least, you are with us, with the industry for so many years. There is seasonality. The second half of the year is usually stronger. So we bake that also into the model. However, when you look at this, all in all, very moderate growth for the second half which you know, we try to be conservative in our approach.
Next question is coming from Troy Jensen from Cantor Fitzgerald.
Maybe a couple of Eitan for you. Of the $40 million OpEx or the $40 million cost savings for the year, how much is going to be in COGS versus OpEx?
We will not provide the exact details. It will be the $40 million is total. It will be broken or split between COGS and OpEx. The majority will be in OpEx naturally, but there will be incremental savings and improvement to gross margin following this restructuring.
So another one here for Yoav. You may not be able to answer it, but I'm going to throw it out there. How much of your strategic review boiled down to the fact that you still want desktop metal and is the hope to just wait a year or so and let that nano integrate those guys and then ultimately merge with them?
Obviously, I cannot comment on such a thing. I can only repeat what I said. Currently we believe that the rightsizing of the company, the focus on our key drivers and use cases and focusing on adoption where we have an advantage because of our AE's and our, the fact that we are close to the biggest adopter of this technology will generate higher value to our shareholders.
And now, and starting with 8% EBITDA margin, and we are quite certain about this 8% EBITDA margin. So this is not something we are just throwing on the table. We are certain in our ability to be profitable also from 2024, from Q4, and on 2025 assuming the same levels of revenues. So this is really unique in our industry. We believe that once we see growth coming back, and it will because the pent-up demand is there, EBITDA will be even larger.
One last question for you, Yoav. I'd like to talk a little bit about Bambu Labs. I mean, it's a company that I started hearing a lot more about. And obviously, this quarter you guys filed a patent lawsuit. So can you just kind of talk about the low end FDM? Are you guys seeing more competition there? And why so aggressively go after Bambu? And there's so many others that are probably violating your technology, too.
In general, we -- by divesting MakerBot, made a statement that we are not playing in the low end FDM market. We are not there. We are going for the industrial FDM market, which require different standards, different part properties, different materials, and we don't want even to compete there. Having said that, our shareholders deserve return on their investment in innovation.
We need to take care of our shareholders. And this is part of our commitment to safeguarding our intellectual property. We filed this complaint, this file against Bambu in Texas, and we believe that. And no one can use our IP. And we're talking about ten essential patents without paying on it. This is our commitment both to the industry and to our shareholders.
[Operator Instructions] Our next question is coming from Jacob Stephan from Lake Street.
I guess I just wanted to touch on the restructuring initiative as well. I guess when you kind of think about the 15% workforce reduction, is that kind of a broad based workforce reduction or I guess are you kind of realigning some of these resources within the company and making broader kind of cuts? Any comments that would be helpful.
The restructuring is, I would say in a short sentence, it's strategy led restructuring. It is not across the board, it's not blind. We have a strategy. We are sharpening our strategy based on current market conditions, and we are focusing on adoption. What does it mean? We go. We are narrowing the focus to proven use cases, to education and enablement, and to complete workflow that will be integrating to the standards of our customers with a much better TCO based on better prices of material.
So this is the strategy. Now we are structuring the whole company based on this strategy to make sure that we have the right profitability profile, which doesn't exist in our industry. I don't want to say we are the only profitable, but probably one of the rare companies that are profitable in our industry, even in this challenging times. And we are talking about certainty in this profitability. Again, 8% EBITDA margin, cash flow positive and starting with profitability in Q4, not promises for the next 5 years, and it will increase over time. This is only the starting point.
And I guess as kind of a follow-up here, following the guidance in '24 here, essentially we are going from flat year-over-year revenue growth to down 9%. I just want to get your confidence gauge on the medium-term target of $1 billion in revenue in '26?
Maybe to start. I just want to remind you all that if you go back to our Q4 2023 earning call presentation, we actually reminded everyone about certain divestments that we did during 2023. So when you compare 2024 to 2023, just please make sure that you bake into that $616 million that we provided you back then in Q4, which is the fair comparison to 2023, still there is a reduction which is driven by the hardware challenges that Yoav mentioned earlier.
I do want to highlight and to emphasize the consumable business in -- both in Q1 and in Q2, we showed a nice growth year-over-year in consumable business. And we expect the improvement in consumable revenue to continue in the second half of the year. And I think that's a very critical point, when you compare 2023 to 2024, that is recurring business. That also emphasize the utilization of our systems, especially the high-end and the one that go to manufacturing. And that's where we gain the confidence for the future.
As to longer-term growth, I think we are very careful considering the last few quarters about the future or the further future. And that's why we emphasize that the measures that we took with this restructuring is basically, as Yoav mentioned, create certainty of meaningful profitability and meaningful operating cash flow already in 2025, regardless of future growth, and regardless of improvement in the macro environment, that will create growth. Right? It's a temporary thing.
Next question is coming from Brian Drab from William Blair.
Yoav, I wanted to ask you to speak a little bit about the potential impact and how you're thinking about the risk of making cuts, obviously necessary cuts that will be near-term, clearly positive for margins, but the potential impact on revenue growth. You've had this level of OpEx that has been like 46% to 48% of sales for years. And I think, many are under the impression that you needed that level of OpEx to sustain the new product development, to sustain the go-to-market capability in the channel management, Et cetera. That you need that level of spending to sustain that growth. So how should we think about that?
There is something that makes me be a bit awake at night, is this balance between short-term profitability and long-term growth. And I think that the key here is that the restructuring is not across the Board. This is strategy led restructuring. That's the way to make sure that we're managing the impact of the restructuring on growth. And we will maintain growth, especially when we will see recovery or an improvement in the business cycle. So how we are doing it?
It's clear that the purpose of the restructuring is to create shareholders value. But it has to go both hands through very clear strategies that create value and profitable profile of our P&L. So the way we do it, we narrowing the focus, we focus on what we believe is proven and will create growth. And those are the proven use cases that we have. And we will invest more in customer facing activities to ensure adoption of those use cases.
The second thing is about the status where we are in the development of our technological platform. We have 5 platforms. We invested a lot to make them reliable and ready for manufacturing. I can say now with a lot of confidence that we have 5 technologies that are ready for manufacturing. FDM is unique. No one can do large part for Aero and Auto in this type of part performance like us. If I look at the DLP, we have the best part in the industry. Bulky, accurate for industrial users.
If I look at SAF, we have the best, the closest, nearest to injection moulding parts, small medium parts in terms of definition and in terms of performance than anyone else. If I look at SLA, we are the most reliable player both in terms of materials and machines. And you can see it in the F1. We are the majority of the Formula 1 industry. You look at PolyJet, we are leading the way in dental, in mono-block dentures approved by FDA. So our technologies and our platforms are ready. Now we need to focus on the adoption and practically what we are doing by this is sharpening the strategy and secure the growth.
On top of it, we are maintaining the R&D ratio, as percentage of revenue. So we were very careful with this, with those cuts. And at the end, we are balancing between profitability and growth. And we believe that profitability is crucial to show that this industry is delivering value. We start with 8% EBITDA and positive cash flow, but it will grow and the target is to be in the two-digit and we will be there.
Next question is coming from Ananda Baruah from Loop Capital Markets.
I just wanted to ask a follow-up on sort of comments you made to an earlier question around utilization. Is there any useful way to think about where utilization of -- I think you made mention of some of the machines that were sold during COVID, so maybe those incremental machines that are in your strategic installed base, where the utilization of those are if even anecdotally just to give us some sense of -- of what that normalization process might look like. And then I just have a quick follow-up as well thanks.
It's very hard to follow because not all of the machines of the industry, not all our machines although we have dozens of thousands of machines connected where you can follow utilization, it's hard to follow because some of the most attractive or those machines that have high utilizations are actually in verticals like defense where you cannot follow it. But we are following the material sales and when we follow the material sales, no doubt that the growth is coming from manufacturing and used part and tooling and less from rapid prototyping, so there is a shift that we can follow.
And so quick follow-up there, is there any useful way to think about what the install base looks like today say relative to 2020? And the reason why I picked 2020 is because that was the revenue trough $520 million and now you're coming off of say a new base just over $600 million. So just trying to see if there's anything useful to glean around mix kind of new strategic useful installed base mix wise, today relative to 2020. That's it from me.
No doubt, less small boxes, more big boxes. And big boxes usually go for manufacturing because you don't put $300,000 to $500,000 on rapid prototyping, no doubt, this is the install base, this is the change in the install base. And by the way this is our strategy as I said we are not competing with Bambu Lab on the low end this is the MakerBot Ultimaker space and they will do great there but this is not our space. FDM, drove our consumables up.
The next question is a follow-up from Greg Palm from Craig-Hallum.
Just on the restructuring, can you confirm what level of revenue are you expecting? The 8%, is it based on Q2? Is it based on second half? Is it based on the full year? I guess -- I'm having a hard time, I guess only getting to 8% just based on a $40 million of annualized run rate. And just to be clear, is it -- do you see that run rate in Q1 or is it exiting in Q1? Just specific on the timing as well.
So first, to answer your first question, the 8% is based on -- let's say, mid-range of the annual guidance. And so that's when you bake -- I'm not sure which calculation you made, but when you bake into our current EBITDA levels, the savings that will be achieved. Just keep in mind that the $40 million will not be achieved in one shot, it will be achieved over time.
However, in 2025 we are going to utilize the entire value or the entire benefits of those savings. Keep in mind that next year we will have some investments in the business. So the model or the assumption? Again, I'm not sure which calculation you did bake also deals into the model. Hopefully it clarified or helped you build your model.
Thank you. We reached the end of our question-and-answer session. I'd like to turn the floor back over for any further closing comments.
Thank you for joining us. Looking forward to updating you again next quarter.
Thank you. That does conclude today's teleconference and webcast. You may disconnect your line at this time and have a wonderful day. We thank you for your participation today.