Q3 2019 Earnings Call
The question. During this session you will need to press star one on your telephone.
If you require further assistance. Please press star Zero I would now like to hand, the call their speaker today, Yonah Lloyd Vice President Investor Relations. Please go ahead Sir.
Thank you good morning, everyone and thank you for joining us to discuss our 2019 third quarter financial results on the call with US today, our Ellen you add long interim CEO and we lost Payorski CFO .
I remind you that access to today's call, including the prepared slide presentation is available online at the web address provided in our press release.
In addition, a replay of todays call, including access to the slide presentation, well 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 goes 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 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 Stratasys is annual report on.
Form 20-F for the 2018 year as well as our report on form 6K, and the related press release concerning our earnings for the third quarter of 2019, the latter two of which we are furnishing to the FCC 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 Nongaap financial measures should be read in combination with our GAAP metrics to evaluate our performance certain non-GAAP to GAAP reconciliations are provided in the table contained in our slide presentation and in today's press release now I would like to turn the call over.
To our interim CEO Alan yes.
Hello.
Good morning, everybody and thank you for joining today's call.
Oh results in the third quarter reflect a continuation of our track record of delivering earnings and profitability. Despite challenging global economic conditions that have impacted capital investments in general spending in the automotive and industrial machinery segments in Europe , and Asia [laughter] in the third quarter, we can do.
Observed strong performance in the quote professional and production area of our Americas business.
I'll just market with specific strengths in high end FDM and Polyjet systems. Our F 123 series in our target good that goes off automotive and aerospace.
Despite the pause in customer investments, we are experiences in Europe , and Asia, we continue to see high level of customer engagement and encouraged by the interest in deploying our solutions there.
As we've seen in the Americas region major Oems in our target verticals in aerospace and automotive are adopting our solutions and increasing rate and we expect customers in Europe and Asia to do the same once economic conditions improve.
We're encouraged by the initial interest in the multiple new product announcements that we recently made including two new advanced four digit systems, new manufacturing focused at the end materials and in addition to the Makerbot method line performance really printers.
Additionally, we recently announced plans to increase our ownership stake in ZAR three D. Our joint venture was our B and C to develop additive manufacturing solution based on high speed sintering technology [laughter] will target.
No and medium volume and use bought production for industrial manufacturing.
With an option to fully quiet ZAR three d.
We expect to make additional significant significant product announcement into 20 and continue to believe that though new expanding portfolio would broaden our addressable markets I.
I will return later in the core to provide an update on our search for new C. O, but first I will turn the call over two of C or Foley left but you'll ski who will review the details off a nice.
[laughter], Thank you and I'm and good morning, everyone.
Total revenue in this fourth quarter was 157.5 million compared to 162 million for the same period last year.
On a constant currency basis still done right when you declined 2%.
I mentioned, we so continued positive fulfillment seen America, where we had to significant strength.
Hi, Good sold just last from including allow just what's unique deployment to a leading automotive OEM.
And we also so strong sales also walk off topic, if 123, C., we use and Jay 754 color would be material Threed printers.
GAAP operating loss for the third quartile was 6 million compared to GAAP operating income of 3.4 million 40, Sampere last year.
non-GAAP operating income for the quarter was 8.1 million compared to.
non-GAAP operating income of 8.2 million. So the same period last year.
GAAP net loss for the quarter, what 6.9 million or 15 cents building new did shares.
Well to a net flows.
The <unk> point Sevenmillion I was saying go to go to chair for the same appeared last fear.
non-GAAP net income for the core to what 6.3 million over 12% go diluted share compared to non-GAAP net income of 5.7 million over 11 cents they'll do good share. So the same period last year.
What is known to third quarter was 106.3 million.
<unk> decreased 3% compared to the same period last year or 2% on a constant currency basis.
The declining product revenue was driven by were primarily by economic weakness in Europe in Austria.
Impacted mainly system sales in those regions.
Within product revenue consumable revenue for the quarter increased by 3% compared to the same period last year and increased 5% on a constant currency basis, what system for the quarter decreased 9%.
Brought to the same paired last year with no change on a constant currency basis.
Sadly for revenue into third quarter was 51.1 million it decreased 2% compared to the same period last year with no change on a constant currency basis.
Within service revenue customers the bulk of revenue increased by 3% compelled to do the same peer last year and 4% on a constant currency basis.
Got to go Smile, Jean was 49.2% so the quarter.
48.7% for the same period last year.
non-GAAP gross margin was 52.4% for the quarter.
Up to 52.1 person for the same period last year.
GAAP operating expenses increased by 10% to 83.4 million for the third quarter as compared to the same period last year non-GAAP operating expenses decreased by 3% to 74.4 million for the third quarter as compared to the stamp you last year.
Driven by the timing of R&D investment related to new product introduction.
We're committed to a long term strategy and we continue to invest in developing new products that we believe will expand our addressable market.
The company Youd 8.6 medium of cash from operation during the third quarter as compared to 5 million of cash generated in the fourth quarter last year.
Let me do you took proactive steps to increased inventory level in order to improve thin film and time and supposed to product demand as well as to prepare for new product launches in 2020.
We ended the third quarter with 347.
Point 1 million in cash and cash equivalents.
Got to 366.3 million in the end of the second quarter of 2019.
Sure week up well, please be thoughtful stability and.
In the third quarter, which reflect the positive impact or felt continued commitment to expense management and operational efficiency.
The lower than expected revenue in some before region.
We had positive you go to your growth you know call America systems consumable and service revenue, which were offset primarily by the impact of economic conditions in Europe and Australia.
Our balance sheet remains healthy and we are well positioned.
Oh future opportunity.
I will now turn the call back over to [noise].
Thank you Laura.
[noise] Oh search when you see always progressing and I look forward to completing the process. We remain focused on being deliberate without decision, making process and moving forward with a highly qualified leader that hasn't necessarily public company experience, an exceptional track record of delivering shareholder value.
In the interim we're happy to have a strong experience oversight committee that continues to work closely on them and to me and with our management team.
Now like to turn the call over to VP Investor Relations Yonah, Lloyd who will provide greater details of what 219 financial guidance, you're now [laughter]. Thank you all along we are updating full year guidance for 2019 as follows revenue guidance of $640 million to $655 million compared to previous guidance.
$670 million to $700 million.
Despite lowering our revenue guidance, we're maintaining our guidance for GAAP net loss of $7000 $17 million to $3 million or a minus 31 cents to minus five cents per diluted share with current expectations to be at low end of the range. We're also maintaining our non-GAAP net income of $30 million to $38 million or.
55 cents to 70 cents per diluted share with current expectations to be at the low end of the range non-GAAP operating margin of 5.5% to 6.5% and capital expenditures projected at $30 million to $45 million.
non-GAAP earnings guidance excludes $23 million to $24 million are projected amortization of intangible assets $20 million to $24 million of share based compensation expense reorganization and other expenses of 1 million to negative $1 million and includes negative tax adjustments of $2 million to $3 million on the above.
non-GAAP items.
The estimated non-GAAP tax rate for 2019 is impacted by the ongoing noncash valuation allowance on deferred tax assets, we expect to record throughout the year on U.S. losses, given the expected ongoing negative impact of not recording a tax benefit on U.S. tax losses on our net income as well as significant quarter to quarter variability in our non-GAAP tax.
Right. The company believes that non-GAAP operating income is the best measure of our performance appropriate reconciliations between GAAP and non-GAAP financial measures are provided in a table at the end of our press release and slide presentation with the itemized detail concerning the non-GAAP financial measures.
Operator, you can now please open the call for questions.
Thank you as a reminder to ask a question you'll need to press star one on your telephone to withdraw your question Pester punky in the interests of time, we ask that you. Please limit yourself to one question and one follow up please stand by Bobby compiled becoming a roster.
Our first question comes from Jim Ricchiuti with Needham and company. Your line is now open. Thank you quick question I have is just regarding the strength you're seeing a in the Americas and the weakness you're seeing in Europe , and Asia, which obviously a lot of companies are talking about is there anything.
I can say more specifically I may have missed it if you disclosed it in your release, but what kind of growth what was the growth rate in the Americas, a in the quarter and what are you seeing in Europe and Asia.
Thanks, Jim sure you know the Americas, our largest market. Its most advanced any adoption cycle, we have leading Oems our target markets that are treating threed printing as a strategic imperative for their businesses. So for example, the sales of our high end up 900 production systems were excellent this quarter, including.
Multiple aircraft interiors solution F. nine hundreds we sold to aerospace customers and a large multi unit and multi technology deployment that included F. nine hundreds and F. Forfeit these among others to a major U.S. automotive OEM. This demonstrates our progress and driving the adoption and these targeted verticals.
By the way. We also saw strong sales of our Jay seven series and Polyjet with particular strength in our Jay 750, multi color and multi material threed printer I would add as well that in the Americas, even the unit sales of our F. 123 series grew substantially driven by the continued strength of the F 123 portfolio.
Over the last year, we added multiple new engineering grade materials to this F 123 series. So expanded the applications that can be addressed with that platform.
And beyond just the quarter I would add I would note that for the first nine months. This year of 2019 in the Americas, we've actually seen meaningful growth in all target verticals aerospace automotive health care and dental.
So all in all the growth rate in the Americas.
All in for you I, just I'm looking for a percentage if there's anything I mean, it sounds like you're seeing some nice momentum with the new products nice momentum and the key verticals I guess, what I'm trying to get to is what what was the growth rate in the Americas right. So in the 6K that that you'll be seeing at some point today. When you have the opportunity you'll see the Americas.
Growing by 1.7%.
But I would note that the strong growth came in our professional in our production products our systems, our consumables and the services that are related specifically to those core business lines got it. That's that's helpful. Thank you I'll jump back in my view.
Sure actually you also asked about EMEA I believe yeah, as well I again, if I can give us that that'd be great sure. Yeah, absolutely you know they were headwinds in both them in a P.J. you'll see in the 6K or later today EMEA declined by 10.8% or a P.J. by 12%.
Thank you.
Thank you.
Next question comes from Troy Jensen with Piper Jaffray. Your line is now open.
Hey, good morning, good afternoon to guys.
So I guess my first question would be.
I guess for anyone in the room, but I think if you go back David It previously talked about he's pleased with the piece of new product introductions and previously indoors high single digit revenue growth in 2020, I'm curious if you guys still kind of indoor such type of growth for next year.
Hi, good morning [noise].
Yeah. So previously we talk about that a obviously the timing and the level of growth in 2020 will be subject to Michael condition.
If it is R&D and new product introductions timeline timeline.
And we'll likely being a cool and the second part of 2020, given the time of day product introduction that we are expected.
Given the uncertain nature of muscle condition. The prediction of that expect exact growth rate is challenging we we do still believes that it wouldn't be meaningful it differently combo to the growth that we we so a previous here and in DC or.
So this is a state of expectation.
Okay and the need for my follow up a I know during the quarter here you guys had a increase your investment in sorry three D.
Just wondering if you guys could give us any introduction or any update on timing of you know that product launch in.
Any might say would be helpful I'm sorry.
Right Troy, we're not actually updating the timing of the launch right now, we recently announced the plans to increase our ownership in czar.
I'm, sorry, three d. from 15% to 45% we have the option to fully acquirers are three D.
Just as a reminder for some background in July of 18, we announced the initial investment in ZAR three D. A jointly funded venture between ourselves and ZAR plc, leading independent manufacturer of Pietro base drop on demand inkjet technology to develop additive manufacturing solutions based on high speed sintering technology and will be targeting low to medium volume.
And use part production for industrial manufacturing at this point, we're actually very pleased with the progress made by the team there's three d. team.
We look forward sharing more details when when they were appropriate.
You don't have you guys ever disclosed when you plan to launch those products.
We have not not as of yet.
Okay understood. Thank you and good luck.
Thank you. Our next question comes from Wamsi Mohan with Bank of America. Your line is open.
Hi, Thank you.
30 doing a good job on total cost front here you lose a gross margins somewhat you also have caught opex meaningfully to manage through these revenue headwinds can you give us some sense on how much room, you seen continued cost rationalization, both that at sort of the cogs level and what you're doing.
There are an anda opex level and to the degree that you can talk about how much of this opex rationalization do you think could potentially create some some headwinds to growth in.
In the future and I will follow.
So and it wouldn't wanting wamsi.
We are focusing on made close copy measure it definitely when we see a headwind on the revenue.
In area, where we believe that we can they we can influence we do that having said that in area, where we believe that all key strategic imperative flat like R&D will continue to invest a we we are focusing on lung launching those product in 2020, and we all know to reducing expenses seemed ddos area and we do with <unk>.
Reduce expenses, even area, a where we have any more flexibility.
No one of the G and H a side of the out.
And they currently now we also profit seem to be we seem to ranch is targeting the low end over the range. So we we believe we still be able to me the low end of the range. If one bps in operating me perspective, even though we going a we reduce other revenue a guy do.
Okay. Thanks for the lock and if I can follow up can you talk a little bit about sort of your view off of demand trends going into fortytwenty, yeah, you're guiding roughly 10% quarter on quarter off a lower base here into the fourth quarter.
Similar to last year, but last year fourth quarter was a macro economic disaster, you saw some real fall offs, and especially in Asia and sort of global markets were pretty weak due so I'm wondering do you do you anticipate in your and your guide that things are due to.
Your rating Macroeconomically are you thinking that there are similar levels since today and can you just frame that in the context of sequential growth rates that are similar to last year when the backdrop as a lot worse. Thank you.
Yeah sure Wamsi. So indeed, the we don't guide quarterly specifically, but we do expect the same seasonality as is typical historically, where Q4 is sequentially a step up from Q3 on the topline.
We have discussed the macroeconomic headwinds and so we're expecting Q4 could see a flat to slightly down year over year.
And again it will be impacted by the timing of any recoveries that may take place in EMEA any PJ.
Of course, as well as the impact and timing from some of the new product launches that have been taking place store in the back half of this year.
Okay. Thank you.
Thank you. Our next question comes from Shannon Cross with Cross Research. Your line is now open.
Hi. Thank you. This is actually I was on for Shannon today, maybe just kind of piggybacking on to Wamsi question I'm wondering what you're hearing from customers in Asia and Europe that gives you the confidence they will start adopting machines. Once the conditions approved and then I've a follow up thank you.
Yes.
Thanks, Ashley so just to sort of started off I would say that the engagement level that we've been experiencing in both EMEA and a P.J. continues to remain high and strong.
And we truly believe that the issues that are that are being faced are macroeconomic issues that the industrys specifically the manufacturing industry is facing on a widespread basis.
Not particular to Threed printing at all I would add that as you can see in the Americas region. The fundamental business is doing very well when macro conditions are as expected to be our our in R&D. Good shape lets say certainly relative to what's happening in the other two regions.
So those two combined issues give us the confidence that when the macro conditions improve in EMEA and a P.J. along with the existing customer demand, we expect to see the growth return in those regions.
Okay, Okay, I hope to access.
Sorry, I, just think we'd love to just one today I when I want to emphasize a few more thinks it fruitful in EMEA and Asia PJ, even though we see headwind in the overall performance. We do see it continued to see higher utilization and consumable going up. So this is definitely a testimonials that they a off adoption in there.
In a adoption of far away it brought up and continue to invest in those in America, specifically, even you very somehow doing even in the automotive segments and even though we see allowed to deployment in automotive because the view attitude, but infection as its strategic imperative decision for them.
Andy I'll be investing in those even though they there's maybe a overload.
Okay and weakness is so that's why it's basically gave us they kind of the confidence in the believes that a we will once the condition into Europe . In you aim in assay out will be improved we'll see customers coming back to invest in those segments.
Thanks, I think you just kind of prematurely I answered my second question material sales rebounded in the quarter I was wondering if that was primarily on Shanken Americas, but I think you've just said that utilization is still strong in Asia and Europe can you talk to those trends.
That's a that's correct for the utilization and consumables had a positive quarter in both Europe and both of those regions.
Okay. Thank you.
Thank you. Our next question comes from Brian Drab with William Blair. Your line is now open.
Hi, Thanks for taking my questions I wanted to ask about the services business first given that it's it's almost a third of sales and.
Oh, it was down this quarter and has generally been.
Flat for the last four years really is that an area, where you expect growth in the future and.
Can you even roughly give us an idea the breakdown you know what percentage of that as you on demand.
Service and why would that be growing you know are actually declining this quarter.
I know, there's macro pressures, but the overall market for on demand a threed printing service real market has been growing nicely can you just comment on what you expect from that business going forward and why it might be lagging.
Hi, Brian Good morning, and aim you Wayne pointed out that correctly in terms of the some of the decline discussing the independent business and in what we see that the services say on demand is actually more vulnerable to a over.
All weakness.
In any macroeconomic and this is kind of the area were for the first line to be impacted so we see some slowness some that hey over in the San Francisco. We also have all cost around supposed to live in new and this is a if these ratings is going and we expect to see going into future as well.
Okay.
For my other question I'll just ask Scott.
If you look forward to 2020.
And you made some comments on opex already but just to maybe put a finer point on it.
Would you expect that your overall opex dollars would grow about in line with revenue.
Both revenue growth or below revenue growth.
Even just a directional comment how that would be helpful.
Yeah, Brian at this point, we are not providing guidance on our profitability for 2028. So we all know to device in that.
[laughter] is it fair to assume though that opex dollars would be up.
As you're investing in new products, rather than down with cost cutting.
Going forward.
Just in general.
[noise] [laughter], we will not we're not providing a those guidance say yes.
That helps age right it's okay.
Okay. Thank you.
Thank you.
Next question comes from an end up I will let loop capital. Your line is now open.
Hi, Good morning, you guys. Thank you taking the questions are these good morning I.
Oh, Hey look like right just starting off with.
With the macro headwinds the ground macro headwinds.
In Europe and agent can you give me slot you said the contact what you heard from customers at least what you saw.
Your husband Pops, and myself in the channel or anything that was incremental you with regard to.
In regards to the slowing or even if its linearity contacts.
So we can get a sense of what later than sort of incremental to what you guys bought 90 days ago.
And then have a follow up as well thanks.
Hi, and I'm sure as we said the primary reason for the weakness in Europe is the current general industry situation. There, there's a reduction of capital equipment investments factory order reductions, there's workforce reductions overall procurement slowdowns at industrial manufacturing and spirit.
Typically in the automotive sector, and especially in Germany.
Now our products and services are still use most often in product and product development. So we consider ourselves a leading indicator and as companies cut down on product development activities, we may see that impact on our business until the situation improves so that's specific to us.
At the same time as we noted a little earlier, we still continue to see a healthy utilization in the installed base of systems and the consumables usage was up we see growth in new verticals as well, we're providing unique value we've got verticals such as mobility and we've put out some press releases about what we're doing in the railways industry. So we have some new incremental.
All business coming in there.
But at this time based on economic indicators, we believe recovery may not happen until next year, and we're well positioned to return to growth in the into Europe region when conditions improve when it comes to a P.J. its specifically related to overall growth in China, which has slowed significantly and we see the result.
Oh, again and lower investments in the high end production solutions, primarily for the automotive and industrial machinery markets. Many other suppliers to the auto industry are also being hit by the slump in production as the demand is falling in China, that's the world the biggest car market.
So we do continue to see a C that and a and then another extent you have the macro economy issue of U.S. trying to trade tensions that are impacting investments. So well you know just to give you some of the color a in a general way and as well as how it how it affected us specifically.
Well, that's really helpful. I appreciate that.
As my follow up this is a little bit bigger ticket any chance you could give a descent.
Kind of.
What portion made by I don't know anecdotally, because that would be awesome, but but more anecdotal.
It's probably yes, I really do more comfortable at how we should think about you know kind of production exposure here today.
And then sort of add you gather after you get whether it's at the 2020 or you know kind of mid 21.
You're comfortable with.
Yeah, how that might change with yeah within news any products said, you're coming out with the new materials that you're coming out with.
Over the next 46 quarters, just to give us some kind of framework to think about.
What the impact to that in the model might be.
Yeah sure now that you know we as you know, we don't really breakout or segments, specifically, but I can give you a great example, you know we've referenced this automotive deal that we did just this quarter its a mix of products I'm, putting the highest end the f. nine hundreds the four fifties.
And that was primarily for tooling applications, which is becoming a more and more important opportunity for for additive manufacturing in the factories, we see high engagement in the U.S., we're making good progress with major Oems and as you know adoption is dictated by the Oems expansion and investment plans. So that's going along.
And as you can see quarter after quarter quite well for us in a in the Americas region. I also as a reminder, these are large deployments. They take time to develop its a long sales cycle, but it demonstrates the commitment of the large Oems that they're making this adoption to our solutions for their manufacturing applications. This is both in the automotive.
Sector and in the aerospace sector. So really demonstrates the success of our vertical focus and the close relationships, we have with the with the target customers.
So let me go.
Yeah.
Okay. I was I was just going to add that you can also see and we're going to be talking more about the the material. The material that we've added to the F. 123 line and I think we're going to sort be talking about those are now in the future specifically as they apply to help us continue growing our business on the tooling side of things.
And and so would you give me just this is a quick follow up and I'll wrap yet which is it fair to say that that the company would be disappointed if in the next you know 812 quarters no we're not to be.
On the T. I'll use the term material button.
Religion significant shifts.
And instead of you know end market easy exposure here, given the new product.
And so I'm just trying to gauge yes. It's you know just sort of dipping to tell exposure in the water or you actually you can see a you know sort of was selling the product.
Product intact shift that a company over the years resolve them, then you probably see coming out materials.
Yeah, you know we've spoken quite often in the past another about how the business in general is shifting slowly, but surely from prototyping to production in manufacturing we've already shown.
Metrics that we put out both today and in the past a that reflects how excited the manufacturing industry is to adopt the production the production level additive manufacturing solutions that we bring to the market.
I would add on top of that that we still have plenty more to come in the future you know we have our.
Our layer power metallurgy metal machine, which we've been talking about since last year, a we've already deployed two of those as an early bird and the feedback from that is excellent.
One of them by the way is in a major OEM. So I think we're well positioned when it comes to this evolution from prototyping to production both with our current portfolio as well as the expanding portfolio that will build will be delivering a later next year and beyond.
Okay. That's helpful Hey, I really appreciate it thanks.
Thank you. Our next question comes from Hendi Susanto with GE Research. Your line is now open.
Good morning, along the line during my first questions when micro conditions improve in Europe , and Asia, how early or how much like do thing a return to growth may take place.
Yeah, it's saying, it's definitely a challenging me hey.
Hey question in terms of how we will not know exactly when when democracy unequally improved but we are doing everything that we can add to make sure that once the macroeconomic condition improve we will leverage that and we will only a definitely a show in schools.
And then can you clarify whether we should expect.
I expect that you feel like the micro conditions improvement.
I'm sorry can you asked the question again, we'd love to hear you on the up Oh can you clarify whether let's say to return to growth would follow or would like improve Monday in macro conditions instead of a recovering already when we see signs of macro conditions improvement.
It's definitely how to sell says cycle takes time, Hey, we know what anybody that we have any major sales cycle and because of the macroeconomic condition that kind of been Poland. So I think that once a once the medical condition. It Michael economic condition will improved it will.
To be able to leverage on the process that we already started and and and accelerate that but it's really hard to predict exactly.
I see that's helpful. And then my second question to help US thing about year 2020 would you be able to share the timing of new product introductions in 2020 way to lift it will be loud 2020 or it will be poleward late 2020 when form next takes place.
Right so.
You know, we I think the most important concept around whats called how 2020 is going to look is that the impact of the new product introductions.
It's going to take place in the back half of the year.
But in terms of specifically tying it to as you said, a particular events or moment at this point, we're not prepared to give that information.
Got it Okay. That's fair thank you.
Thank you. Our next question comes from Paul Coster with JP Morgan. Your line is now open.
Hi. Thanks. This is Paul Chung on for costs are thanks for taking my question. So just on gross margins can you just talk about the puts and takes on how you're keeping on the slope.
Despite the weak topline.
If we see some growth next year, what kind of leverage do you have on the gross margin line just want to get a sense for you know some margin upside if revenues due to do recover and then separately if you could expand on inventory levels, which seem somewhat elevated what's going on there and do you expect some no access.
Wondering turnover in Fourq. Thank you.
Good morning, Paul Yes, a so we'll definitely pleased we telco Solomon easily with divorce, managing well <unk> very much focus on operational efficiency and this is what we see that although we see the headwind on the revenue and despite that we were managed to have.
A stay be a go smile gene is due to a ache measure that we took an operational efficiency as well as part of me, we owe products make say aim benefit from high end product this quarter, a which we live religion that specifically for 2020, we all know.
Yet providing guidance on on the what's going to be the gross margin expectation for next year, but we do focus all the time on only operational efficiency and and introduce more and more equal Scott can measure in DC area very important regarding the inventory we do see an income.
I used to continue increasing inventory stock.
Hey, this is definitely it blocked if they could the choice we too few quarters. The go to improve a our aim.
Inventory level at the region to be available a full timely age bands as well as improve our logistic cost and optimize our logistical can help us on the gross margin. So we do see that as well as Dan I'm not a raw materials for building inventory for 2020 ready for.
Ali and new launches in 2028. So these together a basically called the inventory going up but it's the same time, we have a in we definitely a money told that and make sure that we aim me optimize the inventory level as we actually.
A introduced new product and a phase out from some of the old product.
Gotcha, so more harvesting maybe in the back half of 2020 on inventory.
I appreciate it thank you.
Thank you I'm not showing any further questions at this time I would now like to turn the call back over to Ilan Jaglom for any further remarks.
Okay. Thank you everybody so thanks for joining.
Oil and we look forward to speaking with you or next quarter. Thank you.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.