Q3 2019 Earnings Call
Greetings and welcome to the corner Digital limited third quarter 2019 earnings Conference call.
At this time, all participants Arnie listen only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad. As a reminder, this conference is being recorded I would now like turn the conference over to your hosts Tom Cook. Please go ahead Sir.
Thank you operator.
Good afternoon, everyone and welcome to Corny digital third quarter 2019 earnings conference call before we begin I'd like to remind you that forward looking statements within the meaning of the private Securities Litigation Reform Act apply to 95 and other U.S. Securities laws will be made on this call. These forward looking statements include but are not limited to statements related to the companies.
I guess plans strategies statements preliminary or projected results of operations or financial condition, and all statements other drugs activities events or developments at the company intends expects projects believes anticipates well on their current and future.
Forward looking statements are subject to known and unknown risks and uncertainties and our base potentially on an actor assumptions that could cause results to differ materially from as expected or implied by the forward looking statement.
Companies actual results could differ materially from those anticipated for many reasons and I encourage you to review the company's filings with the Securities and Exchange Commission, including the company's annual report on form 20-F March 26, 2019, which identify specific risk factors that may cause actual results or events to differ materially.
Any forward looking statements are made I love. This call here on the company undertakes no obligation to publicly update or revise any forward looking statements, whether as a result of new information future events or otherwise except as required by law.
Additionally, the company will be making reference to certain non-GAAP financial measures on this call. The reconciliation of these non-GAAP measures are the most directly comparable GAAP measures can be found in the Companys earnings release published today, which is posted on the company's Investor Relations.
Thank you Tony.
Good evening and thank you for joining Oh said, what that 2019 earnings conference call. Today I will provide a brief summary office strong performance in the quarter followed by some key business updates as we continue to execute on our short and long term strategy. I was then and know the cool.
Two guy to carve out financials.
We are excited do we bought our third quarter results My a record quarter for coal need do you mean desperate system sales and continuation of the strong momentum we have demonstrated all year.
We continue to live solution nice the session.
And home decor markets may fueling that position to on demand and sustainable digital manufacturing and I'm very pleased with the bogus we are making without schools, but did you.
Revenue in the quarter was 44.6 million net well 5.1 million warrants related to a global strategic account.
As a reminder, oh guidance policy assume zero impact from warrants.
This period, we experienced a significantly larger won't impact or 5.1 million compared to 1.7 million in the PEO year, resulting from increasing business volume with a global strategic account and they highest show price.
Overall, our said quote a business volume grew 26.7 per cent during that period, driven by strong adoption well for recently introduced Atlas.
Early pool, and personal systems and continued adoption of <unk> HD platforms.
During the quarter, we sold multiple outlets in polypore system is our strategic customers adopt this new platforms in preparation for the peak holiday season positioning us well for a big consumable revenue as these systems ramping up for full capacity.
We see new strategic customer, including leading brands, increasing their focus on partnering with us as they transition to digital production.
This led for example to new wins with a key players in that leisure market and the beginning of partnership was one of the lounges specialty youth apparel retail brands in North America, I'm, particularly proud to report on the phenomenal feedback we continue to receive from customers.
Well now next generation Dfc stem the Bristow.
The Bristow is a market leading singles that solution, which features our best in class Inc. and their ability to bring it to high quality on wide range of fabrics, We recently announced an important win with Boeing manufacturing and innovative leader.
In on demand personalized apparel manufacturing, which adopted the Bristol and we believe we will be able to disclose important new adoption of the Bristol in both fashion and home decor environment in the quarters to calm last month, we held a lag showcased.
The Bristol together with an echo system or Boston as well, we demonstrated end to end Michael factory and then unique industry event in New York City. This milestone event is the first time, we brought the Michael factory concept for vision to reality.
We believe textile manufacturing will adopt industry 4.0 principal and cool needs technology is an essential components to the feasibility of automation, while the Michael factory enhances the economies approximating manufacturing turning to our regional performance.
Business grew year over year in all three of our Gogo fees in Americas, we posted a record quarter as a result for new customer acquisition and expansions within existing strategic accounts, including very strong volume from a global strategic account.
Any man, we continue to see good demand as we couldn't that pipeline associated with its mom bus alone last June and.
Now before missing the Asia Pacific region was primarily driven by good momentum with key accounts in Japan.
To that and we announced the installation of duopoly post systems at the Tokyo based customer image magic.
This is an existing customer that says and mix of copel its clients, including several Japan's leading apparel brands and general consumer via an equal themselves more down.
The installation of the polypore expense image magics DPG capabilities to print on pull yesterday, and poly blends fabrics and significantly improve the efficiency over their operations.
During the third quarter, we attended over 20 regional in specialized shows across the globe, resulting in an impressive increase in leads and opportunities. We also continued our successful watches activities across North America, where we bring out technology to centralize an excel.
Miscible location for prospective customers to experience last month, we participated in printing, United which took place in Dallas. This year was some industry peers reported slow overall traffic at the show our booth was busy and it was one of our most successful.
Renting United shows, which translated to orders and letter of intent receive for a wide range well systems.
At this event, we showcased puneet connect Oh powerful cloud based software analytics platform, which was introduced last June . This was the first time, we showcased the software in the large North American show and no Kras domain prospects were excited to Len and both the productivity benefit.
With that can be delivered to their operations and event. We also showcased the presto polypore Atlas installed HD systems.
And the exhibited and not their life production in collaboration with Adidas.
During the quarter, we were very active in strengthening our global workforce, adding 31, new team members many of which I mean customer facing sanction. In addition today. We are also formally announcing some exciting announcement to our corporate structure around.
Two main theme customer success and scalability fast we're strategically realigning our business with all regional presidents reporting directly to me and now parts of the company's executive management team.
This brings the voice of the customer across the region closer to the day to day focus over the entire executive management team and will improve cross functional enhancements as we continue to scale. The business second we are also increasing our go to market focus by adding dedicated teams.
Of course fashion sports and online customized design. We believe this will be a boost to our business as we continue to shift from equipping the provider to a strategic solution provider and bulk now with the world's leading brands as part of this organization alignment after all.
Almost four successful is with coordinate the lobby alone our SVP global business will be leaving coordinate.
The strong business and go to market. The infrastructure that we are now scaling is a product of his hard work in the last few years together with a very strong teams. He has built.
And we are grateful for his contribution and leadership Gilad will be transitioning is kind day to day responsibilities by December 31st 2019 to assume few strategic initiatives for coal need until his final departure in App will next year.
As we focus on scalability, we are creating a new chief commercial officer function and a few days ago. We welcome to seasoned executive for our team Mrs. Jacobs Glassman will assume responsibility for all our customer success function, including service so both pre and.
Our selves, Jason will also assumed responsibility for managing of global strategic accounts team and will be responsible for global says operation, We scalability mind Jackup vast international experience in operation sales broader distribution and customer service across multiple industries will be.
Huge assets to coordinate as part of this important alignment I'm also pleased to announce that we have elevated koby man hour VP of consumable in application to the newly created position of Chief Technology Officer, alongside his calendar responsibilities as one.
The first employees of coal neat and then industry grew cobiz uniquely qualified to lead this effort and we are grateful for his years of service and expertise.
In total we believe this alignment will strengthen our company as we continue to focus on customer success and scaling our business and operations.
To summarize we just a couple of months left in 2019, wearing a very strong position to deliver on all the goals. We laid out last fall we are going inline with our long terms calls our new product introduction now enjoying widespread adoption.
We are penetrating new markets and leading brands.
And have enhanced managerial go to market and operational platform to scale the business.
We're also making progress on adding adjacent products services and software solutions like they commit connect and has been very active in identifying a pipeline of M&A opportunities that can expand our value proposition.
The combination of all these factors leaves us well position to deliver on our business school of being a 500 million run rate business by the end of 2023 I want to thing all our customers and investors for the coffee denson loyalty to call meat and now.
Global workforce for their hard work and dedication to our collective success.
Now I will turn the call over to Guy foreclosure look to the numbers and no guidance.
Thanks, Ron then and good evening everyone.
Before beginning the financial overview I would like to remind you that the following discussion will include GAAP financial measures as well as non-GAAP pro forma results.
Our third quarter non-GAAP before results reflect adjustments for the following items.
Based compensation expenses totaled 1.8 million.
Total amortization expenses relating to the acquisition of intangible assets in previous years in the amount of 249000.
Texas on income related to non-GAAP adjustment in the amount of minus 62000.
Noncash deferred tax benefit in the amount of minus 347000.
It is Asian expenses relating to the acquisition of parishes intangible assets of 78000.
The company has significant operating lease liabilities in foreign currencies and incur foreign exchange gains or losses from the revaluation of these liabilities.
These gains and losses may vary from period to period and do not reflect the true financial performance of the company.
This quarter foreign exchange losses associated with a SD 842 were 242000.
Full reconciliation of our results on GAAP and non-GAAP basis is available in the earnings press release issued earlier today and on the Investor section of our website third quarter revenue net of the 5.1 million warrants impact increased by 18.6% to 44.6 million versus.
37.6 million in the third quarter of 2018 and increase 1.6% sequentially.
Third quarter business to grow 26.7% year over year and 7.4% sequentially.
Revenues grew to record levels this quarter, driven by robust demand for our new high throughput product as strong demand from our strategic global partners, especially in North America.
Services revenues from the third quarter were 3.9 million net of 0.2 million warrants impact accounting for 8.7% of total revenues.
The decrease in revenues of 8.3% year over year, a 35.6% sequentially was predominately driven by lower revenues from upgrade to HD technology.
The noncash impact of warrants in the third quarter was 5.1 million or a 10.3% of revenues.
1.7 million or 4.2% of revenues in the third quarter of 2018.
And 2.4 million or a 5.2% of revenues in the second quarter 2019.
The sequential increase in words impact was mainly attributed to higher share price higher revenues from Amazon and accelerated vesting.
Details of the warrants impact on revenues and margin for this quarter versus the prior quarter and the previous year are included in slide number 17 18.
Additional information regarding the Amazon warrants agreement is available in slide number 19 by geography, 61% of ourselves or from the Americas, 27% from Europe , the Middle Eastern Africa, and 12% from the Asia Pacific region.
As in previous quarters. The America remain our largest territory Asia Pacific revenue in the third quarter showed continuous impressive growth of 51% year over year and 60% in the nine month of 2019 over the prior year period in their revenue increased by 2% over the prior period and it.
This 8% sequentially.
Moving to customer concentration, we continue to diversify our customer base driven by the success of our go to market transition as we go direct to our customers. This quarter, we had two strategic customers that exceeded 10% of revenues.
Global customer contributed 15.3% and another strategic customer contributed 12.9% of our overall revenues compared to 19.8% and 1% in the prior year period.
Top 10 customers accounted for 53.6% of our overall revenue compared to 60.2% in the prior year period.
Moving to profitability non-GAAP gross margin in the quarter decreased to 44.5% from 51.1% in the prior year period and 45.9% in the second quarter 2019.
Lower margins this quarter versus the third quarter of 2018 were mainly the result of 5.1 million or 574 basis points warranty impact on a GAAP basis gross margin in the quarter was 43.8% versus 50.3% in the prior year period.
42.5% in the second quarter of 2019, two two and L. seasonality, we expect the fourth quarter versus third quarter product mix to lean more towards Inc. and consumables moving to our opex items.
I will discuss these items on a non-GAAP basis, which exclude non operating charges previously mentioned and highlighted in our GAAP to non-GAAP reconciliation included in today's press release.
Adjusted Research and development was 11.8% of sales or 5.3 million compared to 12.8% of sales or 4.8 million in the prior year.
In the third quarter of 2019, we capitalize certain qualified software development costs related to external vendors and independent contractors in the amount of 0.2 million.
We expect additional zero point Threemillion software development costs capitalization in the fourth quarter of 2019.
Sales and marketing expenses in the quarter were 7.1 million or 16% of sales compared to 5.9 million or 15.7% in the prior year period.
The increase was driven by additional headcount.
General and administrative expenses in the third quarter were 4 million or 9% of sales compared to 3.6 million or 9.6% in 2018.
Head count as of September Thirtyth was 515 employees.
31 employs more than the previous quarter.
The growth in headcount is mainly attributed to operation functions.
Engineering and customer support to strengthen our infrastructure.
non-GAAP net income for the third quarter was 3.9 million or nine cents per diluted share net of 12 cents warrants impact.
And it creates a 0.9 million versus the prior year non-GAAP diluted earning per share without worrying impact increased by two cents over the previous year period GAAP net income was 2 million or five cents per share on a diluted basis compared to net income of 3.1 million or nine cents per share.
For the year ago quarter non-GAAP financial income this quarter was zero point Eightmillion as a result of accrued interest of cash investments GAAP financial income. This quarter was zero point, sixmillion cash balances, including bank deposit and marketable securities at quarter end were 250 point.
4 million compared to 110.9 million as of September Thirtyth 2018.
Next I'll discuss our adjusted EBITDA.
For the third quarter 2019, adjusted EBITDA was 9.5 million compared to 7.5 million for the third quarter of 2018.
An increase in adjusted EBITDA of 2 million.
Net cash used in operating activities was 20000 this quarter compared to 4.4 million in the second quarter and that cash provided from operating activities of 11 million in the third quarter of 2018.
In the third quarter DSL was higher than the previous quarter, and we expect it to return to normal levels in the fourth quarter turning to our guidance for the fourth quarter of 2019, we expect revenues to be in the range of 46.5 million to 50.5 million.
And non-GAAP operating income to be in the range of 14% of revenues to 17% of revenues.
As has been our practice in the past these numbers assume no impact of fair value of issued warrants in the fourth quarter of 2019.
As a reminder.
The calculation of warrants fair value is based on the combined effect off.
Estimation of future revenues from Amazon future Kornit share price in unknown dates.
Future stock volatility as well as other variables that currently are not predictable and some of which have no correlation to our business.
Since as of today, we're not able to predict is variables will assume the word the impact at zero value for guidance purposes only.
I'll now turn the call to running.
Thank you Guy now we are ready to open the call for questions from the audience.
Thank you at this time will be conducting question answer session. If you'd like to ask a question. Please press star one on your telephone keypad confirmation Tono indicate your line is in a question Q. You May proceed start to if you'd like.
From the Q for participants using speaker equipment, it may be necessary to pick up your handset before pressing the star Keith one moment, please probably poll for questions.
Your first question comes from the line of Tavi Rose.
Barclays. Please proceed with your question.
Your next question comes from line of Brian Drab with William Blair. Please proceed with your question.
Hi, Thanks for taking my questions congratulations on another good quarter.
Just.
Gross margin.
Just make sure that I understand the dynamics here and see if you could add any more color. So.
<unk>.
You said mix was a headwind in the quarter.
I'm wondering.
While we would be.
Down still 300 basis points year over year. If you also have a positive effect going direct in taking her shot of the mix you know that should be about a 300 basis point tailwind. So if you.
Just for that.
Gross margin is down even more.
Five 600 basis points year over year.
I don't want if you just talked about.
How significant this mix shift and specifically are you seeing.
Degradation gross margin and systems or are you seeing degradation gross margin and consumables at all.
So as we said in the previous calls that we expect the second half of the year to be above 50% and we were above 6% without the warrants impact.
We mentioned before and we still face it in the last quarter.
We launched three new product and gross margin is not perfect from this product yet due to ramping up.
We mentioned the fourth quarter in terms of.
Product mix as usual due to seasonality.
The fourth quarter is characterized with more inc.
And as a result, we expect gross margin to behave.
Better.
So I'll just try to one or more comments looking forward.
So we see gross margin improving as we discussed on previous calls calls.
So we continue to sell more high end products.
The mix is favor in terms of gross margin.
I can see the growth coming also from impressions on the supply side expecting in future quarters to see an improvement on the gross margin.
Well the points, we ought to be.
Okay got it. Thank you and then just to clarify that the new.
Products and their impact on the gross margin I was under the impression that the poly pro would be.
Pretty immediately accretive or you know a tailwind gross gross margin.
The Atlas in the press felt better weighing on gross margin somewhat as those ramp.
Oh the main issues on the gross line is more on the.
Ramping up of those systems for is more on the service and support side.
And this is why you see a deep into service side, which impact overall gross margin.
Last on the it's not on the England at all and on the out.
A bit on the other because we are still ramping up the production.
On all both we and machine, but it's.
More on that on the services.
Eventually as we said before Brian .
Each product.
We carry high gross margin then.
Product before the Atlas.
I will carry a higher gross margin that you have large and so is the press the versus the Allegro.
As mentioned that takes some time to wrap up.
Okay and my last question just to be clear the poly pro than terms of gross margin on the system itself.
It's not.
Im not in line with or it's below.
Gross margin for your your systems is that.
Fair as it ramps.
No no to that.
Right.
Yes, correct.
Okay.
All right I'll take the rest of my questions offline. Thank you.
Thank you right.
Your next question comes on line of Tavi Rosner with Barclays. Please proceed with your question.
Yeah. So this is Peter on for Tavi I apologize for the technical difficulty earlier.
My question was around was was around strategic accounts and specifically the seasonality.
Now now that that you have more.
More.
Counts in the mix, especially large ones.
How should we think about.
The the prior seasonality in the fourth quarter in terms of mix of systems and consumables.
So we have.
Seasonality and we see very clearly this use of strategic account ordering system, mainly in the second and third quarters.
So we hardly we'll see is any of our top strategic ordering in the fourth quarter. So it's more medium size and small sized accounts ordering systems in the fourth quarter. However, the fourth quarter is always the peak season for entire installed base and definitely for key strategic it.
Cones, and so we'll see a mix favorable mix into the supplies and overall impression from our installed base in Q4.
Thank you and and and and if I could have a follow up.
Is.
With that.
Should we expect that to filter through on the services side.
On the services side, we expect no no mulled behavior I'm doing the peak season.
Thank you.
Sure.
Your next question comes on line of Greg Palm with Craig Hallum. Kevin. Please proceed with your question.
Hey, guys. This is Dan here John for Greg today, Thanks for taking my questions.
I'm, just starting with Amazon revenue I guess, just the breakdown I was wondering if any of that revenue.
This quarter was from system contributions and if there was that Arizona.
Existing facility expansions are possible facility openings.
It would be helpful.
So as you know unfortunately, we cannot relate to a specific customer business and mix between hardware and supplies.
Business with all this strategic account specific was the global strategic account is very very strong Oh, you can see it was the woman's as well being broken the warrant.
So the relationship is as as best as ever.
And we see great momentum momentum moving forward.
Alright, Thanks, and then I guess looking back at the three big product introductions earlier. This year I guess just break it into two categories. How much of that revenue has been driven by existing customers and I guess and how much is that all that has come from new customers and how are you kind of seeing.
The adoption and ramp up.
New systems differ between those two.
The great questions I don't have exact number what we say is about 50 50 between existing to two net new and.
The difference is with.
With the poly pool, and that breast or would say small tending into net new customers that we're penetrating net new brands that we're penetrating some of them big accounts some of them midsize account, but we see the shifting to net new accounts on the last I would say small tempting to a I'll comment installed base.
Now, adding additional capacity, but we see also net new starting.
With the Atlas as well.
All right. Thanks, then just laughed last one from me in the APAC region are you seeing any impact macro volatility going on in Hong Kong region I'm not sure. If you can quantify how large that area is and the APAC region. If you are seeing any impacts.
Domain business in Asia Pacific countries focus on and Japan, South spec and Korea, and China of course and less in Hong Kong why do we have the headquarter in Hong Kong I'm more all businesses outside of Hong Kong. So we don't see in.
Impact directly on our business.
While we do have an impact on the team of course, you know going and we are taking care very closely on what's going on there and contact with teams in supporting them.
We see a very very nice growth coming out of Japan.
And we see a real adoption both for our new products.
Like the polypore a into Atlanta, but also to existing board.
Alright, great. Thanks, guys.
Your next question comes from line of Jim Suva with Citigroup. Please proceed with your question.
Hi, Thanks, very much could you just.
Topic, a little bit about.
Margin pressures in the product ramping and maybe it's just because I'm not the smartest push them almost call, but you can help me understand the pressure is kind of like the duration that youd expect.
Yeah, sure Mark ramping into kind of like three quarters or should we think about.
They're kind of haulage cost, while you're always going Benton, having come on so why wouldn't it be kind of more steady stayed about ramp headwind layering awfully efficiencies on Q.
It's not it's not.
Margin pressure due to competition, we mentioned that before that we will see a.
Gradual increase in gross margin, we said, it's going to be above its send into second half a we also mentioned in the fourth quarter due to seasonality, we expect even better gross margin.
Not every year, we launch three very material product.
And the gross margin.
Relative decline here is actually due to a cost of good not no revenue.
But we already see an improvement for example, the cost of goods on the Atlas and it will start to see the positive impacts and Oh losses, or we are selling it in big quantities of so we will start to see an improvement in gross margin in coming quarters.
Thank you so much for the details it's greatly appreciated.
Thanks, Jim.
Your next question comes from line of Patrick Ho with Stifel. Please proceed with your question.
Thank you very much Oh, it's encouraging to hear that you customer traction for a lot of you products, which I think highlights.
Our ability to grow top line over the next several years can you give a little bit of color on the type of buys on what I mean by data is are these new customers buying you know maybe one or two systems. Initially tried I don't want to evaluate the system and you'll see these multiple system by down the road they increased capacity or are they.
Really starting off at a a kind of multiple system by.
Once they see the product.
Oh, so it's there's no one clear answer for that this is different from customer to customers sensing segment two segments, if you're referring specifically to the brands what we can see on the brand side, we see.
Big size brands really the biggest size brands and also the midsize brands.
Going into only men manufacturing needing a call need solution will walk you very very closely with us usually those brands, starting with Oh fuel system, one or two system evaluating starting it by lot.
And then they're going to full capacity and going.
So we are in a stage with different brands in defense or evaluation in some of them, we'll move to ready to wear to full production and that scaling up some of them in early stage of evaluation.
As for customers.
And there's all kinds you know we have dates up all in Japan that I mentioned, its a and new customers that are it's focusing on on a fully ask the and started with a with to.
Who need to polypore Ah, we see customers that are starting with multi well atlas's, but usually.
Starting with one one or two units I'm thinking for about six months up to one years scaling the business and then increasing capacity.
Yeah.
Great that's helpful and maybe as my follow up question given your strong growth in Asia Pacific region.
Coming from any one specific product, where you really seeing strong traction or is it very broad brace across all your or your product line.
Its a cross I would say all product line I'm more on the midrange I'm on the Avalanche H D. Avalanche HD has a great traction in Asia Pacific that polypore, specifically in Japan is doing fantastically.
We start to see more adoption of the Atlas is a course Asia Pacific. So is it all falls away product portfolio.
Great. Thank God.
Thanks, Patrick Thank you.
Your next question comes from line of Jim or do you with Needham and company. Please proceed with your question.
Thanks, just question on the service business and thanks for a little bit of color on that or the decline that you're seeing I mean, clearly you had a strong comparison a year ago, but the H.D. upgrade I mean, how should we think about the service business and the profitability that you're trying to achieving that.
Yeah.
It sounds like there's two factors number one on the revenue line, but also number two on the fact that you continue to have to increase sales and support. So as you guys have talking about targeting bringing that business to break even when do you see that occurring.
As we said in the past, we still expect breakeven in the services need 2020.
Okay.
Question on the Oh.
On the brands and I know you can't disclose customer.
Kennedy's in most instances, but.
There are way for you to give us.
So a better feeling for how many of the brands you penetrated thus far whether it's in this past quarter or year to date.
Any color along those lines would be helpful. Because it does sound like you're getting traction both with with Atlas and poly pro with the brands.
Oh I can say that really has a great traction with Brent and this is only the starting point I cannot relate to specific numbers and names other than Adidas that we already mentioned this is the second time that we're doing demonstration lived almost.
Research and together with Adidas and a second time, we did not win in United print and month ago.
But with as I mentioned before we have midsize brands that and buying out with equipment, a with big size brands that at some of them buying themselves and some will then walk. It was therefore feel is it directly with us buying.
I'll systems. So there's a lot of Tractions I can tell you that we are working in parallel on multiple.
Yeah, Hey in multiple projects exciting projects on a global land base.
And if I may last question for me.
In Europe , it looks like in EMEA region, you showed growth, but it was for it looks like fairly modest and I'm wondering if you're seeing any sign of any kind of macro related weakness that might be.
Resulting in some hesitancy on the part of customers there.
So actually we see a very nice growth in Europe was something that their misleading last year to think what do we have a big deal with a global account in Europe that the this is the reason why you don't see over it was a very strong quarter for us last year.
Although the business in Europe is doing very well, we quote that a very strong talented team there.
We have the momentum out of it tomorrow that funnel looks strong entering Q4 with a with a strong pipeline. So we feel very comfortable confidence about the our European business and we don't have real slow down like in other industries.
Sure clarifying that thank you.
Your next question comes from line of Chris Moore with CJS Securities. Please proceed with your question Hey, Good afternoon, Yeah, maybe more of a big picture question I mean.
2019, obviously, it's been an exceptional year of rolling out new products and platforms.
When you look at the 500 million dollar run rate goal for 2023 does it assume.
Additional significant additional new product rollouts or does the kind of existing base really get you there.
First of all we're tracking as you mentioned 2019 very well on on the direction for the 500 million run rating 2023 and at this point of time, we feel very confident that we will continue disruption in the coming years.
And the growth is coming from different areas won his phone the cotton and a new portfolio that we just released a we just stopping the golf on the Atlas. We just stopping that goes on the only pool in the west or we just released it and we have great great traction on on the pistol so each of those products.
Will bring a AG Wolf of course, we will continue to innovate and bring new products and you a new solution or two different market in the coming here. So we're building the growth also on new system that will come in the coming years as well major goals is coming from you segments that we had entered.
The brands are the big Big growth engine for us a working directly with the ban now we can really so we have a solution that meet the needs for the brands. We can see all the brands are moving too.
On the man manufacturing that talking about it the oil them Oh, okay boats as a sustainable production and the way to do own demanding sustainable way is really using digital manufacturing and coordinated the only solution that they have to date in the marketplace.
And so this is a major both was also a penetrating that Paul yes, there, which is 20% of the global.
I am apparel market is about is well, yes. There's all this is a new market for us.
And now we see we continue to see huge schools.
From the online segments or we can see new players that coming into the online and existing play a growing really really fast both on the global strategic account, but also midrange a key accounts going very very fast on the it online and production.
And they lost segment is promotional items, we can see as well there was penetrating due to net new screen printers, but focusing on the on the promotional item. A this is another growth engine on top of all of that we of course, a working very hard.
Don't work flow and other solutions that we are bringing around those systems, a anybody would start to see goals in this direction and he meant next deal and a the last point is really the goals of coming from expansion will fall teams fit on Street, Oh, we were very very small steam sell.
During that first all saying the DPG I'm now we're starting to have much better coverage with steel I'm missing coverage in many a potential big potential territories, and we will continue to expand.
Our team and services into go through come also form we go graphic a extension.
Right I appreciate it.
Thank you.
As a reminder, if you like task any follow up questions. Please press star one on your telephone keypad as a reminder, if you'd like to ask any follow up questions. Please press star one on your telephone keypad, one maam. Please as we pull for more questions.
Your next question is a follow up from Brian Drab with William Blair. Please proceed with your question.
Hi, Thank you or take a quick break from emailing back and forth with the data Aggregators trying to clarify what your real earnings result was.
$20 back and forth already.
Regarding the warrants.
My last question. It's just if you look at next year, because I know that.
Third quarter call November and we're all trying to model 20 funny.
So far.
We announced thrown in the target at the 500 million and you know that that requires 25% to 30% revenue growth you're delivering on that.
And if your to do that and 2020.
Which I assume its is roughly the plan.
What kind of growth rate would you expect for operating expense.
Relative to revenue growth is this a year 2021 revenue growth will far exceed operating expense growth as well as loblaw for or is that investment in the team going to continue significantly under 2020.
So.
Brian first as you know where talking about next quarter only.
But since you mentioned the warrant a before.
So just to let you know that are on November 29, if you'd actually very recently financial accounting standards Board the a fast b shoot.
Final guidance that require entities to measure and classify SBC should become compensation.
And our granted to customers in conjunction with revenue arrangement and are not exchange.
Four distinct good as services in according with S.A.S.C. 718, what it means actually.
That ER.
It's got to be much easier for us and for you guys to predict the words, but.
In the future.
The this new standard is actually going to be effective next year, but management Oh can have an early adoption.
It is permitted based on the 60 780, and obviously, we will give more data into future regarding.
The warrants.
We will be able to discuss your though opex of 2020 leverage and other things in the next school.
Okay. You can't you what you want even go Directionally.
Above or below revenue growth that's point started a push on that.
Very helpful.
Hi. This is one that mentioned when you look back and when we guided for a five 500.
You could imagine some cagar and a this quarter the cagar was above 26%, which means we're.
Are on track or above truck actually.
That's the flat.
Okay, all right. Thanks, very much as Phil the Opex as when we mentioned in the past and we will continue to go.
To the 500 run rate in 2023.
While improving on gross margin and improving operating profit, okay and doing disappeared. So you should see continued improvement on the operating profits as well.
Okay, Alright, thank you very much.
Thanks, Brian .
Thanks.
[noise], ladies and gentlemen, we have reached the end of the question and answer session and I would like to turn the call back to Ronan Samuel for closing remarks.
So thank you everyone for joining on today's call a again I would like to think oral fall employees for their hard work in the vacation.
And now customers for the continue support and finally for investors for that thrust they have been calling it I look forward to updating everyone. I don't know fourth well that cool and I wish you have advent beautiful and good evening. Thank you very much.
This concludes today's conference you may disconnect your lines at this time. Thank you for your participation.
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