Q4 2019 Earnings Call
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Please standby everyone we're about to begin.
Good day, everyone and welcome to the Corny Digital Ltd fourth quarter 2019 earnings Conference call.
As a reminder, today's conference is being recorded.
After prepared remarks, we will provide instructions to conduct a question answer session. At this time I'd like to turn the conference over to Kelsey Turcotte other Blueshirt group.
Please go ahead.
Thank you operator, good afternoon, everyone and welcome to corny Digital's fourth quarter and full year 29, <unk> 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 of 1995 and.
Other U.S. securities laws will be made on this call.
Forward looking statements include but are not limited to.
Statements relating to the company's objectives plans strategies <unk>.
Moving to a woman area, a projected results of operations or financial condition, and all statements that address activities.
Thanks for developments the company intends expects projects leaves or anticipate well or may occur in the future.
Forward looking statements are subject to known and unknown risks and uncertainties not beach potentially on inaccurate assumptions that could cause results to differ materially from those expected or implied by the forward looking statements accompanied actual results could differ materially from those anticipated for many reasons and I encourage you to review the companies.
Filings with the security in Exchange Commission, including the Companys Annual report on form 20-F filed March 26, 2019, which identify specific risk factors that may cause actual results or events to differ materially.
Any forward looking statements are made as of this call here up and 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 certain non-GAAP financial measures on this call.
A reconciliation of these non-GAAP measures 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 site.
On the call today, we have run and Daniel <unk>, Chief Executive Officer, and Guy I'll be gone <unk> Chief Financial Officer at this time I would now like to turn the call over to rather than.
Thank you Kathy.
Good evening and thank you for joining us on this afternoon, adding cool.
I'm very pleased to rebuild but when they need but it's group fourth quarter 2018, which got.
You have outstanding growth in full with full coordinate.
It's also marks completion.
First you Oh five year journey to become is 500 million revenue run rate business and objective we are very much on trucks to achieve.
The industry receptive he's on the growing if that's true.
It wouldn't be then take somebody fixturing into sustainable way.
As I look at everything that team accomplished in 2000 people.
I believe that thought leadership position to capture the Super duty peak continues to widen.
Twentytwenty outlook looks very promising and they believe it. These it's time for us to continue investing and accelerate though if wants because the bold in order to execute the huge market opportunity ahead before.
Before we continue without Q4 results I would like to highlight if you p. achievements. This remarkable execution you focal meat.
We delivered extremely strong financial results driving.
Great and profitability.
We successfully lounge being away do you talked last 40 people in Bristol system.
We are experiencing great then went too.
In new markets for us.
We did significantly bogus, we some of the world's leading brands.
We significantly group business, we strategic accounts, what penetrating minimum net new customers.
We accelerated our VP of business.
We scaled and professionalize Oh go to market because he Jim.
And we executed successfully on a will direct says murder in North America.
Turning to beautiful we finished 2018, when a very strong don't delivering revenue.
<unk> 8.7 million, maybe 1.1 billion Florence related to a global strategic account.
Overall, it was a very strong close to that you as business volume grew 27% doing the period driven by outstanding system sales growing momentum and direct to flopping business.
And they're very robust peak season for strategic individual account.
We continue to experience Splunk adoption at Corso HD platforms.
Our last in the 40 pool.
As many of you know the introduction of the best all the events.
And then bump in stepping cool meets direct to public stuff, the Gi and I'm very pleased with the score Weisel discord, there and if illumina feedback we couldn't do you do we see from all customers.
The DPF market represents a very large group is doing difficulty.
And with only a very small percent Oh God for Newport News, but did he said technology, but he's a significant opportunity for disruption.
Doing Dick what do we continue to expand our footprint is strategic account and engage with labs and medium sized fashion and sports brands.
A recent announcement that hence brim company gear for sports is it Oh I've been lunch 40 people doing installation frequently beat the Jeep bring systems already in production is yet.
Another example, they get bored with which we are making on helping brands extends the sustainable on demand did you does extend manufacturing capabilities.
Turning to our vision of performance, we had the spring squeamish across the board, but equally every when you look at the business, excluding the influence or for lots of contribution by global strategic accounts in Q4 last year.
Of course, but equally the KC North America was the strongest system sales growth. There is a where we can see the momentum continuing well into the new you.
The region, Oh firing on all cylinders and days, great excitement about the pipeline fill twentytwenty.
I'm also pleased to update you that effective March 10th Chuck maybe you will be joining me stuff is regional president for the Americas.
Chuck He's a seasoned executive with the Mendis experience and track record of driving says girls and operational excellence and if we look forward to his contribution.
Naturally we are closely monitoring the situation in China, and ensuring our teams and their families. At all this system that require do we meant protected and need wellbeing.
This is very unfortunate situation and we send all impacted and message of strength and hope.
As it comes through our business, we don't anticipate any material negative impacts to our topline should be situation continue.
What China is the future growth opportunity for us its contribution to our content and within business remained immaterial.
It did come to our ability to deliver products no fault products are many fixture in China.
And now only supply chain dependency is in the aereo certain raw material and dry yes, we feel comfortable but these me that this could be visibly mitigated.
Consistent with L. finish to 2018, we stopped the twentytwenty on an extremely strong leader with I says long Beach, California.
Our beautiful sparked with attendees excited about all brand new product introduction, the book loss and the storm light as well as last year's portfolio Npis, including the Atlas and 44.
Yes got them day, you with a very strong pipeline, which we expect wouldn't go slate into Q1 business volume that would've been built age of Q4.
This isn't material and exciting depreciation from a typical Q4, two Q1 seasonality.
Beyond that we had very good visibility for the rest of the year and we have currently you gauge in big expansion projects, we some strategic accounts.
The Guy will provide guidance in more detail, we are investing in that business to we like these extensions as such we anticipate that doing the first half of that you really showing modest operating margin well sit by operating margin improvements in the second half that you that's willing.
So.
In overall operating margin expansion for the four years Twentytwenty.
I've never felt better about our ability to meet all five U 500 million Runrate objective.
And as today guidance indicates I believe if we execute and make the right investments, we can even accelerate our growth on that path to dr. floor.
I want to think well cost to live and investors for the confidence and loyalty to collect and no grow both workforce for their hard work and dedication to our collective success.
Before I turn the call over to guide I would like to but certainly invite you to our business unusual event on Edwin threat defense to 20 falls in Israel, where we'd be hosting hundreds of customers BOP lives and investors.
First of its kind a conference.
This unique event will allow you to hear from and speak with Mega sports in fashion brands industry experts and visionaries in that the industry.
You will have the opportunity to meet with our executive team see out technology action and visit Oh facilities in Israel.
Most importantly, this event would be incredibly relevant for current and prospective customers as we showcased school the meat and exposure for ecosystems that we believe we create an even stronger business funded for the rest of the year.
No I would tend to correlate to guy for closure due to the numbers and no guidance.
Thanks, Ron and good evening everyone.
Before beginning the financial overview I would like to rely viewed the following discussion will include GAAP financial measures as well as non-GAAP pro forma results.
Our fourth quarter no got before results reflect adjustments for the following guidance.
Okay based compensation expenses, which totaled 2 million monetization expenses relating to the acquisitions of intangible assets in previous years, India about off hundreds and 8000.
Taxes on income in the amount of 331000.
And 376004 expenses relating to acquisition in 2019.
The company has significant operating lease liability in foreign currencies and incur foreign exchange gain or losses from the reevaluation of these liabilities.
These gains and losses may vary from period to period and do not reflect the through financial performance of the company.
For the fourth quarter Foreign exchange income associated with I guess Seif 842 were 530000.
A full reconciliation of our results on GAAP and non-GAAP basis for this quarter and for the year is available and earning press release issued earlier today.
And on the Investor section of our website.
On November 11, 2019, the fast, but you should the pay as you 2019, this zero eight which clarifies the accounting for share based payment issue to a global customer.
Did I not in exchange for a distinct good or services.
Under the new guidance entities should use the fair value based measure to calculate such incentive.
On the grundig, rather than up on divesting date.
We early adopted the new guidance as off January one 2000 and team and we'll use the fair value of the Unvested words on the adoption date, rather than upon the later investing date.
In order to determine the reduction of the transaction price.
The adoption of a few 2019 dish zero rate resulted in adjustment of 4.6 million.
To increase our Q1 to Q3 revenues.
We are restating the first three quarters of 2018, which will be presented as comparative figures into 2020 results.
Yeah, No financial statements for 2017 in 2018 will not be affected from the adoption of a ASU 2018 Dash zero right.
And when we compare the fourth quarter of 2019 with a year ago quota. We will use Q4 2018 figure is based on the old standard.
Fourth quarter GAAP revenue net of 1.1 million attributed to the no cash impact of flights issue to Amazon increased by 28.8% to 48.7 billion compared to 37.8 million in that by year end increased by 2.9% that's it.
The prior quarter.
You can find the new accounting treatment impact on warrants on 2018 results by quarters, India, earning supporting slides.
Fourth quarter business grew 27.1% year over year, 0.1% sequentially.
Revenues grew this quarter versus the previous year period, thanks to strong momentum a fluke printing systems and service business, partially offset by lower growth, so far inc. and consumables due to transitioning over our system installed base to HD technology.
Services revenues for the fourth quarter were 6.4 million net of 114000 attributable to the noncash influx of warrants.
Accounting for 13.2% of total revenues, an increase of 50.2% over the prior year period, an increase of 61% sequentially.
The amount attributed to the location, but so for us into fourth quarter was 1.1 million or 2.3% of revenues.
Compared to 2.4 million into pre this quarter and 1.4 million into fourth quarter 2018.
By geography, 64% of our fourth quarter of 2019 sales were from the Americas.
25% from Europe, the Middle East in Africa, and 11% from the Asia Pacific Region.
Compared to 57%, 30%, so 10% respectively in Q4 2018.
Our growth in the Americas were based on very strong demand for our printing systems.
Moving to customer concentration.
The global customer contributed 9.1% of our older revenues this quarter compared to 11.2% into pretty this year.
Our top 10 customers accounted for 42% off our overall revenues compared to 59% into fourth quarter of 2018.
Oh strategy to go direct in the U.S. as well as increasing customer diversification.
Contributed to the decrease in customer concentration.
For the year annual revenues for 2019 was 179.9 million net of 5.1 billion.
Attributable to the long cash impact so Florence.
Representing an increase of 26.3%. This is 142.4 million net up 4.6 million attributable to the noncash impacts of was in 2018.
The annual increase in revenues is inline with our five year plan.
For the year.
61%, Oh, five sales were from the Americas, 27% from Europe, the Middle East Africa.
And 12% from the Asia Pacific region.
Have you ever customer contributed 12.3% of our overall revenues compared to 17.1% into pretty this year.
Year over year growth by geography, without a global account was Americas, 33%.
Email, 8% in Asia Pacific 42%.
This year three point threat to set of thought sales came from China versus 4.2% in the previous year.
To align with our previous years revenue presentation for 2019.
Revenues from printing seems to contributed 50.8% read the news from Inc. and all the consumables contributed 36.3%.
And revenues from services contributed 12.9%.
Compared to 46.2%, 42.1% and 11.7% in 2018, respectively.
Revenues from printing systems grew by 38.8% while revenues from Inc. and other consumables grew by only 8.9% due to transition of our installed base to HD technology.
Looking forward the rapid growth in printing systems Red.
Accelerated growth of our installed base that is expected to generate more demand for ink in the coming years.
In addition, we believe the most age the upgrade work completed during both 2018 in 2019.
As a result for 2020, we expect strong double digit growth for our consumable business.
We expect continued momentum in printing system growth in 2020, and the related year over year growth rate to be higher than consumable growth.
Moving to profitability.
Non-GAAP gross margin in the quarter came in at 50.2 per cent compared to 48.8% into fourth quarter of 2018.
And an increase from 47.7% in the previous quarter.
Large any improvement this quarter versus the year ago quarter was the result of 68 basis point net decrease of the noncash warrant.
Increasing gross margin versus the previous quarter was attributed to improvement in product mix.
But I got basis gross margin were 49.4%. This is 48% in the prior year period, and 47% industry this quarter.
For the year, our annual non-GAAP gross margin decreased to 47.9% compared to 49.8% in the prior year due to less favorable product mix.
Well its impact on non-GAAP gross margin was 144 basis, 0.4, 2019 versus 156 basis point in the prior year.
Well they got basis, our annual gross margin decreased to 45.6% compared to 49.1% in the prior year.
Moving to up excited.
I'll discuss is item on the non-GAAP basis, which exclude non operating charges previously mentioned and highlighted in our GAAP to non-GAAP reconciliation in our press release.
Research and development expenses for the fourth quarter was 5.7 million or 11.6% off revenues compared to 5.9 million or 15.6% of revenues in the prior year.
The year over year decrease in R&D expenses as a percentage of revenue reflect robust topline growth.
This quarter, we had 380000 of software capitalization.
For the year research and development expenses was 21.1 million or 11.7% off sales compared to 20.9 million or 14.7% of sales in the prior year.
Sales and marketing expenses in the quarter was 8.5 million or 17.4% of sales compared to 6.2 million or 16.5% of sales in the prior year.
For the year sales and marketing expenses was 31.1 million or 17.3% of sales.
Compared to 23.4 million or 16.4% of sales in the prior year.
Hi, or sales and marketing expenses, both for the fourth quarter ended year, where the results of an increasing headcount and marketing activities related to our go to market transition to direct swell and penetrating of new markets.
General and administrative expenses in the fourth quarter were 4.5 million or 9.2% of sales.
Compared to 3.4 million or 8.9% in 2018.
For the year General and administrative expenses was 15.7 million or 8.8% of sales compared to 13.9 million or 9.7% of sales in the prior year.
Hi, Eric Jay expenses for the fourth quarter end, the year, where the results of increasing headcount corporate development activities and an increase in do you know insurance cost.
That count as of December 31st was 547 employees versus 440 40 employees at the end of 2018.
The 23% increase in personnel was predominantly attributed to sales and marketing and service activities.
Non-GAAP net income for the fourth quarter was 7.1 million net of 1.1 million noncash impacts of warrants or 17 cents per diluted share compared to 3 million net off the 1.4 media noncash influx of wise or eight cents.
<unk> per diluted share in the prior year period.
Non-GAAP net income for 2019 net of 5.1 me a noncash impacts affords was 19.6 million or 49 cents per diluted share.
Compared to 13.1 million instead of 4.6 million non cash impact of flights or 37 cents per diluted share in the prior year.
GAAP net profit was 4.8 million led off 1.1 million noncash influx so forth.
Or 11 cents per share on a diluted basis compared with net income of 7 million net of 1.4 million noncash impacts of foreign or 19 cents per share for the prior year period.
For the quarter, the what impact was 113 basis point on gross margin.
200 basis point on operating margin hundred the 94 basis point on net margin and two cents on a diluted basis.
For the year 2019, the voice impacts was 144 basis point on gross margin.
248 basis point on operating margin.
245 basis points net margin and 13 cents on a diluted basis.
Our non-GAAP financial income this quarter was 1.7 million, an increase of 1.3 million compared to prior year period and 3.6 million.
For this year compared to 1.4 million in 2018.
Next I'll discuss our adjusted EBITDA.
For the fourth quarter 2019 to adjusted EBITDA was 8.2 million or 16.4% compared to 5.2 million or 13.4% for the three month ended December 31st of 2018.
An increase of 3 million or 55.7%.
Net cash provided by operating activities. It wasn't 14.9 million this quarter compared to 8 million use into third quarter and net cash provided by operating activities or 15.7 million in the prior year period.
This increase in cash from previous quarter in cash was mainly a result of decrease in accounts receivable and an increasing trade payable.
Well the year, we generated 11 million this cash from operating activities. This is 33.4 million in 2018.
During 2019, we used to 4.3 million to invest in our new Inc. factory.
We expect an additional 10 million investment into first half of 2022 completing factory.
Now I'll discuss companies cash position at December 31st 2019.
Cash balances, including long term marketable securities and short term deposits at year end were 263.7 million.
Compared to 127.7 million as of December 31st 2018.
The growth is that he is attributed to 129.7 million net proceeds from secondary offering and 11.0 million cash from operation.
Even from profit.
[noise], partially offset by 5.4 million investment activities, including insect create and other equipment.
Before we moved to our guidance for the first quarter 2020, I'd like to talk a bit about the opportunities in front of coordinate.
As running has discussed.
Great deal of momentum as we enter 2020 and are well on our way to achieve our 500 million run rate revenue objective.
The market is wasteful disruption the full no so far and newly introduced product has been very strong.
As a result within now's, the time to accelerate investment into business and expand our product portfolio to capitalize on the opportunities in front of us and further accelerate our ability to take market share.
Investment across the organization will predominantly included an increase in customer facing personnel.
In addition, a 1.2 million off expenses for our marketing event into second quarter 2020.
We expect this accelerated opex investment to continue throughout the first half of 2020.
And as a result, we do not expect and increasing operating margin into first half of ticked off the year.
However, we are expecting an annual growth.
Operating margin in 2020.
No.
Moving to our guidance for the first quarter 2020.
We expect revenues to be in the range of 47 million to 51 million and non-GAAP operating income to be in the range of 2% of revenues to 6% of revenues.
As has been our practice in the past these numbers so no impact of fair value of issued warrants in that first quarter 2020.
The fair value of issued warrants depend on further future revenues from single customer, whose expected purchase cannot be predicted.
Certainty and selected.
As part of our overall guidance since we do not provide guidance for a specific customer.
I would love to transfer the call back to Roland.
Thank you guy or would that we're ready to open the call for questions.
Thank you if you'd like to ask the question you may signal us by pressing star one on your telephone keypad, if you're using a speaker phone today. Please make sure you any assumption is turned off to life signal to me just once again that star one ask a question.
So frequently.
Yeah.
Well take our first question time, Patrick Ho with Stifel. Please go ahead.
Thank you very much AG rats at a nice a 29 team running a first can you provide a little more color on your new products traction and whether you're seeing a greater or existing customer base and leveraging the new products into additional markets or are you seeing more new customer.
Her adoption of the solution and maybe just to kind of a follow up on the existing customer and given that they didn't call me customers treatments for some time, how quickly can you try and those I guess new product.
Options into volume orders.
Okay. Good question.
So regarding the momentum, we see actually great traction or mental among all the new product introduction or starting with the Atlas. We already mentioned it will be sold more than 70 units in that doing 2019.
Well, we see the woman to continue very very strong into Q1.
And the rest of they use walk us is really really working a very strongly followed by a the polypore that opens was totally new market I'm getting into many many net new customers that we couldn't reach before.
Now with that polypore, we really have unique solution not only compared to a big it does but even better than the convention knutsen Hussein that bucket.
Oh Boy School.
Is really a halt a we had a very spoke you fall well we are starting with a very strong Q1 on the west though.
Entering two totally new market.
Mainstream session. Many sectors are using eight or brands up behind the we see really accelerated goals. We have is very unique solution a best in class. A this is really only men many factoring in its sustainable way.
And we see a huge acceleration them. They said that went on this phone.
That's for the makes we see a customers.
Adopting the new AD products or some existing customer, adding on top of the Avalon shale the Avalon, adding the atlas's and also the volleyball.
We have customers they set to stay with the Avalon say, Steve. So we continue to see also gotten the evidence HD. So overall, we see very very nice and make so that all the.
Then the into mall that high in that side of the product.
Great maybe as my follow up question in terms of the services business you talked about the consumable growth on the call in terms of growth as you get more systems well into the marketplace.
At the services.
With that.
Services typically fall is all about a year. After I want you fall off or how do you see that business was 2020 and beyond.
Well, we have changed out policy regarding the corn truck service contract stopping or beginning of 2018 and actually we are sending all our products or with the corn crops. So it's a it's a it's a bundled contracts into every every sales of new.
Unit.
And we see the Inc., a major increasing calling trucks a service contracts into field also fully installed base and got the using l. system that moving into a service contracts like that or we had much better you own the recurring revenues that will come from the service a and as you can see.
You can see that they go off of the Holy over here on the service side.
And as we mentioned, we believe that 2020 would be the that we will and break even on the service I believe it or.
Great. Thank you.
Okay.
Next I'll move on to Peters asking with Barclays.
Hi, This is Peter on for kind of your out here I I want to ask about some of the product traction on on the Poly Pro you did disclose or did the number Atlas shipments that you are.
Deliberate can you give us a sense of how well the probably pros been tracking.
Compared to that and and and then followed.
Yeah, we did not disclosed the number of units we sold them to 44, I can say that we sold more than <unk> land or doing 2019.
We expect to see a major acceleration doing the twentytwenty or we are dealing with few major.
Brent as fast and access and that also spoken about leadership brands that are starting to adopt a that 44, and a will accelerate or their adoption and a business doing twentytwenty. So we expect expect this business to go classical putting a lot of that fault.
To penetrate foster in this market, we believe that I mentioned, we have a unique solution that hardly any competitors definitely look on the digital side, but also we believe that we had a very strong vertical position versus the analog side and you do they're managing advantage.
We have wouldn't this board Oh, we're pushing it's very strongly to the market and we have focused in.
We continue to go Golden market with the existing customers what are we working very closely with many Brent.
To accelerate the goal.
Great and and I had a follow up on services just specific to fourth quarter looks like you had to Oh, a record quarter and not in sales there but ER.
Would you attribute that to the new plans or is it more service on on the more industrial systems that you are selling and how would you account for that.
So it's actually all the above a one there is oh and ongoing growth in a in services. We are only three or four years ago. We started to sell services. So there's a lot of catch up on the installed base.
And what running mentioned before a it's a bundles you cannot really by a high throughput Colin if machine today.
Without committing for a four and for a service contract.
Great. Thank you.
Our next take Brian drab with William Blair.
Hi, Thanks for taking my questions first on the hiring see hired about 100 people and 2019 can you just break that down roughly give us the rough number of hires like function marketing service et cetera.
So the number 100 in Threed. This is actually a net.
We're not really breaking it down to a department, but we can't say that predominantly most of the new most of the increase in headcount.
He is related to customer facing and a and services activities.
So you can see both in if you look at it BNL.
In a touch it both to Opex and Cogs.
Yeah. It would just add that within minutes during 2019 to a truck really strong talents to organization.
Coordinate is becoming a really companies up there at trucking, many many and experience or people and into the company and a went very very pleased me said was that goes in that type of people within minutes to have movie.
Okay, Thanks, and what percentage of revenue would you estimate DTF might account for in 2020.
Maybe if system revenue or total revenue.
Well figure out not breaking it down.
We have not breaking it down between a digital video at this stage a week as I've mentioned, we can see is very strong all from the Oh, yes, Vicki GE, but is a bigger business and because he also very very strong growth in that and the DPG.
So it's great to have another Pinedale school.
But the disease continues to go very very fast so I don't think that that mix overall.
As a 70 will change much.
Okay. If it is it fair to say the than a.
DTF wasn't really material, though.
Overall results in 2019, but but would be in 2020.
Well they didn't was very but the on for Q4 results.
As fall 2020, it overall it will be material.
Okay. Okay, and then maybe just one last question for now.
You mentioned that you have some good visibility for 2020 through discussions with some of the larger strategic customers.
Do you expect that you'll have.
Any lumpiness in your revenue you move through 2020 are there any corridors that you can already tell are going to be.
Bigger quarters than others in terms of revenue or orders are kinda.
Got you know increased sequentially throughout the year.
HM no at this stage with as I've mentioned, we have a very good visibility we are working with fewer calls potentially get called on the major expansion.
Globally, and Ah, we stopped that production.
Our own both systems, and we really have a clear that action.
When we need to deliver them, a we see very very.
Very good about 2020 about a big goal and no we don't see any.
And bumpiness during the quarter between the quarters.
Okay. Thanks very much.
Thank you.
Next we'll move onto chance you know with Citigroup.
Hi, there Ryan and Guy. This is Michael can be surgeons, who makes CD as we look into 2020 would you mind, giving us some color on the depths of your brand type language, which you why weren't talking with or you'd like to work with and any expectations.
I had in converting.
Those conversations.
Yeah, so while we're walking with Ah many top tier Brent.
Both on the D.J., India, and we see engagement also for midsize brands that caused the board that caused the world or we see a goal there fuel those big ER and rents already using L. systems, you live in trials and a few that a lot of scaling up there.
Yeah businesses I recommend a used to come to all event in that bring in Israel, We will have the opportunity to see those brands and understand who is behind it and I'm sure that that will show much more information they win and doing the event.
Okay, great opportunity to as much more color on what's going on.
Okay. Thank you very much and good day.
Thank you.
Well go next to Jim Ricchiuti with Needham and company.
Hi, Thanks.
So I'm I'm trying to get a little better understanding of how we should be thinking about the investments, you're you're going to be making and 2020 years clearly starting the year.
At a much higher level and you ended.
2019, I think at a higher level that then soundless, we're expecting.
As we think about the investments you're making maybe guy can you give us any color as to how that.
It's comprised in R&D, and sales and marketing, where where where should we be thinking they have your investments are going to be.
Sales and marketing mainly.
So as mentioned before across the boards.
Parts, even higher so we've mentioned before that.
Oh, we're growing very fast and as the results were growing dollars services personnel, so that will impact cost of goods sold.
And then in terms of priority, we mentioned that before so a the number one priority for us is customer facing so it will impact.
Sales and marketing and then R&D and then DNA so.
We do expect to see a more and soon to leverage on GE and they then R&D and on the only later on sales and marketing.
Okay and the.
The support that you're providing.
Perspective customers.
And should go after.
These bigger brands.
That's a requiring more intensive.
Support that's driving some of this opex or are you.
Adding making these investments.
With the objective it just expanding the broader customer base, what I'm trying to find out is it.
Should go after these brands is the a IZEA that's been a higher and support higher.
Intensive than what is normally required.
Yeah, absolutely, yes, I mean, the the there are much more demanding in terms of ER.
Machines operation and as a result, we are investing.
More efforts.
Before the sales and during the first phase of the sale.
And in that first phase is that.
Should we assume that some of that payback.
Starts to flow through in the second half.
Of the year or are these investments really being made with the idea that you're looking for a much stronger returning 2021.
So we we also mentioned in the prepared commentary that Ah, we will see a let's say a lower operating margin in the first off but we expect to catch up ended the year, we expect increase in operating margin year over year.
Obviously, we expect 2021 to see.
More profits from the investments that we did into any 19, and we will continue to doing twentytwenty.
I'm sure the investments it sounds like begins to taper off and 2021, where you get some of the benefits a greater.
Benefit from these investments that you're making this year.
Yeah, no many regarding for one quarter only.
But when we said five years Fivefive hundred we also said, what we expect to expand margin, including gross and operating margins.
And that's still is the flat.
Okay. Thank you.
Thanks, Jim Thank you.
Next we'll take Greg Palm with Craig Hallum Capital Grant.
Hi, Thanks.
Good evening Guy running congrats on the good ended the year here.
Thank you Alex.
So I guess following up on the Q1 guidance I'm I'm curious are you assuming a higher level of contribution from shipments from your larger customers here and I think normal seasonality or I guess buying patterns.
Kind of that Q2, Q3 timeframe, but I'm trying to reconcile wrote in your earlier comments about global expansion in some of these units that are already in production.
If you want it wouldn't be mix between sets the fall VPG and get the everything we see another quote was thrown quota for this year, but it's also we'd be a mix between vigilant on account of strategic accounts that we already have.
A few expansion or.
They get expansion during Q1 with a strategic account.
But menu.
The goals have come in Q1 was coming from regional accounts and that need to come.
Okay understood and then just following up on the commentary around China and associated supply chain risks are you assuming any related impacts here in Q1 or whether that's increased lead times are tired component pricing I guess, what's the risk if factory production UBS.
Some of these components you know remains to wait here for the near future.
Yeah. So first of all we are monitoring very closely the situation in China, Oh, we have a small theme in China and a bigger team in call. We're working very closely with them, making sure that they say, they're providing them all the.
And mask and other things they need to protect themselves.
This for the first priority for office for the business, we do not anticipate any bucks a in Q1.
As a as you know China, we see China growth engine for a very important don't get them, but the short term and made it then we don't see China contributing materially to revenue and so we don't see any.
On a major impact them long selling China.
Manufacturing is being done in Israel for the systems and the Inc.
So yeah, we don't have any manufacturing in China and as for the supply chain. We are monitoring it very very closely yeah. Some components that are being made in the in China somewhat the out we are looking for all kinds of mitigation, but this is much more meet them.
Into Q2 in Q3, and we see.
Reasonably assured the thought we'd be able to mitigate although that's a fly over the coming from China.
Okay, Great and last one going back to the commentary and are kind of large scale global customer. So if my math was correct revenue in Q4 looks like it was down year over year quite quite a bit actually given how much higher install base now versus a year ago I'm, having trouble reconciling.
No I don't know maybe there was some modest contribution from systems, a year ago, but if there wasn't what am I missing here.
Oh, Yeah. Your assumption is right. When you do Q4 of the Q4 last year Q4 included printing systems as well.
And that that's actually the reason for the decline a year over year.
Okay Fair fair to assume that acts excluding those systems. So just looking at consumables it would've been up on a year over year basis.
Good assumption.
All righty.
That's it for me thanks.
Thank you.
Yes, there might not sure audiences to start running piano question or comment that Star line, well move next to Chris Moore with CJS Securities.
Hey, guys just a question on on the ink sales Guy you had talked about.
The expectations on and consumable growth.
In in 2020 it.
I was just HD transitioning slowed things down a little bit can you just repeat that it wasn't able to wasn't right and quick enough.
Yeah, So will we actually disgusted tissue only on an annual basis to what we said in in terms of ballpark numbers.
But printing systems grew very nicely year over year close to 40% in terms of business and ink and other consumables grew.
Close to 10%.
And the reason was during 2018 and 2019, we shifted most of the up.
Installed base, but installed base in terms of throughput not number of machines.
To a HD technology, meaning at the end of the day the machines are more efficiently.
And as a result, we saw dollar wise less growth.
In revenues from a inc. and other consumables.
That said because we believe that most of the absolute upgrades were done already.
We'll see a much stronger growth in twentytwenty.
At the same sentence. We also said it's going to be a strong double digit growth.
But we also expect printing system to grow even faster than that.
Got it I missed that piece alright appreciate.
Well take a follow up from Cowen <unk> company.
Just question on the M&A pipeline, you you've talked a in the past more recently, a about ER and an acquisition pipeline. Some some acquisitions you maybe looking at it looks like there may have also been some extension in the quarter associated with with some I mean, they work you're doing how does that.
Intact.
Or your overall commentary regarding.
The improvement in operating margins that you're looking at for the full year 2020 over 29 King.
Well generally we cannot really comment about that right now.
Can you talk at all about.
How active the pipeline is.
Yeah. So on the on the other pipeline we have very strong pipeline team were working for the last few months on building the pipeline.
We feel very good about what we have right now.
And they're progressing very well and I hope or in the next few months because he will be able to.
It's close to the direction, if you're thinking as we mentioned in the past a focus is mainly around walk flow solution in the market, who believes that a workflow is still pretty important a full brent.
Connecting brands with consumer.
Our work when it is providing a the production the only men production instead of going away.
They run and I think you at all so talking about potentially something and it sounds sounds like more in the automation area. There are two tracks you're looking at in terms of M&A.
No doubt fewer trucks.
One of them as well Hello. Another one is in the go to market.
And another one is are you mentioned that bothersome seem to raise automation kind of management. So in this direction as well we have a good coverage that's if you're looking.
Sounds like it's pretty active that okay. Thank you.
Thank you very much thanks.
That does conclude our question answer session. At this time I'll turn the call back over coupon is I know for any closing remarks.
Okay. Thank you very much. Thank you for joining today coal and we appreciate your continuing to think we'll make a we're very pleased with how cold. It. That's a good today and I want to things have employees for their hard work for their dedication.
So all this exciting time for coordinate.
I want to think all of you and I look forward to speaking there with all of you and to see you in Israel in day event in Israel. We didn't go to be very important though for all of US together. So looking forward to see thank you very much.
Oh.
That does conclude today's call. We do thank you for your participation you may now disconnect.
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