Q4 2019 Earnings Call

Greetings and welcome to the three D. systems conference call to discuss results a fourth quarter and full year 2019 minus cabinet siltech.

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My pleasure to introduce your host Naughty Solomon Investor Relations. Please go ahead.

Good afternoon, and welcome to Threed Systems Conference call with me on the call our Vms Joshi, our President and Chief Executive Officer, Todd Boots, Executive Vice President and Chief Financial Officer, and Andrew Johnson, Executive Vice President and Chief Legal Officer, where kids portion of this call contains a slide presentation that we refer to during the call those following along with.

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On a comparable period of 2018, no actually it's a turn the call over to the M.S. Joshi our CEO.

Thanks, Matt let me.

Good afternoon, everyone.

2016, I shared my vision and strategy.

Oh training systems would be.

Any production real.

Just wondering quiet.

Some of the collaboration and innovation.

Experience and expertise.

Our people that's driving force.

We demonstrated last fall that fall next in Germany, how a lot of digital manufacturing solution strategy has come along with customers. Realizing the benefits support production solution [laughter] golf is range all industries in putting health care.

Then though.

Oh space.

Automotive and durable goods.

Oh, the company has a unique ability to architect solutions [laughter] to customers need three combination of brain Tony materials hardware platforms.

Well and professional services, creating a box for degrading any deal into traditional production in Wyoming.

As a result menu cracked it was not able to achieve design freedom.

Ladies and Judy.

Scale production.

Improve overall total cost of operations.

Oh, the customers not accelerating.

No.

I didn't do manufacturing.

And that Jeremy doubling from no experience to using any new manufacturing as a sustainable competitive advantage is wet cleaning systems can help.

Well the last three years.

And it's been a sharp increase in using I think you manufacturing for functional parks.

According to <unk> Global report.

18, plus then those companies out using added do manufacturing insignia production.

So yeah crossing the chasm.

We bought no.

Customers to help them progress to them and they do manufacturing journey and accelerate their up show every deal within that existing production environment.

This process begins with the customer that vacation in mine designing the best possible solution.

To achieve that it needs and successfully address challenges.

Customers are encouraged to begin the added deal manufacturing journey.

By engaging with one off of <unk> testimony innovation centers.

Yeah.

Customized production was most solution will be designed to excellent into that one of my dog advanced applications.

For Whiting customers with access to solution domain expertise and state of the our technology.

We have been working closely with our customers who finds the right production workflows and last year more than 200 million production parts that produced by our customers using training system solutions.

Turning to the highlights of 2019 <unk> commitment to operational excellence.

Mean keenly focused on cost structure in cash flow.

2019, we lowered the operating expenses by 9% driven by cost cutting and improving efficiencies.

So organization.

We expanded our relationship with Semina <unk> glued most of our plastic printer manufacturing on top of the existing arrangement for figure for production.

It's pretty wide this medium on cost model, while ensuring world class manufacturing proficiency.

We generated.

The 1.5 million dollar of cash from operations in the fourth quarter 2019, Anthony So don't be Bloomin seemed working capital, including Bland invented introductions.

We will stabilize the company and strengthening the foundation on which to scale and grow.

We introduced a 14 new.

Production, but do you know team 2019, and we now have a 133 D printing materials available.

I'm very pleased letting the second half of 2019 returns to growth in materials.

I want to healthcare business is strong and excluding a lot of major enterprise customer health care grew 10% in 2019.

Turning briefly to the fourth quarter results.

Total revenue in the fourth quarter wasn't kind of $64.6 million.

I think a decrease up 9% materials grew 7% or the same quarter last year.

GAAP gross profit margin was 40.6% and non-GAAP gross profit margin was 40.8%.

Many boarded GAAP loss of four cents per share and non-GAAP earnings of five cents per share.

In 2020, Yep boys to grow profitably.

Metals, we'd be able to grow top but you need in 2020.

We are on track to begin shipping.

Three metal platforms in April.

[laughter] healthcare.

Do you used to really important area of focus for the company.

And we expect medical device manufacturing medical simulators and professional services you know what how good of business continues to grow in 2020.

We have incredible softwood assets and without a new product introductions and go to market enhancements, we look start growing software in 2020.

We remain focused on profitability and cash English.

We have built in foundation.

Mitch just galan girl MBS structuring the company.

<unk> lean and profitable.

Todd will now provide more details on or what do those for the fourth quarter 2019 Todd.

Thanks, BJ good afternoon, everyone.

For the fourth quarter, we reported GAAP revenue of $164.6 million it decreased 8.9% compared for the fourth quarter 2018, and a 7.3% decrease when excluding the entertainment business.

<unk> gross profit margin was 43.6% compared to 45.7% in the fourth quarter of 2018.

GAAP operating expenses decreased 14.6% to $76.5 million reported a GAAP loss of four cents per share in the fourth quarter of 2019, the same doesn't fourth quarter 2018.

We reported non-GAAP earnings of five cents per share in the fourth quarter of 2019 compared to earnings of 10 cents per share in the fourth quarter of 2018.

Printer revenue decreased 22.8% to $33.6 million due to the delay in factory metal printing shipments the ordering patterns of a large enterprise customer and the softer macro industrial environment.

Materials revenue increased 7.3% to $45 million in the fourth quarter.

Health care revenue decreased 5.9% to $54.9 million.

On the man manufacturing revenue decreased 17.2% to $23 million in the quarter attributable to the decline in the manufacturing activity and the impact to the pipeline now resolved governments suspension.

Software revenue decreased 10.2% to $25.8 million into fourth quarter, primarily due to weakness in the European automotive market and overall industrial manufacturing.

In the first quarter of 2020, we're stuck in a typical seasonal decline further impacted by the broader virus outbreak in China.

We reported GAAP gross profit margin about 43.6 person in the fourth quarter of 2019, non-GAAP gross profit margin in the fourth quarter of 2019 was 43.8%.

The results were impacted by factory utilization next any inventory adjustments, we expect gross profit margins remain in the mid Fortys ranch in 2020.

GAAP operating expenses for the quarter, where $76.5 billion, a decrease of 14.6% compared to the fourth quarter of 2018, including a 10.3% decrease in Estonia expenses and a 27.2% decrease in R&D expenses.

Non-GAAP operating expenses in the fourth quarter were $66.4 million, a 12.3% decrease from the fourth quarter, the prior year and a 4.2% decrease sequentially.

Compared to the 2018 quarter non-GAAP adjusted <unk> expenses decreased 5.7% to 49.2 million non-GAAP R&D expenses decreased 27.2% to 17.1 night.

Non-GAAP operating expenses decreased due to continued focus on reducing cost structure and favorable timing of customer funded research and development.

We ended the quarter with a harder to $33.7 million unrestricted cash regenerated $21.5 billion in cash from operations and pay down debt by $10.8 million during the fourth quarter.

Working capital performance improved sequentially, as we reduce inventory by $11.6 million to $111.1 million.

Well cash used in generation will continue to fluctuate period to period, we're very pleased with the cash results for the fourth quarter with that I'll turn the call back to BJ VJ.

Thanks Todd.

Well, we've begun Q anyway.

I don't know me, a common and what might blonde retirement.

Join genius systems 40 years ago.

And have worked with the team to improve our product portfolio business philosophy cost structure in culture.

We made a lot of progress on quality and reliability and our net promoter score improved to 65.

You exit can do that does it doesn't manufacturing solution strategy encompassing the whole portfolio and our customer engagement model, including our customer information Center <unk>.

<unk> guiding to what customers through the journey on any new manufacturing with training systems.

I feel confident now that we have the right brought it seemed plays in the right team to execute our growth strategy.

I'm committed to working with the board.

To find him.

It'll be a successor.

And will remain in the wall in their transition.

I want to take this opportunity.

Thank you all know what employees and customers for their loyalty and dedication.

As we work through the recent done around three D. systems.

Continue to believe that our focus on I know what made you production solutions.

Morning hardware platforms, but do you feel software.

And professional services will drive profitable revenue growth in 2020.

And with that.

Well now open the floor for questions operator.

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Our first question to me is coming from Greg Palm from Craig Hallum Cobre.

It is not life.

Did your Todd good afternoon, congrats on the nice and to the you're sure.

Great Great Yeah, no. They feel good about especially you know although earnings per share performance and the cash I'll. Let me have no operating cash that we did $21.5 million, but that's the question yeah.

Good I mean, I guess I'll start with your VJ.

Any way to do trail out some of these headwinds you saw in 29 gene on the topline you know whether that was the lack of of metal shipments the export compliance slower system shipments in your enterprise customers, you seem pretty confident and the ability to return to growth this year a company.

The wide so I'm just trying to get a sense for you know what was your company specific had once you're faced last year.

Thank you talked about all three so the focus is of course the metals you know we had two I'm feeling shipments.

The second quarter of 2020, and I think as we talked about you know we are very confident now that we will start shipping in April.

The second one of the enterprise customer you know they were building the factory in China. They had you know really ask what a lot of hardware shipments since 2018, which was an armed.

The same level in 2019, so that was the second one so not having that's behind us.

We should be able to no no looking at the real growth.

Our plastics Brinderson also let me be happening in 2020, the third thing is the whole export compliance issue.

Not only back there number one OEM business, but lot of over business, especially with the suspension that's behind us and 'em, we should be able to start growing.

The OEM business a bit you know.

Right I don't know they.

Focus on the go to market, but it'd be out having on OEM business is gonna be a third of an important part lastly software me had lot of headwinds in 2019 in the software business because of the automotive segment in Europe and the.

Oh, you know the industrial manufacturing segment was down so getting that software now the growth spot. They know what a new product introductions and we have no focused go to market under remain baby for health care and swamp could it will also make a big difference.

In 2020.

The other important thing that I want to stay in you know what health care business as I talked about you know if you take the enterprise customer out in 2019 grew 10% and will continue to grow our medical device manufacturing business, although simulator business and have a virtuous physical planning but.

So I feel very good about.

There's some of the headwinds I'm not going to be there in 2019 of course, we need to be you know really prudent and making sure.

But we continue to focus on what production workflows, the new materials that we introduced me to live.

Hey, good for should also help us.

And hadn't been like corn or why it is you know I think we need to pay attention to it but we believe that you're not really ready, we'll set up for profitable growth in 2020.

Good good here do you have a backlog number for the metals portfolio. No. One point you had talked about a delay in 8 million was the number you gave for several quarters ago, but what's the backlog and should we assume that you get a big level a shipments right away in Q2 or will that sort of ramp as the what goes on.

So it will give them you know, but clearly in a Q2 will start shifting both factory 350 effect to 500 and the great thing about this is our customers are inhibition and Veeva very open with them that you know if you have this issue that we need to solve before we start shipping.

So I'm very encouraged by our customers responses and I, absolutely believe even started ramping starting in Q2, but those three quarters wouldn't be very important when affordable growth, we're not giving any exact number but it wouldn't be a significant growth in 2020.

Okay makes sense I guess last one I'll hop back here, you mentioned kind of the typical I don't know if it was you were Todd I mentioned the typical seasonal decline expected from December to March quarters, you know that's range I mean, if I go back and look over the last five years anywhere from 6% to 20%.

So what does your mind is a normal seasonal decline from the December to Mark's question. I guess, yeah, you don't expect 20% [laughter], but I think normally would be you know as you said no 6% to 7%, but you know we don't want to give you exact numbers because we also need to really understand the impact of carano wireless.

And that impact probably it will happen in three ways. You know must one you know although no only yen factory in China, you know you're not able to operate that.

The other thing is we need to really pay attention to the supply chain and some of the abroad and shipments that we have to do in China and other places that I mean, how does it.

Impact because of the supply chain at the third impact our customers you know who buy lot of materials. They will also have impact because of the garner lattice I think we need to really understand that.

For now it's not material, but we just wanted to make sure that if you pay attention to that.

So so maybe 6% to 7%, but but build in a little extra conservatism given everything that's going on out there.

That's right.

Got it okay. Thanks for the how good luck.

Thank you that's correct.

Your next question today is coming from Jim Ricchiuti from Needham and company. Your line is alive.

Hi, good good afternoon VJ congratulations on the progress you've made at the company last couple of years a questions for you I'm. Just wondering you gave a good breakout for the health care business.

Excluding the enterprise customer for 2019, what was in Q4 kind of.

How does the business in the health care area shaped excluding she wants to merchants in Q4, you know if you take the enterprise customer you sort of the decline of 6.9% we want at 4% I don't decline, but if you take the other printer hardware.

We actually grew the business close to 13% in Q4. So you know the thing that I talked about the medical device manufacturing the medical simulator business and then what your surgical planning I don't Wanna growth engine into healthcare.

And I think we absolutely believe we will continue having that kind of growth.

It.

I was going into India there.

Got it that's helpful and just on the Opex side, you guys have really done a nice job controlling opex I was surprised to see a decline in R&D. How should we think about maybe just a question for you taught how should we think about Opex looking after Q1 is there anything unusual in that R&D line in Q.

For whereas the a basis Arctic cats.

So the way to look at end of Q4, we did have some favorable timing or without the favorable tiny there with the way to look at a 17% decrease and we feel our cost structures in place. So you should look at that going forward.

So I just think that you know the most important thing is we are taking the R&D down there taking that she ended down but not that significantly you know I think we must in investing in innovation, that's very important to us.

But I think you got this specific famous that'd be God and the timing on that in Q4. So I do believe we have done a very good job you know what it cost structure, but I think it's easy to really even have a nice balanced approach, making sure the me, especially minimum wage.

Got it and last question for me is a you gave some color on how we should think about battles opportunity. This year I'm wondering about the the overall new product cadence and how you see that unfolding over the first couple of quarters of Twentytwenty. Thanks.

So I think the new products you know so I wouldn't dental business is doing extremely well we have been.

Looking about that for the last of 15 months, we had a big show last week in Chicago and you know the introduced some new software technology, but when she was able to do stack printing and regarding clearly build up all these new funds you know from other show.

So I do believe but then believes is definitely a growth opportunity for 2000 is to indeed, the new materials that be introducing fall of 2019, then getting a lot of great traction and be a finding what standalone and the modular industrial figure for now we'd also.

Momentum in becoming you don't quarters. So metals, we talked about we talked about the plastics would figure for the new materials and then until the other than many important part is I want to software portfolio. You don't be had a very good upgrade you know what control ex inspection software.

They have a very wood product with them or design ex product.

The other many important thing is I would submit drawn and gets can you know we should be able to start also growing in 2020 in the last thing is with other metals growth you're going to see lot of growth you know what TD expert, which is a real a very innovating products on the metal side. So.

I believe all these new product introductions, we haven't done in last six to nine months should also help us in growing over revenue in 2020.

Got it thanks again.

Thanks, Jim.

Thank you. My next question is coming from Brian Drab from William Blair. Your line is now lives.

Thank you, Hi, hi, everyone I'd be Jay.

So can you repeat what you said I'm sorry, just on the research and development Chuck what the there was a payment from a customer <unk> payment in the fourth quarter and how large was that in what do you. What do you expect R&D to be going forward I think dog talked about it you know right now we are showing 27% decline in R&D yeah.

So what are your and the payment was such that if we exclude that it would be seven dean person to decline in R&D.

Like I said, another way I mean, our R&D spend 20 to 21 million for the previous three quarters. I guess 20 to 22 million is that the kind of the the run rate still going forward.

Yes, we must innovate you know I've known thing that I'm, just trying to really have a short term approach to this mean god only knows when he got to make sure that you know we have a golden opportunity continue innovating materials.

Software.

Healthcare and you know we need to also upgraded our platforms. So I I absolutely believe that you have the right balance now and we just need to make sure to be in all of it.

Okay. Okay. Thanks, and then for the balance of Oh.

That's gionee outside of R&D, I mean, I guess, you've been through the whole.

Getting process at this point and you know if you're planning. This you know if it's actually an $8 should be higher or lower than 2019.

Or flat I mean is it Oh Lora wireless yeah, I think I think we go to invest now go to Madeline platforms, we start shifting in second quarter, the God, who really go after that opportunity you see huge opportunity. We also need to make sure, but a lot of health care and software.

The focus to go to market organization under Wayne Babies leadership I want to make sure that that's the high margin business for us when we look at the opportunity in making that happen. So I think you know you could think about.

No.

I think we got that I kind of a cost structure, what do we need to do know used to get the revenue uplift and the using that revenue up Lynn you know I think we should be able to get the right kind of a business model in a lot of mine and we feel that as a percentage of revenue you know he needs.

To make sure you look at appropriately the cost factor why do you want to make any common.

I agree that's why we need to we've taken a lot of cost out as you say from 18 to 19, so [laughter] Dallas investing to grow.

So does that mean up.

Oh I'm, sorry, just to just don't put a finer point on it.

Flat as a percentage of revenue or no not be up in dollars I'm, sorry dollars dollars will depend on the on the girl it'll be up yep.

Uh huh.

Did you just say it'll be up TJ sorry.

So what we said was the percentage of revenue will be flat.

Revenue was gonna grow.

Slide.

Okay. Thanks. Thanks.

I'll get back in line. Thank you very much.

Thank you [noise].

Thank you. My next question is coming from a non-GAAP <unk> from <unk> capital markets. Your line is I'm not.

Hi, Good afternoon, guys. Appreciate you taking the questions.

Couple if I could DJ could you just I guess talk a little bit more about the demand environment. It's it sounds like.

Table, where you know sort of some some beginning it back from krona virus, that's still challenging jot for the month, Jim Oh, but is that is that accurate and that had last couple of no I think the demand environment you know as in.

19, with all the manufacturing slowdown and the industrial you know, it's still continuing I wouldn't say that it's stable, but it is getting similar to what we saw in 19. So I just wanted to be clear what I was answering the question because that reflected in our Q4 revenue.

So based on that if you think about in Q1 were another headwind that's what I was talking about growing Atlanta, So I just want to be clear and there's no confusion on that.

But we think that because of how about innovation work that we have done and now getting our metal printers and the growth drivers that I talked about I'm very confident that even grow revenue in 2020.

And as far as Corona is concerned.

You mentioned, a couple of things Oh, Yeah documents I know some supply chain stuff.

But wanting to wait to see how that how that all played out is there any more contact you can provide a at least know anything beyond the same blessed with everybody else is you know you at all time to figure out.

Halt, but today if you ask me it's not material.

But you know things could change and I I, just don't want to predict anything I just wanted to make sure I gave you the current assessment or wouldn't be huh.

Okay. Okay.

And then last one for me just with regard to software growth. So.

It sounds like you're saying that the new products that have done in three days and then that will be in three days, including medals themselves well, we'll pull software for where I ER and provide.

Right.

And the go to market enhancements, we have done via put focus.

Go to market organization I think that's a very important bar because you know you're engaging with the software channel yet I'm, making sure that you don't be how all that new introductions. We can get the 11. This up we can get that lead generation up we have made lot of investment.

It's in making sure to drive the pipeline because it's not just about the renewing the maintenance contract we want to hunt for a new opportunities and softwood and I think that's about a focuses.

Got it that's really helpful. And then I guess just in that regard.

[music].

Hello can.

Can you just refresh my memory, which refresh my memory on yeah, which in the software.

Hi, Joe is that you mentioned you know watching those are our new or have been refresh you guys said Wow the wells.

Channel total automotive office portfolio refreshed, but I'm very excited about a little control lags the inspection softer than I'm very excited about or T.D. expert softwood, which goes with me no metal metal business and then you know the ordered us attractive software so cement drawn and.

Give scam, we're also seeing a good traction so I do anything that you know we have opportunity in a control lack designtex TDX works all of our product portfolio I think the important thing what here was more innovation and then having that focus go to market to drive the new.

Licenses.

That's really helpful. I appreciate it thanks, so much VJ.

Thank you.

Thank you. My next question today is coming from Troy Jensen from Piper Jaffray. Your line is alive.

Good afternoon, gentlemen, VJ good luck in the future here. It quick question for you VJ I mean, your prepared remarks, you were pretty bullish on just seen an acceleration in adoption here.

You know if you look at kind of product growth in kind of revenues no. We haven't really seen systems gross for you guys with respect to sales on speed speaking specifically about it. So can you just talk about you know that competition does that answer any erosion. You know when do you really think we're gonna start to see an acceleration system grocery business.

Yes, So I think I think the first one.

My view is mattos, because we have a very good platforms, especially for production workflows. So you're looking I want to healthcare business, you know or whatever.

350.

Landfill is very very much you know in the centered on Laerdal medical device manufacturers.

Growth plan and with the addition of powder management, you need an automation on what real handling we think that we should be able to drive a lot of growth, especially in the healthcare [laughter] over 500.

Thank you 500, as aerospace and defense is a very important segment for us.

And here, let me on really seeing lot of traction no for the pipeline one of you and so I do believe that we should be able to get you know.

This big system, you don't need a multimillion dollar system that we should be able to find traction no. After the second quarter and I said in my remarks.

So that's one of them animals, and then as I said associated softer fundamentals reveal many important but there's no caucus really.

Second one you know I do believe about.

Figure for when there was a new production materials you know the other getting it much a hell deal pipeline now.

Whatever standalone and what amounts to though and then the dental business is still continue to grow. So I think that's what it means we'll be able to drive.

The last bodies or what SLM machines I want to 800 is it continues to be a star and that's a high you know its be machines, which is very important for us I think what we'll see I used to be machines like the MME platforms. The 800 platform and then you know bidders.

Range of this single floor. It wouldn't be the me you would think about a little girl consistent no clearly you know a the market.

Has slowed down and a hyper competition is there so I'm not trying to tell you that good movie.

The growth that we used to see you know maybe three four years ago, but I do believe the and set up well for 2020, [laughter] product and I thought.

Okay. They tend to hold off on metals, and there's a quarter last year and I think Q on Q2 way. So there was an $8 million metal or that you weren't able to recognize because the material delivery platform is that still in the pipeline is that something that shifts in Q2, that's giving you confidence got no I think he did not all offering but even start shipping.

In Q2, and then we feel very good about a the growth that you're going to see no matter what yeah [noise].

Okay, Alright, well good luck.

Thank you better.

Thank you. My next question today is coming from Paul Coster from JP Morgan Your line is not alive.

Hey, Paul.

Hey, guys. It's Paul Chung on for costs are thanks for taking my question. So sure. If you if you could kind of expand on on the strength and materials this quarter.

And then do you see some kind of nice momentum for the next couple of quarters. There and then as we think about the metals printer shipments shipments into Q.

What impact do you see on the materials line more so in the second half a 2020.

So first of all materials gross will not be connected to the metal printers, because you know.

Our business model is very different on the metal side in metal side, it's all about the services and support and the software I just want to be clear. So I don't see a uplift in materials growth because of our metal shipments in 2020.

The second thing that I want to talk about is and I talked about the materials go to become back in second half of 19, we grew 3% in third quarter and then we grew 7.3% in Q4 and the means that the three main reasons for that first one that we talked him.

On the installed base growth and if you remember you know me was declining materials revenue in first up of 19, because our legacy.

Materials were declining and we were not getting the uplift from the new products and then new materials and then all installed base growth that we had so that is across the board starting in you know second half of 2019, so the material growth is coming from the dental.

Material growth is coming from you know I was a enterprise customer because you know they ought to continue to really grow their business, it's coming from the quarter up production workflows like the jewelry, which is a very important you know segment for us.

Yes.

And we need to really be looking at growth coming in 2020, but you know that wouldn't be lumpy because in some quarters you know what it enterprise customer may order certain Oh, you know a value of the materials and then.

So I just want to make sure but I think.

My view was that whole you know and declining materials, we should be able to start seeing policy. These side of the materials growth in 2020.

Gotcha, and then on on free cash so what should we expect for tire capex levels and and 20.

And your kind of expectations from no cash from operations.

Can you kind of Philadelphia strength, and yeah thoughts on cap actually had 24 million during 2019 for 2020 will be up a little bit, but most of our investment in the medical devices and then from a cash cash generated from operations, where you see positive for the for the four year.

Okay.

So so they're working cap benefits not really temporary it's it's kind of a a structural change.

Working capital levels were currently yet we feel were the right level, though you're not going to be generating cash from operations going forward.

I think kind of onetime things are structural or the other thing that really important you know we talked about manufacturing outsourcing that'd be the you know we ought I'm very happy with Semina movie chosen over manufacturing partner and most of the plastics are now.

Have moved to us and mean other transition is going well because you know we wanted to focus on what we are very good or if that is something which we believe is strategic sense. For example, materialise manufacturing as many strategic for the company and they will continue to manufacture and myself the places where you know we have.

Partners, who I wouldn't be world class you know he wanted to really make sure me do the right kind of a balance and that will help US also managing you know overall, a hobby would look at our supply chain.

Thanks, and then and then last question it sounds like you have some.

No visibility for your metals printer shipments into Q1, when can we kind of expect some you know full year guidance when you're gonna start to reinstitute that thank you very much.

We are not going to give any guidance.

I don't do actually told you how are you know.

He looked at all but business and we just we feel that in this uncertain environment, we just need to make sure we focus on execution and refocus on the revenue growth.

Appreciate it thank you.

HM.

Thank you. Our next question as a follow up from Brian Drab from William Blair. Your line is not life.

Thanks, just hi, Thanks, just quickly you know I'm trying to Ah.

Model gross margin for 2020, and you had in about 46% gross margin for the first three quarters of 2019, and then 44% in <unk> in the fourth quarter. Despite.

Good material sales. So I mean are we kind of going to be below 45 above 45, you know what it any any thoughts on that we.

Well, we give as mid mid Fortys.

So 44 to 46, [laughter] I think Brian the main thing you know for Q4.

He had do you don't look at the inventory adjustments that we had to do all kinds of the you know so I think that was the reason I do believe that for 2020 mid Fortys is the right kind of add gross margin and one thing on the inventory adjustments, we have brought down the inventory a lot.

2019, so when you do that some of it takes some expense.

I got it okay. Thanks very much.

Thank you next question is a follow up from Greg Palm from Craig Hallum Capital Group. Your line is I live.

Right got it. Thanks, just two quick follow ups, you know VJ in terms of you know.

Thoughts on your eventual replacement here I mean, what sort of qualities do you think the board will be looking for you know really to bring the company to the next stage.

So I think real high.

Spencer Stuart and World Class Farm, and we're looking at more they've done an excellent candidates and I think we entered technology company and he wants to make sure that Ah, we will continue to innovate and I'm trying to be profitable growth.

Okay Fair enough and I guess, Todd you know one for you.

The company for almost six months now I guess any more commentary on what you believe are both kinda near and long term opportunities for the company and maybe what makes you started here.

Well, you know I'll point back to formed actually.

Being there with PJ. He showed me around you know that.

Our our products our digital solutions I'm extremely excited about the future of this company and vision spent a great mentor my first six months here.

Sounds good alright. Thanks.

Thank you.

One of our question answer session ought to turn the floor Dakota Melanie.

Using comments.

Thank you all for joining us today and for your continued support and Threed systems. A replay of this webcast will soon be available on the Investor Relations section of our website. Thank you and good night.

That does conclude today's teleconference. You may disconnect. Your lines is probably have a wonderful day. Thank you for your participation today.