Q1 2020 Earnings Call
<unk> expense or in listen only mode. A question and answer session will follow the formal presentation.
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Thank you you may begin.
Operator, good afternoon, everyone and welcome Courtney Digital's first quarter 2020 earnings.
Before we begin I'd like to remind you that work you statement within the meaning private Securities Litigation Reform Act 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.
That's a preliminary our projected results of operations or financial condition, and all statements that address activities events or developments at the company intends expects projects. We are anticipates will occur in the future.
Forward looking statements are based on assumptions that are subject to known and unknown risks and uncertainties.
I could turn out to be incorrect, which could cause results to differ materially from those expected or implied by the forward looking statement.
Companies actual results could differ materially from that was anticipated for many reasons.
I encourage you to review the company's filings with the Securities and Exchange Commission.
Putting the Companys annual report on form 20-F.
Filed March 23rd 2020.
Which identifies specific risk factors that may cause actual results or events to differ materially.
Any forward looking statements are made.
This call here up.
Company undertakes no obligation to publicly update or revise any forward looking statements, whether as a result of new information future events or otherwise.
As required by law.
Additionally, the company will be making reference to 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 website.
The call today, we have run is Daniel Corny, Chief Executive Officer, and Guy Avidan, Great Chief Financial Officer at this time I would now like to turn the call ever Toronto.
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Thank you can see good evening and thank you for joining us on this afternoon any color.
I want to start by extending our thoughts and prayers to everyone was being impacted by koby. They deem it we all affected safe and healthy recovery.
After a weak so for the certainty we are enthusiastic to see many countries progressing on the exit plan.
And business activities.
Picking up.
At the start of the pandemic, we acted decisively to ensure the safety and health will follow stuff was maintaining business continuity.
Manufacturing sites and R&D labs continue to operate these targets Chief Oh said, we steams continue to work closely with our customers and now globus stuff shifted to walk from home where needed.
On the community form we actively partnered with manufacturers and loud spreads for production of protective personal equipment with the use of for inks and no systems.
Overall, I'm very proud of how well being handled this incredibly breast food period.
At this point or no manufacturing and R&D sites, a 40 stopped again and now we experienced sent the open operating in line with safety guidance.
Local authorities.
Well Q1 results both on revenue 26.8 million, including 564000, so for once related to global strategic account, we present, the immediate and show them impact of the pandemic, we'll know business well, we're ready witnessing and very strong recovery path.
Back to go.
I want to share with you Oh view of the industry, what we've seen over the past two weeks.
Readiness to execute and how we expect the balance of that you to look.
This crisis is fundamentally changing behaviors.
And how that textile industry is looking at both demand and supply.
And we believe this is an inflection point in the continued adoptions of digital picks up production.
In the last few months ecommerce is going from a growing channel to the only chanelle operation for all age groups and Gen does.
We expect these two had been long and lasting effect on the consumer as they continue to embrace the flexibility inefficiency associated with this channel.
At the same time existing supply chains are not adequate to support successful equal mass business model at scale the industry needs to adult age I did you tell sustainable on demand manufacturers modelled to succeed on that Shannon.
Additional retail we certainly written.
But the crisis is exposed to the massive inefficiency associated with these classic supply and demand offshore operating model in place, resulting in massive inventory write offs and continued environmental disaster.
So it is clear to us, but the mega trends that they've been fueling our growth I'm only going to accelerate once the short term impact subside.
What we have seen over the last few weeks is that the customer sites are starting to we open and strategic account with big projects and Reengage.
Some major all those we expected in Q1, they've already been received in Q2 with partial implementation in Q2 and they remain there in the second half of the.
Oh partners, but degree those in the online customized design segment as well as brands and retailers with solid equal Miss on demand more does remain very active and we expect that they will continue gearing up for the holiday season.
A great example of this is bring for one of our strategic accounts and the leader in the only men printing segment, which has been experiencing very strong demand for the button dynamic and as recently decided to invest in six additional Atlas systems. It's part of it allows us plenty invest.
Men, bringing the total system globally to more than 55 call need systems painful is adding significant on demand capacity to capture business opportunities globally.
Recent developments if only served to highlight the importance for brands and retailers offer adopting flexible digitally and able on demand production models to that and wonderful originally counts in north and Central America DSE as recently constructed with well known.
The one retailers for short runs proximity production addressing the flexible inventory management needs, resulting in a strategic investment in six additional new Atlas systems, which will replace the screen printing equipment.
This older further underscores that was seems at one point visionary is now we alipay askus domain breast the market shifts to proximity only men model.
This is also a strong testament to our successful execution of the go direct model put in place last year.
Earlier this year, we announced the release of that would come to US. This system is our largest one and these intended for four filos with very high volumes of short to mid run production orders.
One of our original accounts in North America order. The first system in March and there's no placed an order for a second system.
The production teams believes they will need to add at least two additional work on plus systems and four additional Atlas systems before the holiday season starts as they hear from brands and retailers their needs for agile production and flexible inventory management, which can only be up then we did.
We're very pleased with this early reception of our Wolfcamp plus system.
Interesting now plans to continues to be strong.
As innovative customer realized the massive opportunities this system can help them monetize.
In March we announced the release of our new male pigmented will boost of software solution for the past. All this solution is a game changer for Dts offering as it allows called me Wesley users to put you on demand for top retailers and fashion brands with no.
Compromise on hand field.
Spoon flower one of our strategic customers and long time visionary partner as placed an order for forward. This should not presto systems since the beginning of the quarter on top of additional for personal systems that were purchase middle of last year to respond to the increase.
Is the men they are experiencing for their innovative only men offerings.
While we cannot share specific details associated with the business will file global strategic customer Oh partnership is as strong as ever and we are investing in the preparation resources, a location and operational readiness required to deliver on their behalf.
This growth plans in North America, Europe and Asia.
As mentioned above we are in the mid of Reaccelerating growth our pipeline is getting stronger our leadership position as only strengthened customer engagement is high and we see strong recovery with our installed base.
That being said, we feel that it would be responsible to provide detailed guidance for the second quarter with macro volatility levels still high.
At this point, we expect to do significantly better than consensus revenue estimate was at least 30% sequential growth in Q2 compared to Q1 Twentytwenty.
As for the rest of the here, we expect to deliver high single digit evolve. It is revenue growth in the second half of Twentytwenty with gross margin in a similar range to the second half of 29 team and a positive operating profit for the entire you call. It is extremely was.
Even with a healthy business model and the strong balance sheet.
Im more confident than ever in our value proposition, our leadership position and now excellent people.
The short them dislocation is an inflection point to the entire textile industry, which will adopt flexible and sustainable inventory management and a bill with all the men digital production.
We believe the market is now accelerating in our direction and we are ready to capture it.
Now it will tend to quote over to guy for a closer look to all the numbers.
Thanks, Ron and good evening everyone.
Before beginning to financial overview I would like to remind you that the following discussion will include GAAP financial measures as well as a non-GAAP pro forma results.
Our first quarter non-GAAP pro forma results reflect adjustment for the following items.
Stock based compensation expenses, which totaled 2.1 billion.
Total amortization expenses relating to the acquisition of intangible assets in the amount of 160000.
And noncash deferred tax benefits in the amount of minus 764000.
Adjustment related to the covered 19 pandemic art.
Noncash inventory adjustment of 207000.
Warehousing expenses of 37000.
And marketing expenses of 11000.
As the company has significant operating lease liabilities in foreign currencies, the company and Curt foreign exchange gains 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 off the company.
This quarter foreign exchange gains associated with AMC aid for two were 610000.
A full reconciliation of our results on GAAP and non-GAAP basis is available in the earning press release issued earlier today and on the Investor section of our web site.
First quarter revenue net of 564000 noncash warrants impact was 26.2 million a decrease of 32.1% compared to 38.6 million in the prior year and 46.1% sequentially.
First quarter business decreased 31.6% and 46.2% over the prior year period and the prior quarter six respectively.
Topline results were impacted by delayed orders as a result after covered 19 pandemic.
Services revenues for the first quarter were 3.8 million net off 126004 and say Buck.
I don't think for 14.6% of total revenues, an increase of 39.7% from the prior year period.
The amount attributed to the noncash impact of warrants in the first quarter was 564000 or a 2.1% of revenues.
Compared to 560000 or 1.4% of revenues in the first quarter of 2019.
And 1.1 million or 2.3% of revenues sequentially.
You can see the what impact this quarter on revenues and margins in slide number 12.
By geography, 72% of ourselves were from the Americas, 18% from Europe, the Middle Eastern Africa, and 10% from the Asia Pacific region.
As I mentioned at the outset, a number of significant deals including purchase orders from strategic customers that were expected to close in March were delayed.
We do not believe that we have lost any of these deals to competition and currently anticipate these orders will be close in twentytwenty.
This impact was flat across all territories.
Moving to customer concentration in the first quarter.
We had one customary contributed more than 10% of revenues.
Global strategic customers contributed 8.5% of revenues this quarter compared to 7.7% in the prior year period.
Our top 10 customers accounted for 49% of our total revenues compared to 52.9% in the prior year.
Moving to profitability.
Over the past year, we have been deliberately building out the company's infrastructure to support a very healthy revenue growth given the significant market opportunity, we see in front of us.
Heading into 2020 are planned for the first half of the year was to continue that investment which include hiring across organization.
Much of which was completed earlier the core.
Then the pandemic hit with associated decrease in revenue.
As Ron and outlined in his remarks, we believed that this event is short term in nature for coordinate and expect the business to reaccelerate in the back half of this year and at our a 500 million in five years objective is attainable.
Accordingly, our view is that the investment made to support the growth are appropriate.
We will continue to evaluate the business as we move forward and expect to return to our execution philosophy of balancing growth and profitability. Once we move through this year.
Turning to numbers.
Non-GAAP gross margin in the quarter net of warrants impact decreased to 33% from 45.5% in the first quarter of 2019.
And 50.2% in the previous quarter impacted by the decrease in revenue and to a lesser extent inventory write offs and product mix.
Given the expectation that revenue growth will reaccelerate in the second half of the year, we expect gross margin in the second half of the year to return to normal levels. As a result, non-GAAP gross margin to exceed 50% without worrying they packed.
On a GAAP basis gross margin in the quarter was 30.6% compared to 40.8% in the first quarter of 2019.
And 49.4% sequentially.
Moving to our Opex items I'll 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 todays press release.
Each of these line items reflect the headcount investment I previously discussed.
We ended the quarter with 565 employees a year over year increase of 103 employees and a sequential increase of 18.
Adjusted Research and development was 23.4% of sales or 6.1 million compared to 13.5% of sales or 5.2 million in the prior year period.
Sales and marketing expenses in the quarter worth 7.7 million or 29.4% of sales compared to 6.8 million or 17.6% in the prior year period.
General and administrative expenses in the first quarter were 5.3 million or 20.3% of sales.
Compared to 3.5 million or 9% in the first quarter of 2018.
In particular, we continue to be active in evaluating M&A opportunities and some of the hiring and expenses increasing gionee has been done to bolster our business development and integration capabilities to support these initiatives.
Non-GAAP net loss for the first quarter was 8.9 billion or 22 cents per share net of two cents warrants impact.
GAAP net loss was 10.1 billion or 25 cents per share on basic basis.
Compared with net loss of 1.2 million or a three cents loss per share for the year ago quarter.
Our non-GAAP financial income this quarter was 1.6 million as a result of accrued interest on our cash investments.
Our GAAP financial income this quarter was 2.2 million.
Next I'll discuss our adjusted EBITDA.
For the first quarter Twentytwenty adjusted EBITDA was negative 9.2 million compared to 3.5 million for the first quarter of 2019.
Net cash used in operating activities was 13.1 million this quarter compared to net cash provided by operating activities of the 0.4 million in the first quarter of 2019, and 11 million net cash provided in the prior year.
Cash balances, including bank deposit and marketable securities at quarter end were 247.5 million.
Compared to 263.7 million as after December 31st 2019.
The decrease in cash balances was primarily driven by the year over year decrease in revenues and associated net loss as well as cash used in operating activities of 13.1 million, mainly due to the 9.9 million increase in inventory due to business.
Disruption caused by covered 19.
Turning to our view on second quarter, and the second half of Twentytwenty.
As Ron said, while we believe that long term trends in the textile industry are working in our favor and at our competitive position is stronger than ever in the short term there continues to be uncertainties in the broader macro environment.
As a result.
We do not believe it would be prudent to provide formal guidance for the second quarter.
What we can say is we expect more than 30% sequential revenue growth in the second quarter of 2020 compared to the first quarter of 2020.
And as for the second half of 2020, we currently expect single digit year over year revenue growth.
As compared to the second half of 2019 without Warren day impact.
And gross margin in similar range to the second half of 2019.
For the entire year, we expect positive operating profit.
I'll now transfer the call Ronan.
Thank you Guy.
Without.
With that we are ready to open the call for any questions.
Thank you.
Ladies and gentlemen at this time will conduct our question and answer session. If you'd like to ask a question press star one on your telephone keypad.
Formation.
Ladies and the question Q.
Press Star followed by the number two if you would like to remove your question from the Q for participants do you think speaker equipment. It may be necessary to pick up your handset before pressing the star keys.
Our first question comes from Patrick Ho with Stifel. Please state your question.
Thank you very much and glad to hear that you guys are doing well.
Maybe first to start off on the impact of covert 19 on the March quarter, and what you may be see on a going for basis. It's a good sign a you're saying that orders are starting to pick up now in the June quarter, which will be delivered through the rest of the year are there any constraints on your rent.
Still on the supply chain or even on the manufacturing from.
That.
You know may limit you both in the June quarter and over the next couple of quarters.
Thanks for the questions, we don't see any constraints on manufacturing side, all our manufacturing sites are fully operational.
Ready to de lever, we have enough inventory to supply for the Q2, and we are ready to supply to produce for the peak season and for H. too we don't see any limitation.
Great that's helpful.
As my follow up question on some of the long term trends that you talked about in your prepared remarks, and how they're accelerating can you discuss especially which some of your new products and the traction with new customers. You, obviously have gotten good traction with existing customers on some of your products like our pro.
And the Presto with existing customers can you discuss yes.
He traction you're making with new customers.
Especially as it relates the endemic do you feel some of those evaluation works have been pushed out somewhat or are you already starting to see a pickup once again.
So we see a mix between strategic account existing customer and new customers and as you know we are focusing on three main segment.
Yeah, there all the men.
The customized design segment.
The brands and retailers and promotional.
We are engaged with new rain brands and retailers, helping them to change the supply chain, helping them to move into all the men manufacturing and I hope that later this year, we will be able to publish some few names in this area.
On the all the men side in customized design, we see many customers that used to be able to screen market moving into the online business into the only men manufacturing.
And we see all in the auto all into direct to fabric and in that VTG market.
We see a very strong adoption for latest technology.
The Atlas is by far the best product in the market as of today, we have a huge demand for the Atlas both on strategic account and new accounts as well at Bristow is I would say the biggest surprise.
For the coordinate.
Well right.
The best pigment Inc. technology on the Presto and we see a very good adoption for this technology.
For the overall solution.
With a greater adoption across the wall and specifically North America in BA.
In Latin America.
As well as I mentioned that won't.
We launch it early this year, we see a very good adoption on that we see customer buying the second them machine and even more than that.
So overall the portfolio is very very strong.
This period of time, we also during the pandemic, we took the leverage and continue to invest in the R&D in the development to stressing I'll continue to strengthening our leadership position and we believe that we opened a bigger bigger moat compared to the competition and we are ready to capture the.
Pretty moving forward.
Great. Thank you very much.
Thank you. Our next question comes from Brian Drab with William Blair. Please state your question.
Hi, Thanks for taking my questions.
Just hearing your outlook makes me actually feel a little better about the hope endemic to be honest. This is a market that I thought it was going to take a little longer to.
To bounce back services. This is great news today and.
Yes.
Just wanted to sorry, if I.
Asking.
This activity that you're seeing and expecting for the second half of the year.
Is that driven more by customers resuming previously planned activity are you seeing.
New customers with new programs.
Maybe you know stimulated by.
The pandemic or response to that pandemic like a change and behaviors.
Oh, Great question, I'd say is actually mix as we mentioned in Q1, we were very optimistic when we enter two Q1, because we knew about.
A few big.
Projects that we started to work with our strategic customers.
And then the pandemic arrived and menus and decided to delay those projects.
And now we're very happy to share the reengage and actually with some of them placed a ready to orders.
So we'll see some of the orders getting inside into Q2, and some of them into H. do those on the strategic account from our biggest.
So those are significant order.
As I mentioned, both for Q2 and four age to on top of that Oh, we have a key account and new accounts.
Already got.
Orders in Q2, and some accounts, we know that they are gearing up for the peak season.
Our peak season, starting in October many of them up preparing themselves in June July orders. So we are preparing for that as well we can see cast on there that they are.
Opening the side, we can see the print volume.
Going up some of.
Many of our customers are playing in the E commerce market already four weeks in peak season, saying that the pictures and that they used to see and in doing December the already feeling it for a few weeks and it's a great indication moving forward also in the supply side.
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All right. So running in that answer I think you did say that you are seeing some new accounts and did you even say you're developing some new key account.
Okay Miss here that yes.
Yes, some new key accounts accounts that are well relative small and now really ramping up very quickly with multiple.
System.
Caused the DTF and that BTG.
Okay.
Lack of.
Professional and sports in general.
Weighing on this industry quite a bit or do you think that that that's not a.
Major issue.
It is issue in the short term on the customers are playing that promotional space. So we can see traditional screen printers and mainly more customers.
They're suffering the most.
But as I mentioned many of them are changing the business model into E. Commerce. Most of our business is viscosity and the customer designing the online and they are actually accelerating the business those days.
And that brands in the retail understand that they need to change the business model understand that they need to move to proximity production the asking us to engage them.
With our customers.
And so we'll see a major growth coming from the retail and and the brands as well.
And then one last quick one that your global strategic customer you mentioned ambitious growth plan that including North America Europe Asia.
Is that.
It did anything change there are you.
You mean to indicate that maybe that plan is more ambitious now or has.
Accelerated or is are you just restating that you have a great relationship and that they have that plant.
So as you know we cannot be very specific.
The business, we though global strategic account.
If we mentioned it in my script vault ambitious growth plan is overly.
Some.
Is that plan, but.
I'm going to be executed in the coming at quarter end made sense significantly.
All right.
Okay I'll leave it there okay. Thank you.
Our next question comes from Peter.
Ski with Barclays. Please state your question.
Hi, this appear on for tire on that thanks.
Okay.
Dan.
The almost 50% sequential decline Q1.
The quarter was intact outside of China.
Compared with a strong rebound in Q2.
Fred shutdowns.
With a large portion of shipments that.
Hello.
In the first quarter.
And if so should we understand that the majority of those will be will be pushed out and realized in Q2.
So the.
The nature of the business and coordinate is back end loaded in the quarter. It's not unique to Q1 2020, we see almost every quarter.
And the main impact was actually delayed.
In orders into second half or most of March.
As far as we know we haven't lost any deal to competition. We expect most of those deals to return throughout Twentytwenty.
Great. Thanks again.
Could you could you give some color on how you see the cobot.
Pause impacting the service.
Business.
That might rebound.
Sure.
Okay.
So in the short term there was some impact because there were some side that were closed across the globe.
But longer term is now we see the that he opened Oh, we see that they are ramping up both on the supplies.
And walking around the clock or some of them of course ordering new system. So we expect that.
This service business well, we'll be breakeven by Q4 2020 by end of this year well move to break even and its will continue to be positive moving forward.
That's helpful. Thank you.
Our next question comes from Jim Ricchiuti with Needham and company. Please state your question.
Hi, Thank you just point of clarification for me.
You referred to a global strategic account.
In a global strategic customer are we talking about one in the same customer or to customers.
Let's say customer.
For that.
Just with respect to.
She some of the push outs.
Well, how much was the fact that facilities customers were reluctant.
Have you guys install equipment and facilities as opposed to.
Sorry about the overall.
Yeah.
Okay.
Could you repeat the question that delay was not clear.
I'm, sorry, I guess when use.
Coal.
Yes.
Push.
Orders.
Wasn't the case of those customers.
Being sensitive to the fact that in the match the pandemic they didnt necessarily walk.
Installed at that time.
US endemic or be okay.
And in the near that.
Now has changed.
So it is again something a mix I would say that in beginning of March what we've seen we've seen a total shock in the industry. Okay people just.
Decided to pause for a second to see where the what's going on in the world was going on in the industry and the last thing that they wanted to do now is due to invest.
So they didn't know what will be the result of this pandemic a few weeks later or beginning of real they understood that actually the pandemics is accelerating the E commerce and accelerating all that trend that we were talking about and they found themselves.
Opening the site reopening the site and walking around the clock ttwenty four by seven and starting to ask US Hey can you ship us so.
Most system in order to meet the demands that they're facing.
So it's a combination of showcase combination of that they were forced to close sites.
But immediately few weeks later this stuff that the we open and producer on the outlook.
And running you mentioned.
That if I heard you correctly that perhaps though.
As perhaps the biggest surprise.
And I understand surprise can you give us a sense as to.
Their help customers now have this equipment or.
How many machines, thus far this year.
Oh, we cannot share how many machine Oh I can tell you that it's surprising.
The target of reporting in front of.
So what we can see we can see some big projects.
Moving into all the men manufacturing leveraging our Bristol solution.
The micro factory.
For all the men manufacturing.
And we see those projects around the world and some massive project and those massive project I'm not talking about one system talking about multiple.
Systems image in each site.
But it sounds like these would include.
Machines that are going to multiple customers.
Yes, it multiple customer, but some of those customer with a huge potential.
Well the publishing.
Thank you.
Our next question comes from Jim Suva with Citigroup. Please state your question.
Thank you very much for the details thus far it's been very helpful. I have a couple of follow ups on your slide entitled well positioned.
The last bullet you talk about we believe that market is now moving more decidedly in our direction and we are ready to execute.
Can you help us understand about you know why that type of a statement you have the confidence for order indications it seemed like the market was kind of going.
Digital printing.
Steadily, but now you kind of throw one additional.
Color more decidedly in your direction and things like that so just kind of curious about anything behind that that we should think about.
Then I have actually follow ups, yes.
Thanks for the question sorry, So you know thoughtful furious we were talking about changing the supply chain moving it to oximetry production ecommerce was booming we were talking about this all the amendment effectuating with fuel for customers are doing it we were talking about the trends of sustainability all those.
Mega trends that we were talking about but what we've seen in the last few weeks.
Due to the dynamic that it's become a we saw an inflection point to the textile industry. The textile industry understood and lease you see what's happening there retail market rental market is really fully shutdown understood that they have to change the way that doing business they cannot have anymore.
Massive inventory and write offs.
And they have to move into more sustainable way into more agile way of production and this is required to move into digital.
And we see that a brands and retailers moving to proximity production and they are engaging with our customers.
And we also getting some substantial orders.
With new customers and which we all that Oh, we're in a different age of this industry.
Great. Then my follow up question is on your prepared comments I made a potent wrong.
But did you mentioned you had some write offs and was that for this period.
Or last a year ago and was that inventory our accounts receivable at her any details on that.
We mentioned that we had some write offs when we discussed our gross margin it was related to.
Inventory Eligibles in Q1.
Okay and is that inventory that Mike end of life inventory or it seems like with the economy coming back you could there's a market for that wasn't like specially configured are designed or how should we think about is it totally gone or is there a chance that you could actually resell it or or the concern or more risk of more write downs.
The due to a less revenues this quarter in less demand. This is actually an accounting treatment.
We expect due to shelf life that this inventory will not come back obviously.
If demand is going to come back faster than expected then.
This into inventory will come back to life.
Okay. Then my last question professional sports when we think about all the fan gear Haps T shirts, all these things.
Something you're closely monitoring and you are you know we need to be mindful of that coming back in the second half of the year.
Well, we're working very closely with a few big.
But let me to in a professional spoke market.
We will be we believe that in H. too we will see this market coming back.
And we will be ready to capture it.
Thank you so much for your detailed clarification, it's greatly appreciate it.
Thank you.
Our next question comes from Chris Moore with CJS Securities. Please state your question.
Hey, guys, Yeah, really really helpful. Qual, just wanted to talk a little they you talked some on at Warner on on the bulk and I'm just trying to understand kind of this the acceleration towards the inflection point, obviously Atlas Presto Poly pro.
He systems does the the thinking in terms of the bulk into that or is that ramp up further as well do you know kind of given you know that that's the whole movement that we're talking about.
Yeah actually did the Vulcan the value proposition with a full con is is suited mainly for customers that focusing on the meat run live to longer on live okay versus the Atlas that these more focus is.
To to short runs a full customized for one offs. So there's a different value proposition to those products.
And that work on these mall focus if you're looking at the vertical market. This is more into the air retail into that brands, while I'm. The Atlas is more into their customized design ER segment. So no.
Now that we are starting to enter in a in a bigger.
Wait to about two the retail market and to the grenz market, we see better adoption of their work on a in those markets.
Got a helpful. Thanks, guys.
Thank you and next question comes from Craig Palm with Craig Hallum. Please state your question.
Yeah. Thanks.
He shared all the color and glad to hear you guys are doing well.
Starting off I think it was I don't know because you run into a guy mentioned peak season like volumes that some of your customers. Your recent Lee, which presumably should bode well for consumable sales can you talk about growth rates for that segment, maybe not specifically, but just directionally given everything on and what are your expert.
Occasions for the year Lynn.
So we're not breaking down the growth rate on the supplies versus the hardware at this stage.
But as I mentioned those customers that are in the customized design in their own line. They already peak season for few weeks and if we see big consumption of Ings coming from this a vertical or we also see a very very nice schools.
On the D. P S side on the Bristol, Oh, we see very very high consumption that as well. So are we expect to see the impacts on the supplies in h. to and on top of ER and the goals that we see also the system side.
Got it so no no way he talked specifically at least directionally on on maybe growth rates in Q1 or or the first half I just.
I want to make sure.
No comments about the overall.
Yeah. Overall, we gave some indication oh, yeah, we don't want to give a detailed guidance or the indication is that the Q2, a will be or at least 30% you will see at least 30% growth versus Q1 sequentially <unk> growth in Q2.
And H. to we will you will see a strong single digit growth.
Age to vis vis this age too so the age to 2020 versus age to 2019.
And Ah, we expect gross margin to be in the same range of last year.
In H. too and the operating profit a positive operating profit for the year.
Right Yeah.
Really helpful. And then Guy just following up on gross margins here in Q1 are you able that maybe quantify the impact from the inventory write off and in the negative mix was that specifically among products I would've thought there would have been positive mix overall due to higher before.
Consumables relative to product and service, but maybe I missed some.
Yeah, sorry in terms of scales, we actually mentioned a three point in the first one was the decline in revenue.
Which was predominantly the number one reason the second one was.
Makes and when we say makes it system mix, we're not addressing mix between.
Inc. and consumable and assistance, but.
But this quarter, we saw less favorable mix in into systems.
And the third one was a inventory write offs.
Right Okay.
Makes sense and then I'm just kind of curious how your.
Thinking about changes in your go to market strategy I really don't with everything going on at trade shows live events have obviously been important part of that previously and nobody knows how long were well be in this pandemic, but are you thinking at all about sort of changes in that with.
Travel West trade shows going on in the near term.
Yes, yes, absolutely and are we prepare for the out that we already running it.
For the last few weeks, we're doing many many virtue of demonstration live virtual demonstration from all of them are centers around the world with customary its customers sitting on their own side and then seeing live demonstration other sending out the material in advance we are selling them a three year multi.
I will say at printed after the demonstration so they have the full experience.
We are planning to bring add the experience close to the customers doing some open houses across North America, Europe, and Asia close to customers instead of doing big trade shows.
So those are the type of things that we are we are doing they're doing many webinars to more we have a very important wed be now you're all invited to join the webinars to mobile I'm. So there's a lot of marketing activities, but no moving much more to virtual and its I would say, it's very successful till now.
Yep makes sense and last one just for a quick clarification following up on a previous question regarding your global strategic account. So just to clarify do you currently support them in all regions North America, Europe and Asia.
I was talking about.
X ambitious growth plan and I mentioned, those three regions I cannot.
Share more information about the current start to see still playing and all those three regions or it's a new sites in doses reagents.
Okay, perfect Alright, best of luck going forward. Thanks for all the color.
Thank you very much.
Our next question comes from Brian Drab with William Blair. Please state your question.
Hi.
Bother you with one more at the slate, our unless I thought it was important but.
On the direct fabric.
Market it sounds like you're reaching an inflection point now with the new Presto and.
This is a market that.
From a.
Going back to the IPO slides, if it's always been talked about as multiples and size of.
Direct to garment, maybe like five five after more than the size.
Are you first question is.
Are you now at the point, where you can.
Do you feel like fully access that market with products that you have and second question is are you introducing more roll to roll products.
This year in the near term.
Can you just repeat the first question because you were cutting the coating on now.
Sorry no.
During the first question is what sounds like product can you hear me now.
Yes can you more fully access this very large roll to roll market now with the products that you haven't place or.
And then second question is are you introducing more roll to roll.
Next version of the Presto is that is that coming soon.
Yeah, the value proposition and actually we are not addressing them mainstream market Oh devote all the value proposition is really about only men manufacturing or very short drugs and due to the market is moving now aim to proximity production on demand manufacturing.
Really show trunk because of the E commerce.
Then because of that we see the momentum.
And we have a very strong momentum as I mentioned as of a full for the as US regarding development. Yes, we are developing Newport product will come to the market sometimes hopefully soon.
Okay.
Alright, Thank you very much.
Our next question comes from Jim Ricchiuti with Needham and company. Please state your question.
Just two quick questions. It sounds like on the M&A side, you you appear to be still having I still have the active pipeline and potentially you could be moving forward over the near term is that fair way to think about it.
Correct, Yes, we are very advance in.
In evaluation and are we identify few good kinda deducts. The focus is on the won't flow as we mentioned in the past.
And I really hope that we would be able due to announce something soon to the market the boat M&A activities.
Okay run in the second question is and its may not be a fair question just in light of the global economic environment, but you've laid out for me, yes, exiting 2023 that kind of run rate of revenues, how should we think about that do things get pushed to the right.
It's a it's a very very good question and I wouldn't be very very open with the we have superior committed to the 500 million actually we believe that college would be much bigger than 500 billion dollar.
And ER, obviously are geared to the and then make there might be a slight delay we might find ourselves sometimes in twentytwenty. Following instead of 2023 meeting the 500 goal, it's too early to commit on that when exactly we're going to be there we have.
Still aiming to bring it as early as possible, but they don't want now to say, while it will happen in Q4 2020.
It's pretty 23, Oh due to the and pandemic situation I guess that a in a in one quarter for now we would be able to to share more detail. When are we expect him to wish to 500 million dollar, but if there will be delayed will be a small lily.
I understand.
Thank you there no further questions I'll now turn it back to management for closing remarks.
[noise]. So thank you for joining me today calls and appreciate your continue interesting cool Nick I want to thank all employees for their hard work and dedication. So the answer to this unprecedented time and they look forward to speaking with all of you throughout the quarter. Thank you.
Very much and good evening old.
This concludes todays conference all parties may disconnect have a good day.