Q3 2021 Kornit Digital Ltd Earnings Call
[music].
Greetings and welcome to <unk> Digital's third quarter 2021 earnings call. At this time, all participants are in a listen only mode.
A question and answer session will follow the formal presentation.
If you require operator assistance during the conference. Please press star zero telephone keypad as a whole.
Under this conference is being recorded.
I would now like to turn the conference over to your host Andrew Backman.
Global head of Investor Relations for <unk> digital.
Thank you operator, good morning, everyone and welcome to Corny Digital's third quarter 2021 earnings Conference call with me today are running Samuelle Corny Digital's, Chief Executive Officer, Alon, Rozener, Carney, Chief Financial Officer, and Amir Sakai Executive Vice President corporate development.
Before we begin I would 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.
These forward looking statements include but are not limited to statements related to the company's objectives plans strategies statements of preliminary our projected results of operations or our financial condition and all statements that address activities events or developments that the company intends expects projects believes or anticipates will occur.
And the future forward looking statements are subject to known and unknown risks and uncertainties and are based potentially on inaccurate assumptions that could cause results to differ materially from those expected or implied by the forward looking statements I.
I encourage you to review the company's filings with the security and Exchange Commission, including the company's annual report on form 20-F filed on March 25, 2021, which identifies specific risk factors that could cause actual results or events to differ materially.
Any forward looking statements are made as of this call hereof and the company undertakes no obligation to publicly update or revise any forward looking statements except as required by law. Additionally, the company will be making reference to certain non-GAAP financial measures on this call. The reconciliation of these non-GAAP measures to the most direct comparable.
GAAP measures can be found in the company's earnings release published today, which is also posted on the company's Investor Relations website. At this time I would like to turn the call over to Ronan Ronen. Thank you Andy and good morning, everyone. We are here in New Jersey, It a beautiful customer experience center, having just reached.
And for many operational and industry transforming who meet fashion week in early <unk>.
This groundbreaking alternative fashion week Baidu nearby Puneet brings endless creativity sustainability diversity and inclusiveness to default font of this fashion walls, all by leveraging who meets on demand digital technology. It was.
It's an amazing week with more than thousand inspirational designer's brands customers and partners coming together to establish a new reality for the fashion industry.
The evolutionary moment in how we all think and act about fashion.
It's about giving people the style.
Mens comfort and quality they desire.
When they desire in this.
Stendal and Ed because means of production using innovative digital technologies.
I believe the fashion industry, we look back at the coordinate fashion week in late 2021, and remember it is the pivotal point in the journey to transform and adjust to the needs and beliefs of the current and future generations.
Turning to our results it was a phenomenal quarter with record revenue across all regions strong profitability and operating cash flows.
We delivered total revenue of $86 7 million net of $7 9 million in warrants related to a global strategic account.
We again exceeded the high end of our guidance posting 51% <unk> growth as we saw a great mix of sales across systems consumables and services.
The impact of the woman's this quarter associated with our global strategic account was higher than historical quarters due to the continued growth and global expansion and we expect to see continued accelerated growth with this strategic account.
We are also making progress with other strategic accounts, including well known fashion and E. Commerce companies. For example, we recently began an important relationship with Google one of the largest e-commerce fashion retailers in the U K with an incredible portfolio of over a dozen market leader.
Fashion brands.
Who is adopting the very essence of our core need 4.0 vision by incorporating our technology vertically into their supply chain. While also utilizing our global fulfillment network powered by <unk> <unk> to broaden the capabilities and expand into new geographies.
Earlier this month, we announced the availability of Presto Max the platform that <unk>, Vince textile designs and application capabilities and will change the textile industry for waiver the single step breast tomo solution break the barriers between imagination and physical applications. It is deferred.
First in the market to bring unique groundbreaking capabilities like white printing on carload fabrics mail and colors and Konate XDA technology for three data quality of applications.
Last week in Los Angeles, following an event, we Allstate <unk> digitally in Como, Italy, we showcase did breast of marks and his amazing capabilities to hundreds of prospective customers and the reaction was incredible which led to strong older pipe.
Thanks Lee.
Looking at BTG, we continue to see very strong momentum without Atlas platform recently sticking a mall a global leader of fully customized b to C products integrated a fleet of our Atlas systems into their business and are utilizing their growing customer base.
To support our strong BTG revenue, China, we began shipping the Atlas marks in the third quarter and feedback from our customers as being extremely positive DSC, who owns and operates more than 25 Atlas systems, not only decided to add additional add.
Max's to the operation, but also to upgrade the entire Atlas fleet to Atlas Max's.
Looking ahead into 2022, the NPI pipeline is unprecedented on the immediate horizon. We are gearing up to start executing in Q1 2022 for our customers an extremely valuable upgrades to the Atlas fleets, including Mac.
Ex VII next generation pilots and the much anticipated automated robotic government's handling system. This innovative upgrades.
Tremendous our ROI for our customers and we expect them to have a material contribution to our business throughout the next deal.
Also being released in early 2022 will be our new Atlas poly, which will completely transform the sport apparel and our collision segments of the market. We will also release, our quest quality control. The first of its kind solution, ensuring carlin and quality consistency.
Of course, any type of government and machine, we continue to see great traction for corn at inks across brands marketplaces and retailers. For example, we recently integrated hype, a young and fast growing UK brand onto the <unk> platform.
This will enable them to onshore the on demand production reduced lead time from 12 to 16 weeks to less than a day and minimize the 12 weeks of stock.
They will now be able to launch five times as many new products per week due to their new virtual approach with kinetics in Asia depth textile one of the largest fashion apparel textile manufacturing, Japan started to use our presto system to enter the sustainable.
On demand production utilizing our coordinate X platform.
Bull and depth.
Just a few of Great example of a huge opportunity we see for cornett ex <unk>.
Before concluding I'd like to share with you. Some additional news guy have been done will be leaving Puneet guys started at Cooney as Chief financial officer, and at the long and successful career with the company, taking us through our IPO before leading kinetics.
<unk> has been promoted to the role of the president of <unk> and will be joining the executive management team Evan joined <unk>, a few months ago as Chief operating officer of <unk> and together with Guy has been laser focused on successfully implementing our execution plan.
And for scaling kinetics.
Two joining canete al was head of operation for matched by Amazon throughout his career. He has built and scaled large global on demand businesses utilizing cloud based software and advanced printing technologies.
Guy will be working closely with our own in the coming months to assist in the transition process after which he will be moving on to his next chapter in life.
Okay. So in summary, we had a tremendous third quarter and first nine months of the year. We are currently focused on closing the year strong and supporting our customers to ensure they are ready for a successful peak season. We are also gearing up to what we expect to be.
And then amazing 2022 for the company based on our strong momentum and with the guidance alone is going to provide we expect to end 2021 with over 65% revenue growth year over year.
With that let me turn the call over to alone for a closer look at the numbers and guidance before I come back and provide some concluding remarks alone. Thanks, Ronen and good morning, everyone.
As Ron said, we are very pleased with our outstanding third quarter results.
Record total revenues strong operating margins very good cash flow from operations and a very solid balance sheet Rev.
Our revenue increased 51% year over year to $86 7 million net of $7 9 million noncash warrant impact.
Revenue was also well ahead of our guidance of 88 million to $92 million, which as a reminder, excluded the impact of the warrants.
We again saw very strong demand for systems consumables and services as our customers began to get ready for their peak season.
As Ron mentioned, we made great progress with new customers, while continuing our very strong momentum with large strategic customers, which we expect to continue for the balance of 2021 and throughout 2022.
Our services revenue was $10 1 million for the third quarter net of the noncash warrant impact of approximately 400000.
Services revenue was 11, 7% of total revenue and increased 25% year over year.
Top 10 customers accounted for approximately 65% of total revenue.
As we have said before we would expect our top 10 customers to remain in the 65% of total revenue range, but the composition of those top 10 customers should change given the progress we are making with new strategic and other customers.
Geographically it was a record quarter for all regions with a very strong growth in North America, and Asia Pacific moving.
Moving to profitability non.
Non-GAAP gross margin for the quarter net of the impact of the warrants was 47, 8%.
On a GAAP basis gross margin in the quarter was 46, 8%, we expect gross margins to improve longer term given the ongoing shift to higher mix of mass production systems contribution from our recurring consumable business along with the acceleration of corn at X.
Looking at supply chain despite.
Despite major disruption in the global supply chain, we have experienced minimal impact on our business results in this challenging environment.
Given our very good visibility into the business and our experienced operations team, we've been able to proactively manage our supply chain, enabling us to meet our customers' requirements.
Turning to Opex.
For the third quarter Opex was $32 9 million up almost 13% from the second quarter and 55% year over year due to continued investments mainly in R&D and sales and marketing.
Research and development expenses were $10 8 million for the third quarter or 12, 4% of revenue as compared to $7 9 million or 13, 8% of revenue in the third quarter of 2020.
R&D was up due to continued investments in innovation and new product, including the addition of <unk> eight for which the integration is going extremely well.
Sales and marketing expenses were $14 4 million or 16, 6% of revenue as compared to $7 8 million or 13, 5% of revenue in the third quarter of 2020.
The increase was due to the expansion of our go to market capabilities marketing and customer facing activities.
General and administrative expenses in the third quarter were $7 7 million or eight 9% of revenue as compared to $5 5 million or nine 6% of revenue in the third quarter last year non.
Non-GAAP operating margin net of the warrants impact was nine 9% versus 11, 3% in the year ago quarter.
This decrease was driven by the expected increase in Opex I just discussed.
We ended the quarter with 849 employees a year over year increase of 192 employees and an increase of 86 employees from last quarter. The increase was mainly in R&D and sales and marketing.
Non-GAAP net profit for the third quarter was $11 5 million or <unk> 24 per share on a fully diluted basis compared to $7 7 million or <unk> <unk> per share in the third quarter of 2020.
Third quarter GAAP net profit was $3 9 million or eight cents per share on a fully diluted basis compared to $3 9 million or nine cents per share for the third quarter.
Last year.
Adjusted EBITDA for the third quarter was $18 million as compared to $9 4 million in the year ago quarter with very strong cash flow from operations.
Net cash provided by operating activities came in at nearly $33 million up over 60% from the third quarter of 2020.
We ended the quarter with a very strong backlog, including $11 7 million of deferred revenue and customer advances.
Our cash balance, including bank deposits and marketable securities at quarter end was $457 5 million.
Turning to guidance based on our current visibility in the business, including a very strong backlog and pipeline. We expect revenue for the fourth quarter to be in the range of 89 million to 93 million and non-GAAP operating income to be in the range of 13% to 15% of revenue.
As a reminder, consistent with our practice in the past this guidance assume no impact of fair value of issued warrants in the quarter with our global strategic account as Ron said, we do expect to see continued growth with this strategic account.
In summary, we are very proud with our strong quarter and year to date performance.
On a personal note as I approach my one year anniversary as <unk> CFO I am very happy and excited to be part of this amazing team as we continue to execute together and lead the transformation of this industry.
With that let me turn it back to <unk> for some closing remarks, thanks alone.
A couple of comments before opening up for Q&A. Shortly following our last earning call. We issued our ESG report and received extremely positive feedback for major fashion brands and global investors.
At core neat ESG is not just to check that box issue. It's a mission.
We are going to lead the way in transforming the second most polluted industry in the world if.
If you haven't done so I invite you to read our report and reach out to us with any questions you may have.
I would also like to take this opportunity to welcome Steph stock and Jay Lee with recently been appointed.
<unk> advisor to the board and whose insights and immense experience at Nike and ebay will be invaluable to the company. We plan to nominate both staff and Jay for election for the board at our 2022 annual meeting.
Welcome Stefan Jay.
And finally I would like to thank all the amazing Konate employees around the globe, who continue to work extremely hub with the most extreme level of passion and dedication.
Could not be prouder to be the CEO of this amazing company led by the best employees in the industry.
Operator, we are now ready for the Q&A session.
Thank you.
If you would like to ask a question. Please press star one on yourself on keypad at a confirmation tone will indicate your line is in the queue.
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Please while we poll for questions.
Our first question is from Tabby Rosner with Barclays. Please proceed.
Hi, This is Chris Reimer on for Catherine Thank you for taking my questions.
The direct to fabric. Thanks.
Victor can you talk a little bit about the level of interest you're seeing across.
The DTF market.
Yes, Thank you Chris.
Question.
And good morning.
So.
The DTF market.
We believe that we are in the verge of really creating a huge transformation of this industry. This industry is the most polluted industry or the second most polluted industry in the world, creating huge amount of waste both of water and waste of material.
Coordinates innovation, bringing to the market the presto months really enabling to do on demand production.
With fully sustainable.
Without wasting water and.
Producing exactly what's needed on top of that we are enabling endless creativity with this solution.
You don't need any multiple plan one year ahead of time, what will be the design and what the consumer will want to where you can react fast to market trends and changes.
And this is the perfect solution for them for the market.
We released the Presto Max.
We demonstrated last week, both in L, a and the week before.
In Italy, and we got amazing feedback.
The absolute Bristow, Max actually bringing on top of what the Presto Board before.
Our capability to print on dark fabrics with wide Inc.
Also the ex VII printing <unk> elements on top of that on top of the Fabry and also nail color.
<unk>, enabling a huge amount of.
Creativity this industry needs a major change and last week at delay, we actually got the feedback from <unk>.
<unk> thousand of designer's brands retails, thats well with us in this let's say this is exactly what we needed what we demonstrated with designers Rick.
Is exactly what the market needs in terms of creativity in terms of sustainability in terms of all demand in depth of unleashing really the key activity in the market sizing fashion into anyone that wants to create.
Designs.
Uh-huh, Okay. Thank you and just on Corny X you've mentioned in your opening comments a little bit about.
The system, but could you talk about the pace of adoption and how brand and facilities have been responding to the <unk>.
Yeah again here we have.
Great Great feedback from many many brands retail marketplaces, we gave a few examples.
Earning calls before.
Of adoption of this technology.
What brands are looking for marketplaces and retail looking forward is connecting the virtual world.
To the physical world what kinetics is enabling is really this connectivity. The world is moving digital E Commerce is growing.
Enabling.
Endless creativity, but what we are doing is unleashing this creativity and connecting it to the physical world.
Believe kinetics will be a major driver of growth and change for this industry.
We see a very strong adoption we are building the team.
<unk> now nearly is taking the lead and building a very strong team around them.
And I'm fully confident that this will take coordinate beyond the $1 billion as we are talking about.
Uh-huh Oh, okay. Thank you for that I'll go back to you.
Thank you Chris next question please Joe.
Our next question comes from Rod Hall with Goldman Sachs. Please proceed.
Yes, hi, guys. Thanks for the question I guess I wanted to start off with the prior trajectory obviously the growth continues to be really high here.
We were able to attend that fashion week last week, it's pretty exciting to see our engage the industry is with these products and I just wonder as you look into 'twenty two what what products are you. Most excited about from a revenue growth point of view I mean, what do you think the main drivers will be next year.
In terms of product it just seems like youre coming out with so many different things.
It's kind of hard for us to keep track of it away or.
What might be the primary drivers of growth and then I have a follow up.
Yeah, It's a great question Robyn Thanks for participating last week and in L. A.
Yes, we are in that pivotal point pivotal point in terms of the industry.
But also in terms of the product and the introduction and innovation.
The Atlas Max.
What we see today and we believe for next year will be the main products that we will continue selling.
This product is really unleashing.
The activity on the <unk> BTG.
And we.
We see a great adoption, so atlas maps of only we will continue to sell many new systems, but we already got.
And request from our customers to implement the upgrades on the atlases for the Atlas <unk>.
Bringing totally new level of quality productivity creativity into this.
Our market segments on top of that I already touched on the Presto Max we see a very strong pipeline now after we demonstrated the capabilities and the fashion show into 2022, So we will see a major growth coming from our <unk>.
<unk> platform is specifically the Presto Max.
And we of course going to release end of Q1.
The Atlas poly.
<unk> is targeted for the sports market in the leisure market. This is a really big market that now with this technology, we are going to penetrate and we believe that we're going to transform this industry to digital.
And on top of that we have slides of upgrades to the installed base of industrial the Max a bit but the Max is not only for the BTG is also for the DCF of the Bristol in terms of upgrades.
Formation for the installed base Super Super important we're getting huge great feedback from our customer base and they many of them would like to upgrade it.
Already.
First half of 2022.
Quest.
The quality control and Carlos.
<unk> is very very important.
Capability for our installed base to control the quality between C statement between sites and of course is very.
They're important for the core NIM ex us.
As a.
Yeah.
As a platform to control quality across the world.
And many more there will be surprises next year.
Sure, it's right now, but big surprises.
Product release.
During 2022 or so.
Yes, it's a lot of products.
But we are really exciting about 2020 stores and the opportunities.
There is a lot of work for the team to start implementing it.
Okay. Thanks, Ron and then on the numbers I, just wonder I mean, it's been pretty volatile, but the services gross.
Gross margins were a little bit lower than last quarter.
Zero and I know they range negative that range positive just wondering what's going on in the services gross margin line. This this particular quarter do you have any color on that.
Yes, Hi, Ross this is.
It alone.
So.
The service business for us.
Profitable business, and we will continue to be soft.
We are investing a lot in customer support.
We see the great potential and we build that organization, we built the infrastructure and sometimes you know there is no perfect fit of expenses and business, we need to be ready with our organization now for.
The peak season and ramp up of a few big projects. So we are investing.
So this is.
One side the other one is that related to switch.
Which we also invest a lot now in building the organization on and just discuss some of the changes that we're making we.
We are building a very strong management team for Pony.
We see the potential there. This is the time for us to.
Build it and then we start seeing that.
The fruit is coming in a rapid pace.
So cost of it.
<unk> success and customer support are Super important therefore coordinate only not only for the success of our customers, but in terms of the growth engine for the future.
We believe that 2022, you will see a massive growth both in revenue and.
And in terms of profitability on the customer success.
All lines of business.
Do you guys think that will remain depressed a little bit then.
Continue to invest or is it kind of a one off thing this quarter or.
It's more a one off this quarter.
Again, there is us.
<unk> was a bit lower than the previous quarter to quarter because of the investment as I mentioned next team will see massive expansion both in revenue and gross margin on this business.
Okay, Alright, great. Thank you guys appreciate it.
Thanks Rod next question please.
Our next question is from Jim Suva with Citigroup. Please proceed.
Thank you so much and congratulations to you and your team for the Great results I found it very interesting and encouraging that you're one of the I'd say fewer even only companies that I've heard in the past few months it didn't blame an excuse on the tech supply chain about inability to procure parts.
And components, both on the results and the outlook. So can you talk just a little bit about those efforts and maybe as we look ahead I guess the question will be is how were you able to pull in some of that and are there going to be some challenges of securing your parts and products in 2022.
Okay hygiene.
So yes, I mean, the environment is very challenging we see everywhere and.
As you said I mean, its really an effort we are investing a lot of efforts managing.
This challenge.
We are doing it in a few different ways first I think.
We have.
The benefit all I would say the luxury to have great visibility into the business.
So we are able to play.
Placed orders and secure production slots.
For many quarters ahead and.
We are doing so we have long term engagements with vendors, which.
Allow us to secure the raw.
All materials.
We are increasing the capacity with our contract manufacturers. So we added.
Another contract manufacturer this year.
One and we have started a process of.
Qualifying another contract manufacturer most likely will be in America.
So it will allow us again additional flexibility and bandwidth in terms of.
Of production and so it's.
Really a day a daily effort by the operations team.
We see the pressure we get some.
Some heat to buy.
By prices and longer lead times.
On the other way of managing it we did increase our ASP. This.
This year again to offset.
This.
This impact and as a result currently the impact is quite minimal to our business I would like to jump in first of all to really acknowledge the hard work from our operational team.
It's actually phenomenon, what Theyre doing Theyre working day and night I can tell you that on a daily basis, we have surprises or things are being delayed or not coming back.
Missing and our team is fully committed passionate to deliver to dose escalate to a customer. So first of all really big thanks for the team.
As Alan mentioned we.
See a lot of questions coming from.
From our suppliers both in terms of cost increase logistics is a nightmare on the logistics side. So we are not keeping what other companies are.
Are facing.
The benefit that we have as Alan mentioned, we had a very strong pipeline and visibility to our business. We already placed an order for next year for the entire year with our suppliers. We have a very very strong professional operational team that they are working day and night to deliver to the to.
To the business.
The business needs and we have confidence that we will continue to deliver on those.
And then my quick follow up is at the beginning of the conference call in the prepared remarks, we're on it I think you made a comment about the upgrades.
I couldn't tell if you said you were getting out are giving out and I just wanted to understand kind of that a little bit about is that just a giving out free a loss leader or getting out and getting that the upgrades out and your customers are paying for that upgrade.
So we are getting out meaning releasing the upgrades already in Q1, we already have.
Any orders for upgrade from the Atlas to Atlas Max of course is a huge value for those upgrades both in terms of quality and productivity and of course, we are charging.
Customers it will be meaningful very meaningful revenues additional revenue incremental revenue to our P&L.
For the entire year, we will not finish all the outlets in Q1 and it.
He will take us probably for the full year and even the after because it's not only the absence of the Max.
Many other upgrades maxis both for.
Atlases and for the Crestor, but as I mentioned there is also the automation as well, we're not giving it the way we are selling it as will bring huge value to our customers it will be very meaningful to our revenues.
During 2022.
Thank you so much for the clarifications in the details.
Great. Thanks, Tim I appreciate it Joe next question. Please.
Our next question is from Brian Drab with William Blair. Please proceed.
Thanks for taking my questions first I just wanted to start by saying that I mean.
Ron and Youre, just talking about how hard the.
<unk> is working and then you see this.
Headlines that come out when you report your results and it must be frustrating to still have this recording issue, but I just wanted to.
Make sure that I am.
Understand this correctly, but if you adjust for the warrants.
That were issued revenue for the quarter.
Would have been $94 6 million.
Consensus was at $89 million and that's apples to apples the 94, 6% to $89 two.
And then I just want to clarify that.
Apples to apples comparison for EPS adjusted EPS adjusting for the warrants would be you reported 40 cents.
Relative to the consensus of <unk> 24 cents right looking at that correctly.
Youre looking at 100% correctly. This is a record quarter, both in terms of revenue and EPS.
Right.
And also the gross margin would've been 52, 1% I guess, if you make that adjustment as well, which I think really at the high end of what you've done in the past. So I just wanted to make sure that I was.
Interpreting that correctly, because I know the consensus doesn't take into account anything related to warrants when they went and analysts post close.
Yes.
I know, it's confusing and thank you focused a clarification.
Okay. Thank you.
So I just wanted to ask about cornea Dax.
And.
Very interesting change.
Leadership, there that's taken place this year.
How does that if at all affect the business model for a cornea to ask and maybe maybe that's not the change thats affecting just has the business model for Corning IDEXX changed in terms of how youre thinking about monetizing our valuable service.
So.
Our own <unk> joined US a few months back so I own this fully fully involved.
Involving all the development of the business model.
I don't see as this change is driving.
It changed the business model. However, we have tons of opportunities of different business model within <unk>. At this point of time, we have more experimenting different type of business model with different customers to see what it will be the future of mainstream business model.
And I wanted to the team.
Walking on values.
The alternative business models, and we will be able to share some more information.
Early next year about how do we take the business moving forward I can tell you that the opportunity here is really incredible.
And we see huge both adoption and great feedback from customers would like to join both in terms of fulfill our brands.
Retailers and marketplaces.
Recently.
Jay Lee join us from ebay to the board.
Jay Lee has tremendous amount of experience.
In marketplaces, and the digital world came with tons of ideas.
<unk> decided to join the call need.
Not only because of our technology and people is really excited about kinetics is believing in it and he raised his hand to be.
The main.
Mentor and work very very closely with Alan and the team.
To drive this business to a great success, so I'm very confident about where we have a very strong team to take it forward and looking forward to share some more information on our business model early next year.
Okay and can I just ask.
Now.
I think it was may when you had the analyst day, you talked about $100 million revenue expectation for this business by 2026 for <unk>.
It is.
Anything that you've seen or that you.
You understand the opportunity better for that.
Business.
Do you feel like a $100 million might be a little bit conservative.
For five years from now.
So.
I can only tell you that the opportunity for this business and forget both decided that timeline right now is much much bigger than the $100 million. We're talking about billions of dollars opportunities you were talking about really enabling more than just connectivity of the virtual wall to the physical.
Well there is a lot of activities around how do we leverage that data.
Ron This systems, how do we.
Ed value.
In the creativity and the design side, you will see some.
Very exciting direction.
We are taking and leveraging the kinetics and moving forward.
Okay. Thanks for taking my question.
Thanks, Brian next question please.
Our next question is from Patrick Ho with Stifel. Please proceed.
Thank you very much and congrats on the quarter and the La fashion week Ronen, maybe first off just to get a little bit of clarification and some of the demand trends.
In your prepared remarks, you talked about the Atlas Max.
The adoption there, it's getting with new customers, but I think you also said something that you are seeing existing customers.
Vision there from the Atlas the Alice matter, one is that happening.
And two would you still expect more of your existing customers to get the upgrades when they are available in the first quarter of next year.
Yes.
Yes, absolutely you're right.
We see a massive order taking from new.
New customer or an existing customer for additional Atlas.
As Mark says.
<unk>.
They deliver subtle during Q3, we have delivered in Q4.
All of them.
Of course in Q1 next year and beyond that.
But we also receiving orders for our installed base that's using us.
<unk>.
To upgrade the fleet into Atlas <unk>. The example, I gave is THC is one of our key accounts.
But having more than 25 atlas's.
Very happy was part of the better of the Atlas Max It was testing it extensively.
We're very very happy.
Place an order with four additional Atlas maxes, so they're going to have a much larger fleet and 25.
On top of the doing early next year, we are going to upgrade the entire 25 systems are closest to the Atlas marks.
When you're talking about when are we going to do that so the DSC will happen during Q1.
In terms of capability to do much more than that.
And place that order will be placed.
On the year and we believe that we will continue the average for the installed base along the year of 2022 and it might even take us through 2023, those are very heavy upgrade for each system.
And we need to do it gradually so we are not expecting everything in Q1.
We are expecting.
Massive orders already in Q1, and some implementation in Q1, but most of the implementation will happen.
Along the year.
Great that's helpful and maybe as my follow up question I spoke to you early fashion week was really a four minute in terms of seeing the eco friendly nature of your systems. The pretzel Max on the Atlas Max but one thing I also found I.
I guess it really interesting is the consumables ink how water based it is can you just give a little bit of color one on that opportunity and to how that also fits into the whole sustainability.
Initiatives do you have at the company.
Yeah.
Yes, so first of all I actually want to touch on on schedule for dilutive to touch on the fashion week and what we vacated in L. A and before the <unk> in New York.
<unk> and <unk>.
Also in Israel, and what we are planning to do moving forward.
You all need to understand.
A change agent for this industry.
Really the one that's driving the industry to become more sustainable on demand.
And with endless key activities, we are unleashing the creativity, we are democratizing it.
And this is what we presented in a late intention of those events the law fashion week and next day in other places around the world is to create an alternative fashion week.
And those are 30 fishing with demonstrating the capability of digital we are partnering with many designer brands.
And enabling them to.
Enabling them to create their designs with limited time actually less than three weeks.
The design to the creation of the demonstration.
But on top of that what the company is driving is driving an industry that is much more diverse and inclusive and we are very very proud of it it's not only in the culture of our team, but we are taking into the industry. This industry need change not only changed in terms of sustainability.
Becoming cleaner, but also in terms of diversity, we would like to see all ages on the catwalk all sizes and this is what we demonstrated.
<unk> made I can tell you. The feedback we are receiving from the industry is unbelievable unique courage to do that and coordinate leading the change.
And we have the one that really not only bringing the innovation in terms of production flow on sustainability, yes water based ink.
Pigment inks that does not require pretreatment and or post treatment. There is no waste of water no use of water is no waste of material because you produce exactly what you want when you want but we also changing the industry and connecting to the virtual world, enabling really this day.
Diversity on demand and creativity.
So we are very very proud and our aim is to become in 2026.
Brent in terms of branding number one brand in session Tech.
Yes, just to add Mark.
Just to add.
The business side of the consumables.
The consumables is a very important part in our business model.
It's a very stable and recurring revenues for us.
Over time, and with the new products and new applications, we see the consumption of the consumables getting.
Higher if youre talking about the Atlas amongst the SDI.
So we see much higher consumption of consumables for sure. If we are talking about the new address those so.
This is a great contributor to our business model.
Thank you.
Great. Thanks, Patrick Joe next.
Next question please.
Our next question is from Jim Ricchiuti with Needham <unk> Company. Please proceed.
Most of my questions have been answered, but I wanted to follow up on some of the commentary though.
<unk> automated robotic.
Carbon handling.
Is it scale it could be an upgrade to budge.
Install base or is it going to be more for the more recent products Atlas does it have any implications for presto.
And can you say, yes, it's clearly the Max upgrade is going to be a big opportunity for you I'm just curious how we should view this.
The robotic handling opportunities for you.
Yes, so maybe before getting into specifics the robotic handling.
About two released to the market.
Let's understand what we are aiming to do actually.
With corn at $4 zero, we are aiming to automate the entire production flow.
The ERP too.
The automated warehouse to the entire production flow.
And we are aiming that.
One day, it will be a dark room with no people running those systems and the operation.
As we know there is a lot of constraints now.
On the on people.
And this is what the industry needs needs much more cleaner in.
Xyrem is of operation. So this is where we're aiming what you see now is the first that is the first set of automation onto the systems. We are taking this automation on the atlases and Atlas Mark So Atlas Smiths will come out of the line with this automation you would be able to order the sop.
Formation, the automation will increase productivity by more than 20% will enable consistency and will really enable operators to run more than one systems in a very consistent and easy way.
This is the first steps in the future you will see some more automation coming to different type of systems.
This point of time, the focus is on Atlas and Atlas months.
And then I mentioned is just the beginning of the roadmap of Autonation.
Got it thank you.
Just on Opex.
Yes.
Should we anticipate similar things that like you did in la.
Trade show activity coming up over the next 12 months.
Should we assume there's going to be a higher level of that type of expense in the model and then on R&D I don't know if you can comment there was a fairly significant step up from Q2 levels can you say how much of that might have been influenced by a box of late.
Yes.
So we are investing and no doubt I mean.
We see the potential we see the acceleration of the transformation in the market and this is the time for us to invest and be ready with the right product and the best in class.
Go to market and this is where we are investing in terms of the R&D. So.
We are recruiting.
Qualified professional people through our theme.