Kornit Digital Ltd. Q1 2023 Earnings Call
[music].
Greetings and welcome to <unk> Digital's first quarter, Nick Journey, three earnings conference call.
As a reminder, this call is being recorded.
I would now like to turn the conference over to our host Mr. Andrew Keith Bachman.
Head of Investor Relations FERC <unk> digital Mr. Blackman, you may begin.
Thank you operator, good day to everyone and welcome to coordinate Digital's first quarter 2020 earnings Conference call with me today are ronen, Samuel <unk>, Chief Executive Officer, Laurie Hangover Carney Chief Financial Officer.
And I mean, <unk> EVP of corporate development.
As call Ronan will provide comments on the first quarter 2023.
Lori will then review the first quarter numbers and provide our second quarter outlook before we open it up for Q&A.
Before we begin I would like to remind you that forward looking statements within the meaning of the private Securities Litigation Reform Act of 1095, and other U S Securities laws will be made on this call. These forward looking statements include but are not limited to the statements relating to the Companys plans strategies projected results of operations or financial conditions and all.
All statements that address the developments that the company expects will occur in the future.
Forward looking statements are subject to known and unknown risks and uncertainties that could cause results to differ materially from those implied by the forward looking statements I encourage you to review the company's filings with the Securities and Exchange Commission.
<unk> the company's annual report on form 20-F.
Filed with the SEC on March 30, <unk>, 2023, which identify specific risk factors that could cause actual results to differ materially any forward. Looking statements are made currently and the company undertakes no obligation to publicly update any forward looking statements, except as required by law. Additionally, the company will be making reference to certain non-GAAP .
<unk> measures on this call.
A reconciliation of these non-GAAP measures to the most directly comparable GAAP measures can be found in our earnings press release, which was 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 Ryan Ron.
Thanks, Andy and thanks to everyone for joining us for today's call.
As we reported earlier today.
First quarter revenues were 47 8 million in line with the guidance provided in February which as a reminder included the impact from the fair value of issued warrants.
What we're missing indicate those emerge during the first quarter in certain parts of our business. Despite the persistent macro pressures in the overall operating environment.
System sales supporting our customers' design customers, which historically represented about 90% of our business.
Main challenging during the quarter. However, we see some promising capacity utilization indicator will merge including double digit year over ear impression growth from several of our largest strategic accounts.
<unk> included a global strategic account.
Who is bringing additional systems online to handle the current and expected volume growth this year.
Remember these systems with chips last year, but experienced installation delays due to site completions.
So followed impression momentum continued in the second quarter with several of our customers being a bit more optimistic regarding overall growth at the start of 2023.
Customers upgrading to a Max technology drove a strong quarter for service revenues during the first quarter. We received orders from several strategic customers for approximately 60 system upgrades from Atlas to Atlas Max customers choosing to upgrade to a Max technology.
<unk> are making a clear endorsement of its quality color vibrancy durability and enhance productivity.
We continue to believe Max is the new industry standard and expect other large customers to upgrade their systems.
The remaining of 2023 and in 2024.
Overall, while capacity utilization in the customized design market is still not optimal we believe we have just scratches the surface of the immense opportunities unfolding within large social digital entertainment and content online platform.
Seeking to embrace and monetize the power of on demand digital production by making it easily accessible from within their platforms to the massive global communities of users create those rfps merchants and funds.
As such we're not at the same elevated levels experienced during the pandemic, we do expect growth to resume in the customized design category is overall macro conditions stabilize.
Over the past several quarters, we've been making steady progress on our strategy of targeting brands and retailers and their global fulfillment partners.
Looking to restructure supply chains in order to address new product speed to market margin expansion excess inventory liability and the regulatory enforcement or sustainable textile production.
Our Max technology, and our innovative products are the cornerstone of this strategy, we stop retail quality better cost efficiencies and new product capabilities.
For example, our Atlas Max poorly opens up massive new global fashion at leisure and entertainment apparel markets for clinique customers, enabling them to offer retail quality sportswear and fanfare.
In fact, we had a strong first quarter for Atlas Max poorly, mostly with some of our largest strategic customers in North America, EMEA and in Asia Pacific.
I'm also pleased to see the progress we have made in direct to fabric, which is now starting to contribute more meaningfully to our business.
We are penetrating new markets.
Building, a very good funnel in key textile regions of Latin America, Europe , and Asia Pacific.
During the first quarter, we added several new customers, including one of the prominent printing houses in Italy, and in Germany, with an international producer of high Tech functional textiles full variety of industry, including for some of the world's highest end.
Brands.
Also successfully closed several players start to plateau Max upgrades.
Now we know Vantiv single step solution <unk> is the market leader in direct to fabric.
We continue to strengthen our leading position with Bristow, Max and with new innovation, including a revolutionary New Inc. We will showcase at the upcoming <unk> in Milan that we believe will accelerate the penetration into the mainstream fashion industry.
It's an exciting time at <unk> as we gear up for each month, where we intend to demonstrate our digital production goes mainstream and showcase sustainable on demand manufacturing at scale.
We will showcase <unk> industry, leading technology portfolio, which offers the apparel and textile industry, a complete digital transformation solution to on demand production.
Each month, we will officially unveil Apollo our breakthrough platform suitable for longer run production cycles than what coal need solution has been addressing to date.
This brings digital production into the mainstream and will be a real differentiator.
Based on initial feedback from our customers, we are more confident than ever that that Paulo will be a game changer in terms of productivity automation quality consistency and total cost of ownership in.
In addition to the Apollo we will showcase our new Atlas, Max plus which will take the Atlas Macs to a new level of productivity.
Our new portfolio of smart fueling solution based on the Soma technology, our new RF test pilots.
<unk> is our Atlas Max poorly Bradesco, Max and corneal <unk> solutions.
We hope you will join us at each month to experience our core needs digital on demand ecosystem will drive massive needed transformation in the textile and fashion industry to summarize as I mentioned on our last call 2023 is a transition year for corn.
And we remain laser focused on executing in three key areas.
Approach breakeven during the second half of this year on an adjusted EBITDA and then profitable growth thereafter.
Successfully launching our polo with better trial expected to begin soon.
Scale coordinate X, we are making some good progress with several demand generators.
I take immense pride in our entire team's tireless effort and dedication to move the company is.
As I stated doing our last earnings call <unk> long term growth drivers remained firmly intact.
Im confident that our strategy product roadmap and solid balance sheet combined with improvement in overall market condition position us well to deliver meaningful long term profitable growth with that let me turn the call over to Laurie for a closer look at the first call.
Number and the second quarter guidance lower.
Thank you ronen and good day to everyone as.
As Ron mentioned first quarter revenues were $47 8 million in line with the guidance range. We provided in February .
As expected the year over year decline in revenues was attributable to meaningfully lower system revenues, primarily in the customized design market.
While we did see double digit growth in impressions from some customers.
<unk> revenues were essentially in line with the prior year period due in part to the timing of some orders from a large global strategic customer as.
As Ron described earlier services revenues posted very strong year over year growth due primarily to customers upgrading systems to IMAX technology higher contract revenue growth as well as higher sales of printed and spare parts.
In the Americas, we had a very solid quarter of services growth, while overall system sales in the region remained challenging due to the macro environment, which continues to drive longer sales cycles.
Looking at the pipeline in the region, we expect a healthy cadence of customer upgrades throughout the year, which will drive services revenues as well as positive trends in consumables as we see some signs of stabilization emerging.
In EMEA consumables growth was exceptional as compared with the same period last year, primarily driven by higher year over year volumes in Asp's.
As expected system revenues remain constrained with customers increasingly seeking financing alternatives for capital expenditures.
Our DTF portfolio continues to gain traction in EMEA as we added several high quality customers during the quarter.
The APAC region delivered robust services growth as compared with the same period last year. In addition to strong sales of Atmos Max partly systems in South Korea, we continue to focus on developing meaningful opportunities with strategic accounts and partnerships in the region, particularly.
<unk> in India, Japan, Australia and China.
For the balance of this year and for 2024, we believe the upcoming <unk> trade show in Milan will be a catalyst to not only close the number of transactions, but to also help build a healthy sales funnel of new opportunities across the regions.
Moving to margins.
non-GAAP gross margin was 32% as compared with 41, 5% in the same period last year.
The year over year decline in gross margin was driven primarily by lower system volumes and mix.
We continue to expect gross margin improvement throughout the balance of this year.
Given the historical cadence of consumables as a percent of sales being progressively higher heading into the peak season and longer term as sales volumes recover to a run rate that generate operating leverage on a reduced cost structure.
Turning to expenses.
Total first quarter non-GAAP operating expenses were $32 4 million down approximately 8% and $35 2 million in the same period last year.
The year over year decline reflects the impact of our previously completed workforce reductions and additional cost structure improvements we implemented across the board.
This includes prioritizing R&D and sales and marketing initiatives and reallocating resources from non customer facing activities to development and customer engagement functions that enable the acceleration of our long term growth engines.
As a result of the above adjusted EBITDA loss for the first quarter of 2023 was $14 7 million as compared with adjusted EBITDA of $1 5 million in the same period last year.
Adjusted EBITDA margin for the first quarter of 2023 was negative 31% in line with the midpoint of the guidance range. We provided in February .
Our cash balance, including bank deposits and marketable securities at quarter end was approximately $624 million.
Cash used in operations during the first quarter was approximately $14 million driven primarily by the operating loss and changes in working capital.
In this regard accounts receivable rose due to the timing of collections and a higher level of extended payment terms for system sales to select customers, while inventories were modestly higher to reflect the receipt of raw materials from suppliers and additional new system, including Apollo further.
During the quarter, we repurchased approximately 338000 shares under our share repurchase program for an aggregate amount of $6 8 million, representing an average price paid per share of $19 $97.
As a reminder, we have an authorized share repurchase program for up to $75 million.
Given our strong balance sheet, we believe that we can opportunistically repurchase shares without impacting our ability to execute on the company's growth initiatives.
Turning to second quarter guidance. We currently expect revenues for the second quarter of 2023 to be between $54 million and $59 million and adjusted EBITDA margins to be in the negative 19% to negative 27% range.
As a reminder, the guidance for revenue and adjusted EBITDA margin includes the impact of the noncash expense associated with the fair value of the company's warrants to our largest global strategic account.
As I mentioned on our last earnings call, we expect to generate breakeven operating results on an adjusted EBITDA basis as quarterly revenues reach a run rate of approximately $70 million with gross margins in the mid 40% range, obviously, depending on mix and opex in the mid <unk>.
$30 million range.
We continue to expect to turn the corner during the second half of this year and approach breakeven and later on move to profitability again on an adjusted EBITDA margin basis, and with that let me turn it back to Ronan.
Thank you Laurie.
So now it's back to open the call for Q&A.
Thank you ladies and gentlemen, we will now begin the question and answer session.
Sure.
Question. Please first star one.
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Questions will be bold in there or is that they are received.
If you are using a speaker phone please lift the handset before pressing any keys.
One moment. Please for your first question.
Your first question on gross from Savi <unk> from Barclays.
Please go ahead.
Hi, good afternoon, and thanks for taking my questions.
I wanted to talk about system sales four minutes.
You mentioned the challenging environment across most geographies.
And I'm wondering what kind of pushback are you getting especially from potential new customers are they are they are pointing to.
Financing issues or operational issues on their end.
Or do you feel that perhaps there is more education that needs to be made into the value proposition that you guys offer.
Yeah. So I'll. Thank you. Thank you for the question.
First of all.
We see these the macroeconomics pressure, which in general.
It's tough for our customers and new customers to.
<unk> raised capital.
Due to the interest rate.
So this is one element that we need to deal with.
Sometimes we're dealing with longer payment terms in order to assist them.
And sometimes connecting them to the right listing.
Third party, that's supporting some capital.
Investment.
In General we also see in this segment of the.
Customized designs some customers are still having.
Overcapacity in terms of systems, although as we mentioned on my script.
We see an improvement we've seen an improvement in utilization of the systems.
Mainly in key strategic customers and we believe that they are going to go into a cycle of growth and investment in the new.
<unk> systems.
So this is in general what we have.
Looking ahead, we believe a stool.
We'll be strong much stronger than H one.
It says that the <unk> will be stronger we believe that between the stronger also a system. So in general H two.
From an anchor perspective.
Always much stronger peak season is by the end of Q3 and into Q4.
On the salary side, we expect.
A major goal in H two as well.
Due to some of the upgrades that we're expecting from our customer we already had a very strong quarter. This quarter Q1, and Q2 is also going to be strong on the 70 sites from the outbreak as for the system.
It will be a major catalyst in driving the growth on the systems. We are dealing with many customers some of them new customers that will come through at my Oxy, we expect expecting hundreds of meetings.
With prospective customers that <unk> will be deployed it will take a decision we are very much focused on that and we expect to.
To get many orders doing it which will influence H.
<unk> this year.
Okay. Thanks for that and just a last one for me you mentioned the scale up of Kony is going going on can you give any granularity of where thats been.
Yes.
It is still in it.
Low scale, although we see a few millions of dollars coming from directly from call. It <unk>.
The good indicators that we have is that we see some good progress with fuel demand generator.
Some of them actually driving directly used sales of systems into the.
<unk>, what we see in the network of the GSA the global fulfillment network some of them buying new <unk> standards of both more ink, Google the connection into demand generation.
Mentioned in April and in Q1, we had a very nice August we are walking on business development with some major digital platforms.
On social media platform gaming platform Entertainment platform, and we expect some of them to be on board.
At age two.
You're familiar already with with the weeks in Canada down both of their other major platform that we would like to bring on board in a store.
And all of this will derive all store system in impressions. So it's important to look at Canadian <unk>, not only that there not only in the direct contribution of that.
Voice will this transaction, but also on the indirect.
Fulfillment that is going into <unk>.
<unk> customer base that buying more ink and more system.
The addition of demand that theyre receiving.
Great. Thank you for the thank you Gordon.
Thanks, Debbie next question please.
Thank you. Your next question comes from Ryan <unk> from.
From William Blair.
Please go ahead.
Hi, guys. Good morning. This is Blake on for Brian .
Hey, Brett.
You guys have already talked about the upgrades that you experienced in the first quarter and your expectation for them as we progressed through 2023, but I was just wondering if you can get any more granularity there on the upgrades and the cadence you expect as we go through the year.
What I can tell you. We mentioned is that in Q1, and we got an order of orders for few key customers strategic customers for about 60 upgrades from Atlas to walk US Maxis continue momentum in the second half of last year.
Expecting this momentum to continue in Q2.
And in a store and into 'twenty 'twenty four.
We have few of our major major customers that now.
Now considering.
Well move into into the Max technology, and it will influence both 2023 and 2024.
Important to mention that the match technology now is becoming the standard of the industry.
And customer I understand that they have to move there.
So.
Acting to see not only an update from Atlas to walk smack. We are looking now deeply into our installed base that using avalanches in storms and helping them to trade in and to go into the Atlas Max technology of the Max technology.
Now the new standout and best in class quality and durability and productivity in the industry.
Got it. Thank you and then have you guys seen when you guys talk with customers have you seen customer buying activity muted.
You did not only by the macro environment, but also sort of frozen the head of the Ed Michelle waiting to see up a new product intros.
Yes, absolutely I mentioned before we are talking with many many customers of course.
The walls and potential customers are we expecting very big delegation coming from Latin America from Asia Pacific of course, Europe is a big Big show for Europe .
And EBIT from North America, we have.
Customers and prospective customers are telling us we are waiting for it but we'll take the final decision, we would like to meet with the senior management.
We know that.
You're going to do good deals with it tomorrow. So we are waiting there and of course that will they would like to see the affordable.
We're going to unveil for the first time their Colo, which is a breakthrough technology and many many customers were waiting for some strategic customers from new customers.
We are entering we'd be afforded to a totally new market, which is that the screen market.
Providing services for brands and retailers and for the first time not only we are bringing the Max technology.
With the highest productivity of about 400.
T shirts, and our apparel that our with full automation of one operator that can run the entire solution connected to inline dryers, which is based on the Soma technologies as we acquire.
On a go.
And as I mentioned with the best.
Our print quality and productivity. So it might is going to be a milestone looking back at.
2018 was the last at main Barcelona. It may have a major impact on the last four years for core needs. We believe that this time with the Max technology, and what we are bringing to eat smart without all of it with debt.
<unk> and demonstration of the new ink that we are bringing with the Atlas matched last which bringing the productivity to a new level with the Rss with the full line of the Soma.
Coordinated Soma technology.
With small drying and much more with Clinique <unk> and of course now that we are gaining momentum on the Atlas.
As Max poorly.
We believe that.
It will be very meaningful for coordinator for future.
Got it thank you I'll pass it along.
Great. Thanks, Blake <unk> next question please.
Thank you. Your next question comes from Erik Woodring from Morgan Stanley . Please go ahead.
Hey, good morning, guys. Thank you for taking my question, maybe wrote it and if I start with you.
Historically, how should we think about.
The correlation and the lag between impression growth in system sales or ink and consumable sales, meaning like if we're seeing good impression growth today from select customers.
Does that usually flow through on the coordinate side to actually monetize that.
And maybe I'd ask the same kind of question about.
The ordering of print heads and spare parts is that a leading indicator that we should think about or is that just a bit more of a unique.
One off and then I have a follow up thanks.
It's a good question I would say as opposed to do is briefly look the best.
Indicate a leading indicator for our business is the health of our customers and the health of our customers is what we call impression what is the trends on the impression how many impressions.
Is it going up or going down and last year, we sold the pressure in many customer going down.
And we started to talk about the H tools as we starting to see a new trend that is starting to move up definitely in Q1, we saw a growth in impression in some of our customers actually strong double digit growth, including a global customer global strategic customers is very very strong growth and <unk>.
This is a major indicators that things are changing because ASF.
If stainless steel.
The impression is ongoing and the utilization per system is growing which means the customer needs more capacity and that will go through a cycle of buying not only more ink, but more systems and more productive systems and some of them now will get into finally upgrading.
All systems into the Max technology, So it's definitely a very healthy indicators moving forward.
Okay. That's super helpful and then.
Maybe I'll direct the second question to Lori and that is just I think today call. It.
Over 70% of your market cap is effectively in cash and I realize that you guys have the buyback authorization for $75 million.
I'd imagine when you look at your stock today, you would call yourselves intrinsic value buyers of your stock and so why not just maybe get a little bit more aggressive on capital returns or buybacks just given the strength of the balance sheet. The cash balance you have where the stock is today.
Just love your thoughts on that and that's it for me. Thanks, so much.
Okay. So as you know we purchased about $7 million of our common stock in the first quarter.
Given the points that you've just made we do expect to be more active in the second quarter. Given these current trading levels.
And again, we agree with you that we believe the company's current low enterprise value severely discounts our prospects to generate long term growth and profitability.
Fair enough. Thank you.
Alright, Thanks, Jeff next question merger.
Thank you. Your next question comes from Chris Moore from CJS Securities. Please go ahead.
Hey, guys. Thanks for taking a couple of questions I was hoping that you could talk a little bit about the current competitive environment that youre seeing with respect specifically to Apollo.
Yes, so I would say thank.
Thank you Chris first of all the main cause.
Competition that we see for their Colo is of course, the analog market is the screening market.
Most of the impressions 99, 9% of the impression on running there.
And for the first time coordinated going to penetrate the skin market just to remind everyone more than 90% of <unk>.
<unk> business as of today is coming from the enablement from customized design most of our customers are running very short drugs most of them running one off.
The e-commerce.
For the first time, where NTIA to a much much bigger market bigger some ways that Paulo now we couldnt do it before from several reasons.
One of the reasons that.
Great quality.
He was always the best in the digital but wasn't good enough for the retail for the brand.
As a replacement for screen today was the mass technology quality not only as good as screen in many cases in photographic images much better and definitely.
And durability and other aspects.
So this is one thing another milestone was the productivity. So we bought now.
Atlas Max but their Paulo can bring productivity like three five times of the Atlas Max.
Which is in part to the productivity or the speed of broadening our screen machine is very low.
However, the productivity.
It's much much better because if you look at the shift.
Half of the time of Canadian machine escape skin system is ideal because you need to replace.
Screens and clean.
And change inks with digital there is no idle time between jobs. So the machine is much more productive and on top of that we have.
Meaning with a total cost of ownership.
B in a competitive position definitely in fault of skating on every job below 500 wrongly. So if we're looking at this market of 500 run rates and below we are talking about billions of impressions that we are going after so the opportunity here for conatus.
Really to disrupt the market.
To become a big player in total incremental market that still today.
Yes.
Got it helpful. Thank you and just my follow up obviously you guys are very excited about the Michelle in June just trying to get a sense as to kind of what a reasonable expectation for Apollo is coming out of there is it X number of orders is it.
X number of betas that are committed to just kind of your thoughts there.
Yes, so better already sign and they actually we already shipped.
Machine for one of our customer around the pit and we already shipped that machine for for asthma.
His philosophy that sales event, we are very much focused not only selling that are all of course selling that's as much as the question Mark.
The poorly.
And many more solutions that we have on the floor.
We have a clear targets on how many orders we would like to get per region for the Apollo already in 2023, but we are very much focusing also with a core ROE in 2024, and we aim to start building a backlog of orders for 2024.
Out of this event so it's a very meaningful event our team is very much focused.
And I hope to be able to.
Update you.
It's more on the results.
Got it that's helpful I'll leave it there thank you.
Thanks, Chris next question.
Thank you. Your next question comes from Garik <unk> from Bloomberg Capital markets. Please go ahead.
Hey, good morning, guys. Thanks for taking the questions.
Yes.
I guess I guess first one so we talked a little bit in the past about kind of pushing the sales team from a transactional model.
Turning to the same pool of customers due to customer growth model.
So I'm just curious how has that been kind of in the starting this year and into the first half of Q2, and then any interesting insights you guys can give us based on who has indicated that they're going to join you at Edmonton.
Yes.
First of all.
If you look at the <unk>.
Q1 <unk>.
Many of the deals actually 50% of the deals on net new.
And some of those net U.
<unk>.
Retailers and.
But looking to change their business models.
More and more successes of going after those mid sized retailers brands.
Some of them would like to go vertically and buying systems some of them working full force.
Into the GSM and we're starting to see more and more.
<unk>.
This business model.
On top of that.
Looking at the replacement market I was talking before on the screen with the portal, what we actually starting to see us enter into the replacement market with the Atlas mattresses, but also it was a very strong quarter for the Atlas must fully which is growing mainly for the replacement market.
In Asia.
<unk>.
Another area, which is starting to be more meaningful and it's mainly focused on replacement versus enablement is deep yet.
And we of continued success, but now it's becoming more meaningful with entering too much love here.
Players in the market.
And.
We expect to see multiple system sales to those players with much larger volume that they're using.
The entire market, we see moving onshore.
Looking into on demand manufacturing of short runs.
<unk> able to do to do changes in different designs.
On a daily basis.
But a major part of moving into coordinate technology is our ink or pigment ink.
This industry is a lot of pressure now regulatory pressure to move from reactive and assays.
Being very polluted industry.
And consumer a lot of water to move into pigment.
The best pigment ink in the industry in terms of durability in terms of <unk> field in terms of Vibrance of the ink.
At Mt. We are going to surprise the industry with new type of ink, which are levered to edmar to tell you more what this thing is going to do but I'm going to tell you that.
Inc will drive core need to the mainstream of the fashion industry.
That's great to hear thanks, very much looking forward to hearing about the new way.
I guess just one more for me. So at this point that you just kind of flying by almost halfway through 2023 and it was only about a month away now.
Just starting to think a little bit more about the Apollo on kind of the potential there in the first year.
So I know you've kind of already talked about how a bit of interest has been but I'm just kind of curious how you guys are thinking about it if that system delivers on the specs that you've outlined.
Anything that you can kind of tell us on what your expectations are for the first year, you're kind of expecting top 10.
<unk> to come in and purchase a number of these systems are you expecting more growth from new customers or non top 10 customers.
And then just lastly, I think in the past correct me, if I'm wrong, but.
You kind of had this dynamic where rising asps have also resulted in a boost to gross margin in some cases between system cycles. So just curious if youre expecting that to continue with.
With the Apollo.
Well first of all I hope quite capture Holden. So first of all in terms of interest we have a lot of interest coming first of all.
<unk>.
The screen market from existing customers, but look for new <unk>.
Yes.
Custom Incrementals segment that we're going after actually I'll give you. An example last week, we have a full week with two leading customers today are running our systems.
They're running it mainly is the screen replacement.
They were running their follow here.
In Israel for the full week and I can tell you is they were blown away. They were blown away. They of course learned a lot about the system before.
For coming here, they saw videos and all those things but to run it live is unbelievable and systems around it.
At the speeds of up to 400 shifts in our Infor automation on only one operator will help take the system a bit too low, but most of the work being done by the system the quality is phenomena.
So this machine is really going to change the industry.
In terms of you asking in terms of gross margin.
So the way we're looking at it is really about the ink as you know we have a nice gross margin on the system, but much better gross margin on the ink and those systems are going to generate a lot of.
Ink usage because of the productivity because of those the buying is going to use it at least two shifts.
And.
Around the globe so.
We believe that those will contribute both to the revenue.
Meaningfully, but definitely into the gross margin moves.
Moving forward.
So unclear, thanks, Ronan and look warranty.
Real quickly.
The other point that you wanted to hear that I missed.
No I think you hit on it all I appreciate it.
Thank you Sir.
Certainly our next question.
Of course.
Our last question comes from Greg Palm.
Problem. Please go ahead.
Yeah. Thanks, This is danny acreage on for Greg today.
And I was hoping to touch quick on your thoughts on the path to profitability I think the verbiage is to approach breakeven EBITDA in the second half.
I guess, just just given where we are at in the macro right now I mean is <unk>.
Actually achieving breakeven profitability does that get pushed out at all.
What are your thoughts on that.
I'll start and maybe Laura can add on top of that so.
We promised to the market.
Aiming to approach breakeven during the second half of the year and we feel confidence in achieving it.
Now does it base.
We mentioned very clearly to be breakeven we need.
Run rate.
70 million dollar of revenue.
Need to be somewhere in the mid Forty's.
For gross margin.
And in terms of Opex in the mid of therapy.
On the Opex side.
And it's all depends now on net revenue.
Because the major impact that we have in gross margin is on the volume on the system on the revenue. So when we break the revenue into three parts, which is systems, Inc and services.
So we feel very confident that we have very good line of sight to that.
Service business, we have very good confidence and line of sight to the ink business.
And how much it will impact into a store.
And we are all working and counting on each month.
To help us to ramp up the system volume at age two.
When we're looking now that funnel that we're building into it and what we are expecting to come out of it.
I can tell you we feel confidence to deliver what we promise.
Approaching breakeven during the second half of this year.
Got it.
Makes sense.
I guess your global strategic customer.
Like they're starting or they've been installing some of those delayed systems I guess since the last time, we talked any any update there still expecting to restart contribution system contribution again in 2024.
Yes, so in terms of the relationship we have a great relationship with our global strategic customers, we're meeting with them on a daily basis, and a weekly basis with <unk> with the senior management.
On a quarterly basis.
They're sharing with us.
And we are working very very closely.
They had a very good peak season, they continue to grow in Q1 strong double digit and we start to see them in the beginning of Q2 with nice orders of ink.
And we seem to get again, another strong quarter.
And this is.
Now delivering or installing the system that they purchased last year and there was a delay in those size that they wanted to open now the site are almost ready we are installing the systems now and.
And they will be ready to run before the peak season, So we expect to see.
The accelerated growth of impression in <unk> doing a stool and mainly into Q4.
And we're looking forward to continue growing with it.
With our global strategic customers.
Different parts of goals one area of growth is of course upgrading the fleet into the Max technology. We went for a deep qualification, we qualify them to extend the value of the market and we are waiting now to.
To get the Poles and probably it will.
And only in 2024.
And the other part of <unk>.
<unk> new size of course, very deeply involved in the portal and looking forward to start testing that Paulo early 2024 and later on.
Of course to open space.
And therefore, we.
We're looking on expanding our business with them on the fashion side. So there's many many areas and of course they are also.
H fleets.
Other launches that we had.
Looking forward to.
Oh, great them upgrade them with new technology for that Mark So therefore in the future.
Alright got it I'll leave it there thanks.
Thanks, Thank you.
Thank you.
Sure background. There are no further questions at this time you May proceed great. Thank.
Thank you Sir and thank you all for joining us today as always if you have any follow up questions. Please do not hesitate to contact me directly.
Darryl would you please close the call.
Ladies and gentlemen, this concludes your conference call for today, we thank you for participating and ask that you. Please disconnect your lines.
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