Q3 2023 Velo3D Inc Earnings Call
Good afternoon, and welcome to Velo three D third quarter 2023 earnings conference call. At this time all participants are in a listen only mode. After the speaker's presentation there'll be a question and answer session.
As a reminder, today's conference call is being recorded I'll now turn the call over to Mr. Bob Oak Henske, Vice President of Investor Relations at Belo Three D Corporation. Thank you Sir you may begin.
Thanks, Felicia I'd like to welcome everyone to our third quarter 2023 earnings conference call on.
On the call today, we will start off with comments from Benny Butler CEO of <unk>, who will provide a summary of the quarter as well as an update on certain key strategic priorities for 2023.
Following <unk> comments Bernie Chang our CFO will then review our third quarter 2023 financial results and provide our guidance.
As a reminder, a replay of this call will be available later today on the Investor Relations page of our website.
During today's call we will make forward looking statements that are subject to various risks and uncertainties that are described in the safe Harbor slide of today's presentation. Today's press release as well as our 2022 10-K, and additional 2023 SEC filings.
Please see those documents for additional information regarding those factors that may affect these forward looking statements.
Also we will reference certain non-GAAP metrics during today's call. Please refer to the appendix of our presentation as well as our today's earnings press release for the appropriate GAAP to non-GAAP reconciliations.
Finally to enhance this call. We have also posted a set of Powerpoint slides, which we will reference during the call on the events and presentations page of our Investor Relations website.
With that I'd like to turn the call over to <unk> CEO of <unk>.
Yeah.
Thanks, Bob.
And I'd like to welcome everyone to our third quarter earnings call.
Brian to starting a review of the quarter I would like to provide some context for my upcoming remarks.
As we have discussed many times, we firmly believe that we are just beginning to see how additive manufacturing is rapidly changing the way high value metal parts are produced across many industries.
While our ability to capitalize on this opportunity has driven our industry leading growth over the last two years, we now realize that our focus on top line revenue has come at the expense of customer service profitability and cash flow.
Essentially we go too fast.
Given the current conditions, we have made the strategic decision to focus our efforts on optimizing free cash flow before resuming our strong growth emphasis.
As a result.
Last month, we initiated a company realignment to reduce costs.
Bookings pipeline and recommit ourselves to ensuring our customers are successful.
I'll provide greater detail on these topics later on in my remarks, we strongly believe that this strategic realignment will enable us to achieve sustainable profitability in 2024.
With that in mind I would like now to discuss the specifics for the third quarter. Please turn to slide three.
Yeah.
As we are as we highlighted last quarter one of our key initiatives for the balance of the year was to show measurable progress on improving our free cash flow.
Our successful efforts in this area were reflected in our Q3 results as we reduced our sequential free cash flow free cash burn by more than 30% to $23 million.
We expect further quarterly improvement through 'twenty 'twenty four given a realignment.
In relation to revenue and bookings, we continue to see solid customer demand for the third quarter as revenue rose, 26% year over year. However, revenue declined sequentially due to a single delayed shipment at the end of the quarter.
Third quarter bookings were $11 million as we saw bookings delays with both new and existing customers I'll provide greater color on this later.
As a result of for Q3 bookings, we are reducing our fiscal year 2020 sort of revenue guidance to 91 million to $103 million.
As I mentioned at the beginning of this call we have initiated a strategic realignment that we believe it's critical for us to.
To achieve our free cash flow and profitability goals in 2024.
Some of the key initiatives include.
A 40% reduction in cash expenses for the first quarter next year.
The implementation of a new go to market strategy to rebuild our bookings pipeline for 2024.
Hey, guys.
As a result, we expect the fourth quarter to be a transition quarter as we implement our new initiatives.
But we expect to see the full benefits of these programs in the first quarter of 2024.
We believe we will be in a much stronger position entering 2024 to drive free cash flow and long term profitability.
Yeah.
I would now like to highlight our key.
For strategic initiatives for the fourth quarter, Please turn to slide four.
First we have embarked on a significant expense reduction program across the entire company in order to align our cost structure with current business conditions.
An increased focus on optimizing our inventory and reducing our working capital needs. As a result, we have paused all new inventory procurement. It is important to mention that we have significant inventory on hand, allowing us to supply all the systems. We believe we will need to ship in Q4 and Q1. However.
We will be.
Much more cautious procuring inventory for production going forward with purchases based on backlog growth instead of forecasts.
[laughter].
Renting programs to materially improve customer satisfaction and system performance, which had a direct impact on pushing existing customer demand.
Finally, we have implemented a number of initiatives to improve our sales execution that we believe will be vital to rebuilding our bookings pipeline.
Let me now provide some specifics around each initiative, please turn to slide five.
In relation to it where do you think expenditures, we expect to lower our total quarterly cash spend by 40% in Q1 24 compared to Q3 'twenty three.
We will accomplish this by lowering cash opex.
Fixed costs.
Primary drivers of this reduction include our recently announced 20% head count reduction as well as cost savings associated with our facility consolidation that should be completed by the end of this year.
For inventory and working capital spend we have now paused the purchase of all new inventory as we are shifting to a procurement based on current backlog rather than a forecast base production approach.
We will also be conducting a comprehensive inventory of you by the end of the year to help us identify any additional changes we need to implement to maximize cash.
I want to iterate again that this strategy will not affect our ability to ship product in Q4 and Q1. However, we will procure additional material for Q2 and beyond only once we will have clear buildup of backlog and a reduction in the inventory requiring us to procure materials to meet that bookings.
Backlog of demand for age to 24.
Additional programs, we have implemented including our ROI based evaluation of new research and development projects to prioritize our spending to only those projects that meet our internal return thresholds.
Finally, we are optimizing all of our corporate G&A expenses and as we look to prudently manage our discretionary spending levels.
Next I'd.
I'd like to address one of the most important initiative ensuring customer success.
Their success is critical as it is the primary driver of follow on orders from existing customers. Please.
Please turn to slide six.
First some background.
We saw significant growth in 2022 as revenue tripled and we more than doubled our customer base.
This reflected strong customer demand for our systems as we successfully launched three new products in the <unk> family during the.
However, this rapid growth affected our ability to appropriately support our base as our customer support organization Didnt extend quickly enough to keep pace with our significant installed crap. We were also impacted by insufficient field service training on the newly released.
Alex.
This led to issues in the field taking longer than expected to result, as a result, we saw a significant drop in customer satisfaction, which led to lower than anticipated existing customer demand and bookings in 'twenty two 'twenty three.
We have already made multiple changes in our customer support organization to address this issue and we are seeing early success. For example, we are reallocating resources to grow and strengthen.
Our customer support organization.
Including adding additional head count and forming a dedicated issue arose in ocean themes to resolve issues quickly.
We have also increased investment in our new product training programs to ensure our field service team is up to date on all the way some changes.
Finally, we have adjusted our workflows to drive a closer partnership between engineering and our customer support teams in order to quickly identify and address conditions our success depends on our customers' success.
We are already seeing progress is always out of the exchanges for example in the last two months, we have seen a step function improvement in the performance of our new products in the field.
Additionally, customer satisfaction is increasing and we are starting to see a turnaround in demand for system from existing customers.
I can confidently report that.
Determined actions are yielding results, we will remain focused on ensuring the success of our customers as we look to improve the efficiency and sustainability of our systems to meet the growing needs of our customers.
Moving on to slide set him.
Like to highlight what we are doing to improve our bookings success that has lagged forecast over the last three quarters.
As I just discussed our bookings growth has been impacted by slower than expected existing customer sets.
Yeah.
Additionally, bookings growth was affected by weekend in new customer acquisitions over the same period.
We believe the slower pace of new customer bookings is due to a number of factors, including the lack of an effective new customer sales process as well as proof of concept execution.
While these issues were offset given our strong existing customer demand last year, they became more pronounced as repeat business declined in 'twenty to 'twenty three.
As a result, we made the strategic decision to restructure our sales organization to significantly improve execution can increase bookings.
They started with the hiring of Michelle Sidwell as our new EVP of sales effort to build a world class sales organization.
Michelle brings a wealth of experience to the company and has already instituted a new disciplined sales process that is already showing at least success.
Keep out over these buses is to refocus our team on markets, where we have had significant success with the best.
These sectors include space, where we are the leading suppliers to many of the top launch companies condition.
Additionally, the opportunity in defense, a significant and the addition of the three new defense customers earlier. This year reflects this potential.
And finally, leveraging our growing footprint in the aerospace sector. We believe these are the right sectors to be addressing given our experience and significant customer footprint.
We are also developing partnerships to expand outrage in certain international markets as well as potentially partnering to develop new materials and applications.
Finally, we are working closely with our customers and internal teams to refine and clarify our value proposition to drive improved sales economics and productivity.
In summary, we are pleased with our progress to date, we expect that by combining these sales initiatives with our customer satisfaction focus we want to start to see a rebound in our customers' bookings.
On slide eight we are providing a brief summary of our strategic initiatives that we believe will drive free cash flow and sustainable profitability in 'twenty 'twenty four we.
We expect Q4, it could be a transition quarter as we execute on our realignment initiatives.
Our business is now right sized for current conditions and our cost reduction programs will result in quarterly cash savings 40 per cent starting in the fourth first quarter of next year.
We have also adjusted our procurement and manufacturing plants to maximize free cash flow.
Additionally, our investments in improving our customer service are already showing success, which will drive growth in existing customers.
And finally, our new go to market strategy disciplined sales process and focus on our strong markets will provide a strong foundation to build our backlog and pipeline for 2020 for success.
In closing we remain excited about our future opportunities and believe our realignment puts us in a much stronger position to achieve our profitability goal next year.
That I would like to turn the call over to bromine to discuss our financials and provide our guidance as we announced Bellamy was appointed CFO of last quarter and would like to.
I would like to welcome him to the team.
Given his operational and financial experience he's the right person to help lead us through the next phase of our success Bernie.
Thanks Penni.
Welcome everyone before getting started I want to say how excited I am to be joining the executive team.
We see significant opportunity in front of us and looking forward to working with the team to bring about the changes needed to really showcase Belo <unk> value.
Moving onto our quarterly financial performance, please turn to slide 10.
Third quarter revenue of $24 1 million was slightly below our Q3 guidance range due primarily to a delayed system shipments compared to Q2 Q3 years sell revenues declined slightly due to the shipment delays and lower transfer pricing, resulting from mix.
Transaction pricing recurring and service revenue for the quarter rose sequentially to $2 4 million on a year over year basis, Europe sales revenue was up 31% from $16 5 million in recurring service revenue was in line at $2 4 million.
Gross margin for the quarter was seven 2% and down sequentially. This decline was driven by reduced system volume as well as lower average selling prices due to product mix and higher inventory adjustments.
We expect gross margin to recover in Q4 with further quarterly expansion through then into 2024.
This improvement will be driven by.
And expect an improvement in Asps as.
As we will benefit from a shift back from their product mix to a higher percentage of higher priced sapphire execute shipments.
Route efficiency in our manufacturing operations.
Any reduction in bill of material costs, as we receive more materials under new long term lower cost supply contracts.
We will also benefit from increased volumes and the investments we have made will drive labor and production deficiency, we expect labor overhead and other factory costs to decline as a percentage of revenue in 2024.
non-GAAP operating expenses for the quarter, which exclude stock based compensation were $20 million down approximately 10% sequentially. The.
The decrease in operating expenses was primarily driven by a $2 6 million reduction in research and development as we rationalize the number of new product development programs, specifically on this basis R&D expenses declined to $9 8 million.
G&A Rose 1 million, primarily related to our realignment and sales and marketing was stable as Danny mentioned, we expect overall costs declined 40% through Q1 24.
GAAP net loss for the quarter was $17 1 million, including a noncash gain of approximately $8 7 million related to changes in the fair value of our warrants earn out in that derivative liabilities.
On a non-GAAP basis, which excludes this loss in stock based compensation expense net loss was $18 9 million.
And adjusted EBITDA for the quarter, excluding the same items was a loss of $16 $3 million.
Finally, as Ben mentioned bookings for the quarter was $11 million.
We have instituted a number of initiatives to drive free cash flow improvement I wanted to briefly discuss our recent success in this area. Please turn to slide 11.
This chart breaks out our cost structure by operating costs as well as fixed manufacturing and service costs.
As you can see we have made significant progress in improving free cash flow that'd be materially reduced our <unk> costs in Q3.
This improvement was primarily driven by lower operating costs, which declined by more than 30% sequentially. As we saw the initial benefits of our efficiency initiatives that we implemented over the last six months.
Looking forward, we expect a similar decline on a percentage basis in the fourth quarter, given our realignment followed by additional savings in the first half of 2024.
As a result, we believe we will achieve free cash flow breakeven excluding financings in the second quarter of next year.
Finally, we exited the quarter with $17 million in cash and investments given our free cash flow improvement success to date, we firmly believe we have more than enough liquidity to achieve our profitability goal in 2024.
Before turning to guidance I would like to review the onetime costs associated with our realignment strategy as well as additional cash Q4 cash flow highlights. Please turn to slide 12.
We now expect severance costs related to our recent workforce reduction to be in the range of $1 million to $2 million down slightly from our previous estimates.
As Denny mentioned, we are in the process of consolidating our office and manufacturing footprint into a single facility at our headquarters in Freemont, California.
Completion is expected by the end of the year as a result, we expect to incur a noncash charge in the range of $2 million to $3 million.
We'll also be done our annual physical inventory review this quarter as well as reviewing our inventory valuation methodology.
Additional Q4 cash flow highlights include a one time cash inflow in the range of $3 million to $6 million, resulting from a lease termination as a customer has decided to buy out its existing lease.
Additionally earlier this year, we announced the partnership with Physics X, which included a seed investment.
As a result of their recent funding round, we elected to redeem our 3 million investment while maintaining our partnership.
Finally, we expect fourth quarter cash usage in the range of $15 million to $18 million, including onetime payments for severance and facility consolidations.
I'd now like to provide our outlook for Q4 and fiscal year 2023, Please turn to slide 13.
As we mentioned, we expect Q4 to be a transition quarter as we execute on our realignment initiatives. We expect fourth quarter 2023 revenue to be in the range of $15 million to $27 million and gross margin to be in the range of 5% to 17%, excluding nonrecurring items non-GAAP Opex will.
Be in the range of $15 million to $18 million down from $20 million in Q3, as we start to see the initial benefits from our realignment.
Our updated full year 2023 guidance is as follows we now expect revenue to be in the range of 91 million $203 million, we expect gross margin for the year to be in the range of 9% to 12%.
non-GAAP operating expenses in the range of 78 million to 81 million.
In conclusion, we are focused on executing our realignment strategy with a clear path to profitability through improvements in operating efficiency margins and cash flow, our strong balance sheet and improving cash flow gives us significant runway to achieve sustainable profitability in 2024.
With that I now like to turn the call over for questions operator.
Thank you we will now be conducting a question and answer session.
If you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue you.
You May press Star two if you would like to remove your question from the queue for.
For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys, one moment, please while we poll for questions.
Thank you. Our first question comes from the line of Brian Drab with William Blair. Please proceed with your question.
Hi, Thanks for taking my questions.
Sure Brian.
Thanks.
Regarding the macro backdrop and and our you know the.
Financing challenges that your customers are probably having.
Can you talk about you know how.
Much of an impact is that having.
And sales in the in the extended sales cycles that you're seeing.
Versus I guess, you're you're pointing out some execution issues and you know I need to change the go to market strategy.
And the point I guess I'm getting at is just you know how how can you give us more confidence.
That changes that you're making in this environment will actually lead to this.
Improvement in the pipeline.
Yeah.
So.
No.
It's the easiest excuse in the world for a CEO to blame the economy.
For what is happening.
I actually don't see the signs for that right. So.
When we look at the vast majority of our customers.
And the customers we are working with they are generally well silenced.
And this is not the driver of a major driver.
In in kind of procurement decisions of delays are.
The capital budgets.
When we buy when we sell sorry, two contract manufacturers.
It's a slightly different story with contract manufacturers.
Those generally have to finance the systems in general many of them.
Those are a little more.
Or.
I would say cautious.
And wanted to see if the math before they make a decision so I would say that on the contract manufacturers there's clearly.
More conservatism right now, but in the Big picture I don't think that that's a driver.
They kind of had Doe minimum driver in our in our dynamics right now.
We don't we don't see that as the as the as the driver in the deals we are talking and the customer was worth discussing and don't go to that because we don't think that's not the number one driver.
Okay, and then is the yeah I'm trying to sort through the comments that you made regarding the go to market and how how you're improving that but it is part of it that.
Customers like existing customers needed more help and support before they'd be okay buying the second machine is that.
Part of that dynamic.
Yeah, you know some of them is the second machine and some of them in the fourth machine right.
In general we have seen in the last year.
A pretty sharp drop in the performance of our systems and a lot of customers and we basically did a pretty serious shake up in how we.
So part of the customer is.
We as we saw a decline if you'll recall historically about 50% of the revenue give or take when it was coming from existing customers and we have seen a pretty sharp decline in that in the last few quarters.
And they said this was.
Really strictly related to.
Customer satisfaction, because we performed poorly now.
Lots of systems took tremendous play longer to install than we planned in the customer plant local systems. They are uptime and the yield was lower than we than we are.
Thought was possible then we it was when we demonstrated a possibility and other customers. So we have to take it very seriously and kind of took a lot of actions to.
And how we execute in the field and we have a lot of indicators that we are going to start to show us after about I would say six weeks or so that we have been doing this that this is going very well.
Correct.
And so I'm I'm very optimistic about and we are already starting to see customers.
Yeah.
That's we're very disappointed by as Italy, coming back and having discussions about procurement of more machines. So.
I consider the tide.
How are they spending on this.
Hey, Brian This is Bernie Thanks for let me just add a little color to that.
Go to market initiatives, because I think that.
Customer experience is definitely very important to us, but in addition to us improving our customer experience and that would be for them.
We sell multiple systems for those customers.
The recent addition of Michelle said well it's.
She brings a very disciplined approach back to our sales force and.
One thing too is we're going to focus on our partnerships. So we signed recently with a S. P. M T to really help us expand our networking sales. So this is kind of a big part of the sales growth that we're gonna green background pipeline right. So there's opportunities out there.
Especially in the defense and we're doing a lot more market research to understand where those opportunities are growing and we've kind of realigned our teams to focus on those those opportunities.
Okay. Thanks, and then just want one follow up further on on Benny what you're saying about the performance.
The machines.
I wanted to make sure I'm clear it it's really not my impression is its not a.
An issue with it like a core issue or a fundamental issue with the technology. It's more the issue is setting up the machine getting getting it.
You know stabilized at the at the customer site.
Yeah, correct and the way, we actually identified that car.
Things that we wanted to focus on is the time that it takes us to resolve issues that happened in the field and this time it has has.
Yeah.
Escalated a lot it grew it very they play in the last.
Yeah, and we are and we took actions to dramatically reduce that and I felt I kind of touched upon this a little bit in there.
In this.
In my presentation.
Uh-huh, we there is a lot of new products that we've put together and we expanded our installed base of customers and systems, while we didn't hire enough.
And so enough customer support.
People and we didn't have the opportunity to train them on the new products. So.
The repair was a lot of it the troubleshooting, while things were when things were happening.
Well, we're just taking too long and sometimes mistakes were made in the in the repair and that's what the prolonged.
At the time that it takes to bring them to come back in.
And that applies both to when the system is shaping and and they the initial inspiration as well is if something happens after installation. It just was taking too long to fix and that is where we see the dramatic improvement and that's kind of where we identified as that as we think.
Well, we can make the biggest impact because we have seen with customers on systems that were maintained appropriately and we're all breakthrough appropriately very good results in.
Identical systems.
It's got the wrong around.
Between our customers performed much much poorer.
And we have seen in the last few weeks that when we.
Oh appropriately maintained them when we properly brought the knowledge to fix them they started.
Got that.
So yes.
This is not a product problem it is I.
I would say kind of from the organizational commitment to fixing issues quickly in the field.
Yeah, Okay, alright, thank you very much.
That's fine thank you Mike.
Yeah.
Thank you. Our next question comes from Jim Ricchiuti with Needham and company. Please proceed with your question.
Hi, Good afternoon. This is actually Chris Greg on for Jim. Thank you for taking the questions.
Sure.
Yeah. He noted you noted the sequential mix shift.
And.
I'm just curious you know what visibility you have into that.
That mix shifting back towards more X C machines and in going forward and what kind of confidence you have around D.
Do you see them, becoming a larger part of the mix in the quarters ahead. Thank you.
Yeah, So ER.
You know we have partial confidence that tried to the.
The general trend, we have seen is that the the so far I can see it in our newer systems, becoming a dominant part.
All of our products.
When we see a lot of the opportunities we are engaged now and the axes of dominating our.
Our opportunity space, but there's also demand for so far and you know until you have a solid bookings so difficult to predict how it's going to be so I wouldn't necessarily.
Yeah.
Yeah Yeah.
Overstate, our confidence on the mix the mix could be different.
Different.
We do see long term that.
The setback she is selling more.
I do I do want to mention something because.
We didn't it wasn't probably super clear from that but.
Yeah.
Some of the systems that we sold last quarter, where you have systems.
At at discounted prices.
So because they want to go systems break the old systems that we use so that was one of the reason for the lower <unk>.
Yeah.
Gross margin.
Yeah.
Generally sapphire systems, even though that lower price actually have pretty good gross margin.
So the mix is not necessarily the driving issue the driving issue was that you know that the.
Yeah.
Yeah.
Was generally lower.
And and then the adjustments in the inventory.
Are they contributed to the cost we can.
Yeah.
Good day.
As you can understand if you'd take the fixed cost.
Production of the fixed Cogs and you amortize that over a less systems.
Affects gross margin negatively.
Got it thank you.
And with the.
The go to market realignment, you had mentioned the end markets that you intend to double down and focus on.
Yeah to the extent you could could you could you elaborate a little bit on the demand environment for for each of their markets and maybe you know what drivers you're seeing in terms of what drivers are creating more urgency for customers to adopt.
Adopt this technology and use these machines.
And also maybe.
Discuss the demand environment by geography, what you're seeing in North America versus Europe.
Yeah. So.
We still operate vastly mostly in North America right. So our footprint in North America is much much stronger.
And most of that business. We are driving is still coming from North America. So a lot of that.
He is a he was kind of a extremely north America tilted what we all see.
And ER and ER.
So space and launch programs, specifically lunch and specifically mobile machinery and rocket engines is what's driving a lot of our demands in space and then.
The engines.
And Neil engine components in hypersonic cause.
One of the main drivers so far so far our demand in defense.
These are the two most obvious.
Specific.
Our convention and I mean, and the ability to produce high quality parts with tremendous complexity very quickly, it's really large sizes and there's a lot of the details that's really what allows what enables our customers.
In the programs and that's what drives the demand for those.
Got it.
And.
Do you have any insight into the utilization trends of the installed base and how.
I guess, how that's evolved in the recent quarters.
I do but I will not show that.
Greg It's fair enough that you can imagine we are a public company, but we are operating in an environment.
But it does.
So [laughter].
Thanks, very much I appreciate it.
Great. Thanks.
Yeah.
Yeah.
Thank you. Our next question comes from Jacobs, Stefan with Lake Street Capital Markets. Please proceed with your question.
Yeah, Hey, guys. Thanks for taking my question I, just kind of want to focus on the quarter you know what so what I'm kind of verticals are you seeing where orders are more you know.
Retailers are more reluctant.
Do you get the product in.
You know what obviously aerospace was the strength in the quarter, but you know where are you seeing kind of pushed out into the right.
So I would say that a lot of the places where we started to engage with customers.
In applications that we have not proven yet.
Values.
Our places that take longer.
Yeah.
And these are basically.
The segments that we didn't touch upon in this.
Kind of areas of focus so these are areas.
Yeah.
Our footprint is very preliminary.
Okay.
Once you start maybe two systems.
And until we have demonstrated traction in those.
We can expect longer sales cycles for those markets.
Okay, and then I just want to touch on the guidance real quick Yeah, Obviously Q4 guidance. The range is roughly 12 million Bucks you know what what could you.
Give us more confidence in hitting that high end and what what could be some factors that would kind of push the push the number to the low end.
Hey, Jacob this is Bernie we definitely have a path to get to our high end of our range and that's our focus.
With our gone back to our go to market you know Theres a lot of things that we're doing down there.
Help us get that.
Next level of engagement for our customers and simple things as you know when we put a quote out there.
Put an option to purchase a second machine right. So we can build get into their project plan to see their future development.
Not trying to be shortsighted, Jess one sale and so nobody just doing simple actions like that it's it's making our.
Part of the sales cycle in that part of their projects with our customers to really engage and that that's where we're trying to bring the customer experience and value to these guys and that's.
That's where it takes time.
Obviously, we've had some hiccups on that but.
We are continuing to focus on those areas that we do well to get those customers to to actually come through consortiums.
Yeah.
Okay, and maybe just kind of one last one here.
When you think about the new inventory kind of alignment strategy.
When when you think about you know new orders come in and does that effect essentially D.
You know the build time or the shipment time or is there kind of precautions that you've taken to assemble.
The basic parts or tell me that we can kind of just walk us through that.
Yeah sure so.
Yeah.
We have as I mentioned.
Inventory to build what we think we need to ship in Q4 and Q1 here and they are we might find that we lack some material you know 5%, 10% of an existing office system and of course, we are going to buy what we need in order to be able to build that so it's really important to understand that.
The kind of that.
Build to order their applies to buy material to all of the not to stop procure not to start actually the production machine. Once we have the material. There is absolutely no reason for us not to start building. It because we have the people we haven't been material. So we absolutely are going to start building it and.
The machines. We are building are actually dependent on the forecast. What we are saying is that we are not going to buy additional material.
Based on a top down revenue plan that we had in the past, it's down forecast off and machines that will make the shift in future quarters, where you basically look at that and you say well in order to be able to ship. This amount of revenue basically amount of machine I need to buy Michigan material no.
And we basically say well, let's say that we actually ship material, let's see with me and build backlog.
And then the inventory start dropping as we see those indicators then we stopped making assessment.
When we need to buy more material right. So basically not we are not making a commitment to buy material.
Before we actually see the growth of the backlog and the depletion of inventory that warrants that so at this moment.
This doesn't affect our ability to deliver the lead times.
It could be that Q3 next year old can't kind of Q2 next year it will affect the lead time on those just.
On some of our systems like not all of them, but some flavor. That's a system that's definitely going to be one of the outcomes of that.
Attitude towards Q3 next year.
Okay.
Yeah. That's helpful. I appreciate the color.
And when this wouldn't be the case you know.
We will know that that's the case.
And we'll be talking about this I think you'll you'll have the signals for four.
Most of the apartment.
Yep.
Okay.
Got it good luck going forward here guys I'll show you this week.
Sounds good Jacob Thank you. Thank you so much.
Thank you.
As a reminder, press star one to ask a question at this time.
Yeah.
There are no further questions I would like to turn the floor back over to Danny for closing remarks.
Thank you everyone for joining our call and I'd like to summarize.
The strategic move that we have done.
Right sizing our operations and our company too.
A much more sustainable growth growth that gives us much more time too.
To build the foundations and to grow profitably from that moment. So thank you so much for the call and looking forward to answer any more questions.
Okay. Thank you.
Yeah.
This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
[music].