Q4 2023 Kornit Digital Ltd Earnings Call
Ladies and gentlemen, good morning, and welcome to the continent Digital's fourth quarter 2023 earnings Conference call.
At this time all participants are in a listen only mode.
Question and answer session will follow the formal presentation.
If anyone should require operator assistance during the conference. Please press star and fetal on your telephone keypad.
As a reminder, this conference is being recorded.
It is now my pleasure to introduce your host Mr. Javid mainland Investor Relations for <unk> Digital. Please go ahead Sir.
Thank you operator, good day, everyone and welcome to Corny Digital's fourth quarter and full year 2023 earnings Conference call. Joining me today are Chief Executive Officer Ronen Samuel.
Laurie Hangover Carney Chief Financial Officer.
For today's call Ronan will recap the full year 2023 provide comments on the fourth quarter and then discuss our view on 2020 for.
Laurie will then review the fourth quarter and full year numbers and provide our first 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 1995, and other U S Securities laws will be made on this call.
These forward looking statements include but are not limited to statements relating to the company's plans strategies projected results of operations or financial condition and all statements that address 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, including the company's annual report on form 20-F filed with the SEC on March 30th 2023, which identifies 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.
Okay.
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 directly 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 now like to turn the call over to Ronen Ronen.
Thanks, Jared and thanks to everyone for joining us on today's call.
Before we dive into fourth quarter results, let's take a moment to reflect on the transformative journey of 2023, a year that the shape not only our industry, but also cool need standing in the market.
In 2023 is the cost of capital Rose and consumer preferences continue to shift the industry continue to recognize the need to reduce inventory improved time to market limit dependency on broken offshore supply chains.
And produce sustainably.
The traditional practice of Overstocking does not make sense in a market characterized by ever changing consumer preferences.
As a result, many retailers spend 2023 working through excess inventories.
Piled up since the pandemic, while shifting their focus towards fixing their operating models and supply chains. The ideal supply chain that these retailers are seeking utilizes lean inventory management and is backed by fast in concert.
And in season replenishment.
Entering 2023 knowing that we were heading into a challenging macro environment. We defined a few key business objective that would ensure who need was best prepared for its next phase of long term profitable growth.
These objectives included strengthening our product portfolio broadening the application we serve.
Diversifying our customer base.
First fully launching a poll of platform expanding our direct to fabric business and optimizing our operating model.
A key pillar in our.
Our strategy of transitioning the market from analog to digital production has been to offer a portfolio of innovative digital solutions that deliver a lethal quality and efficiency.
After a few years of major R&D investments, we arrived to eat my 2023 with a remarkably wide portfolio of solutions for on demand sustainable production.
We cemented our leading position with the Max technology as the new industry standard for quality.
Introducing the Apollo platform for bulk production.
Enhanced our DTF offering full unprecedented capabilities.
Expanded the application reach of how poorly offering.
Integrated smart tooling technology into our mass production solutions.
Made major software enhancement to the cornea X platform.
And both added value in salaries like Rss My palate adjustment technology.
With all the evolution of the solutions, we managed to penetrate new market segments, such as bulk apparel at leisure fashion home Deco technical and footwear.
And new Giaga fees, such as India, Latin America, and other key textile production hubs across the globe, our diversification efforts extend beyond market segments and geographies. We are also now engaged with new types of customers such as T O.
One manufacturer is value added suppliers and directly with major brands digital platforms and retailers.
Turning to the Apollo as you may have seen after successfully installing all three are full of better systems for the peak season in Q4, we delivered on our plan of bringing digital apparel production to the mainstream with the launch of the polo.
In January the feedback from the industry leaders on that Paulo has been outstanding.
Customers refer to the release of the Apollo to the start of a new era in direct to government pushing the boundaries of speed quality and sustainability rather than ever before that Paulo represents a quantum leap in direct to.
Government printing technology insuring businesses can meet the evolving demands of the fashion and textile industries.
Simultaneously with the launch we hosted customers and prospects at one of our better sides with North American retailers to demonstrate the system at an industrial scale. The event was very successful and I'm also pleased to report.
That's one of our better customers as already disclosed our plan to add several more apollo's to their facilities throughout 2024.
In 2023, we also made significant strides in the direct to fabric market.
New ink solution than village Itamar combined with a Max technology has created a best in class solution in the growing digital pigment market.
This market is going through a massive transition into just in time sustainable production and Clinique is leading the market.
We continue to believe that the direct to fabric market represents a significant long term growth opportunity, especially with global brands and retailers, we have committed to move to sustainable production and offer maximum flexibility.
Turning to our operations in 2023, we work diligently to achieve our goal of returning to breakeven profitability on an adjusted EBITDA basis.
And despite a more challenging environment than we anticipated in the second half we achieved this goal in the fourth quarter.
A key factor to this return to profitability was consistently strong growth in consumables through 2023 this year over year improvement in both impressions and consumables indicates continued digestion of capacity within our.
We installed base, which we view as a positive leading indicator for future systems demand. Additionally, we have and continue to realign our operating expenses.
With the current market environment.
In 2023, this realignment included cost reduction and efficiency initiatives across our operations.
In the first quarter of 2020 full we extended this effort through a restructuring and realignment effort designed to prepare <unk> for its next phase of course.
This restructuring, including a meaningful reduction in force adjustment to our go to market strategy, a reorganization of certain business segments changed.
Changes to our leadership team and improve operating efficiencies in our supply chain.
We expect this proactive measures to contribute to a return to consistent profitability and allow us to protect our robust balance sheet lowly will expand on the implications of this cost saving measures in our prepared remarks.
Turning now to the fourth quarter today, we reported fourth quarter revenues of $56 6 million within the range of the guidance. We provided in November and adjusted EBITDA margin of 0.3%, which was above the high end of our guidance range.
As a reminder, this includes the impact of the fair value of the issues of Orleans.
Despite the persistent macroeconomic headwinds.
Fourth quarter results were driven by a good peak seasons, where we saw double digit year over year growth in impressions and you know consumable revenues.
This marks our fourth consecutive quarter of year over impression scores.
Releasing Def Paulo is also giving us the opportunity to introduce a creative recurring base revenue model, which shifts capex to opex for some customer with this system.
This offering sets minimum level of production reduce barriers to entry provides more predictability and visibility for our customer and for us.
Shortens the sales cycles and improves our opportunity to address screen printers. We expect this revenue model to generate around $1 million in revenue per system per year.
With that said in 2020 full we continue to expect modest revenue growth and adjusted EBITDA profitability.
Our outlook assumes that the challenging macroeconomic backdrop, we experienced in 2023 continues into 2024 based on the actions we've taken to date to improve our operating efficiency and our working capital position, we now anticipate <unk>.
Generation positive cash flow from operations for the full year.
So in conclusion, we ended the year on a solid footing.
During the fourth quarter, we experienced a good peak season with nice growth from some of our key customers and work diligently to bring the business back to breakeven results.
Entering 2020 full we are focused on our key long term growth drivers, which include further movement into mainstream bulk production.
Expansion of our direct to fabric business engagement with key demand generators and further penetration of new segments in key textile production regions. We plan to focus on these areas, while returning to profitability and cash flow generation on a full year.
Yes.
Before I pass the call over to Laurie as you all know Israel faced and the receipt by Barrick attack in the second half of 2023, while some of our people were impacted we were resilient and continue to fully support our customers throughout the most important.
I'm a bit year.
We continue to prioritize the safety of our people in Israel and remain confident that our contingency plan secure business continuity.
I want to thank our tremendously dedicated people for their resilience in this difficult time and to thank many of you for your continued support.
Now, let me turn the call over to Laurie for a closer look at our fourth quarter and full year 2023 financials and first quarter guidance lowly.
Thank you Ron and good day to everyone.
Fourth quarter revenues were $56 6 million within the guidance range, we provided in November.
This quarter, we experienced double digit year over year growth in consumable sales, which was more than offset by a decline in systems and services sales as expected.
For the full year 2023 revenues were $219 8 million compared with 271 5 million in 2022.
Despite consumables and services demonstrating healthy growth for the full year the year over year decline was primarily attributable to significantly lower system sales in 2023.
Moving to margins.
Fourth quarter non-GAAP gross margin was 48, 6% compared with 36, 4% in the same period last year.
The year over year improvement can be attributed to high margin consumables, comprising the lion's share of total revenues.
For the full year 2023, and non-GAAP gross margin of 38, 4% increased slightly from 38, 2% in 2022, driven by higher volumes in Asp's in consumables and solid profitable growth in services. This was offset by the sizable decline in.
System sales volumes, reflecting the challenging environment, we faced throughout 2023, and particularly in the last quarter.
Looking at expenses total fourth quarter non-GAAP operating expenses were $30 1 million a decrease of about 9% from $32 9 million in the same period last year.
For the full year 2023, non-GAAP operating expenses decreased about 12% to $127 7 million compared to 2022.
The continued reduction in expenses reflects the savings achieved by our ongoing cost savings initiatives.
In the fourth quarter, we took decisive actions to advance these cost savings initiatives, which resulted in a $19 1 million restructuring charge. This charge supports our strategy to align our cost structure with our revenue expectations and to enable operating leverage as we return to growth.
Included in this restructuring is a meaningful workforce reduction.
<unk> of facilities and the phasing out of our legacy platforms.
We expect this restructuring plan to save approximately 20 million in operating expenses during 2024 versus the full year 2023.
Adjusting for these restructuring charges, our adjusted EBITDA was positive in the fourth quarter, marking a significant improvement over the adjusted EBITDA loss of $6 1 million in the same period last year and the adjusted EBIT loss of $5 6 million last quarter.
Adjusted EBITDA margin for the fourth quarter of 2023 was 0.3% at the top end of the guidance range. We provided in November again, reflecting an improvement year over year and sequentially.
For the full year 2023, the adjusted EBITDA loss of $30 9 million was essentially consistent with that of 2022.
However, the adjusted EBITDA margin for 2023 decreased to minus 14% compared with minus 11, 3% for 2022, primarily due to significantly lower revenues year over year.
Our cash balance, including bank deposits and marketable securities at quarter end was approximately $556 million through cost saving measures and healthy collections, resulting in improvements to working capital we generated positive cash flow from operations of $2 6 million.
During the fourth quarter, we remain committed to improving working capital to drive cash conversion.
Moving on to our share repurchase program for the full year 2023, we repurchased approximately 2.7 million shares spending in aggregate amount of $55 8 million.
The average price paid per share net of fees was 21.03.
On January 17, I second court approved share repurchase authorization expired subsequently, we applied for and obtained Israeli court approval for a new six months period, extending through July, allowing us to use the balance of our previously authorized share repurchase program.
This unused balance currently amounts to approximately $19 million give.
Given our current enterprise value, we plan to continue repurchasing shares in the first quarter.
Next I'd like to take a moment to discuss the operating environment.
As we discussed on our last earnings call the consumer environment remains uncertain, which with regard to system sales impacts our customers' purchasing appetite and thus our visibility.
Additionally, we continue to expect to face a challenging macro environment in 2024 similar to what we faced in 2023.
While we will work proactively with our customers invest in our product portfolio and improve our operating model. We acknowledge that these macroeconomic headwinds will weigh on our ability to convert leads and plan confidently.
With that said, we continue to expect modest growth and modest profitability in 2024, and a full year basis. We are also expecting to deliver positive cash from operations in 2024, and a full year basis.
Turning to first quarter guidance. We currently expect revenues for the first quarter of 'twenty 'twenty four to be between 43 and $48 million and adjusted EBITDA margin to be in the negative 16% to negative 26% range as a reminder, the guidance for revenue.
That concludes our prepared remarks, and with that I will now turn it back over to Ronan to open up the call for Q&A Ronan.
Thank you Lori operator, we're now ready for the Q&A session.
Thank you.
Ladies and gentlemen, we will now be conducting a question and answer session. If you would like to ask a question. Please press star and one on your telephone keypad, a confirmation tone will indicate your line is in the question queue.
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Ladies and gentlemen, we will wait for a moment, while we poll for questions.
Our first question comes from the line of Greg Palm with Craig Hallum Capital Group. Please go ahead.
Hey, everyone. Thanks for taking the questions I guess, just kind of looking back at Q4, specifically I'm wondering if you can maybe characterize the peak season. It it sounded like it was maybe a little bit better than plan, but but offset by really weak.
System sales, but just in terms of overall activity can you comment on you know capacity the industry relative to 'twenty 'twenty. Two you know whether it was maybe a little bit tighter than the previous year or any other color would be helpful. Thanks.
Thank you Greg So Q4.
On the positive side, we can see that the supplies we saw very nice.
<unk> actually done.
Digit a golf on revenue on orders of inks.
And also we saw a very nice schools on the impression which gave us confidence that our customers starting to improve the utilization and capacity utilization of the systems and we'll be ready to starting adding.
Adding orders of additional systems.
In 2024 and definitely into 2025, so we see that.
Our customers are growing the number of impressions per systems and the overall number of impression.
And it's very very clear trends.
And other thing.
So our service revenue.
Well and continue to be strong and we expect that he will continue to be strong as well next year.
The overall 2023, and specifically Q4.
System revenue in system sale was weak.
And this is mainly quanta viewed it to them.
The macro environment, our interest rate is still high.
And many of our customers are some of them.
After the.
Event.
You are waiting and standing in defence, so sitting on the fence to take a decision.
Many of them are telling us that their customers, meaning brands and retailers are still sitting on pile of inventory that's.
Trying to get rid of a on the positive side.
All are with those that you were talking saying.
Saying that into 2024, they believe that those inventory will be behind the brands and they will move back to two.
Production, if it's on the D E F or the DTD DDG markets. So overall this is the main trends that we see I'm looking at our key customers and global strategic customer they had a very strong quarters in terms of Empress.
And and Ingalls. So overall, we are happy to see this momentum continue and this is the fourth quarter that we see.
On the ink side, but the in Q4, we sold double digit which is the peak season and you'll see in the pictures in double digits as a very strong indication.
Yep.
Okay. Thanks, and then my second question.
Is related to the Apollo maybe a two parter can you confirm that the beta units you know will be or has been recognized as revenue in Q1 I'm guessing that is the assumption in the guide and then just you know your overall outlook for that.
In terms of contribution for this year and then a little bit more color on you know maybe this new recurring based revenue model that you alluded to which which sounds pretty interesting. That's a that's all I'll leave it there. Thanks.
Yeah. So on the call are fall off we are very very excited so first of all Paulo represent for us totally new incremental market that we did in the past before this is the bulk apparel. This is large quantities lost volume much much bigger than the customized design design market.
But we were fortunate enough.
We are talking with many big big customers are some of the fulfill as brands and retailers.
But looking into therefore after falling out few years of development.
We installed three.
Systems in North America, with key customers and different type of customers are one of them is retailers big retailers. One of them is more focused on screen longer run and one of them is about mainly a customized design one of each one of them work on the system.
A round the clock in the peak season, and the feedback is outstanding from all three.
Beta customers it was still being faced by the quality and the productivity of can run up to 400 governments.
Governments and our the automation that all this with one operator and the brakes for Tc or total coastal phone issue.
This.
System is grateful for the direct to governments and we believe that we are going to really create an impact and replace mainstream script screen jobs into digital.
We also had a very strong.
A pipeline into 2024 and beyond.
On the Apollo one of our better customers already indicated that.
But theyre going to add more.
More system in 'twenty 'twenty four.
And we already walking on it Oh.
We expect the other two better as well towards more systems, and we're ready to engage with other customers on really finalizing the contracts for additional systems, we need to understand the 'twenty 'twenty four we still a ramp up period for the smaller and we have limited the number of products, we are expecting for 2012.
Therefore, while we are going to accelerate in 2025 still it will be meaningful in 2024. We also are introducing and actually piloting a new business model a business model that are enabling customers are which is.
Very creative to move from Capex to Opex.
And our customers that are going to build that and actually committing a minimal level of production.
Need to pay to the machine.
This reduced the barriers of entry mainly into the screen printers, that's very very keen.
In this model when we are talking to them about it.
Will it.
It's more predictability and visibility both for us and for Oh.
Our customers are choosing it.
It will create a shorter sales cycles.
And impulse and opportunity to address screen as a whole.
This business model I'm going to generate around $1 million per unit per year.
And this is.
And of the minimum we expect it even to do more than 1 million that machine is scheduled to be much more than that.
As you ask about the three systems one of those systems is on this pilot one.
And on Opex versus a capex. So in terms of revenue recognition you will not see the full amount.
The recognized in Q1.
But you will see a split into the years with the with this model. This specific customer is playing to tween much more than the minimum commitment.
But we have on this plan and of course, the rest are going to be recognized in the coming quarters.
We are this pilot were going to limit it at this stage mainly for their fall a platform and then only few cases are we're going to learn a lot from me.
And Oh, we are planning to report back to all of you. The success in how we're going to take it forward.
Okay, great. Thanks for all the color best of luck.
Thank you.
Thank you.
Our next question is from the line of Chris Moore with C. J S Securities. Please go ahead.
Hey, good morning, guys. Thanks for taking a few maybe just stay with the Apollo for a moment. So obviously, it's you know it's fair to assume that from a recurring revenue standpoint, it's going to be.
Significantly helpful for someone like Amazon's purchase of the Apollo.
Do you expect it to have any impact on us.
There are other system purchases.
So I didnt refer specifically to our global key customers or any specific names.
We currently targeting as I mentioned with that Paulo, a new market a new type of customers. These are mainly skewed gainful fillers that running longer runs walking with mainly brands and retailers and also major retailers that you'd like to change the supply chain. So this is oh.
Our first priority to go after incremental market as I mentioned, one of our better customers is actually more on the customized design and doing one offs.
They found a the products very suitable for them.
And they are planning to continue to grow leveraging therefore for this product we assume.
But in the future some of our customized design customers, including several strategic customer wins.
Continues to grow leveraging this platform as well, but not only this platform.
Okay.
Got it no that's very helpful. It sounds like.
Lots and lots of new customers here any sense for the the you know kind of a timeframe on that on the payback for the Opex model versus you know the Capex are obviously, you're not getting the upfront dollars on on the Apollo, but you know you're getting much more recurring.
How long do you think it should take before you break even and then and then profitable there.
So it's not about it's it is the model doesn't work like this and are you actually being profitable from the first impressions of the customers' printing.
And.
The model that the contract is for five years.
With a minimum commitment of impressions that the customer needs to clean per year, the customer know exactly how much they need to clean pay impression and if they print more than the minimum.
Of course, they need to pay more than that.
It gives them visibility.
And it gives them understanding exactly for the cost it's aligned the interest of the customer and the end of the coordinate took.
Together and we believe that this model is very pasta bowl for coordinate and I'm moving us a bit more to the recurring so give us more predictability.
But also a very strong stickiness to our customers walking hand in hand with our customers.
Helping them to go.
Got it.
That's very helpful. Maybe just one more there so I understand a little bit better so what would be what would be the reason why a customer you know wouldn't employ this model.
It's a very good question. This model is not the cheapest what actually customers that knows how to run the systems with better off buying the systems painful the separately for the service contracts and buying separately the ink Oh, Eva they need to know how to run.
And the machine and efficiently and the cost per type of jobs will be different on the amount of English.
Consuming.
The model of sticky native model of moving to OPEC gives predictability to the customers. This predictability of course is as a cost and a customer will pay a bit more and therefore, it's a good also for coordinate in terms of margin.
So it is a tradeoff.
Those customers that.
Can't afford buying our systems and then the cash to buy the systems and they know how to run it would be better off to be on capex versus opex.
Got it that's helpful I'll leave it there thanks Rhonda.
Thank you.
Thank you.
Next question is from the line of Brian Drab with William Blair. Please go ahead.
Hi, Thanks for taking my questions. Firstly I just wanted to ask about the restructuring to be sure that I understood that.
Did you say that the incremental AR.
Cost take out would be 20 million.
Late into actions that were taken since the end of the year and that that's $20 million in cost takeout.
'twenty 'twenty four relative to 'twenty three.
Hi, Brian Yes, we did say that we recorded the charge in the fourth quarter the benefit of the restructuring efforts will be in 2024, and when you look at Opex on a year over year basis, we expect it to be approximately $20 million lower in 2024, then it wasn't too.
<unk> 23.
Okay, and it's all coming out of Opex not not Cogs.
There is a portion that is in Cogs, but the lion's share is in opex.
Okay got it and then.
Just one other question for now what is the update and outlook related to upgrades for.
The Atlas machines, but can you give us a sense for you know what what percentage of the installed base has upgraded and whats the prospect for <unk>.
The balance to be upgraded to Max.
Yeah. So first of all as I mentioned on my script My technology amongst school kids, the new standards of the industry, which we have we are hearing it from the market from our competitors, but you're also hearing it from our customers.
Getting to the Max are technology, they're Super pleased about the quality and also the productivity of the of the MX.
Jim.
I would say in 2023, we had a very strong year.
On the Max upgrades, we are starting this year.
Few major orders have you already received from customers to August.
Our fleet into the market. So you will see an H, one and nice uptake or nice revenue coming from those.
Upgrade as well.
I would say in terms of number of customers.
The majority of our customers.
<unk> already did the upgrades and we are only a few a few customers are some of them are or one of them is very big that is in the process of deciding if theyre going to upgrade your solo and hopefully this year there will be some upgrades also within these customers.
I would say also that are doing this year in 2020 full we're taking the Max our technology and the Atlas marks to the next level.
We are going to introduce the Atlas matched plus we've shown it if it's at a first in March in Amsterdam, we are going to show up.
Smacks plus with additional capabilities.
These additional capabilities will open for our customers new markets new applications.
And new capabilities.
It will be substantial.
And it will going to create a major bus I'm not going to get specific enough of the application and what are the capabilities. We're keeping it to two first of all I can say.
Open your wise and look for first of all because there will be big news, though.
Okay. Thank you very much.
Okay.
Thank you.
Our next question is from Erik Woodring with Morgan Stanley. Please go ahead.
Eric Your line is on mute. It you can please ask your question.
Sorry about that.
Good afternoon, everyone. This is Mike on for Eric. Thank you for taking my questions today.
Maybe just to start kind of as you speak to customers. What is the catalyst that they're looking for that would unlock that spanned I understand the reoccurring revenue model helps with that but just in general I'm, marking that spans I'm just trying to understand what changed is the spend and are going out and spending dynamic because.
You're launching new compelling products, you're seeing growth in impressions in consumables demand so what unlocks that next step.
Thank you Maya its excellent question look we have by far the best technology, the best products portfolio.
In the market and as you mentioned are the elements that we need.
To go over in order to accelerate the goals of our system sales.
And it's different from market to walk it let me start with the market with a direct to fabric market, okay. The fashion market.
And it's totally different dynamic from the direct to government in the fashion market. When we are talking today to customers and in the last few months I travel all over the wall to visit those customers, both in India, and Latin America, and Eastern Europe are to.
To visit kicked castlevania keep prospects.
And they're all telling me the same story the old telling me that they have to change the technology, formerly active and Etsy, Inc.
Inks ER to ER and technologies that enable them flexibility to wait on defense.
Material different fabrics without changing the ink.
Neighbours them on a just in time production and sustainable without consuming water without pollution.
They've been forced to do that by the brands and they see the legislation regulations coming over and capturing them. They have to change to pigments pigments is the only solution and coordinate is by far the best pigment in the market. The best solution in the market not only in terms of the pig.
But in terms of the capability of being able to pinpoint that subway with Whiting with XD. We are the only player in the market doing it all the big players all the big fulfilled.
Okay.
Super interested in our technology some of them already adopted it like in the one.
Customers that I visited though one of the customers I visited in India, which is a massive is like a city where in the massive potential of our acquisition of many systems and he is just starting now with one of our system and won the first amongst them.
So the market has to move their what they are telling us that's currently.
Their customers the brands and retailers are still struggling to get rid of the inventory that pile up from the corner time.
And are they all believe in talking with those brands are doing 2024.
It will be behind them and they will go back into full production.
We believe that this will open the gate. This will open the gate for our technology for moving to pigment.
Now those were also bringing the visit though with a better hand feel and better and black This will accelerate the growth in the market as I mentioned I believe this market is a major growth engine moving forward to coordinate. So this is on the direct to farm.
<unk> is really about brands and retailers moving back to production.
All the direct to government.
Again, let's break into two different markets. One is the traditional market. The coordinate was walking on these customized design and what we can see on our key customers and customized design, we have hundreds of them.
And we see the same phenomenon.
Finally, we start to see that they are back and increasing the utilization versus 2021. So many of them not only printing malls into printing in 2021 and the peak, but actually utilizing better the systems and we believe that some of them will get into the <unk>.
Hell of adding capacity in 2024 and definitely after the peak season of 2024 into 2025.
So this is customized design a very good indication on the bulk up there or are the bulk of bell is replacing screen and there. We are growing a very strong was there Paulo what is limiting us in 2020 following their Paulo is not the demand in the market actually most of the.
There are systems that we're planning to ship and to recognize the 'twenty 'twenty four we already in a very advanced stage of of contract with customers.
And the list is almost full for 2024 and now we are working on 2025 and for the Max Technology Ah I believe that our event like a SaaS back in March that we have in another event in may that we have as well in Europe.
It will be catalyst to.
To generate more sales into those customers.
Some of them are still struggling in terms of our cash flow in terms of financing that we need to be a bit more creative this model or flickering.
Our revenue or moving Opex from Capex to Opex.
We'll have some of them to jump and move ahead into digital oriented the fleet of digital that they're using.
Great. Thank you and then kind of related to that you mentioned further diversifying your customer base, where and what products are you seeing kind of the most net new entrust them and in your customer conversations what's driving that is competitive plans.
Yeah, So if you're talking about diversification, let's understand that coordinate towards based in our.
Last years are mainly on one segment, which is customized design is one of customization.
Most of our business was in the North America and most of our business was based on a few big customers that are together with US grew this segment of customers design that was not to exist before.
Now are the first steps that we take they didn't diversification is getting into new market segments like the bulk up there like theyre leisure that is growing very nicely for us with the poorly technology like.
Like the fashion <unk> home decor, we're getting into footwear.
We're getting too technical so all of those are incremental and diversifying our type of customer. So you can imagine, but when we are going to this type of segments like footwear or technical those are totally new type of customers that are we didn't have before a sum.
Some of them are major major one.
I will repeat again the customers that I visited in India is the massive potential for growth for direct to fabric. So I see a really big potential Oh schools in the future for coordinating the direct to fabric both.
Pending geography to places like.
India.
Morocco, but Latin America is very strong as well, but we see our production moving also nearshore and onshore to Mexico, and even into North America and of course the email. So this is one path and another part but are we put a lot of focus in the last I would say to you.
<unk> is really growing the business with retailers and brands.
Major part of our business today is already coming with those retailers some of them mid sized retailers in the U S of having 500 600.
Shops, all around the U S and changing the business model from outsourcing production to screen printing.
Moving production in house into the warehouse in order to do just in time for our production beat real advance and shipping and replenishment directly.
The shelf of their brick.
Brick and motors, so we see it very clearly and we have a long list of customers that are already using our technology some of them already scaled up and we have one of them already have their polo. So this is totally new another new type of diversification that we didn't have before and it's a growing and we are putting more focus.
We actually with the new operating model.
We are building a team that are just going after the retailers and the brands and the demand generation, we are getting into a payload.
New pilot with a big digital platform, leveraging core need X and leveraging our installed base are those of course never been a customer before with a huge potential as well so they stores of diversification new customer new geographies new products new segments.
And I'm very pleased that we managed to do it in the last two years and I really hope that soon we will see the result in the growth of system sales as well.
Great. Thank you.
Thank you.
Our next question is from the line of Tavy Rosner with Barclays. Please go ahead.
Hi, Thank you for taking my question most of them have been asked so I just wanted to ask about the cash you mentioned about 750 million. This cash I'm wondering.
Are you looking into M&A are you looking to potentially buying back more shares how should we think of the balance going forward.
So I'll start and maybe low it will add on top or on top of that as we mentioned we continue with the buyback of the shares we got approval from the authorities in Israel to continue we have about $19 million that we are planning to execute a doing a.
Q1.
And as we mentioned before we're always looking for opportunities of organic and inorganic activities to leverage our cash position and example of organic leverage of the cash position is this small format.
And the Capex to Opex models, we will see the impact and we believe that there will be a great justification to use our balance sheet for this direction and of course, we are looking for inorganic in specific areas.
Of course in the companies are once we will have something to report we will share it with you.
Thank you Laurie.
Okay. Okay.
And then any additional question Tavis.
Yes, just about the model I guess should we expect this to me there is seasonality.
In 2024.
Yes.
So you have to do it correctly, you're asking if we would expect to see revenue from the more than 2024.
Yeah.
More backend loaded.
You're familiar to what.
Right.
It was difficult to hear you can you repeat the question. Please is it for the model that was the whole model of specific yeah, just just the revenue growth.
We should expect.
Yeah.
Yes.
24 23.
Yes, yes. So in terms of 2024, you will see very similar seasonality of course, the quarter Q1 is the lowest quarter in terms of supplies and system sales you will see stronger Q2.
And the H two are will be much stronger than H, one both from <unk> perspective and.
System perspective.
And the same way you will see an improvement on our EBITDA.
And profitability of course, the quarter, while we gave a guidance of negative EBITDA in <unk> in Q1, we expect Q2 to be closer to breakeven and age two to be a profitable on an EBITDA.
Great. Thank you that's helpful. I appreciate it.
Thank you.
Ladies and gentlemen, if you wish to ask a question Please press star and one.
Our next question comes from the line of Jim Ricchiuti with Needham and company. Please go ahead.
Hi, Thank you, Hey, Lorie I want to make sure I heard you correctly.
You're saying that you're expecting modest growth for the year in 2024.
Well, yes, that's certainly session, okay, perfect thought as well.
Got it and so maybe it would be helpful to understand what may go into that that outlook. So for instance should we.
What what are the expectations for instance, with your large global customer and in terms of.
New equipment purchases.
For upgrades and again I understand you can't be specific but it would be helpful.
Or how to think about that the contribution from Apollo sounds like you're expecting some meaningful revenues. Although is it fair to say that comes into more in the back half of the year.
Okay. So first of all let me refer to the modest our revenue goals.
And let me explain from where is it coming so.
When we say more modest revenue growth, we are see a major parts and Oh P&L on the revenue one is ink services and systems.
The inconsistent we have relative very high visibility.
And predictability.
So we expect our ink to continue to grow year over year, we had a very strong year in 2023, and we expect it to continue to grow also in 'twenty 'twenty four we have a very good visibility and we'll see how Q1 tracking as well on.
On service service, we have also a very good visibility because major part of the service service is recurring revenue and some other orders for upgrades like the Max I believe as we discussed before whereas a good visibility and service.
We believe that will continue to grow as well in 'twenty 'twenty four.
Well, we have a a relative lower visibility is on system sales are now some parts of system said with good visibility lagged their Paulo, whereas I mentioned, we already know who will be the customer for 2020.
Four we are working with them. So that always is one part of it.
We have a better view also in the direct to fabric someone there Felicia, but still we have a pipeline we need to build it and some of it we are planning to build doing the first event in the May event that we have.
So at this stage, yeah still a lot of work to do to build the pipeline on the systems, but overall we believe.
But we are going to see a modest schools on overall revenue for 'twenty 'twenty four.
For global strategic customers of course, we cannot get into there.
Purchasing plans for 2024, what I can tell you is that.
We are working very closely with them.
We have a very good visibility where theyre heading.
Mentioned that are.
Peak season was strong for them without getting into too much details and overall 2023 is strong.
And I believe that they will continue to grow in 2024 there.
Planned as for the upgrades that I mentioned on previous call.
We still didn't get the E. R decision, if they're going ahead in 2024 of upgrading their fleet to the Max and if yes, how many of them, we still under discussion and we will see once we will have more information material information.
We will share with you.
Another but and you add another.
The other question I had was.
Just as it relates to Apollo and I do have another follow up Apollo is should we assume that the scale up on the the.
The revenue on Apollo is more.
Skewed more towards the second half of the year or do you see Apollo being a contributor throughout the year I know you have some revenue in Q1.
Yeah. So you will see some may of course, you will see revenue in Q1 and Q2, but it's correct to assume that more revenue was from the Apollo was he in H two of this year.
Got it and then the follow up just with respect to this recurring revenue.
The base model.
Revenue model is.
There, there's a it's a five year contract minimum impressions per year, presumably that scales up each year is that fair to say.
Yeah.
No. It's a it's a it's a minimum volume per year that the customer needs to achieve and it doesn't change from from ear to ear.
Minimum, but we expect the.
The customer will buy additional systems and go between the years and it's mainly geared are running to the Apollo. It would seem like this would also lend itself. This model to other products I guess, including the director of fabric.
Is this potentially a template.
For you looking out a couple of years.
So right now as I mentioned, we are starting with their Paulo, and he's a pilot we will learn a lot from it and of course, we're looking to leverage it if it would be successful to other products in other segments.
It can be very successful it can be very first of all it can open new markets for us, which is a very strong stickiness to work with our customers.
Those customers that we are speaking with about it are very excited some.
Some of them.
And decided to go on Capex and not Opex, what once they see.
The full cost of their opex, but for the other is very very attractive so it depends on the customer.
And this is part of the innovations at conatus, bringing when they're thinking innovation not only the technology a lot of innovation marketing, but also innovation on the business model, but we're taking it step by step and we are starting only with these products and limited debt.
The number of customers, we will learn from it and then we'll roll it out.
Decided how to roll it out.
Two other quick pet products.
Can you say how many customers.
Right now we have one customer that are.
I mean in this model and.
And we expect to have a few more in the next few months. Okay. Thank you appreciate it.
Thank you.
Thank you.
As there are no further questions I will now hand, the conference over to China mainland for closing comments.
Thank you all very much for your time today as always should you have any questions. Please feel free to reach out directly and operator, you can close the call.
Thank you.
The conference off corner digital it has now concluded. Thank you for your participation you may now disconnect your lines.
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