Q1 2024 Markforged Holding Corp Earnings Call
Operator: Hello, and welcome to the Markforged first quarter 2024 earnings conference call. If anyone should require operator assistance, please press star zero on your telephone keypad. A question and answer session will follow the formal presentation. You may be placed into the question queue at any time by pressing star one on your telephone. As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to Austin Bohlig, Director of Investor Relations. Please go ahead. Good afternoon.
Hello, and welcome to the Mark for the first quarter 'twenty 'twenty four earnings conference call. If it wants to require operator assistance. Please press star zero on your telephone keypad.
Operator: A question and answer session will follow the formal presentation.
Operator: It would be placed into the question queue at any time by pressing star one on your telephone keypad.
Operator: As a reminder, this conference is being recorded.
Operator: My pleasure to turn the call over to Austin Bohlig Director of Investor Relations. Please go ahead.
Austin Richard Bohlig: Good afternoon. I'm Austin Bohlig, Director of Industry Relations of Mark Forge Holdings Corporation. Welcome to our first quarter of 2024 results conference call. We'll be discussing the results announced in our earnings press release issued after market close today. On the call with me are our President and CEO, Shai Terem, and CFO, Assaf Zipori.
Austin Richard Bohlig: Good afternoon, I'm, often bowl like director of Investor Relations of mothballed incorporation welcome to our first quarter of 2024 results conference call.
Speaker Change: We will be discussing the results announced in our earnings press release issued after market close today with me on the call is our president and CEO Shai to EM and CFO I stopped the pori.
Austin Richard Bohlig: Before we get started, I'd like to remind everyone that management will be making statements during this call that include estimates and other forward-looking statements, which are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Therefore, any statements contained in this call that are not statements of historical facts should be deemed to be forward-looking statements. These statements represent management's views as of today, May 8, 2024, and are subject to material risks and uncertainties that could cause actual results to differ materially.
Austin Richard Bohlig: Before we get started I'd like to remind everyone that management will be making statements. During this call that include estimates and other forward looking statements, which are made pursuant to the safe Harbor provision of the private Securities Litigation Reform Act of 1995 any statements contained in this call that are not statements of historical facts should be deemed to be forward.
Austin Richard Bohlig: Looking statements.
Austin Richard Bohlig: These statements represent management's views as of today may eight 2024 and are subject to material risks and uncertainties that could cause actual results to differ materially.
Austin Richard Bohlig: Mark Forge disclaims any intention or obligation, except as required by law, to update or revise forward-looking statements. Also, during the course of today's call, we refer to certain non-GAAP financial measures. There's a reconciliation schedule showing the GAAP versus non-GAAP results currently available in our press release issued after market close today, which can also be found on our website at investors.markforge.com. I'll now turn the call over to Shai Terem, President and CEO of Markforged. Thank you.
Austin Richard Bohlig: <unk> disclaims any intention or obligation, except as required by law to update or revise forward looking statements.
Shai Terem: Also during the course of today's call, we refer to certain non-GAAP financial measures a reconciliation scheduled showing GAAP versus non-GAAP results currently available in our press release issued after market close today, which can also be found on our website at investors stop Mark porch dotcom.
Shai Terem: I'll now turn the call over to Shai to Ram President and CEO of Mark forged.
Shai Terem: Thank you, Austin, and thank you, everyone, for joining us on our Q1 2024 earnings call. We started 2024 with strong execution, setting a solid foundation for the year ahead. While the CapEx environment remained challenging in Q1, the market response to our new product has been very encouraging.
Shai Terem: Thank you Austin and thank you everyone for joining us on our Q1 'twenty 'twenty four earnings call.
Shai Terem: We started 2024 with strong execution that didn't have a solid foundation with a year ahead.
Shai Terem: Well the Capex environment remained challenging in Q1, the market response to our new product has been very encouraging and we are optimistic about the opportunities. These products will bring in the second half.
Shai Terem: And we are optimistic about the opportunities these products will bring in the second half. With the FX10, FX20, the X100, and Digital Source, we believe we are positioned for growth as we drive the adoption of additive manufacturing on the factory floor to increase efficiency, reduce costs, and improve supply chain resilience. I want to begin by providing an update on the patent lawsuit. It continues composite, In April 2023, the court eliminated 20 of the 22 patent infringement claims made against Mark Schwartz.
Shai Terem: We do have fixed in F. 'twenty the X 100, Indeed, a source we believe we're positioned for growth as we drive the adoption of additive manufacturing on the factory floor to increase efficiency reduce costs and improve supply chain resiliency.
Shai Terem: Last month, a jury found that Mark Forge had infringed on one of the two remaining claims and awarded monetary damages in the amount of $17.3 million, strongly disagree with this verdict and intend to seek to overturn the verdict in post-trial motions with the district court, we're exploring all available options, including seeking to overturn the resulting judgment, of the appeals, continue to believe that there is a massive opportunity to help manufacturers bring industrial production to the point of need, with effective cost controls, prudent cash management, and you innovative product line remain focused and excited about the future of the company, in our ability to continue to drive the adoption of additive manufacturing with the factors Lord, We reached a pivotal milestone in Q1 by shipping the first FX10 unit, which is Markforged's next generation 3D printer for the factory floor. FX10 delivers high print quality, print speeds that are nearly twice as fast and print size that are up to twice as large compared to its predecessor, the X7, initial market feedback has been encouraging customers are already printing mission critical parts for the factory floor. In fact, Toyota is one of our first customers, accelerating part production or towing application on their assembly line with SX10.
Shai Terem: I want to begin by providing an update on the patent lawsuit continues composites.
Shai Terem: In April 'twenty 'twenty free CT eliminated 20 of the 22 patent infringement claims made against Mark for.
Shai Terem: Last month, a jury found that Mark Forge had infringe on one of the two remaining claims and awarded monetary damages.
Shai Terem: Mount of $17 $3 million.
Shai Terem: We strongly disagree with this verdict and intend to seek to overturn the verdict in both ride motion with the district Court.
Shai Terem: We're exploring all available options, including seeking to overturn a revolt and judgment.
Shai Terem: The appeals process.
Shai Terem: As we enter Q2, our FX10 pipeline continues to grow, and we remain on plan to accelerate deliveries in the coming quarters as we continue to scale up production. We believe the FX10 meaningfully enhances the digital forge and our massive opportunity on the factory floor. Manufacturers need to reduce costs and build more resilient supply chains remain a secular tailwind driving demand for the future forward. Our customers across the world increasingly recognize the digital forge as a powerful platform to achieve these goals and more.
Shai Terem: We continue to believe that there is a massive opportunity to help manufacturers bring industrial production to the point of need.
Shai Terem: With effective cost controls.
Shai Terem: Prudent cash management and new innovative product line.
Shai Terem: <unk> focused and excited about the future of the company.
Shai Terem: Our ability to continue to drive the adoption of additive manufacturing with the factor score.
Shai Terem: We reached a pivotal milestone in Q1 shipping the first FX then.
Shai Terem: Which is mark for next generation really printer, but the factory floor.
Shai Terem: F extent delivers high print quantity at sprint speeds that are nearly twice as fast and print sides.
Shai Terem: Up to twice as large compared to its predecessor the X seven.
Shai Terem: Initial market feedback has been encouraging.
Shai Terem: Customers are already printing mission critical parts, where the factory floor. In fact, Toyota is one of our first customers accelerating part production, we're doing application on the Assembly line with Essex Dan.
Shai Terem: As we enter Q2, our ethics and pipeline continues to grow and we remain on plan to accelerate deliveries in the coming quarters as we continue to scale up production.
Shai Terem: Okay.
Shai Terem: We believe the FX didn't meaningfully announces additional towards and our massive opportunity on the factory floor.
Shai Terem: Manufacturers need to reduce cost and build more resilient supply chains remain in secular tailwind driving demand, but the DHS Award.
Shai Terem: Our customers across the world increasingly recognize the digital forge is a powerful platform to achieve these goals and more.
Shai Terem: Harvest Dance, a design and engineering customer specializing in additive manufacturing, provides another example of Mark Forge on the factory floor. Our customers needed a solution to produce customized, lightweight, and strong vacuum drippers for collaborative robots and an automation production line. Only with the digital forge could harvest stands meet the flexural and impact strength these parts required for certification, with a combination of onyx and carbon fiber reinforcement. Our stance reduced the gripper's weight by 80% while improving strength and reducing delivery time from two weeks to two days compared to conventional machine grippers.
Shai Terem: Harvest dense and design and engineering customer specializing in additive manufacturing provides another example of Mark forge on the factory floor.
Shai Terem: I understand you did a solution to produce customized lightweight and strong vacuum three birds for collaborative robots and automation reduction nights.
Shai Terem: Only with the DHL forge could harvest tense meet the flexural and impact strength. These parts are required for certification.
Shai Terem: It's a combination of onyx and carbon fiber reinforcement overstates reduced degree persuade 80% when improving strength and reducing delivery times from two weeks to two days compared to conventional machine repairs.
Shai Terem: Other stands turned to the FX-20 when they needed to print larger tools, such as customized grippers or palletizing and heavy pick and carry tools for large industrial robots. We believe growing demand for industrial automation technologies is a robust tailwind for the digital forge, as similar robotic applications continue to spread across the factory floor. Looking ahead, currently, we remain on plan to achieve the 2024 targets we laid out at the beginning of the year.
Speaker Change: I understand.
Shai Terem: And to the ethics 'twenty when they needed to print larger tools, such as customized scrapers for advertising and heavy peak and carry tools for large industrial robots.
Shai Terem: We believe growing demand for industrial automation technologies either of both stead, we'd would they do show a forge is similar robotic applications continue to spread across the factory store.
Shai Terem: Looking ahead currently we remain on plan to achieve the 'twenty 'twenty four targets, we laid out.
Shai Terem: At the beginning of the year, we believe we're positioned for growth in the second half of 'twenty 'twenty four driven by our new product robust fleet utilization and improving efficiencies in our go to market operations.
Shai Terem: We believe we're positioned for growth in the second half of 2024, driven by our new products, robust fleet utilization, and improving efficiencies in our go-to-market operations. With that, I now turn the call over to Assaf Zipori, our CFO, who will offer more details on our financial performance and guidance for the remainder of the year. Thank you, Shai.
Assaf Zipori: With that I.
Assaf Zipori: I now turn the call over to a theft. He Barry our CFO will offer more details on our financial performance and guidance for the remainder of the year.
Assaf Zipori: Thank you, Shai, and good evening, everyone. I will be covering our financial results for the first quarter of 2024 and the outlook for the full year. Please note that my comments reflect on non-GAAP results and outlook. For your reference, our earnings press release issued earlier this afternoon and posted to our investor relations website includes our gap to non-gap reconciliation to assist with my commentary. So, let's begin.
Assaf Zipori: Shai and good evening, everyone I will be covering our financial results for the first quarter of 2024 and the outlook for the full year.
Assaf Zipori: Please note that my comments reflect on non-GAAP results and outlook.
Assaf Zipori: For your reference our earnings press release issued earlier this afternoon and posted to our Investor Relations website includes our GAAP non-GAAP reconciliation.
Assaf Zipori: Faced with my commentary.
Assaf Zipori: So let's begin.
Assaf Zipori: Revenue for Q1 was $20.5 million, which is 15% down from the first quarter of 2023. Our revenue performance was largely driven by lower system revenue, which continues to be impacted by a challenging macroeconomic environment with high interest rates. That said, utilization rates remained healthy in the quarter, although consumable revenues were essentially flat year over year. Furthermore, we are pleased with the adoption rate of our subscription-based software and services, with revenue growing 18% year-over-year in the first quarter.
Assaf Zipori: Revenue for Q1 was $20 5 million, which is 15% down from the first quarter of 2023.
Assaf Zipori: Our revenue performance was largely driven by lower system revenue.
Assaf Zipori: Which continues to be impacted by a challenging macroeconomic environment.
Assaf Zipori: With high interest rates.
Assaf Zipori: That said utilization rates remain healthy in the quarter.
Assaf Zipori: Consumable revenues were essentially flat year over year.
Assaf Zipori: The more we are pleased with the adoption rate of our subscription based software and services with revenue growing 18% year over year first quarter.
Assaf Zipori: Gross margins for the quarter were 51.3%, representing 1.8 percentage points of an increase from Q4 and up two points from the first quarter of 2023. This margin expansion was positively impacted by operational efficiencies and product mix. A key goal for us in 2024 is to sustain this positive momentum, scaling up our business and enhancing operational efficiencies even further. Operating expenses were $24.1 million in the first quarter of 2024, down from $26.7 million in the first quarter of 2023. This improvement is a result of our ongoing efforts to reduce operating expenses and optimize our cash utilization. We expect our operational efficiencies to further lower our quarterly OPEX run rate in 2024.
Assaf Zipori: Gross margins for the quarter was 51, 3% representing one eight percentage point increase from Q4 and up two points from the first quarter of 2023.
Assaf Zipori: This margin expansion was positively impacted by operational efficiencies and product mix.
Assaf Zipori: Key gone for us in 2024 is to sustain this positive momentum.
Assaf Zipori: Kaylee Napa business and enhancing operational efficiencies even further.
Assaf Zipori: Operating expenses were $24 1 million in the first quarter of 2024, yeah.
Assaf Zipori: Down from $26 7 million in the first quarter of 2023.
Assaf Zipori: This improvement is a result of our ongoing afterwards to reduce operating expenses and optimize our cash utilization.
Assaf Zipori: We expect our operational efficiencies.
Assaf Zipori: The lower our quarterly Opex run rate in 2024.
Assaf Zipori: Furthermore, we continue to take actions to lower our OPEX in 2025. Operating loss was 13.5 million for the first quarter of 2024, an improvement from 14.8 million in the first quarter of 2023. Net loss in the first quarter of 2024 was $12.2 million, an improvement from a loss of $13.3 million in Q1 2023. The first quarter loss per share was $0.06 based on a weighted average number of shares outstanding for the quarter of $199.3 million, driven by improving operational and working capital efficiencies.
Assaf Zipori: Furthermore, we continue to take actions.
Assaf Zipori: Nowhere are opec's in 2025.
Assaf Zipori: Operating loss was $13 5 million for the first quarter of 2024, an improvement of $14 8 million in the first quarter of 2023.
Assaf Zipori: Net loss in the first quarter of 2024 was $12 2 million.
Assaf Zipori: An improvement from a loss of $13 3 million in Q1 2023.
Assaf Zipori: First quarter loss per share was six cents based on Oh.
Assaf Zipori: Our weighted average shares outstanding for the quarter of $199 3 million.
Assaf Zipori: Driven by improving operational and working capital efficiencies.
Assaf Zipori: Our net cash used in operating activities in Q1 was $7.4 million. This is an improvement of approximately 52% from the first quarter of 2023. While we expect our cash utilization to increase in Q2 as a result of the annual compensation payout, we expect our cash utilization to improve in 2024 as a result of higher revenue, gross margin expansion, strong OPEX controls, and working capital efficiencies. Our cash and cash equivalents were $107.9 million at the end of Q1, down from $8.9 million at the end of Q4 2023.
Assaf Zipori: Net cash used in operating activities in Q1 was 7.4 million.
Assaf Zipori: He sees an improvement of approximately 52% from the first quarter of 2023.
Assaf Zipori: While we expect our cash utilization to increase in Q2 as a result of annual compensation payout.
Assaf Zipori: We expect our cash utilization to improve in 2024 as a result of higher revenue gross margin expansion strong opex controls and working capital efficiencies.
Assaf Zipori: Our cash and cash equivalents were 107.9 million at the end of Q1 down from $8 9 million from the end of Q4 2023.
Assaf Zipori: We also want to provide the financial impact related to the continuous composite lawsuit verdict in Q1 2024. First, we strongly disagree with this verdict, and we are actively exploring all possible options to overturn the verdict. In Q1 2024, we accrued a gap expense of $17.3 million to reflect the judgment awarded by the jury. This is excluded from our non-GAAP results. No cash payment has been made at this point.
Assaf Zipori: We also want to provide the financial impact related to the continuous composite lawsuit verdict in Q1 'twenty 'twenty four.
Assaf Zipori: First we strongly disagree with this verdict and we are actively exploring all possible options.
Assaf Zipori: Overturn the verdict.
Assaf Zipori: In Q1, 'twenty 'twenty four we accrued a GAAP expense of $17 3 million reflect the judgment awarded by the jewelry.
Assaf Zipori: D C is excluded from our non-GAAP results.
Assaf Zipori: No cash payment has been made at this point.
Assaf Zipori: Given the nature of this ongoing dispute, we are limited in commenting on this matter beyond what we have publicly stated. Furthermore, our guidance does not reflect additional action that continuous composites may take, which may include seeking additional relief through post-trial motions or royalty payments on future revenue, as described in our April 12 press release. Now moving on to our guidance. We are reiterating our 2024 guidance provided at the beginning of the year.
Assaf Zipori: Given the nature of these ongoing dispute with.
Assaf Zipori: Our limited in commenting on this matter beyond what we have publicly stated for.
Assaf Zipori: Furthermore, our guidance does not reflect additional action.
Assaf Zipori: It continuous composites may take which may include seeking additional relief through post trial motions or royalty payments on future revenue.
Assaf Zipori: As described in our April 12.
Assaf Zipori: Press release.
Assaf Zipori: We continue to anticipate fiscal year 2024 revenues to be within the range of $95 to $105 million, which acknowledges the persistence of macroeconomic headwinds throughout the year. We expect revenue to grow mid-single digits, quarter over quarter in Q2. And we continue to see an opportunity for accelerated growth in the second half, underpinned by new products, and particularly EFX 10. We expect gross margins to be within the range of 48% to 50% as we continue to ramp up our new product line.
Assaf Zipori: Now moving on to our guidance.
Assaf Zipori: We are reiterating our.
Assaf Zipori: 2020 full guidance provided at the beginning of the year.
Assaf Zipori: We continue to anticipate fiscal year 2024 revenues to be within the range of 95 to 105 million.
Assaf Zipori: Which acknowledges the persistence of macroeconomic headwinds.
Speaker Change: Oh Dear.
Assaf Zipori: We expect revenue.
Assaf Zipori: Grow mid single digits, what theyre over quarter in Q2, and we continue to see an opportunity for accelerated growth in the second half underpinned by new products and particularly yes. Thanks Dan.
Assaf Zipori: We expect gross margins to be within the range of 48% to 50% as we continued to ramp up our new product lines.
Assaf Zipori: We are encouraged by our strong Q1 gross margin performance and see a path to the upper end of our guidance based on our revenue performance in the second half of the year. We expect non-GAP operating losses in the range of 42.5 to 47 million for the year, which is an improvement from a loss of $57.6 million in 2023. In turn, we expect non-GAAP EPS results for the full year to be a loss in the range of $0.19 to $0.22 per share. That concludes our prepared remarks today. Please open up the call for questions.
Assaf Zipori: We are encouraged by our strong Q1 gross margins performance and see a path to the upper end of our guidance.
Assaf Zipori: Indeed, our revenue performance in the second half of the year.
Assaf Zipori: We expect non-GAAP operating loss in the range of 42.5 to 47 million for the year, which is an improvement from a loss of $57 6 million in 2023.
Assaf Zipori: In turn we expect non-GAAP EPS results for the full year to be a loss in the range of 19 to 22 cents per share.
Assaf Zipori: That concludes our prepared remarks today.
Assaf Zipori: Please open up the call for questions.
Operator: Thank you. We'll now be conducting a question and answer session. If you'd like to be placed in the question queue, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you'd like to move your question from the queue. Our first question today is coming from Greg Palm on behalf of Craig Hallam. Your line is not live.
Speaker Change: Thank you well now be conducting a.
Speaker Change: <unk> and answer session, if you'd like to be placed in the question queue. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May press star two if you'd like to move or a question from the queue.
Operator: Our first question today is coming from Greg Palm from Craig Hallum. Your line is all lives.
Gregory William Palm: Yeah, thanks, good afternoon everybody, congratulations on the initial shipments of FX 10. Can you just give us some sense and you know sort of where the pipeline stands today, kind of what capacity is like, and maybe a little bit more color on how you sort of see that playing out throughout the end of the year?
Gregory William Palm: Yeah. Thanks, good afternoon, everybody. Congrats on the initial shipments of FX 10 can you just give us some sense and you know.
Gregory William Palm: Sort of where the pipeline stands today kind of what capacity is like and maybe a little bit more color on how you sort of see that playing out throughout the end of the year.
Speaker Change: Sure Hi, Greg Thank you.
Speaker Change: So I would say.
Gregory William Palm: The first quarter was great we're able to ship some of this FX than the initial feedback from the customers is really good and strong.
Shai Terem: Some of this FX10. The initial feedback from customers is really good and strong. We have great customers that were able to print right out of the box very, very long prints and amazing parts, including Toyota, as we suggested. The pipeline is building up as expected, and maybe even more, as we discussed before. We expect this to be our next flagship product; so far, it's building up correctly, and I would say from a production perspective, it's gonna probably take a quarter or two until the supply meets the demand. And after that, we're going to be in the regular course of business.
Shai Terem: With great customers that we're able to print right out of the box very very long.
Shai Terem: It brings an amazing parts, including Toyota who suggested that.
Shai Terem: The pipeline is building up as expected and maybe even more.
Shai Terem: As we discussed before we expect this to be our next day effects your product and so far it's building up correctly and I would say from a production perspective, it's going to probably take a quarter or two until the supply would meet the demand and after that we're gonna be in the regular course of business.
Shai Terem: So theoretically, you could be kind of at a full run rate where supply matches demand by maybe Q4 this year.
Shai Terem: So theoretically you could be kind of at a at a full run rate where supply matches demand by you know maybe Q4 this year.
Shai Terem: Potentially, even earlier, yes.
Shai Terem: Potentially even at it yes.
Speaker Change: Yeah Okay.
Assaf Zipori: And cognizant of what you can or can't say regarded the patent verdict, but can you just give us some sense of what product lines are the ones affected and maybe which geographies those are comprised of? Just trying to get a sense of what the worst case scenario is here.
Speaker Change: And cognizant of what you can or can't say regarded to the patent verdict, but can you just give us some sense and you know what what product lines are the ones affected in and maybe which geographies. Those are comprised of just trying to get a sense of like what the worst case scenario was here.
Assaf Zipori: Thank you, Greg. This is Assaf. So this is related to our hardware. More specifically, this is related to the continuous carbon fiber technology within our hardware. This is an IP based in the US, or the claim is related to the US. And at this point, it's just too early to give additional indications, but I can tell you that we obviously disagree with the verdict, we are acting, and we're doing whatever we can to overturn the verdict. And We are evaluating all of our options.
SaaS: Thank you Greg this is SaaS.
Assaf Zipori: So D. C is there related to our hardware and more specifically this is a related to the continuous carbon fiber technology within our hardware.
Speaker Change: He says I P based.
Assaf Zipori: In the or the claim is related to the U S.
Assaf Zipori: And I'd say at this point, it's just too early to give additional indications and I can tell you that we obviously disagree with the verdict.
Assaf Zipori: And we are acting we're doing whatever we can do over time to verdict and we are evaluating all of our options.
Gregory William Palm: Yep, I understand. Okay, I will leave it there. Thanks.
Speaker Change: Yeah understood, Okay, I will leave it there thanks.
Gregory William Palm: Yeah.
Operator: Thank you. The next question is coming from Brian Drab of William Blair. Your line is now live.
Gregory William Palm: Thank you next question is coming from Brian Drab from William Blair. Your line is now live.
Operator: Yeah.
Tyler: Hey, thanks for taking my question. This is Tyler on behalf of Brian.
Operator: Hey, Thanks for taking my question. This is Tyler on for Brian I'm, just looking at your international performance. It looks like that had a pretty large year over year impact can you just explain kind of what's going on in Europe and Asia.
Shai Terem: Just looking at your international performance, it looks like that had a pretty large year over year impact. Can you just explain kind of what's going on in Europe and Asia?
Tyler: Sure I think it's a very common at least from my time in the industry, but you see the cycles.
Shai Terem: John just go around the World and I think what we saw in the U S and Americas couple of quarters ago now we see it.
Shai Terem: In the EMEA and APAC and I do believe that we're going to see the recovery.
Speaker Change: And as soon we do see regions as well based on the pipeline that we see.
Shai Terem: Okay, that's great.
Tyler: The FX 10 shipments did those mostly go to existing customers and if so when will they start to kind of be shipped out to new customers I put in orders. Thank you.
Shai Terem: Sure, I think it's very common, at least from my time in the industry, but you see the cycles of challenges go around the world. And I think what we saw in the US and the Americas a couple of quarters ago, we now see in EMEA and APAC, and I do believe that we're going to see a recovery soon in these regions as well, based on the pipeline that we see.
Speaker Change: Sure. So I would say as usual when we released the new product we ship first to.
Shai Terem: Some of these printers to our channel partners and distribution network.
Shai Terem: Make sure that we continue to create the demand, bringing the printer closer.
Shai Terem: To the customers to deferred so that it would continue into Q2 as well.
Tyler: Okay, that's great. And the FX10 shipments, did those mostly go to existing customers? And if so, when will they start to be shipped out to new customers that have placed orders? Thank you.
Tyler: And Dana shareholders, usually are coming from existing customers that expanding like Toyota.
Tyler: But theres also a lot of new customers.
Tyler: The capabilities of the solution, we're expecting Q2 to see both.
Speaker Change: Okay. Thank you I'll pass it on.
Speaker Change: Thank you.
Speaker Change: Thanks, you as a reminder, that star one to be placed in the question queue.
Tyler: Our next question is coming from Troy Jensen from Lake Street Capital. Your line is now live.
Tyler: Yeah.
Speaker Change: Hey, gentlemen, congrats on a decent results here.
Shai Terem: Sure. So, as usual, when we release a new product, we ship first some of these printers to our channel partners and distribution network to make sure that we continue to create demand, bring the printer closer to customers, to the field. So that would continue in Q2 as well, and the initial orders usually are coming from existing customers that are expanding, like Toyota, but there are also a lot of new customers due to the capabilities of the solution. So I expect in Q2 to see both.
Tyler:
Tyler: Okay.
Tyler: And then the industry just started on digital source in traction you're getting with that and just maybe more.
Shai Terem: Customer success stories.
Tyler: Okay, thank you. I'll pass it on.
Shai Terem: Sure. So we actually see great engagement and run to do dual source and I would say, especially around enterprise accounts, which are really Duke and how to change the business model and their supply chain and the new way that they're going to do MRO for air.
Speaker Change: And floors.
Speaker Change: As we expected theres not going to be material to revenue.
Tyler: At the current stage, but adoption of the solution and changing their business model into the solution, but so far the engagement is very high and we are very encouraged around it.
Speaker Change: Okay perfect.
Speaker Change: Chris you guys, a little bit on gross margins.
Speaker Change: I mean, you guys grew well above the range for the year here in Q1, and I get the FX 10 launches kind of diluted the gym.
Speaker Change: I mean, I would assume months FX Jens shifting a more fulfilling and just probably accrete into gross margins dilutive to where we are now so maybe.
Speaker Change: Maybe a sense on where do you think gross margins are going to be in Q2 with the FX launch or just.
Speaker Change: To help kind of square that circle for me.
Speaker Change: Yeah, Charlie that's a great question, we are very encouraged with the expansion that we've seen in Q1.
Operator: Thank you. As a reminder that star ones are placed in the question queue. Our next question is coming from Troy Jensen from Lake Street Capital. Your line is now live.
Troy Donavon Jensen: That's a great indication to our ability to reach our long term targets, you'll see mid fifties.
Operator: Margins.
Troy Donavon Jensen: Hey, gentlemen, congrats on the decent results here in a tough environment; more questions. For you, Shai, I'd love to just hear you just start on digital source and the traction you're getting with that, and just maybe more customer success stories.
Troy Donavon Jensen: Now the way that we look at it at the moment is that we're still facing.
Shai Terem: Sure. So we actually see great engagement around the digital source. And I would say especially around enterprise accounts, which are really looking how to change their business model and their supply chain and the new way that they're going to do MRO for their manufacturing floors. As we expected, there's not going to be material revenue at the current stage, but adoption of the solution and changing their business model to the solution. But so far, the engagement is very high, and we are very encouraged by it.
Speaker Change: Have you seen a tough market.
Shai Terem: We are about to release.
Shai Terem: More technologies and we are ramping up the ethics, then we're going to release the P X 100.
Shai Terem: All of that could put pressure on our gross margins.
Troy Donavon Jensen: Okay, perfect. I would just press you guys a little bit on gross margins. I mean, you guys were well above the range for the year here in Q1, and I get the FX10 launch is going to dilute it, but I would assume once FX10 is shipping at full volumes, it's probably accretive to gross margins, not diluted to where we are now. So maybe you can give me a sense of where you think gross margins are going to be in Q2 with the FX launch or just kind of help kind of square that circle for me.
Shai Terem: So currently we feel comfortable with the range that we've provided.
Troy Donavon Jensen: There's an opportunity to be closer to the upper range as we see revenue picking up into second half of the year.
Troy Donavon Jensen: Okay.
Troy Donavon Jensen: I know you can't talk much about the litigation.
Troy Donavon Jensen: Can you just talk so much historical.
Troy Donavon Jensen: Legal expense has been in the Opex numbers.
Troy Donavon Jensen: Or are we we're not we're not breaking it out.
Speaker Change: Oh yeah.
Troy Donavon Jensen: Wondering is it.
Assaf Zipori: Troy, that's a great question. We are very encouraged by the expansion that we've seen in Q1. That's a great indication of our ability to reach our long-term targets of the mid-50s in terms of gross margins. Now, the way that we look at it at the moment is that we're still facing a tough market, we are about to release more technologies, and we are ramping up the FX 10. We're going to release the PX 100, and all of that could put pressure on our gross margins.
Troy Donavon Jensen: Is this going to be what drives the 2025 days.
Speaker Change: Thanks Richard.
Assaf Zipori: Ken has dramatically lowered G&A expense because of the lack of litigation hopefully.
Speaker Change: Thank you Kelly.
Assaf Zipori: Yeah.
Assaf Zipori: I think so.
Assaf Zipori: A few more.
Assaf Zipori: Right.
Assaf Zipori: There's a few more operational activities that we are doing.
Assaf Zipori: This is what we believe are going to drive the lower opex overtime.
Assaf Zipori: It has nothing to do with the litigation directly.
Speaker Change: Okay, perfect well, congrats guys and good luck going forward here.
Speaker Change: Thank you.
Speaker Change: Thank you we reached end of our question and answer session I'd like to turn the floor back over for any further or closing comments.
Assaf Zipori: So currently, we feel comfortable with the range that we have provided, but there's an opportunity to be closer to the upper range as we see revenue picking up in the second half of the year. Way, OK.
Speaker Change: Thank you very much everyone for joining us for the Q1 earnings call and looking forward to see you in the next quarter. Thank you.
Troy Donavon Jensen: How about, I know you can't talk much about the litigation, but can you just tell us how much historical Eagle Expanse has been in the APEX members?
Unknown Speaker: Or we're not; we're not breaking it down.
Unknown Speaker: Unknown Speaker. It's not something just one. It's. This is going to be what drives the 2020 elections.
Unknown Speaker: of the reasons we're going to have dramatically lower, you know, GMA expenses because of the lack of litigation, hopefully. I mean, I can't give a color idea about this.
Unknown Speaker: I think I'll be
Troy Donavon Jensen: There are a few more operational activities that we are doing that we believe is going to drive the lower OPEX over time, and it has nothing to do with the litigation directly. Okay, perfect. Well, congrats guys. Good luck going forward here. Thank you.
Operator: Thank you. We have reached the end of our question and answer session. I'd like to turn the floor back over to you for any further or closing comments.
Shai Terem: Thank you very much, everyone, for joining us for the Q1 earnings call. Looking forward to seeing you in the next quarter. Thank you.
Speaker Change: Thank you that does conclude today's teleconference and webcast you may disconnect. Your line at this time and have a wonderful day, we thank you for your participation today.
Operator: Thank you. That does conclude today's teleconference and webcast. You may disconnect your line at this time and have a wonderful day. We thank you for your participation today.