Q4 2024 Kornit Digital Ltd Earnings Call
Greetings and welcome to coordinate digital's fourth quarter and full year 'twenty 'twenty full earnings conference call.
As a reminder, this call is being recorded.
Speaker Change: I would now like to turn the conference over to your host Mr. Jonathan <unk> Investor Relations for corner digital Mr. <unk> you may begin.
Jonathan: Thank you operator, good day, everyone and welcome to Corny Digital's fourth quarter and full year 2024 earnings conference call.
Speaker Change: Joining me today are chief Executive officer of running them, well and Lori Hangover Corning's Chief Financial Officer.
Speaker Change: For today's call run and will recap the full year 2024 provide comments on the fourth quarter and then discuss our view on 2025.
Speaker Change: 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.
Speaker Change: Before we begin I would like to remind you that forward looking statements within the meaning of the private Securities Litigation Reform Act of 90 to 95 and other U S Securities laws will be made on this call.
Speaker Change: These forward looking statements include but are not limited to statements relating to the Companys plans strategies projected results of operations or financial condition and all statements that address developments that the company expects will occur in the future.
Speaker Change: 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.
Speaker Change: 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 20th of 2024, which identifies specific risk factors that could cause actual results to differ materially.
Speaker Change: 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.
Speaker Change: Additionally, the company will be making reference to certain non-GAAP financial measures on this call the.
Speaker Change: A 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 Companys Investor Relations Web site.
Speaker Change: At this time I'd now like to turn the call over to run in Ronan.
Speaker Change: Good morning, everyone and welcome to coordinate fourth quarter and full year 2020, full earning calls before.
Speaker Change: Before we dive into our results I want to take a moment to reflect the significant transformation, we will need to experience in 'twenty 'twenty four.
Speaker Change: This year was a turning point.
Speaker Change: One in which we successfully executed our strategy returned to profitability and position the company for sustained profitable growth.
Speaker Change: At the beginning of 2020 full we set clear objectives returned to positive EBITDA generic meaningful cash flow and establish a scalable disciplined model that fuels long term expansion. Thanks to the dedicated effort of our teams I'm pleased to report.
Speaker Change: But we are not only delivered on these goals, but also introduce game changing innovation.
Speaker Change: For instance, our market position and expanded into new strategic Adjacencies.
Speaker Change: Today, we are pleased to report Q4, 2024 revenues of 67 million and an adjusted EBITDA margin of 13, 8% both within our guidance ranges demonstrating the successful implementation of our strategy and an ongoing.
Speaker Change: Business momentum.
Speaker Change: We also reported $26 7 million of operating cash flow in the quarter.
Speaker Change: These results Mark two significant milestones.
Speaker Change: Shaving positive EBITDA for the full year and generating substantial operating cash flow.
Speaker Change: Our Q4 performance was fueled by a successful peak season and growing impressions across all key customers.
Speaker Change: One of the most exciting highlights of Q4 was there Paul a platform performance doing the peak season, having.
Speaker Change: Having delivered 15 of polar system throughout the year with most becoming fully operational during the critical period customer feedback has been excellent reinforcing our polo's role as the key enabler of mass scale digital production.
Speaker Change: 2020 full was not just about financial milestones. It was about laying the foundation for core needs long term success, we introduced industry defining solutions, including Apollo Atlas Smacks, plus N V video, Inc. For wall to wall setting new benchmarks.
Speaker Change: <unk> for quality cost efficiency and sustainability.
Speaker Change: Apollo has redefined mass scale digital production, delivering unmatched productivity automation and consistency.
Speaker Change: The strong market response is evident in our growing pipeline, which is already filling up for 2025 deliveries.
Speaker Change: Additionally, we have successfully upgraded a significant portion of our installed base transitioning customers from Atlas to Atlas Macs and are now beginning to aggregate them to Atlas <unk> plus.
Speaker Change: These upgrade path was reinforced by painful recent announcement highlighting the growing adoption of our latest technology and its ability to drive efficiency and quality at scale.
Speaker Change: All inclusive click model is evolution nizing, our customers embrace digital technology.
Speaker Change: Driving strong adoption accelerating penetration in the screen printing market and already generating meaningful at all which we will start reporting as promised on our Q1 earnings call. We have expanded our horizon, two new markets, including bulk apparel.
Footwear and home Deco, while deepening our presence in key regions in Banca Bill, we have deliver Paulo, and Atlas Max systems to major screen printers, adopting digital technology for the first time.
Speaker Change: Our marking a significant step in the transformation of high volume apparel manufacturing from analog to digital.
Speaker Change: In footwear, we delivered our solution to three different customers in Asia with one already in full production for a major global brands. This customer is seeing strong initial adoption in these now scaling up with additional systems planned for deployment in the first half of <unk>.
Speaker Change: 1025, reinforcing the growing demand for digital production in the footwear sector, we fundamentally shifted our go to market approach emphasizing customer success account management and recurring revenue growth. We also strengthened our team we stopped it.
Speaker Change: His talent across all functions, ensuring we have the right leadership in place to drive sustained execution.
Speaker Change: In conclusion, we have built a business that is resilient profitable and pose for long term success beyond our innovation, we continue to deliver shareholder value. We have executed 75 million of our previously announced 100 million share repurchase program, which.
Speaker Change: We expect to complete by mid 2025, as we enter 2025 co need is in the strongest position it has ever been.
Speaker Change: The market is showing signs of improvement driven by a clear shift among brands retailers and create those towards on demand manufacturing. This transition is becoming increasingly critical for businesses aiming to respond swiftly to evolving consumer demand.
Speaker Change: While minimizing excess inventory and waste. Additionally, there is significant shift towards nearshore and onshore production as company seeks enhanced supply chain resilience and faster turnaround times.
Speaker Change: While these trends are positive certain macroeconomic uncertainties persist.
Recent political developments in the U S and potential tariffs on Mexico and raised concerns among some of our customers regarding a nearshore manufacturing.
Speaker Change: Are there more potential inflationary pressures stemming from these policies could impact consumer purchasing power. We continue to monitor this dynamic closely while supporting our customers in navigating this shift effectively as we stated in our last call 2020.
Speaker Change: Five is about execution translating the strong foundation building 2020 full into scalable profitable growth.
Speaker Change: The lengthening our market leadership and driving the industry forward with our innovative solutions and business models with a continued focus on innovation customer success and disciplined financial management, we are confident in our ability to drive significant value for our customers.
Speaker Change: <unk> employees and shareholders.
Speaker Change: With that I will now turn the call over to Laurie for a closer look at our financials.
Speaker Change: Sure.
Laurie: Thank you Brendan and good day to everyone.
Laurie: Fourth quarter revenues were $60 7 million within the guidance range, we provided in November.
Laurie: This quarter year over year growth of 7%, resulting mainly from growth in system sales and revenue recognized under our AIC model.
For the full year 2024 revenues were $203 8 million compared with $219 8 million in 2023.
Laurie: The decline resulted from lower systems and services sales and was partly offset by growth in consumables.
Laurie: Moving to margins.
Laurie: Fourth quarter non-GAAP gross margin was 55, 1% up from 48, 6% in the same period last year.
Laurie: This year over year improvement was primarily driven by higher product revenues from systems and AIC. The absence of a warrant impact this quarter and cost base reductions, resulting from the initiatives announced at the beginning of 2024.
Laurie: For the full year 2024, non-GAAP gross margin rose to 48, 6% compared with 38, 4% in 2023.
Laurie: The increase was largely attributable to a more favorable sales mix driven by consumable sales reduced warrant impact and the cost base reductions.
Laurie: Looking at expenses tell.
Laurie: Total fourth quarter non-GAAP operating expenses were 28 million a decrease of about 7% from $30 1 million in the same period last year.
Laurie: For the full year 2024, non-GAAP operating expenses decreased about 14% to $109 8 million.
Laurie: This reduction in expenses reflects the impact of the restructuring initiatives implemented at the end of 2023 and beginning of 2024.
Laurie: Moving to EBITDA.
Laurie: Our adjusted EBITDA in the fourth quarter was $8 4 million, marking a meaningful improvement over the adjusted EBITDA of 0.2 million in the same period last year.
Laurie: And the adjusted EBITDA of $1 5 million last quarter.
Laurie: Adjusted EBITDA margin for the fourth quarter of 2024 was 13, 8%.
Laurie: Paired with 0.3% in the same period last year.
Laurie: For the full year 2024.
Laurie: <unk> EBITDA was 0.3 million, which was up significantly versus negative $30 9 million in 2023.
Laurie: Improving profitability was a key objective for us as we enter 2024 and we are pleased with this improvement of $31.2 million year over year, which resulted in positive adjusted EBITDA for the year.
Laurie: Adjusted EBITDA margin for the full year, it was 0.2% compared with negative 14% in 2023 with the improvement being driven by a reduced opex improvement to sales mix and reduced warranty impact.
Laurie: Our cash balance, including bank deposits and marketable securities at quarter end was approximately $512 million for.
Laurie: For the fourth quarter operating cash flow increased to $26 7 million versus 2.6 million in the same period last year.
Laurie: And on a full year basis 2020 for operating cash flow was a robust $48 7 million compared with negative $34 7 million in 2023. This positive cash flow was primarily driven by strong collections and improved profitability.
Laurie: Our primary use of cash during 2024 was our share repurchase program, we used $84 $1 million of cash and repurchases during 2024, bringing the total gross amount used on repurchases to $121.6 million at an average.
Laurie: Execution price of $24 40.
Laurie: During the fourth quarter, we entered an accelerated share repurchase program under which we plan to repurchase approximately $75 million of our ordinary shares.
Laurie: Under the terms of the ASR agreement, we received an initial delivery of approximately one 8 million shares in exchange for a prepayment of $75 million.
Laurie: The final number of shares repurchased will be dependent on our average daily V. Wap through the end of the contract. We expect this program to close at the end of June.
Laurie: This $75 million represents a majority of the 100 million dollar program, we announced at our Investor event in September and we expect to complete the remaining $25 million to opportunistic repurchasing.
Laurie: As Ronen mentioned 2025 will be a year of execution for us, meaning it will be a year, where we aim to turn our vision innovative solutions and the business model, we laid out at our investor event into measurable results.
Laurie: These measurable results include the annual recurring revenue generated by our AIC model.
Laurie: We will begin to disclose this metric during our first quarter of 2025 earnings in the meantime, the investments made in our AIC model can be seen on our balance sheet under equipment on lease net.
Laurie: Turning to first quarter guidance. We currently expect revenues for the first quarter of 2025 to be between 45.5 million and $49 5 million and adjusted EBITDA margin to be in the negative 4% to negative 9% range.
Laurie: That concludes our prepared remarks with that I will now turn it back over to Ronan to open up the call for Q&A Ronan.
Ronan: Thank you Laurie and operator, we're ready to assume call. It there was some questions.
Speaker Change: Thank you.
Speaker Change: Ladies and gentlemen, we will now begin the question and answer session.
Speaker Change: If you'd like to ask a question. Please press star and one on your telephone keypad.
Speaker Change: A confirmation tone will indicate your line is in the question queue.
Speaker Change: You May press star and two if you'd like to remove the question from the queue.
For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
Speaker Change: Ladies and gentlemen, we will wait for a moment, while we poll for questions.
Speaker Change: The first question comes from the line of Greg Palm from Craig Hallum Capital Group. Please go ahead.
Greg Palm: Yeah. Thanks.
Speaker Change: Everyone and congrats on the progress here.
Speaker Change: Rodney you talked about kind of 'twenty 'twenty four a little bit in 2025 as is as sort of another year of execution, maybe you know tell us what you sort of perceive as kind of your goals for the year end and how that relates to our topline growth potential.
Greg Palm: Yeah. Thanks, Greg.
Greg Palm: First of all would like to touch on a bit about 2024, because it was a turning point for core knit.
Greg Palm: Yeah look we said very clear targets in front of us to move to positive EBITDA and generating.
Greg Palm: Substantial cash from operation and we have delivered on that.
Greg Palm: And this was a transformative year for us on top of that you can see that in Q4, we move back to growth.
Greg Palm: And on top of that.
Greg Palm: Of course, we introduced many new products like therefore, the Atlas <unk> plus.
Greg Palm: The C V, though for the <unk>.
Greg Palm: And what role will assist in many much more one of the things that we are very proud off and will contribute to your question about 2025 is the.
Greg Palm: New model, the AAC and the era that is generating.
Greg Palm: And we're coming out of 2024 with meaningful that thats going to contribute for the 2025.
Greg Palm: We set clear targets to penetrate de Banca pill, the screen market, which we did major steps into it in some of our Oh. So the major screen players now using our portals and other solution from Comet, we entered the new adjacencies like the flu.
Greg Palm: Well, which we see acceleration and on the call and all of those will contribute for 2025.
Greg Palm: Major change and an example of our go to market focusing on cash.
Greg Palm: Customer success on account management.
Greg Palm: Recovering and in revenue.
Greg Palm: Recurring revenue story.
Greg Palm: And really are.
Greg Palm: Bringing new talents a cost out team is specifically for the go to market in <unk>.
Greg Palm: Conclusion, when you see looking at 2020.
Greg Palm: Paul will deliver what we promise.
Greg Palm: Their resilience business all stable business ready.
Greg Palm: For expansion.
Greg Palm: Profitable growth.
Greg Palm: I mentioned in my prepared remarks, 2025 will be is that we will see a profitable growth.
Greg Palm: And in every quarter.
Greg Palm: And we will generate continue to generate positive cash.
Greg Palm: Cash from operation.
Greg Palm: To do that we need to continue focusing on execution. Our team is fully focused on execution and I'm going to touch on a few fundamentals.
Greg Palm: We are going to focus in 2024 to make it happen.
Greg Palm: So on top of what we've delivered in 2020.
Greg Palm: For 2025.
Greg Palm: On the Pollo, specifically, we set a clear target to deliver 30 systems. This is on top of the 15 systems that we have delivered in the 2024.
Greg Palm: And we are coming to 2025 with a strong pipeline and a good visibility on both Saturday systems, which will contribute significantly to our top line and also bottom line.
Greg Palm: Building continue building Uh huh.
Greg Palm: Super Super important are the new AAC model really opening for us new markets new customers.
Greg Palm: And generating very healthy revenues, and which we're going to start reporting form.
Greg Palm: The next earning call of Q1.
Greg Palm: And we are going to food, we are putting a lot of focus on that and we have internal targets. How do we would like to end the year in terms of that.
Greg Palm: It is where we start the year and there is a significant goals that we are building.
Greg Palm: Building on and other areas of focus as continue penetrating the screen market, what we see in this market is.
Greg Palm: A clear move from analog to digital we see a massive opportunity there.
Greg Palm: We already are penetrating some big accounts, there and we have a very healthy pipeline to convert to digital.
Greg Palm: Another very important and very fundamental kpis for the year is really about impression growth.
Greg Palm: First of all Oh, we're going to measure it every every quarter that we actually looking at it on a daily basis.
Greg Palm: We have a clear targets how do we want to end the ear in terms of the impression and those impressions coming from existing customers. We start to see a nice growth on the existing customers and also on the capacity utilization of the systems.
Greg Palm: But also for net new customers specifically in markets that we never been there like the screen market.
Greg Palm: Footwear, the home depot and others another area of.
Greg Palm: Focus area for 2025 will be the wall to wall, while 2024 wall was relatively soft on the wall to wall market, we see much healthier final.
Greg Palm: And the all to all business in 2025, specifically in the area of fashion footwear and home Deco.
Greg Palm: Overall bottom line, we believe that 2025 will be a year of profitable growth and then massive execution by the team.
Greg Palm: We feel Greg woods enter into 2025.
Speaker Change: I mean, what do you when you're in there that was helpful color. So I appreciate that when you. When you put that all together does does that give you an ability or a potential to get back to double digit growth or would you rather not commit to.
Greg Palm: A certain number at this point.
Greg Palm: Yeah. So as you know we are guiding only quarter by quarter. So I wouldn't I don't want to guide for the year.
Greg Palm: We have a better visibility for 2025. Some of this visibility is coming first of all from their polo major part of the revenue in.
Greg Palm: In 2025 will come from the following we have a very good line of sight on where we are going to install it and another areas of improving our visibility is there you see we are coming to 2025 with a nice meaningful revenue on AAC and it's going to go a long day substantially of course, we have the inks.
Greg Palm: And services, which has almost a recurring revenue.
Greg Palm: For us so we have clear visibility on that but we also came to Q1 with some capex order in hand already absolutely. We have a good visibility for Q1 and for the rest of the U S for the cost structure, we did significant cost improvement during 2024.
Greg Palm: And we feel that we are under control for the course and therefore, we have also good visibility to our EBITDA.
Greg Palm: Understood Alright, I will pass it off thanks and best of luck.
Greg Palm: Thank you.
Greg Palm: Thank you.
Speaker Change: The next question comes from the line of brine Crap from William Blair. Please go ahead.
Speaker Change: Hi, Thanks for taking my questions.
Speaker Change: The first one is just could you give us a little more color around and on the roll to roll opportunity in 'twenty five and.
Speaker Change: I mean, you had a lot of momentum at the end.
Speaker Change: And L O I's at that show in Italy, and then.
Speaker Change: High interest rates weighed on that in that business, but why why was it.
Speaker Change: Soft in 'twenty, four and what has changed that makes you more optimistic about 25.
Speaker Change: Thank you, Brian so wall to wall or when we're looking at this a few a few things that have changed one of them is that are we just are about to release, the new products, which include the residual which.
Speaker Change: We stride now as ending the better testing and getting excellent feedback from our customers.
Speaker Change: This brings the quality of the wall to wall to.
Speaker Change: So a very similar quality of the reactive Inc. In terms of the darkness of the black our improvement on the on the hand feel.
Speaker Change: And we also see that the market is really looking for much more sustainable on demand way of manufacturing and coordinated by far leading this evolution without pigment a unique pigment capabilities.
Speaker Change: On top of the fluke, we're coming out of toy now fears of a very soft market in the fashion market.
Speaker Change: Many of our customers are really in the last two years do it now fears.
Speaker Change: We're working partially some sites were closed some sites were walking only one shift that we see the change are they getting more demand from there.
Speaker Change: Retailers and brands and Theyre getting to much more production we.
Speaker Change: We see it across the board are still there is room to improvement, but we see the change in the market on top of those on top of that we see the growth an impression on the existing customer so our existing customer we are monitoring every day the number of impressions.
Speaker Change: Anything on the wall to wall, and we see a very nice growth and we expect some of them are too.
Speaker Change: To acquire additional system. This year as I mentioned in my prepared remarks on the footwear specifically are we managed two parents. They don't really see a major player in Asia. One of them is already in a minute to scale the business and now it's producing food.
Speaker Change: A large brands and already placed an order for additional systems that we are going to deliver in H H, one, which we have a full commitment and visibility for that.
Speaker Change: On top of that we are penetrating the home Deco Ah in 2024 specific in H two 'twenty 'twenty four we put a lot of effort to go after the home decor beginning of this year, we had a an important event in Frankfort call High Tech steel and we go to really nice feedback from some.
Speaker Change: The biggest retailers and brands.
Speaker Change: And manufacturers.
Speaker Change: And our solution is a perfect fit for home decor, because of the pigment the resistance and durability of the pigment.
Speaker Change: Now that home decor is going much more into unique and a short runs and all demand we refined it as a big opportunity for us.
Speaker Change: Also in the fashion the fashion, we managed to penetrate few big player Who's moving from analog to digital out of home, we ask Steve to pigment and some of them are scaling up and will need more capacity over all of funnel entering 2025 is.
Speaker Change: Stronger on the wall to wall and the team is optimistic that we will be able to deliver much better results in 2025 versus 2024 on the wall to wall.
Speaker Change: Okay. Thank you for that comprehensive answer I'll, just ask one more for now I think but.
Speaker Change: The Apollo is obviously, so critical to the story going forward and it sounds like it's performing very well in the field you know from talking to you and from talking to customers can you just elaborate on what you saw in terms of its performance during the holiday season, what customers were.
Speaker Change: Able to produce maybe per hour or you know.
Speaker Change: What what the feedback was from customers and using the Apollo and the quality throughout the holiday season.
Speaker Change: Yeah, So Paulo as I mentioned in previous calls is the game changer is a game changer for all existing customer that is a game changer for us and for new markets that you're entering specifically the screen and the move from analog to digital when we're looking at the customer's accusing today.
Speaker Change: They have Paulo.
Speaker Change: Mix of type of customer base, the existing customers that are using their portal some of them for very short run.
Speaker Change: But also using their polo to convert volumes are today, they're printing on analog on screen and moving it to digital.
Speaker Change: On top of that we have new type of customers totally new to digital for the first time that entering two digital leveraging their polo and really moving only mid drugs in long run jobs from analog to digital and some of them are retailers, but some of them are.
Speaker Change: Phyllis. So this is very encouraging to see the mix and really opening new markets and incremental impression.
Speaker Change: This year as I mentioned, we managed to deliver 15 system. Many of those systems were installed just before the peak season, but all of them performed during the peak season.
Speaker Change: To to share with all of you that the.
Speaker Change: And the performance of the of the system.
Speaker Change: <unk> exceeded our expectation. This oh of course is very complex new product introduction in new platform and like any new platform their issues, but.
Speaker Change: But this was the best introduction of a new platform that coordinate a deliberate effort to a very complex complex our solutions in terms of the automation and the capability and the productivity the satisfaction level of our customers are out of it is very high and now how do you measure success.
Speaker Change: Section I can tell you without any accepted an exception that each one of those customers that we already deliver assist them already have the second system or more about the order the second system or more this year.
Speaker Change: So we are very very pleased with how it's going till now in terms of the utilization and capacity are we have reached our goal and customer have reached our goal.
Speaker Change: While we are planning to improve the capacity and the availability of the systems and long day.
Speaker Change: 2025.
Speaker Change: 2025, with a very healthy pipeline and good visibility to deliver on that Saturday system during 2025.
Speaker Change: Okay and before running you said 15 orders were in hand is that right.
Speaker Change: So around that same level.
Speaker Change: I mentioned that we have a 15 commitment from our customers today, we have even more commitment in terms of all the I didn't mention how many orders we have in hand, we have a very good visibility and line of sight to deliver service system during 2025.
Speaker Change: Thanks for clarifying that.
Speaker Change: That's all for me thank you.
Speaker Change: Thank you.
James: The next question comes from the line of James and acuity from Needham and company. Please go ahead.
James: Thank you I was wondering if you can give any update on equipment purchases or or for upgrades from from your your large global strategic accounts I don't recall, you talking about that Nikola or I may have missed it.
James: So thanks James Festival, a wood related first of all to one of our key strategic customer in which we have the analysis of a major upgrades, which is the painful they've announced it.
James: During 2024, they upgraded their entire fleet of atlas's 86 to be accurate of atlas's into Atlas MX and now we are in the process to upgrade older fleets also to watch a smacks plus and they were sharing dissatisfaction about the quality of the productivity.
James: And additional capability in terms of application that they can run. So we are very very satisfied about that as far our global strategic customers. Our relationships are very very close we are working very closely together like many of our key customers. They had a very strong peak.
James: Peak season, and overall very healthy he is for them like many of other other customers key customer of us.
James: And as I mentioned in the past, we hopeful that this year. They will continue with the plan to upgrades some of their fleets into a smacks and we reported that in Q4, there were some upgrades and.
James: We hope that we will see this year additional upgrades coming from this customer.
Speaker Change: Lori can you.
Speaker Change: Help us at all in terms of how we.
Speaker Change: Should be thinking about gross margins in Q1, just given the seasonality and the ongoing development of the V. I C model.
Speaker Change: Hi, <unk> hi, thanks for the question.
Speaker Change: In Q1 as you rightly pointed out it's the seasonally low quarter, which has an impact on gross margins. As you know we have adjusted our cost base and we are looking always to improve efficiency.
Speaker Change: So depending upon the mix that will see in that quarter. We would expect the gross margins to be similar to what we've seen in the past that being the lowest gross margin that we have during the year.
Speaker Change: And if I could one quick one.
Speaker Change: Ron you mentioned.
Speaker Change: The issue around the geopolitical situation in tariffs anything I think you've talked about in Mexico are you seeing actually seeing any or hearing any changes in terms of.
Speaker Change: Uncertainty as it relates to customer behavior has given this or is I'm. Just curious what what has changed if anything in terms of customer behavior around the issue of tariffs.
Speaker Change: So you know when he was talking a lot about the near shore. When we see the move to new show and some of our key customer moves to the near shore. So we took the opportunity of course to the touch basically with each one of them and asked them what are they going to do when there will be a tariff if it will have been that's as a main.
Speaker Change: What we hear from them is wait and see none of them really has a clear understanding of if it will happen when it will happen and what will be the actions that they are going to take.
Speaker Change: And some of them are.
Speaker Change: Looking potentially to move some of the operation into all show into the U S. A.
Speaker Change: Which can have positive implication to coordinate but there is a lot of uncertainty. So we don't know we are working very closely with our customer and they don't know they're looking at what would be the verdict verdict in Indiana.
Speaker Change: And once we will know more we would be able to report to you.
Speaker Change: Thank you and and.
Speaker Change: Patients on the progress last year.
Speaker Change: Thank you very much.
Speaker Change: Thank you. The next question comes from the line of Troy Jensen from Cantor Fitzgerald. Please go ahead.
Troy Jensen: Yeah. Thank you congrats on the nice results here.
Speaker Change: Just a couple of questions for Lori and kind of following up on Jim's question on gross margins I think you said it could be as low as the lowest quarter in the last year or so are you implying gross margins could be as low as 37, 5% or no no no no.
Troy Jensen: Hi, Charles.
Troy Jensen: Okay.
Troy Jensen: No. Let me clarify what I said is that the first quarter is typically the lowest gross margin quarter of the year, which is something that we've seen in the past as well I was not comparing to the prior year.
Troy Jensen: Okay. So we should well above because last year was kind of a big downtick for you guys in Q1 so.
Speaker Change: I'm, absolutely sure you're implying that but but then also just on guidance I mean, I know you only get EBITDA, but we've got them out on EPS or we need a financial type number and.
Troy Jensen: And that's kind of changed so that's where you guys in the past.
Troy Jensen: Over quarter here, so could you give us any color on what you think.
Troy Jensen: Financial income is in Q1, and maybe for a 25.
Troy Jensen: I had a try we provide our guidance in terms of revenue and adjusted EBITDA.
Troy Jensen: We don't provide guidance on other elements of the P&L.
Speaker Change: Alright, well I will take it offline, but I guess, it's probably just out of interest income come down our rates have come down so much of it done it sequentially, but then.
Troy Jensen: Happy to follow up so well congrats on a good liquid book.
Greg Palm: And Troy are nice to have you on the call and we're looking forward to work with you.
Troy Jensen: In the future.
Troy Jensen: Thanks Ryan.
Thank you.
Speaker Change: The next question comes from the line of my out Woodring from Morgan Stanley. Please go ahead.
Speaker Change: Hi, This is my on the line for Eric.
Speaker Change: Great.
Speaker Change: Thank you for having us I think maybe just to kind of double hit on gross margins you know it looks like total company gross margins had what looks like an all time record high in the quarter and product gross margins were quite strong can you maybe speak to some of the puts and takes driving that margin outperformance how would you how much would you say.
Speaker Change: As a result of that.
Speaker Change: Oh, I see model and were there any one time dynamics to call out kind of how sustainable is kind of the step up in margins, obviously, realizing the seasonality impact as they look into one killed that you.
Speaker Change: You know how sustainable would you say are these higher level of margins looking forward.
Speaker Change: Hi, Mike. Thanks for the question. So first of all as you rightly pointed out our gross margin is very much affected by the seasonality and the mix within within revenues that being said some of the key drivers are of course, the volume the volume of systems.
Speaker Change: The proportion of consumables in the mix, but we've also taken them.
Speaker Change: Made great strides in terms of our cost base reduction, which gives us additional leverage in terms of our gross margin and then we have the on the on boarding of the AIC model, which over time as it becomes more meaningful element of revenue.
Speaker Change: Also help support improve breast biopsies.
Speaker Change: And the only point that I will mention back in the Investor event, what we have said that in 2025, you should see a moderate.
Speaker Change: The improvement in gross margin, okay versus this year. So we are planning to expand it a long day.
Speaker Change: Got it very helpful. And then maybe just one last one from me you know you talk about good line of sight into the 30 Apollo's the CRM.
Speaker Change: Or is that still the cap in terms of capacity or could you potentially upside as demand far exceeds that got.
Speaker Change: With us here.
Speaker Change: We have defined a 30 and not because of capacity and definitely not because of the demand of the market is much bigger than those Saturday system. We are doing it only because we would like to make sure that every installation of that Paul is successful we're still learning a lot we are working with a cost.
Speaker Change: On each one of the installation some of it was totally new type of customer. So we're taking it step by step doubling the number of system from 'twenty to 'twenty four 2026 will be there, but we will scale that Paulo to the next level.
Speaker Change: Got it thank you and that's it for me.
Speaker Change: Thank you.
Speaker Change: The next question comes from the line of Chris Moore from CJS Securities. Please go ahead.
Speaker Change: Hey, Good day, thanks for taking a couple yeah, maybe just one more on the 30th Palos for 2025, just trying to get a sense, obviously still a work in process, but you know how many customers do you think are going to comprise that does is it 'twenty 'twenty customers as it is at 10 or there are a few that are you know.
Speaker Change: Taking.
Speaker Change: Quite a few just kind of any thoughts there.
Speaker Change: I prefer not to throw a specific number right now, although we have a very clear line of sight on that Oh, we have a what I would say is that are the two main audience that will receive those Apollo in 2025.
Speaker Change: One audience is existing customers is already using therefore as ive mentioned in each one of them are planning to add at least additional one system in 2025.
Speaker Change: There are a few of them that will add more than one system.
Speaker Change:
Speaker Change: And are the other audience is more net new customers.
Speaker Change: Usually buying one system and we expect them to have only one system in 2020.
Speaker Change: 2025, those are type of customers are coming from the screen.
Speaker Change: And from the analog world and stepping into digital for the first time and they will expand into 'twenty to 'twenty six so it's kind of a mix and I would say is about in terms of number of customers. It's about 50 50 between existing.
Speaker Change: Existing customers to new customers are coming from the analog world.
Speaker Change: Got it that's helpful. Obviously, AIC game changer for our power how important is hey, I see for Atlas Max or our Max plus at this stage.
Speaker Change: Wow, it's a we see encouraging feedback and use of the ASC, specifically on the Atlas smacks into Atlas smacks poorly.
Speaker Change: We implemented a.
Speaker Change: Meaningful amount of them are doing 2020 full we have a healthy funnel.
Speaker Change: In Q1 and for the rest of the Ive also for the Atlas say a family in terms of the AIC what do we see some of them is going also to net new screen printers that they doesn't have the volume to justify a polo. So as you know.
Speaker Change: The Dol really thousands of thousands of Scantron test some of them small mid size.
Speaker Change: They cannot commit to the minimum volumes out of Colo Ah can deliver but there's definitely can commit to the minimum volume on Atlas Smack says many of them are taking multiple lots of smacks of someone's gonna, taking two or three Atlas Max's are really implemented as I mentioned in 'twenty 'twenty four and we have.
Speaker Change: Good funnel for 2025.
Speaker Change: Got it yeah that that's what I was after I was trying to figure out if there were something if you're getting new customers as well because of the ASC model. There. So awesome I will leave it there I appreciate it.
Speaker Change: Thank you.
Speaker Change: Thank you. The next question comes from the line of David Rosemont from Barclays. Please go ahead.
David Rosemont: I run and Lori Thanks for taking my questions.
Speaker Change: Quick ones from me most of them have been addressed.
Speaker Change: At the demand side. So you spoke about yeah I see in the pipeline.
Speaker Change: When you look ahead in 2025.
Speaker Change: Any prospects of selling new systems not under the I see is there is there such a thing given the current macro environment or most of the demand now is for D. S.
Speaker Change: So as we shared on the at the Investor Day is very consistent with what we see today in the market both in 2024, but moving forward to 2025 first of all.
Speaker Change: T mobile is only on the <unk> side of the business all day and all to all business is on Capex Theres no AAC at this stage for the wall to wall business asphalt the DDG when we look at the mix between a capex to AAC is about.
Speaker Change: 25% of the deals going on on Capex.
Speaker Change: 75% of the deals.
Speaker Change: On AAC. So for example in 2024, while we delivered a 15 apollo's 10 of them were on AAC and five of them were on Capex, what we see today is that.
Speaker Change: If we would need to ask yourself, who is choosing a seed who is choosing capex.
Speaker Change: Many of them new to digital.
Speaker Change: Customers are that we're in the analog world and moving to digital preferred to move to AAC.
Speaker Change: We have a predictable cost.
Speaker Change: And because they're operating the first time a digital.
Speaker Change: For them to know exactly how much it will cause them is very very important.
Speaker Change: And we see actually Uh huh.
Speaker Change: Our growth in this area. We also many of them they are a good business.
Speaker Change: But in terms of cash or capital are there more.
Speaker Change: Difficulties, so therefore that choosing the AAC on the other hand existing customers that's using oh.
Speaker Change: The system's already and know exactly the cost they can compare their running cost that they have today on capex versus the running cost on the AAC and many.
Speaker Change: Many of them are choosing the capex because they see it as a more favorable in terms of the cost versus the AC.
Speaker Change: Alright, Thanks, Brendan that's helpful.
Speaker Change: Thank you.
Speaker Change: Thank you. Thank you.
Speaker Change: Ladies and gentlemen, as there are no further questions I will now hand, the conference over to Ronen Samuel.
Speaker Change: For his closing comments.
Speaker Change: Yeah.
Speaker Change: Yeah. So thanks, everyone for joining us on today's call are we are excited about what lies ahead for 2025 for coordinate and we're looking forward to updating you on our progress on our next earning calls thank you very much.
Speaker Change: Thank you.
Speaker Change: Conference of calling that digital has now concluded. Thank you for your participation you may now disconnect your lines.
Speaker Change: [music].