Kornit Digital (NASDAQ:KRNT) Q3 2020 Earnings Call

0:00 Greetings and welcome to Corentin Digital's third quarter 2020 earnings conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note, this conference is being recorded. I would now like to turn the conference over to your host, Kelsey Turcotte of the Blue Shirt Group. Thank you. You may proceed. Thank you, operator. Good afternoon everyone and welcome to Cornet Digital's third quarter 2020 earnings conference call. 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.

0:45 These forward-looking statements include, but are not limited to, statements relating to the company's objectives, plans, strategies, Statements of preliminary or projected results of operations or our financial conditions and all statements that address activities, events or developments that the company intends, expects, projects, believes, or anticipates will or may occur in the future. Forward-looking statements are subject to known and unknown risk. and are based potentially on inaccurate assumptions that could cause results to differ materially from those expected or implied by the forward-looking statements. The company's actual results could differ materially from those anticipated for many reasons, and I encourage you to review the company's filings with the Securities and Exchange Commission, including the company's quarterly report on Form 6-K, filed August 11, 2020, which identify specific risk factors that may cause actual results or events to differ materially.

1:50 Any forward-looking statements are made as of this call hereof and the company undertakes no obligation to publicly update or revise any forward-looking statements whether as a result of new information, future events, or otherwise except as required by law. Ronen? Thank you, Kelsey. Good evening and thank you for joining us on this afternoon earning call.

2:45 I'm pleased to share with you that we significantly exceeded our expectation for the third quarter and we are improving our outlook for the second half of the year. Total revenue grew 21% year-over-year to $57.4 million, net of $2.2 million in warrants relating to a global strategic account. And we deliver exceptional sequential growth of 53%, reflecting the sharp growth in e-commerce and on-demand production. Topline results were driven by a strong demand for our industrial systems in North America and EMEA, An extraordinary quarter for consumables and services across all regions.

3:35 On the services side, I'm proud of the work our teams have done to bring this important business to sustainable profitability a quarter ahead of plan while maintaining focus on customer excellence. Now that we have reached this important milestone, we expect services margin to improve as we continue to scale the business. Bottom line, we deliver a strong operating margin for the quarter and we expect to overachieve our operating profit objectives for 2020. Our industry is at inflection point. and we are focused on leading the transformation of the industry into on-demand sustainable production.

4:25 Globally, we are partnering with our customers to deliver incremental demand for systems, ink and services as we enter the holiday seasons. In the Americas, we are engaged in large-scale expansion projects with key customers like steaks, Printful, TSCs and others. One of these interesting projects is a unique partnership for integrated on-demand fulfillment of Delta Apparel and Hot Topic, the iconic retailer both fueled by Kornit solutions. These revolutionary collaborations In EMEA customers and partners are fully re-engaged and we are experiencing a resurgence Like what happened in the Americas in mid to late April.

5:43 A recent investment in scaling our direct UK operation is yielding immediate results and significant pipeline build-up. In APAC, we see encouraging signs of industry recovery and we continue to scale the local sales and support infrastructure required to deliver on global expansion projects with strategic customers. As part of our continued focus on this important region, we are excited to welcome a Tokyo-based seasoned executive, Ilan Elad, to lead Asia-Pacific and scale our operation in this region.

6:28 From a product perspective, it was a record shipment quarter for our Atlas system. This unprecedented success gives us a huge confidence to accelerate R&D effort and go-to-market planning for the next generation of application that this platform will support. We expect the Atlas to be the foundation for continued growth in the years to come. Arvorkan Plus also continues to have considerable traction with customer investing in fleets to produce large volumes of mid-sized ones. On the DTF side, we are seeing phenomenal momentum fueled by the accelerated transition of the fashion industry to on-demand sustainable textile manufacturing.

7:20 Customer realized the huge benefits of this business model in the fashion and home decor markets and are telling us that Kornitz offer the best end-to-end pigment-based retail quality solution to support this model. In the third quarter, we close an important deal with Krezioni Digitali. A leading Italian digital fulfillment partner to some of the largest fashion brands in the world, including Versace. The single-step sustainable process of the Presto, alongside the retail quality and sustainability, perfectly matched what Grazioni and the brands are looking for.

8:07 Important wins like this at the heart of the fashion industry makes us confident in our ongoing ability to disrupt this large market with our unique technology and we are already witnessing massive growth in our DTF supplies. Executing with our global strategic account remains very strong and our teams are working around the clock to deliver on the various projects we have in place. The impact of our acquisition of Custom Gateway is exceeding expectations and we are pleased with the progress of our integration. Expansion of our cloud software workflow solutions is at the heart of our strategy and with Custom Gateway we offer a unique proposition to the market that handles all steps of data-driven, efficient on-demand production. Since announcement, our team globally have generated over 80 new opportunities and we have already received multiple orders.

9:16 Exciting conversations are with major brands and fulfillers that are looking to partner with Kornit to transform the supply chain and are looking to adopt our cloud workflow platform to enable and streamline the entire on-demand production process. Our decision to continue to invest the business during the pandemic is paying big dividends and I'm very pleased that we are in position to increase the outlook we provided for the second half of the year from low double-digit year-over-year revenue growth to 25% year-over-year growth. Looking forward, we see very strong momentum and we are entering into 2021 with very strong backlog.

10:05 Before I turn the call over to Guy, I would like to welcome Our new shareholders and thank them for their trust in our teams. These are exciting times for Kornit and for the entire textile industry and we are extremely confident to execute on the massive opportunity ahead of us. Now I will turn the call over to Guy for a closer look to our numbers and guidance. Thanks Ronen and good evening everyone. Thank you very much. Total amortization expenses related to the acquisition of intangible assets in the amount of $396,000, including expenses related to the acquisition of Custom Gateway in the amount of $315,000.

11:26 $648,000 acquisition costs related to Custom Gateway and non-cash deferred tax expenses in the amount of $121,000. Adjustments related to COVID-19 pandemic this quarter were $74,000. We do not expect additional COVID-related expenses. As the company has significant operating list liability in foreign currencies, we encourage foreign exchange gain or losses from the re-evaluation of these liabilities. These gains and losses may vary from period to period and do not reflect the true financial performance of the company. This quarter, foreign exchange gains associated with ASC 842 were $110,000. A full reconciliation of our results on a gap-to-non-gap basis is available in our Earnings Press Release issued earlier today and on the Investors section of our website.

12:27 Third quarter revenue, net of 2.2 million, net cash warrants impact were 57.4 million. An increase of 21.4% compared to the prior year period and an increase of 53.3% sequentially. From a year-over-year perspective, we continue to see very healthy demand from our customers serving online market in the U.S. for our product and services and significant revenues from our global strategic customer outside of the U.S. Services revenue for the third quarter was 8.1 million, net of 165,000 warrants impact, accounting for 14.1% of total revenues, an increase of 103.7% compared to the prior year period, and increase of 45.3% sequentially.

13:22 Beginning this quarter, custom gateway revenue and cost of goods are included in services. Net of Custom Gateway and excluding the warrant impact, services generated high single digit margin compared to a 44% loss in the prior year period. The amount attributed to the non-cash impact of warrants in the third quarter was 2.2 million or 3.6% of revenues compared to a 2.4 million or 4.9% of revenues in the third quarter of 2019. and 842,000 or 2.2% of revenues sequentially. As Ronen mentioned, it was a strong quarter in the Americas with 59% of total revenues coming from that region, 33% from the Europe, Middle East and Africa and 8% from the Asia-Pacific region.

14:18 In the third quarter, we had three customers that each contributed more than 10% of total revenue. Our top 10 customers accounted for 58.3% of our total revenue compared to 56.3% in the prior year period. Moving to profitability. Non-GAAP gross margin in the quarter net of warrants impact was 48.1% compared to 47.7% in the prior year period and 44.1% sequentially. As previewed during our second quarter earning call, we're back to our pre-COVID gross margin level of 50% excluding the impact of warrants.

15:04 On a gap basis, gross margin in the quarter was 47.1% compared to 47% in the prior year period and 42.2% sequentially. Moving to our OPEX items, I'll discuss these items on a non-GAAP basis which exclude non-operating charges previously mentioned and highlighted in our GAAP to non-GAAP reconciliation included in today's press release. The textile industry is experiencing an evolution that we have predicted for some time and has been further accelerated by our customers' need to transition from analog printing to digital. Not only has this created a tailwind in our system sales, but also significantly boosted ink and consumable consumption.

15:56 This evolution has been further accelerated by COVID and represents significant market opportunity for Cornit. As Ronen mentioned, we continue to invest in the business to accelerate growth. Each of the following light items reflect headcount investment to build the infrastructure necessary to support the growth opportunities ahead of us. We ended the quarter with 657 employees, a year-over-year increase of 142 employees and a sequential increase of 83, predominantly due to 53 new employees joining us from Custom Gateway. Looking forward to the fourth quarter and the beginning of 2021, we're planning to net increase headcount organically by approximately 20 employees per quarter.

16:45 Predominantly, customer facing and technology functions to strengthen our leading position in the market and merge our workflow solution. Adjusted research and development was 13.8% of sales. or 7.9 million compared to 11.2% of sales or 5.3 million in the prior year period. Additional R&D cost is attributed to headcount addition and use of materials. Sales and marketing expenses in the quarter were 7.8 million or 13.5% of sales compared to 7.1 million or 15.1% in the prior year period. The relative decline in sales and marketing expenses this quarter is mainly attributed to the absence of trade shows and reduced travel expenses.

17:40 General and administrative expenses in the third quarter were 5.1 million or 9.6% of sales compared to 4 million or 8.5% in the third quarter of 2019. The growth in G&A costs is attributed mainly to additional headcount costs and increase in D&O insurance costs. Non-GAAP net profit for the third quarter was 7.7 million or 18 cents per share on a fully diluted basis, net of 5 cents warranty impact. Net GAAP profit was 3.9 million or 9 cents per share on a fully diluted basis, compared with net income of 4.7 million or 11 cents income per share for the prior year period. Our non-GAAP financial income this quarter was 1.7 million as a result of accrued interest on our cash investments.

18:32 Our GAAP financial income this quarter was 1.6 million. Turning to adjusted EBITDA. For the third quarter 2020, adjusted EBITDA was 9.4 million compared to adjusted EBITDA of 13.1 million for the prior year period. Net cash provided by operating activities was 20.4 million this quarter, mainly due to a 7.8 million increase in deferred revenues and advanced from customers, a 10.4 million increase in payable, a net profit of 3.9 million, offset by 8.5 million increase in trade receivable and 4.3 million increase in inventory. Compared to break-even in operating activities in the prior year period and 9.2 million net cash used in the previous quarter.

19:26 We expect the third revenues balance to convert revenues over the coming three quarters. Cash balances including bank deposit and marketable securities at quarter end were 405 million. Compared to 237 million as of June 30th, This increase in cash balances was primarily driven by 163 million net proceeds from our last offering in September this year, and cash generated in operating activities of 20.4 million, as previously discussed, mainly offset by use in the acquisition of Custom Gateway. In addition to the primary offering, Amazon sold 1.7 million shares converted on a cashless basis from 2.2 million warrants for a net proceed of 92 million.

20:25 Turning to our view on the fourth quarter, we expect revenues to be in the range of 60 million to 64 million and non-GAAP operating income to be in the range of 13% of revenues Thank you, Guy. With that, we are ready to take any questions from the audience. Thank you. At this time, we will be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad.

21:13 A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, as we poll for questions. Our first question comes from the line of Tavi Rosne with Barclays. Please do with your question. Hi, this is Peter for Tavi. Thanks for taking my question. You mentioned the strong backlog entering 2021. Could you comment on the risk to that on account of the emerging COVID-19 trends? And then if I could have a follow-up, I just wanted to ask about the drivers of the services expansion, if you could give a little more color on that, and whether that's related to some of the renewed traction on the DTF side at all.

22:05 Yeah, so thanks for the questions. I will start and maybe if you want to add on top of me later on. So the COVID is definitely a tailwind to our industry. The industry is in an inflection point. We discussed it. What we can see is that the e-commerce is booming. There's a clear move into e-commerce. The forecast is that in 2024, 66% of the apparel will be Thank you very much. Thank you. and ordering systems.

23:06 We have big projects that we are involved with across the world, both with strategic accounts, both with brands, marketplaces. Some of those projects are being implemented these days. Some of them will be implemented early 2021. So this is the reason why we are saying we are entering with a strong backlog into 2021. We have a very strong visibility for the first half and we are very positive about the entire year of 2021. Guy, any... The services question. So we were talking about breakeven in services in the fourth quarter 2020.

23:56 Achieved this goal earlier than expected. The initiatives we were discussing in the last few quarters, for example, all the industrial machine will go with a service contract are now yielding dividends. Thank you both for the quarter. Congrats on the quarter. Thanks, Peter. Our next question comes from the line of Jim Suva with Citi. Please, suit your question. Thank you very much and congratulations on great results and such during a challenging time. My question is on your prepared comments. You mentioned something about COVID costs. I believe you said we're going down or de minimis at this point. Can you talk just a little bit about COVID overall?

24:43 Is it still slowing down some deliveries like the logistics for customers to receive and install your equipment or You know, get engineering slash architectural electricity permits as installing these big devices. A lot of times aren't simply plug and play. If you can talk to us about those logistics, if those are behind us, we're still causing a headwind. Thanks. No, actually, we don't see any headwinds in terms of logistics due to the COVID. Actually, the opposite. We see a huge demand and pressure to install as soon as possible to get the equipment and the supplies and the services to be ready for the peak season. As I mentioned before, the COVID is a very strong tailwind.

25:32 We don't have any limitation in terms of production, logistics, shipments, and installation. So the only limitation, of course, is about traveling. Luckily, we have our own team, both in the U.S. and Europe and Asia, that can install and ramp up our customers, and they're ready for to implement all the demands needed. Great. And then funding for smaller mid-sized businesses. Is the funding a bit of a challenge if you're a small mid-sized business giving those challenges maybe a little more associated with coronavirus or are they past those headwinds to where they could place more orders with you or are they at a point now of returning back to normalcy?

26:30 It looks like almost back to normal. In the first, second quarter, we thought there's going to be more credit crunch, but most of our customers have the ability to finance themselves. In some cases, based on specific business case, we extend credit terms, but it looks like for credit, the market is back. And my last question, just logistics with shipping, since there's less airplanes and ships going around the world, are you having any logistical challenges of getting supplies or components or anything, or is that also well behind us also? No, clearly no. We don't have any limitation on that.

27:15 Thank you, and congratulations to you and your team, and thank you for the details. Thank you very much. Thank you. Our next question comes from Lionel Brian Drapp. and William Blair. Please do with your questions. Hey, thanks for taking my questions. The first one, just can you give us at this point any clearer idea what some of the new products might be for next year and what you're thinking about and how those might expand the addressable market further? So we cannot get into too much detail. Next year is going to be an exciting year. both in the DTG and in the DTF. We are going to extend our portfolio in both two categories. The focus will be both on opening new applications, applications that our customers have never printed before, so enabling new applications, but also getting into adjacent markets, as well as improving the productivities of our solution, the automation, the ease of use. So there are many, many aspects that we are looking into it and that we are planning to deliver on them on top of, of course, print quality.

28:32 Workflow is a big emphasize moving forward. You will see new products coming on the workflow side next year. Okay, got it. Thank you. You mentioned DTF. How significant is DTF in terms of the revenue mix? How significant was it in the third quarter? So DTF is still a small part of our business, but it's a fast-growing segment within our business. When we are looking into our outlook, into Q4, We foresee strong growth within this segment.

29:19 It still will be a small portion. We are not providing indication what is the size of the DTF out of the overall business. Within the DTF, very interesting to see the strong growth on the supplies. and it's really strong growth of the install base in terms of the use of consumables. And then can I just ask quickly, do you still think the service gross margin can get to approximately the 20% range over the longer term? And if so, over what period do you think it takes to get there? Thanks. Again, we didn't... We are not ready to give indication what are we aiming.

30:08 We said that we move to a profitable service one quarter ahead of time. It's sustainable. We will continue to see profitability. We are going to improve the profitability, but currently we are not going to give any guidance about what are we aiming for. Okay. Sorry, I've covered the company too long, and I had heard that at one point. Maybe that's before your time, Ronen. Thanks. Okay. Okay. Thank you, bye. Our next question comes from the line of Jim Rattuta with Needham & Company. Please start with your question. Hi, hopefully you can hear me okay. The question I have is I thought I heard you say that you had three customers that were 10% or more of revenues in a quarter. Did I hear that correctly?

30:59 Yeah, correct. That, if memory serves me, I don't recall there being a time where you had three 10% customers. Is this the first time that's happened? It's the first time we have three direct customers that exceed 10%. And is there any color that you can provide us on the other two customers? I mean, I think in the past you've had one or two surface, but is there any color on the type of customer that you can get? Again, we cannot get into the name of the customer. Those are big projects that we alluded into them a quarter ago, two quarters ago, that we are working on.

31:48 Those are with our top customers across the world. Actually, two of them across the world, one of them in North America, but we cannot add more color on top of that. Ronen, if we think about the traction that you're making in the market, obviously you're raising your guidance and expectations for the second half. And I'm wondering, and maybe you alluded to this before I joined the call a couple of minutes late, but is the traction with some of these larger customers helping to drive Some of the faster, stronger growth that you're anticipating in the second half and generally what sounds like a fairly strong outlook into the first half of next year.

32:42 Yeah, definitely part of the growth that we see is with our existing strategic accounts, not only with our global strategic account, but with other strategic accounts, traditional strategic accounts that we had before. But what we see recently, new mid-size accounts are becoming very material for Kornit on big projects. We are entering into some very interesting projects with brands and marketplaces that are very, very interesting. and the Presto is almost a new segment for us that we are entering mostly net new customers but each one of them we see them going very fast on multiple installations.

33:34 Okay, last question if I may. You guys have had great success in a couple of geographic regions and if I look at Asia Pacific, it's been a smaller part of your revenues for some time and yet you would think that that would be a big opportunity and I'm wondering how we should think about that. You've announced some additions to your management team there. What should we be thinking about in terms of the APAC region for you guys? So we believe that Asia Pacific is going to be a big revenue goal, a big pillar within the Kornit future business. We need to understand that currently in the last, I would say, one year or a bit less than one year, Asia-Pacific is totally closed.

34:25 Actually, you cannot travel from country to country within Asia-Pacific, and only now they're starting to reopen. And our focus, as we mentioned in previous calls, is mainly around China, Japan, Australia, and Korea. We see very interesting move both in China and Japan. Some very strategic plays there with brands, with marketplaces, with fulfillers. And also Australia, we're starting to see very nice and constant business coming from Australia.

35:10 Got it. Thanks very much. Congratulations. Thank you very much. Our next question comes from the line-up, Patrick O, with Stifel. Please, Sue, it's your question. Thank you very much, and congrats on a nice quarter and outlook. Ronen, I apologize. I joined a little bit late, so you may have addressed this, but if not, I was just wondering, with the strong outlook for the December quarter, and as you look at 2021 as a whole, how has your visibility, I guess, improved probably over the last three months and as we go into the December quarter in terms of, say, the first quarter or the second quarter of 2021. And I'm not looking for a quantitative, but qualitatively, how do you see visibility, the ability to add on more orders and continue to build backlog as we get into 2021?

36:03 I would say that we've never been in a situation as of today that we have A very, very clear visibility to the entire H1. So we know how H1 will look like. We are very confident about H1. We are engaged in big projects across the world. Some of them are in the middle of the implementation. So we have full, full confidence about H1. The team is already engaged about building the H2, which we are starting to have line of sight as well. So we feel confident about 2021. Great. And I see on your presentation you talked about several of the products like the Atlas and the Vulcan Plus and the Traction there.

36:53 Can you detail the types of customers, particularly for the Atlas? Are you seeing that broad-based across both brands? As well as fulfillers in terms of the adoption of the Atlas. Yeah, so the Atlas, we see adoption both with fulfillers that are playing in the on-demand market in the e-commerce, some of them directly to consumers, some of them directly with businesses, B2B and B2C. We are entering into traditional Screen Printers, but I understand that they have to move to do on demand and they're buying digital and choosing Kornit.

37:44 In terms of the brands, there are two types in general of brands. There are brands that getting into vertical, they're planning to go fully vertical. meaning producing and using digital technology to print, to embellishment by themselves and they are adopting the atlases but we see also many brands connecting to our install base across the world and fulfilling for them which really Push the demand and raise the volume for install base.

38:31 Great. And final question for me, maybe for Guy, in terms of OPEX, really strong OPEX management given the environment that's out there today. Obviously, some of it you're benefiting today because of fewer trade shows and things of that nature. As we look at 2021, and as the environment hopefully normalizes somewhat, how do you look at OpEx and I guess the potential ramp that we may see there as more trade shows begin to return? Again, we're not guiding for 2021 yet, but just to remind you and the other guys on the call, When COVID started Q1, we actually said we're going to double down on R&D and we're going to increase investment in R&D and technology. And you can see it throughout the first, second, and third quarter, and we expect to continue that trend.

39:36 So OPEX-wise, we will continue to invest in R&D. Assuming trade show will return to normal next year, we might see some increase in Thank you again. Thank you. Thank you.

40:21 Our next question comes from the line of Chris Moore with CJS Securities. Please do with your question. Hey, good afternoon. Yeah, maybe just a couple of questions on Custom Gateway. So I just wondered, is the integration fully complete at this point in time? And maybe just talk a little bit about the impact that you've seen already there and, you know, is there still much more to do to really fully leverage those capabilities? Yeah, the integration, of course, is in the middle of it. Yeah, we are not fully integrated, but the team is working very closely together. The synergy is immense. The value propositions that we are getting, bringing to the market is super important. It's in the heart of our strategy as Kornit.

41:10 And we are getting great feedback from customers. We engage with new business partners. Due to the workflow solutions that we have now, as I mentioned on the call, we have right now more than 80 new opportunities for both selling, of course, the software, the custom gateway solution, and Cornit systems solutions to those opportunities. The opportunities are both with brands. and Fulfillers. So it's really open for us, a huge opportunity in the market. The vision of Kornit of connecting the brands into the Fulfillers, it's really about the platform and the workflow platform and the custom gateway enable Kornit to really connect the brands to do on-demand manufacturing wherever they want through the fulfillment network of Kornit InstallBase.

42:20 Got it. Very helpful. Thanks. Last one for me. Just in terms of thoughts on M&A activity moving forward, obviously very busy with what's going on here. Is that something that you're spending much time on at this stage? Yes. We have a dedicated team that's looking at the M&A activities. and opportunities. We are looking in two main areas. One is again a workflow software solution. We identified a few very interesting opportunities that we are looking into them. And the other one is more about technology, extending technology solutions if it's on systems.

43:09 Our final question comes from the line of Greg Palm with Craig Hallam. Please, start with your question. Yeah, thanks for taking the questions and congrats on the quarter as well. I'm curious how much of the current strength and demand is driven by new customers, expansionary efforts versus maybe replacement or upgrades. And I'm curious how you view the upgrade opportunities as you shift more customers to Atlas. Do you view that as a meaningful driver for next year or not necessarily?

44:02 Excellent question. In terms of the upgrades, so the upgrades to the HD we almost completed. We still have a few customers that didn't upgrade and we intend to hopefully to upgrade them very soon. But this one we almost completed. We expect next year to see some new upgrade opportunities once we announce on the new portfolio and the new solution. Those upgrades will be available for H2 next year, so we expect there a massive growth on upgrades or opportunity in the second half of the year. In terms of net new to existing, it's a very interesting question and really different from, I would say, region to region and between segment to segment. In the DTF mostly net new and as I mentioned we see a massive growth coming from the DTF market.

45:04 In the DTG, so in North America this quarter it was around the 50-50 between the net new to existing customers. So while existing customers are growing very fast, we have many, many new opportunities in the market and we are getting to many new market segments. It's similar in Europe and in Asia is mostly net new opportunities. Okay, interesting. And I guess Based on what you've seen in October, first part of November, any commentary on how this holiday season might be similar or different than in past years?

45:52 I'm specifically wondering about consumable consumption. I'm curious what sorts of end-demand trends you're seeing. Are you expecting a similar mix of consumables versus systems in this Q4, or will it skew more towards the systems just based on all the activity going on? First of all, it's going to be a very strong peak season. Our customers are already fully engaged and they're getting more systems, so they're going to be very, very busy. One thing that we are hearing from customers is that they believe that this peak season will not end by the end of December. They're all talking about that the peak season will extend to January, February, because they will not be able to deliver on time because of the huge demand and the backlog of orders that they have. So this is kind of a unique situation that we didn't see before.

46:49 In terms of the mix for Q4 between supplies to system, it's a very good question. I would say it won't be very much different from a previous year. Guy, do you want to relate to that? I think it's going to be like Q4 last year. Obviously, in terms of mix, Q4 normally is more ink and consumables heavy, and we think it's going to be the same this year. Okay. I guess if I exclude the warrant impact for Q3, it appears that you did a 14.5% operating margin with revenue well above Q3 levels expected for Q4 and you're, I guess, implying better mix because of more consumables. Why aren't you seeing higher flow through in terms of the guide for non-GAAP operating income?

47:59 So again, we said it before, obviously on the long run we're taking action and we expect Higher gross margin and at longer term obviously higher operating and net profit. But we also said that we're seeing a lot of opportunities ahead of us and we're investing in OPEX, meaning customer facing and technology. And this is why we're not increasing operating margin that much. Okay, so more of a function of just continued investments? Right. Okay, good. All right, I'll leave it there. Thanks and best of luck going forward. Thanks, Greg. Thank you. With that, any additional questions?

48:44 There are no questions at this time. Okay, so I would like to thank everyone for joining this afternoon call. We are very pleased with our third quarter results and our ability to increase our second half 2020 year-over-year low teen revenues to 25% growth. The textile industry is clearly at an inflection point in its transition to digital sustainable on-demand manufacturing and we have never been in a better position to execute against that opportunity. Looking ahead, we expect a strong close to 2020 and carry a great deal of momentum and strong pipeline into 2021. I would like to end by thanking our team, Our employees across the world for the hard work, commitment and passion for our customers.

49:37 Thank you very much. This concludes today's teleconference. You may now disconnect your lines at this time. Thank you for your participation and have a wonderful day.