Kornit Digital Ltd. (KRNT) Earnings

Management highlights

- Overall Business Execution & Strategic Progress: Q1 2026 marked a strong start to the year, delivering revenue at the high end of prior guidance with an adjusted EBITDA loss of $2.8 million, and positive operating cash flow for the 10th consecutive quarter. The company has now completed two years of business stabilization, strategy refinement, and foundation building, resulting in a stronger product portfolio, expanded addressable markets, and growing recurring revenue, positioning Cornete as the leading platform provider for on-demand digital apparel manufacturing. 40% of Q1 system sales came from new customers, while 65% came from traditional analog screen printing customers targeting long-run production, confirming accelerating industry shift from analog to digital manufacturing. The company's pipeline and backlog strengthened, improving visibility into Q2 and the second half of 2026. - Key Product Innovation Launches & Market Expansion: The company launched Atlas Metrics at Connection 2026, powered by its unique Carbon Shield technology that solves the longstanding industry problem of dye migration when digital printing on polyester and blended fabrics. This breakthrough expands the company's addressable market into the high-growth sportswear, performance apparel, and polyester segments, which represent 30% of the existing $6 billion market for production runs under 1,000 units. The company also demonstrated Apollo's new ability to print on cut pieces, opening new large-scale automated production opportunities, and launched Presto Max Plus powered by the new Duatec architecture, which delivers exceptional durability for demanding applications including footwear, technical apparel, camouflage, performance wear, and home decor, expanding into entirely new addressable markets that were previously inaccessible to digital production. - Strategic Acquisition: The company announced the post-quarter-end acquisition of Print Factory, a leading provider of textile production software with thousands of global deployments, which adds advanced color management, workflow automation, and production control capabilities. The acquisition advances the company's long-term strategy to build an end-to-end connected digital ecosystem connecting demand, workflow, production, and fulfillment for the apparel and textile industry, strengthening its unique integrated hardware-software offering that few competitors can match. The transaction is expected to close in Q2 2026. - Financial Performance: Non-GAAP gross margin was 41% in Q1 2026, down from 45.2% in Q1 2025, primarily due to normal seasonality (higher mix of lower-margin systems/services), 190 basis points of headwind from shekel strengthening and tariff-related costs. Non-GAAP operating expenses were $25.5 million, down 7% year-over-year even with a $2 million FX headwind from shekel strengthening, reflecting disciplined cost management while continuing to invest in key growth initiatives. Adjusted EBITDA loss improved to $2.8 million (negative 5.8% margin) from $3.9 million in Q1 2025, beating the midpoint of guidance. Cash and marketable securities totaled $462.2 million at quarter end, with Q1 operating cash flow of $6.3 million. The company repurchased $30 million of shares in Q1, with $200 million in total repurchases since 2023, leaving a strong balance sheet for future growth.

Guidance

- For Q2 2026, management guidance calls for total revenue of $51 million to $55 million, with adjusted EBITDA margin ranging from negative 5% to break-even. This guidance reflects the strong current business momentum, and includes expected continued investments in strategic initiatives and ongoing FX pressure from shekel strengthening. - Management expects gross margins to improve in Q2, with more meaningful margin expansion in the second half of 2026, driven by higher utilization, growing recurring revenue, and improved operating leverage. - The company expects continued year-over-year revenue growth, improving profitability, and ongoing positive operating cash flow for full year 2026, with a meaningful step-up in ARR in Q2 and continued acceleration throughout the second half of the year. Revenue from new products Atlas Metrics and Presto Max Plus will begin to be recognized in Q2 2026, with significant contribution building through the second half of 2026 and into 2027. - Capital allocation priorities include organic growth investment, supporting the AIC model, strategic acquisitions, and share repurchases, with no fixed quarterly run rate for buybacks as the company evaluates opportunities dynamically.

Segment performance

Cornete Digital reports overall total revenue of $48.5 million for Q1 2026, with product revenue growing 4% year-over-year and services revenue growing 7% year-over-year. AIC (recurring revenue) revenue grew approximately 103% year-over-year, ending the quarter with $27 million in annual recurring revenue (ARR), which contributed ~55.7% of total Q1 revenue. Consumables revenue, which carries higher gross margins, was lower in Q1 due to normal seasonal patterns, resulting in a higher mix of lower-margin system and service sales this quarter. Trailing 12-month impressions (a key indicator of utilization and consumables demand) grew 12% year-over-year, driven by higher install base utilization and ongoing analog-to-digital conversion in the industry.

Risks & headwinds

- Unfavorable movement in foreign exchange rates, specifically the strengthening of the Israeli shekel relative to the U.S. dollar, creates ongoing gross margin and operating expense pressure. - The achievement of forward-looking results, including revenue growth, margin expansion, and new product adoption, is subject to known and unknown uncertainties, which are detailed in the company's SEC filings. - New customer conversion from analog to digital can have an extended initial sales cycle, as traditional screen printing customers often adopt new technology cautiously starting with 1-2 systems before scaling.

Analyst Q&A

• Q: What early Q2 momentum is the company seeing after the Connections 2026 event, and what is the revenue opportunity for Atlas Metrics and Presto Max Plus? /

  A: Management confirms strong accelerating market demand for on-demand production, with a strengthening backlog and pipeline for Q2 and H2 2026. Atlas Metrics is a game-changing product that opens 30% of the core addressable market previously inaccessible to digital printing; revenue from upgrades and new systems will begin in Q2 2026, with significant volume through H2 and 2027, drawing from hundreds of existing eligible Atlas systems and net new customers. Presto Max Plus opens entirely new massive markets including footwear (2 billion addressable impressions), military camouflage, performance apparel, and home decor, with a strong early pipeline of new customer orders.

• Q: What was the order and pipeline outcome from Connections 2026, and when will Atlas Metrics revenue start to grow meaningfully? /

  A: Connections 2026 positioned Cornete at the center of the industry's shift to on-demand manufacturing, with 600 attendees including 300+ prospective customers. The event generated a very strong pipeline, with some orders already booked for Q2 delivery, and much of the pipeline expected to convert in H2 2026. Orders for Atlas Metrics were taken at the event, with formal launch at FESPA Barcelona the following week; revenue from beta sites, new systems, and upgrades will begin to be recognized in Q2 2026, with most volume flowing in H2 2026 and 2027, from both existing installed base upgrades and net new system sales.

• Q: What is the current split of AIC vs CapEx for new customers, and where will this mix ultimately stabilize? Do existing customers shift to AIC? /

  A: Over 90% of new customers from the core target screen printing market adopt the AIC model, the company's key growth focus. For the existing customized design segment, the mix is split: long-time customers often prefer to stay on CapEx, while new customers in this segment increasingly choose AIC. The company expects the overall mix to continue shifting toward AIC over time, which delivers more predictable recurring revenue, higher long-term gross margins, and higher average impressions per system.

• Q: How has the average sales cycle changed for new customers, and what is the opportunity for repeat orders from new customers? /

  A: The sales cycle has shortened meaningfully: the market is now maturing, with customers actively seeking to move to digital rather than requiring education on the benefits of the technology, and the AIC model inherently shortens timelines, with some deals closing in 1-2 months. Most new analog customers start cautiously with 1-2 systems, but Cornete is already seeing rapid fleet expansion within 6-12 months of the first purchase as customers validate the technology, creating a strong pipeline of follow-on growth.