Kornit Digital Ltd. Q2 FY2025 earnings call

• Second-quarter revenues were $49.8 million, below the midpoint of guidance. Gross margin was 46.3% and adjusted EBITDA margin was negative 2.3%.
• System sales and the all-inclusive click business model drove growth, with modest year-over-year revenue growth of 2% and 5% first-half growth.
• Annual recurring revenues increased to ~$19 million, reflecting progress in the Atlas business.
• Production across installed base showed consistent growth, but consumable revenues declined due to inventory impact from the October 7 war.
• Progress in the screen printing market with adoption of Apollo and Atlas MAX Plus systems, including examples like Promos, Basic Thinking, etc.
• Expansion into new verticals with footwear customers and strategic development agreement with a top sports brand.
• Mitigation strategies in place for 15% tariff on products from Israel.

Second-quarter revenues were approximately $49.8 million, within guidance but below the midpoint. Gross margin was 46.3% and adjusted EBITDA margin was negative 2.3%. Product revenues grew due to system sales and the AIC program, while consumable sales declined. Service revenue declined primarily due to fewer Atlas MAX upgrades. Trailing 12-month impression grew 5% to $222.7 million, with strong growth among top customers in DTG and roll-to-roll segments. Annual recurring revenues increased by $4 million to ~$19 million.

• Third-quarter revenues expected between $49 million and $55 million, adjusted EBITDA margin in negative 3% to positive 3% range.
• Modest top-line growth in low single digits expected for second half of 2025.
• Targeting full-year adjusted EBITDA profitability and positive cash flow from operations.
• Focus on expanding ARR base and scaling Apollo, accelerating ASC adoption, and strengthening screen market funnel.

• Lingering impact of October 7 war on consumable revenues due to inventory drawdown by customers.
• Longer sales cycle for Apollo systems in the screen market, affecting initial shipment targets.
• Slower-than-anticipated rollout and adoption of the AIC model, impacting ARR growth.
• 15% tariff on products from Israel, though mitigation strategies are in place.

Q: Broader commentary on subdued outlook, inventory destocking, system sales, and upgrade orders A: Softness in ink and service revenue due to inventory correction and fewer Atlas MAX upgrades. Apollo system shipment tracking below targets due to longer sales cycle. ARR tracking below expectation due to slower AIC model adoption.

Q: Number of Apollo orders and mix for FY '25 and '26 A: Apollo shipment tracking below 30-system target, with strong pipeline in screen market. Mix shifting towards more system sales and AIC, with ARR expected to grow meaningfully in 2026.

Q: ARR tracking and contribution to 2026 growth A: ARR at ~$19 million, with pipeline to increase ARR further. Focus on AIC model adoption, driving longer-term growth.

Q: Atlas MAX upgrade business and second half revenue A: Upgrades from global strategic account to be part of Q3 and Q4 revenues, contributing to service revenue.

Q: Inventory levels and delayed deals A: Only a few key customers with inventory impact, some deals delayed but expected to materialize in H2 with tariff influence.

Q: Screen printing revenue and impressions A: Screen market adoption growing, with different customer segments using Atlas MAX and Apollo. Impressions slowed due to method of calculation for non-Connect customers, but top customers growing strongly.