Kornit Digital Ltd. Q3 FY2025 earnings call

• Revenue of $53.1 million was delivered above the midpoint of guidance, with 5% Y/Y growth. - EBITDA margin came in at approximately 2%, showing progress towards full-year profitability. - Progress in screen market penetration: aiming to capture ~5% of the ~6 billion impression addressable market by 2030. - Apollo adoption: acceleration with systems averaging over 1 million impressions annually, 40% of impressions for bulk apparel, and ~40% of Apollo and Atlas MAX systems sold to new customers. - All-Inclusive Click model: ~80% of Apollo systems operate under it, ARR from AIC reached $23.1 million, with expansion expected. - Launch of digital footwear solution for sports and athleisure, with over 1 million pairs of shoes produced using Kornit technology.

Revenues for the third quarter were $53.1 million, representing 5% year-over-year growth, which was above the midpoint of the guidance range. Product revenues grew due to an increase in consumable sales and revenue from the All-Inclusive Click (AIC) model. Service revenue also increased year-over-year primarily due to greater upgrade activity. The absolute revenue is $53.1 million, and revenue contribution includes product (with consumables and AIC) and service segments, with AIC contributing to recurring revenue growth.

• Q4 revenue expected to be between $56 million and $60 million, with adjusted EBITDA margin in the 7% to 10% range. - 2026 expected to have modest top line growth in the low-single digits, with EBITDA expansion as more customers transition to the AIC model and higher utilization and recurring revenue. - Continued transition from one-time equipment sales to recurring usage-based revenue under AIC.

• Forward-looking statements subject to known and unknown risks and uncertainties that could cause results to differ materially. - Risks include exchange rate impacts, inventory-related adjustments, and U.S. tariff costs, which affected gross margin in the third quarter.

Q: Broader demand environment, systems vs consumables, inventory levels, and customer activity around capital sales and AIC for Apollo.

A: Ronen mentioned product grew Y/Y with expansion in ink and AIC, service grew due to upgrades, and systems shipped on AIC model contribute moving forward.

Q: Gross margin step down, inventory adjustments, tariff impacts, and price increases offsetting tariffs.

A: Lauri said headwinds from inventory adjustments and U.S. tariffs affected gross margin, with targeted price increases expected to offset part of tariff impact in coming quarters.

Q: 2026 low-single digit outlook, components of growth, and shift from CapEx to AIC.

A: Ronen explained strategic transition to recurring revenue model, reducing CapEx deals but increasing systems on AIC, with AIC revenue becoming significant and driving long-term growth.

Q: Geographic mix of revenue, drivers for change in 2-3 years.

A: Ronen stated North America is largest region, with EMEA and Asia having growth opportunities, especially Asia in footwear and screen market.

Q: Free cash flow in 2026 and 2027.

A: Lauri mentioned free cash flow expected to be negative while operating cash flow remains positive as they drive AIC penetration.

Q: 4Q guidance, change from second half low-single digit growth, and sustainability of service upgrade activity.

A: Ronen said Q4 expects sequential growth vs Q3, with main driver being move from CapEx to AIC, and service revenue growth depends on upgrades and availability of upgrades.

Q: Demand in footwear and textile, customer adoption as growth driver, and traction with textile customers.

A: Ronen discussed footwear market opportunity with over 1 billion pairs annually, early success in China and expansion to Vietnam and Germany, and traction in textile with strategic agreements and innovative use of systems.

Q: OpEx improvement, drivers, and optimization for future.

A: Lauri said resources not driving growth were reduced, with focus on allocating resources to drive growth and managing OpEx to match revenue growth for profitability.

Q: Business environment visibility in 2026.

A: Ronen stated better pipeline visibility, strong pipeline in screen replacement and footwear markets, and confidence in modest top line growth and EBITDA expansion in 2026