Kornit Digital Q4 2024 Earnings Report

Kornit Digital EPS Results

• Actual EPS: $0.07
• Consensus EPS: $0.21
• Beat/Miss: Missed by -$0.14
• One Year Ago EPS: N/A

Kornit Digital Revenue Results

• Actual Revenue: N/A
• Expected Revenue: $60.59 million
• Beat/Miss: N/A
• YoY Revenue Growth: N/A

Kornit Digital Announcement Details

• Quarter: Q4 2024
• Date: 2/12/2025
• Time: Before Market Opens
• Conference Call Date: Wednesday, February 12, 2025
• Conference Call Time: 8:30AM ET

Kornit Digital (NASDAQ:KRNT) develops, designs, and markets digital printing solutions for the fashion, apparel, and home decor segments of printed textile industry in the United States, Europe, the Middle East, Africa, the Asia Pacific, and internationally. Its solutions include digital printing systems, ink and other consumables, associated software, and value-added services. The company's products and services include direct-to-garment printing platform for smaller industrial operators to mass producers; NeoPigment ink and other consumables; QuickP designer software; and system upgrade kits, maintenance and support, consulting, and professional services. It serves decorators, online businesses, brand owners, and contract printers. Kornit Digital Ltd. was incorporated in 2002 and is headquartered in Rosh Haayin, Israel.

Kornit Digital Q4 2024 Earnings Call Transcript

Presentation

[Operator]

Greetings, and welcome to CoreNet Digital's Fourth Quarter and Full Year twenty twenty four Earnings Conference Call. As a reminder, this call is being recorded. I would now like to turn the conference over to your host, Mr. Jared Maiman, Investor Relations for Kornet Digital. Mr.

[Operator]

Maiman, you may begin.

[Jared Maymon, Global Head of Investor Relations at Kornit Digital]

Thank you, operator. Good day, everyone, and welcome to Kornit Digital's fourth quarter and full year twenty twenty four earnings conference call. Joining me today are Chief Executive Officer, Ronen Samuel and Lori Hanover, Kornit's Chief Financial Officer. For today's call, Ronen will recap the full year 2024, provide comments on the fourth quarter and then discuss our view on 2025. Laurie will then review the fourth quarter and full year numbers and provide our first quarter outlook before we open it up for Q and A.

[Jared Maymon, Global Head of Investor Relations at Kornit Digital]

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. These forward looking statements include, but are not limited to, statements relating to the company's plans, strategies, projected results of operations or financial condition, and all statements that address developments that the company expects will occur in the future. 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.

[Jared Maymon, Global Head of Investor Relations at Kornit Digital]

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 03/28/2024, which identifies specific risk factors that could cause actual results to differ materially. 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. Additionally, the company will be making reference to certain non GAAP financial measures on this call. The 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 company's Investor Relations website. At this time, I'd now like to turn the call over to Ronen.

[Jared Maymon, Global Head of Investor Relations at Kornit Digital]

Ronen?

[Ronen Samuel, CEO at Kornit Digital]

Good morning, everyone, and welcome to Kornit's fourth quarter and full year twenty twenty four earnings call. Before we dive into our results, I want to take a moment to reflect the significant transformation Kornit experienced in 2024. This year was a turning point, one in which we successfully executed our strategy, return to profitability and position the company for sustained profitable growth. At the beginning of 2024, we set clear objectives: return to positive EBITDA, generate meaningful cash flow and establish a scalable, disciplined model that fuel long term expansion. Thanks to the dedicated effort of our teams, I'm pleased to report that we are not only delivered on these goals, but also introduced game changing innovation, strengthened our market position and expanded into new strategic adjacencies.

[Ronen Samuel, CEO at Kornit Digital]

Today, we are pleased to report Q4 twenty twenty four revenues of $60,700,000 and an adjusted EBITDA margin of 13.8%, both within our guidance ranges, demonstrating the successful implementation of our strategy and an ongoing business momentum. We also reported twenty six point seven million dollars of operating cash flow in the quarter. These results mark two significant milestones, achieving positive EBITDA for the full year and generating substantial operating cash flow. Our Q4 performance was fueled by a successful peak season and growing impressions across our key customers. One of the most exciting highlights of Q4 was the Apollo platform performance during the peak season.

[Ronen Samuel, CEO at Kornit Digital]

Having delivered 15 Apollo systems throughout the year, with most becoming fully operational during the critical period, customer feedback has been excellent, reinforcing Apollo's role as a key enabler of mass scale digital production. 2024 was not just about financial milestones. It was about laying the foundation for Kornit's long term success. We introduced industry defining solutions, including Apollo, Atlas Max Plus and Vivido Inc. For roll to roll, setting new benchmarks for quality, cost efficiency and sustainability.

[Ronen Samuel, CEO at Kornit Digital]

Apollo has redefined mass scale digital production, delivering unmatched productivity, automation and consistency. The strong market response is evident in our growing pipeline, which is already filling up for twenty twenty five deliveries. Additionally, we have successfully upgraded a significant portion of our installed base, transitioning customers from Atlas to Atlas Max and are now beginning to upgrade them to Atlas Max Plus. This upgrade path was reinforced by Printful recent announcement highlighting the growing adoption of our latest technology and its ability to drive efficiency and quality at scale. Our all inclusive click model is revolutionizing how customers embrace digital technology, driving strong adoption, accelerating penetration in the screen printing market and already generating meaningful ARR, which we will start reporting as promised on our Q1 earning call.

[Ronen Samuel, CEO at Kornit Digital]

We have expanded our horizon to new markets, including bulk apparel, footwear and home decor, while deepening our presence in key regions. In bulk apparel, we have delivered Apollo and Atlas Max systems to major screen printers adopting digital technology for the first time, marking a significant step in the transformation of high volume apparel manufacturing from analog to digital. In footwear, we delivered our solution to three different customers in Asia with one already in full production for major global brands. This customer has seen strong initial adoption and is now scaling up with additional systems planned for deployment in the first half of twenty twenty five, 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.

[Ronen Samuel, CEO at Kornit Digital]

We also strengthened our team with top tier talent across all functions, ensuring we have the right leadership in place to drive sustained execution. In conclusion, we have built a business that is resilient, profitable and pause for long term success. Beyond our innovation, we continue to deliver shareholder value. We have executed $75,000,000 of our previously announced $100,000,000 share repurchase program, which we expect to complete by mid-twenty twenty five. As we enter 2025, Kornit is in the strongest position it has ever been.

[Ronen Samuel, CEO at Kornit Digital]

The market is showing signs of improvement, driven by a clear shift among brands, retailers and creators towards on demand manufacturing. This transition is becoming increasingly critical for businesses aiming to respond swiftly to evolving consumer demand, while minimizing excess inventory and waste. Additionally, there is significant shift toward nearshore and onshore production as company seeks enhanced supply chain resilience and faster turnaround times. While these trends are positive, certain macroeconomics uncertainties persist. Recent political developments in The U.

[Ronen Samuel, CEO at Kornit Digital]

S. And potential tariffs on Mexico have raised concerns among some of our customers regarding nearshore manufacturing. Furthermore, 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 these shifts effectively. As we stated in our last call, 2025 is about execution, translating the strong foundation building 2024 into scalable, profitable growth, strengthening our market leadership and driving the industry forward with our innovative solutions and business models.

[Ronen Samuel, CEO at Kornit Digital]

With our continued focus on innovation, customer success and disciplined financial management, we are confident in our ability to drive significant value for our customers, employees and shareholders. With that, I will now turn the call over to Lori for a closer look at our financials. Lori?

[Lauri Hanover, Chief Financial Officer at Kornit Digital]

Thank you, Ronen, and good day to everyone. Fourth quarter revenues were $60,700,000 within the guidance range we provided in November. This quarter, year over year growth of 7% resulted mainly from growth in system sales and revenue recognized under our AIC model. For the full year 2024, revenues were $203,800,000 compared with $219,800,000 in 2023. The decline resulted from lower systems and services sales and was partly offset by growth in consumables.

[Lauri Hanover, Chief Financial Officer at Kornit Digital]

Moving to margins, fourth quarter non GAAP gross margin was 55.1%, up from 48.6% in the same period last year. 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 twenty twenty four. For the full year 2024, non GAAP gross margin rose to 48.6% compared with 38.4 in 2023. The increase was largely attributable to a more favorable sales mix driven by consumable sales, reduced warrant impact and the cost base reductions. Looking at expenses.

[Lauri Hanover, Chief Financial Officer at Kornit Digital]

Total fourth quarter non GAAP operating expenses were $28,000,000 a decrease of about 7% from $30,100,000 in the same period last year. For the full year 2024, non GAAP operating expenses decreased about 14% to $109,800,000 This reduction in expenses reflects the impact of the restructuring initiatives implemented at the end of twenty twenty three and beginning of twenty twenty four. Moving to EBITDA. Our adjusted EBITDA in the fourth quarter was $8,400,000 marking a meaningful improvement over the adjusted EBITDA of $200,000 in the same period last year and the adjusted EBITDA of $1,500,000 last quarter. Adjusted EBITDA margin for the fourth quarter of twenty twenty four was 13.8% compared with 0.3% in the same period last year.

[Lauri Hanover, Chief Financial Officer at Kornit Digital]

For the full year 2024, adjusted EBITDA was 300,000 which was up significantly versus negative $30,900,000 in 2023. Improving profitability was a key objective for us as we enter 2024 and we are pleased with this improvement of $31,200,000 year over year, which resulted in positive adjusted EBITDA for the year. Adjusted EBITDA margin for the full year was 0.2% compared with negative 14% in 2023, with the improvement being driven by reduced OpEx, improvement to sales mix and the reduced warrant impact. Our cash balance including bank deposits and marketable securities at quarter end was approximately $512,000,000 For the fourth quarter, operating cash flow increased to $26,700,000 versus $2,600,000 in the same period last year. And on a full year basis, 2024 operating cash flow was a robust $48,700,000 compared with negative $34,700,000 in 2023.

[Lauri Hanover, Chief Financial Officer at Kornit Digital]

This positive cash flow was primarily driven by strong collections and improved profitability. Our primary use of cash during 2024 was our share repurchase program. We used $84,100,000 of cash on repurchases during 2024, bringing the total gross amount used on repurchases to $121,600,000 at an average execution price of $24.4 During the fourth quarter, we entered an accelerated share repurchase program under which we plan to repurchase approximately $75,000,000 of our ordinary shares. Under the terms of the ASR agreement, we received an initial delivery of approximately 1,800,000.0 shares in exchange for a prepayment of $75,000,000 The final number of shares repurchased will be dependent on our average Davy VWAP through the end of the contract. We expect this program to close at the June.

[Lauri Hanover, Chief Financial Officer at Kornit Digital]

This $75,000,000 represents a majority of the $100,000,000 program we announced at our investor event in September and we expect to complete the remaining $25,000,000 through opportunistic repurchasing. 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. These measurable results include the annual recurring revenue generated by our AIC model. We will begin to disclose this metric during our first quarter of twenty twenty five earnings. In the meantime, the investments made in our AIC model can be seen on our balance sheet under equipment on lease net.

[Lauri Hanover, Chief Financial Officer at Kornit Digital]

Turning to first quarter guidance. We currently expect revenues for the first quarter of twenty twenty five to be between $45,500,000 and $49,500,000 and adjusted EBITDA margin to be in the negative 4% to negative 9% range. That concludes our prepared remarks. With that, I will now turn it back over to Ronen to open up the call for Q and A. Ronen?

[Ronen Samuel, CEO at Kornit Digital]

Thank you, Laurie. Operator, we are ready to receive questions.

[Operator]

Thank The first question comes from the line of Greg Palm from Craig Hallum Capital Group. Please go ahead.

[Greg Palm, Senior Research Analyst at Craig-Hallum Capital Group LLC]

Yes, thanks. Hey, everyone, and congrats on the progress here. Ronan, you talked about kind of 2024 a little bit and 2025 is sort of another year of execution. Maybe tell us what you sort of perceive as kind of your goals for the year and how that relates to top line growth potential?

[Ronen Samuel, CEO at Kornit Digital]

Yes. Thanks, Greg. First of all, I would like to touch on a bit about 2024 because it was a turning point for Kornit, a year that we set very clear targets in front of us to move to positive EBITDA and generating substantial cash from operation and we have delivered on that. And this was a transformative year for us. On top of that, you can see that in Q4, we moved back to growth.

[Ronen Samuel, CEO at Kornit Digital]

And on top of that, of course, we introduced many new products like the Apollo, the Atlas Max plus the Vivido for the roll to roll RSS and many, much more. One of the things that we are very proud of and will contribute to your question about 2025 is the new model, the AIC and the ARR that is generating and we are coming out of 2024 with meaningful ARR that's going to contribute for the 2025. We set a really clear target to penetrate the bulk apparel, the screen market, which we did major steps into it and some of the major screen players now using Apollo's and other solution from Chromit. We entered to new adjacencies like the footwear, which we see acceleration and the Home Decor and all of those will contribute for 2025. Major change and an example of a go to market focusing on customer success, on account management, recovering revenue recurring revenue, sorry, and really bringing new talents across our team and specifically for the go to market.

[Ronen Samuel, CEO at Kornit Digital]

In conclusion, when you see looking at 2024, we deliver on what we promise. We build a resilience business, profitable business ready for expansion and a profitable growth. Now as I mentioned in my prepared remarks, 2025 will be a year that we will see a profitable growth in every quarter and we will generate continue to generate positive cash from operation. To do that, we need to continue focusing on execution. Our team is fully focused on execution and I'm going to touch on few fundamentals that we are going to focus in 2024 to make it happen.

[Ronen Samuel, CEO at Kornit Digital]

So on top of what we've delivered twenty twenty four and 2025, on the Apollo specifically, we set a clear target to deliver 30 systems. This is on top of the 15 systems that we have delivered in 2024. And we are coming to 2025 with a strong pipeline and a good visibility on those 30 systems, which will contribute significantly to our top line and also our bottom line. Building continue building ARR is super, super important. The new AIC model really opening for us new markets, new customers and generating very healthy revenues and ARR, which we are going to start reporting from the next earnings call of Q1.

[Ronen Samuel, CEO at Kornit Digital]

And we are going to put 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 ARR versus where we start the year. And there is a significant growth that we are building on. Another area of the focus is continue penetrating the screen market. What we see in this market is a clear move from analog to digital. We see a massive opportunity there.

[Ronen Samuel, CEO at Kornit Digital]

We already penetrated some big accounts there and we have a very healthy pipeline to convert to digital. Another very important and very fundamental KPIs for the year is really about impression growth. First of all, we are going to measure it every quarter. We are actually looking at it on a daily basis. We have a clear target how do we want to end the year in terms of the impression.

[Ronen Samuel, CEO at Kornit Digital]

And those impression coming from existing customers, we start to see a nice growth on the existing customers and also on the capacity utilization of the systems, but also from net new customers, specifically in markets that we never been there like the screen market, the footwear, the home decor and others. Another focus area for 2025 will be the roll to roll. While 2024 was relatively soft on the roll to roll market, we see much healthier funnel for the roll to roll business in 2025, specifically in the area of fashion, footwear and home decor. Overall, bottom line, we believe that 2025 will be a year of profitable growth and a massive execution by the team. We feel very good entering to 2025.

[Greg Palm, Senior Research Analyst at Craig-Hallum Capital Group LLC]

I mean, when you and that was helpful color, so appreciate that. When you put that all together, does that give you an ability or a potential to get back to double digit growth or would you rather not commit to a certain number at this point?

[Ronen Samuel, CEO at Kornit Digital]

Yes. So as you know, we are guiding only quarter by quarter. So I wouldn't I don't want to guide for the year. We have better visibility for 2025. Some of this visibility is coming first of all from the Apollo, a major part of the revenue in 2025 will come from the Apollo and we have a very good line of sight on where we are going to install it.

[Ronen Samuel, CEO at Kornit Digital]

Another area that's improving our visibility is the AIC. We are coming to 2025 with a nice meaningful revenue on AIC and it's going to grow along the year substantially. Of course, we have the inks and services, which is almost a recurring revenue for us. So we have clear visibility on that. But we also came to Q1 with some CapEx order in hand already.

[Ronen Samuel, CEO at Kornit Digital]

So we have a good visibility for Q1 and for the rest of the year. As for the cost structure, we did significant cost improvement during 2024 and we feel that we are under control for the cost. Therefore, we have also good visibility to our EBITDA.

[Greg Palm, Senior Research Analyst at Craig-Hallum Capital Group LLC]

Understood. All right. I will pass it off. Thanks and best of luck.

[Ronen Samuel, CEO at Kornit Digital]

Thank you.

[Operator]

Thank you. The next question comes from the line of Brian Drab from William Blair. Please go ahead.

[Brian Drab, Co-Group Head–Industrials at William Blair]

Hi. Thanks for taking my questions. The first one is just could you give us a little more color, Ronan, on the roll to roll opportunity in 2025? And you had a lot of momentum at the and LOIs that show in Italy and then high interest rates weighed on that business. But why was it soft in 2024?

[Brian Drab, Co-Group Head–Industrials at William Blair]

And what has changed that makes you more optimistic about 2025?

[Ronen Samuel, CEO at Kornit Digital]

Thank you, Brian. So, all to all, when we're looking at it, there's a few things that have changed. One of them is that we just about to release the new products, which include the Vivido, which right now is ending the beta testing and getting excellent feedback from our customers. This brings the quality of the roll to roll to a very similar quality of the reactive ink in terms of the darkness of the black improvement on the hand field. And we also see that the market is really looking for much more sustainable on demand way of manufacturing and Kornit is by far leading this revolution with our pigment unique pigment capabilities.

[Ronen Samuel, CEO at Kornit Digital]

On top of that, look, we are coming out of two point five years of very soft market in the fashion market. Many of our customers really in the last two years, two point five years, were working partially. Some sites were closed, some sites were working only one shift and we see the change. They're getting more demand from their retailers and brands and they're getting to much more production. We see it across the board.

[Ronen Samuel, CEO at Kornit Digital]

Still there is room to improvement, but we see the change in the market. On top of that, we see the growth on impression on the existing customer. So our existing customer, we are monitoring every day the number of impressions that are printing on our roll to roll and we see a very nice growth and we expect some of them to acquire additional system this year. As I mentioned on my prepared remarks, on the footwear specifically, we managed to penetrate already three major player in Asia. 1 of them is already in a manner to scale the business and now is producing for large brands and already placed an order for additional systems

[Ronen Samuel, CEO at Kornit Digital]

that

[Ronen Samuel, CEO at Kornit Digital]

we are going to deliver in H1, which we have a full commitment and visibility for that. On top of that, we penetrated the Home Depot in 2024, specifically in H2, twenty twenty four. We put a lot of effort to go after the Home Depot. Beginning of this year, we had an important event in Frankfurt called Heimtec Steel and we got a really nice feedback from some of the biggest retailers and brands and manufacturers And our solution has a perfect fit for home decor because of the pigment, the resistance and durability of the pigment. Now that home decor is going much more into unique and short runs and on demand, we find it as a big opportunity for us.

[Ronen Samuel, CEO at Kornit Digital]

Also in the fashion, in the fashion we managed to penetrate few big player who is moving from analog to digital or from reactive to pigment and some of them are scaling up and will need more capacity. Overall, our funnel entering to 2025 is much stronger on the roll to roll and the team is optimistic that we will be able to deliver much better results in 2025 versus 2024 on the roll to roll.

[Brian Drab, Co-Group Head–Industrials at William Blair]

Okay. Thank you for that comprehensive answer. I'll just ask one more for now I think. But the Apollo is obviously so critical to the story going forward and it sounds like it's performing very well in the field 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?

[Brian Drab, Co-Group Head–Industrials at William Blair]

What customers were able to produce maybe per hour or what the feedback was from customers and using the Apollo and the quality throughout the holiday season?

[Ronen Samuel, CEO at Kornit Digital]

Yes. So Apollo, as I mentioned previous call, is a game changer. It's a game changer for our existing customer, but it's a game changer for us and for new markets that we are entering specifically the screen and move from analog to digital. When we are looking at our customers that are using today the Apollo as a mix of type of customer. There is the existing customers that are using the Apollo, some of them for very short run and one off, but also using the Apollo to convert volume that today they are printing on analog, on screen and moving it to digital.

[Ronen Samuel, CEO at Kornit Digital]

On top of that, we have new type of customer, totally new to digital for the first time entering to digital leveraging the Apollo and really moving only mid runs and long run jobs from analog to digital. Some of them are retailers, but some of them are fulfillers. So this is very encouraging to see the mix and really opening new markets and incremental impression. This year, as I mentioned, we managed to deliver 15 systems. Many of those systems were installed just before the peak season, but all of them performed during the peak season.

[Ronen Samuel, CEO at Kornit Digital]

Happy to share with all of you that the performance of the system exceeded our expectation. This, of course, is very complex new product introduction and new platform. And like any new platform, there are issues, but this was the best introduction of a new platform that Kornit has delivered ever to a very complex solution in terms of the automation and the capability and the productivity. The satisfaction level of our customers out of it is very high. And how do you measure satisfaction?

[Ronen Samuel, CEO at Kornit Digital]

I can tell you without any exception that each one of those customers that will already deliver a system or already have the second system or more or about to order the second system or more this year. So we are very, very pleased with how it's going till now. In terms of the utilization and capacity, we have reached our goal and customer have reached that goal, while we are planning to improve the capacity and the availability of the systems along the 2025. We're entering 2025 with a very healthy pipeline and good visibility to deliver on the 30 system during 2025.

[Brian Drab, Co-Group Head–Industrials at William Blair]

Okay. And before Ronan, you said 15 orders were in hand. Is that still around that same level?

[Ronen Samuel, CEO at Kornit Digital]

I mentioned that we have 15 commitments from our customers. Today, we have even more commitment in terms of order. I didn't mention how many orders we have in hand. We have a very good visibility and line of sight to deliver a service system during 2025.

[Brian Drab, Co-Group Head–Industrials at William Blair]

Okay. Thanks for clarifying that. That's all for me. Thank you.

[Operator]

Thank you. The next question comes from the line of James Ricchiuti from Needham and Company. Please go ahead.

[James Ricchiuti, Senior Analyst at Needham & Company]

Hi. Thank you. I was wondering, Rana, if you can give any update on equipment purchases or upgrades from your large global strategic account. I don't recall you talking about that in the call or I may have missed it.

[Ronen Samuel, CEO at Kornit Digital]

So thanks, James. First of all, I would relate first of all to one of our key strategic customer, which we have they announced of major upgrades, which is the Printful. They have announced it. But during 2024, they upgraded the entire fleet of Atlases, 86 to be accurate of Atlases into Atlas Max. And now we are in a process to upgrade all the fleets also to Atlas Max Plus.

[Ronen Samuel, CEO at Kornit Digital]

And they were sharing their satisfaction about the quality, the productivity and additional capability in terms of application that they can run. So we are very, very satisfied about that. As for our global strategic customer, our relationships are very, very close. We are working very closely together. Like many of our key customers, they had a very strong peak season and overall very healthy year for them like many of other customers, key customer of us.

[Ronen Samuel, CEO at Kornit Digital]

And as I mentioned in the past, we're hopeful that this year they will continue with the plan to upgrade some of their fleets into Atlas Max. We reported that in Q4 there were some upgrades and we hope that we will see this year additional upgrades coming from this customer.

[James Ricchiuti, Senior Analyst at Needham & Company]

Got it. Laurie, can you help us at all in terms of how we should be thinking about gross margins in Q1, just given seasonality and the ongoing development of the AIC model?

[Lauri Hanover, Chief Financial Officer at Kornit Digital]

Hi. Thanks for the question. 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. So depending upon the mix that we'll 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.

[James Ricchiuti, Senior Analyst at Needham & Company]

And if I could, one quick one. Ronan, you mentioned the issue around the geopolitical situation in tariffs, and I think you talked about Mexico. Are you seeing actually seeing any or hearing any changes in terms of uncertainty as it relates to customer behavior given this or is I'm just curious what has changed if anything in terms of customer behavior around the issue of tariffs?

[Ronen Samuel, CEO at Kornit Digital]

So, we were talking a lot about the nearshore and we see the move to nearshore and some of our key customers move to the nearshore. So we took the opportunity of course to touch base with each one of them and ask them what are they going to do when there will be a tariff if it will happen. The answer is mainly what we hear from them is wait and see. None of them really has a clear understanding if it will happen, when it will happen and what will be the actions that they are going to take. Some of them looking potentially to move some of the operation into onshore into The U.

[Ronen Samuel, CEO at Kornit Digital]

S, which can have positive implication to COVID, 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 are looking into what will be the in the end. And once we will know more, we will be able to report to you.

[James Ricchiuti, Senior Analyst at Needham & Company]

Thank you and congratulations on the progress last year.

[Ronen Samuel, CEO at Kornit Digital]

Thank you very much.

[Operator]

Thank you. The next question comes from the line of Troy Jensen from Cantor Fitzgerald. Please go ahead.

[Troy Jensen, Managing Director at Cantor Fitzgerald]

Hey, thank you. Congrats on the nice results here. Maybe just a couple of questions for Lori and kind of following up on Jim's question on gross margins. I think he said it could be as low as the lowest quarter in last year. So are you implying gross margins could be as low as 37.5% per

[Lauri Hanover, Chief Financial Officer at Kornit Digital]

No, no, no, no. Hi, Troy. Now 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, Managing Director at Cantor Fitzgerald]

Okay. So we should well above because last year was kind of a big downtick for you guys in Q1. So I'm not sure you weren't implying that. But then also just on guidance, I mean, I know you only give EBITDA, but we've got a model of EPS and we need a financial income number. And that's kind of changed a lot for you guys in the past quarter over quarter here.

[Troy Jensen, Managing Director at Cantor Fitzgerald]

So could you give us

[Troy Jensen, Managing Director at Cantor Fitzgerald]

any color on what you think financial income is in Q1 and maybe for 2025?

[Lauri Hanover, Chief Financial Officer at Kornit Digital]

Troy, we provide guidance in terms of revenue and adjusted EBITDA. We don't provide guidance on other elements of the P and L.

[Troy Jensen, Managing Director at Cantor Fitzgerald]

All right. Well, I'll take it offline, but I guess it's probably just interest income come down or rates come down, so I drove it down sequentially, but then happy to follow-up. So, all right, well, congrats and good looking forward.

[Ronen Samuel, CEO at Kornit Digital]

And Troy, nice to have you on the call and we are looking forward to work with you in the future.

[Troy Jensen, Managing Director at Cantor Fitzgerald]

Thanks, Ronen.

[Operator]

Thank you. The next question comes from the line of Maya Woodring from Morgan Stanley. Please go ahead.

[Maya Neuman, Analyst at Morgan Stanley]

Hi, this is Maya on the line for Eric. Great end to the year guys. Thank you for having us. I think maybe just to kind of double hit on gross margins, it looks like total company gross margins hit what looks like an all time record high in the quarter and product gross margins were quite strong. You maybe speak to some of the puts and takes driving that margin outperformance?

[Maya Neuman, Analyst at Morgan Stanley]

How much would you say as a result of the AIC model? And were there any one time dynamics to call out? And kind of how sustainable is kind of this step up in margins, obviously realizing the seasonality impact as we look into 1Q, but how sustainable would you say are these higher level of margins looking forward?

[Lauri Hanover, Chief Financial Officer at Kornit Digital]

Hi, Maya. 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 revenues. That being said, some of the key drivers are, of course, the volume, the volume of systems, the proportion of consumables in the mix, but we've also taken 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 boarding of the AIC model, which over time as it becomes a more meaningful element of revenue will also help support improved gross margins.

[Ronen Samuel, CEO at Kornit Digital]

The only point that I will mention back in the investor event, what we have said that in 2025, you should see a moderate improvement in gross margin, okay, versus this year. So we are planning to expand it along the year.

[Maya Neuman, Analyst at Morgan Stanley]

Got it. Very helpful. And then maybe just one last one from me. You talk about good line of sight into the 30 Apollo's this year. Is that still the cap in terms of capacity or could you potentially up that if demand far exceeds that 30 for this year?

[Ronen Samuel, CEO at Kornit Digital]

We have defined the 30 not because of capacity and definitely not because of the demand. The market is much bigger than those 30 system. We are doing it only because we would like to make sure that every installation of the Apollo is successful. We are still learning a lot. We are working with our customer on each one of the installations, some of it with totally new type of customer.

[Ronen Samuel, CEO at Kornit Digital]

So we are taking it step by step, doubling the number of system from 2024. '20 '20 '6 will be the year that we will scale the Apollo to the next level.

[Maya Neuman, Analyst at Morgan Stanley]

Got it. Thank you. And that's it for me.

[Ronen Samuel, CEO at Kornit Digital]

Thank you, Mark.

[Operator]

Thank you. The next question comes from the line of Chris Moore from CJS Securities. Please go ahead.

[Chris Moore, Senior Analyst at CJS Securities]

Hey, good day. Thanks for taking a couple. Yes, maybe just one more on the 30 Apollos for 2025. Just trying to get a sense, obviously, it's still a work in process, but how many customers do you think are going to comprise that? Is it 20 customers?

[Chris Moore, Senior Analyst at CJS Securities]

Is it 10? Or there are a few that are taking quite a few? Just kind of any thoughts there?

[Ronen Samuel, CEO at Kornit Digital]

I prefer not to show a specific number right now, although we have a very clear line of sight on that. However, what I would say is that the two main audience that will receive those Apollo in 2025. One audience is existing customers that are already using the Apollo. As I mentioned, each one of them are planning to add at least additional one system in 2025. There are few of them that will add more than one system.

[Ronen Samuel, CEO at Kornit Digital]

And the other audience is more net new customers that usually are buying one system and we expect them to have only one system in 2020, '20 '20 '5. Those are type of customers are coming from the screen, from the analog world and stepping into digital for the first time and they will expand into 2026. So it's kind of a mix and I would say is about in terms of number of customers about fiftyfifty between existing customer to new customers that are coming from the analog world.

[Chris Moore, Senior Analyst at CJS Securities]

Got it. That's helpful. Obviously, AIC game changer for Apollo. How important is AIC for Atlas Max or Max Plus at this stage?

[Ronen Samuel, CEO at Kornit Digital]

Well, it's we see encouraging feedback and use of the AIC specifically on the Atlas Max and the Atlas Max Poly. We implemented meaningful amount of them during 2024. We have a healthy funnel in Q1 and for the rest of the year also for the Atlas family in terms of the AIC. What we see, some of them is going also to net new screen printers that they doesn't have the volume to justify Apollo. So as you know, there are really thousands of thousands of screen printers, some of them small, mid size.

[Ronen Samuel, CEO at Kornit Digital]

They cannot commit to the minimum volumes that Apollo can deliver, but they definitely can commit to the minimum volume on Atlas Maxes. Many of them are taking multiple Atlas Maxes. Some of them are taking two or three Atlas Maxes. We already implemented, as I mentioned, in 2024 and we have a good funnel for 2025.

[Chris Moore, Senior Analyst at CJS Securities]

Got it. That's what I was after. I was trying to figure out if there were some if you're getting new customers as well because of the AIC model there. So awesome. I will leave it there.

[Chris Moore, Senior Analyst at CJS Securities]

I appreciate it.

[Ronen Samuel, CEO at Kornit Digital]

Thank you.

[Operator]

Thank you. The next question comes from the line of Davey Rosemar from Barclays. Please go ahead.

[Tavy Rosner, Analyst at Barclays Capital]

Hi, Ronan and Laurie. Thanks for taking my questions. Really quick ones for me, most of them have been addressed. Looking at the demand side, so you spoke about the AIC and the pipeline. When you look ahead like 2025, any prospect of selling new systems not under the AIC?

[Tavy Rosner, Analyst at Barclays Capital]

Like is there still such a thing given the current macro environment or most of the demand now is through the

[Tavy Rosner, Analyst at Barclays Capital]

AIC?

[Ronen Samuel, CEO at Kornit Digital]

So as we shared on the Investor Day, it's very consistent with what we see today in the market, both in 2024, but moving forward in 2025. First of all, AAC model is only on the DTG side of the business. All the roll to roll business is on CapEx. There is no AIC at this stage for the roll to roll business. As for the DTG, when we look at the mix between CapEx to AIC, it's about 25% of the deals going on are on CapEx, 75% of the deals are on AIC.

[Ronen Samuel, CEO at Kornit Digital]

So for example, in 2024, while we delivered 15 Apollos, 10 of them were on AIC and five of them were on CapEx. What we see today is that if we'll need to ask ourselves who is choosing AAC and who is choosing CapEx, many of the new to digital customer that were in the analog world and moving to digital prefer to move to AAC to have a predictable cost. And because they're operating the first time digital for them to know exactly how much it will cost them is very, very important. And we see a clear growth in this area. Also many of them, they have a good business.

[Ronen Samuel, CEO at Kornit Digital]

They have but in terms of cash or capital, they have more difficulties. So therefore, they are choosing the AIC. On the other hand, existing customers that using our systems already and know exactly the cost, they can compare the running cost that they have today on CapEx versus the running cost on the AIC. And many of them are choosing the CapEx because they see it as more favorable in terms of the cost versus the AIC.

[Tavy Rosner, Analyst at Barclays Capital]

Great. Thanks, Renan. That's helpful. That's all for me. Thank you.

[Ronen Samuel, CEO at Kornit Digital]

Thank you.

[Operator]

Thank you. Ladies and gentlemen, as there are no further questions, I would now hand the conference over to Roland Samuel for his closing comments.

[Ronen Samuel, CEO at Kornit Digital]

Yes. So thanks everyone for joining us on today's call. We are excited about what lies ahead for 2025 for Kornit and we're looking forward to updating you on our progress on our next earning call. Thank you very much.

[Operator]

Thank you. The conference of CoreNet Digital has now concluded. Thank you for your participation. You may now disconnect your lines.

Participants

Executives

• Jared Maymon, Global Head of Investor Relations
• Ronen Samuel, CEO
• Lauri Hanover, Chief Financial Officer

Analysts

• Greg Palm, Senior Research Analyst at Craig-Hallum Capital Group LLC
• Brian Drab, Co-Group Head–Industrials at William Blair
• James Ricchiuti, Senior Analyst at Needham & Company
• Troy Jensen, Managing Director at Cantor Fitzgerald
• Maya Neuman, Analyst at Morgan Stanley
• Chris Moore, Senior Analyst at CJS Securities
• Tavy Rosner, Analyst at Barclays Capital