Kornit Digital Q2 2023 Earnings Call Transcript

Quartr
Provided by Quartr
August 9, 2023

There are 9 speakers on the call.

Operator

Greetings, and welcome to Kornit Digital's Second Quarter 2023 Earnings Conference Call. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host today, Mr. Andrew G. Backman, Global Head of Investor Relations for Konec Digital.

Operator

Mr. Backman, You may begin.

Speaker 1

Thank you, operator, and good day, everyone, and welcome to Kornit Digital's Q2 2023 earnings conference call. Joining me today are Chief Executive Officer, Ronen Samuel Lawrie Hanover, Kornit's Chief Financial Officer and Amir Shekhed Mandel, EVP of Corporate Development. For today's call, Ronen will provide comments on the Q2 of 2023. Laurie will then review the 2nd quarter numbers and provide our 3rd Before we begin, I would like to remind you that forward looking statements within the meaning of the Private 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.

Speaker 1

I encourage you to read the company's filings With the Securities and Exchange Commission, including the company's annual report on Form 20 F, which was filed with the Securities and Exchange Commission on March 30, 2023, which identifies specific risk factors that could cause actual results to differ materially. Any forward looking statements are made concurrently 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 measurements 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 press release and published today, which is also posted on the company's Investor Relations website. At this time, I would like to now turn the call over to Ronen.

Speaker 1

Ronen?

Speaker 2

Thanks, Andy, and thanks to everyone for joining us on today's call. Earlier today, we reported 2nd quarter revenues of $56,200,000 in line with the guidance we provided in May, Which as a reminder included the impact from the fair value of issued warrants. During the quarter, Impression grew at a double digit pace year over year for the 2nd consecutive quarter, Driving a steady improvement in capacity utilization. Consumable revenue grew at a strong double digit rate Across our customer segments, including key strategic accounts and throughout all our operating regions. So far, in the Q3, impression growth is again on pace to increase at a double digit rate year over year, Which give us confidence in solid consumable growth for the second half of the year.

Speaker 2

Our services business also continues to demonstrate And transition to our MAX technology. We are very pleased with the customer feedback we have received On our MAX technology and anticipate additional upgrades orders during the second half of this year And throughout 2024, along this year, services have improved considerably both in terms of revenue generation And an increased operating efficiencies. System sales volumes remained soft during the quarter, Mainly due to continued challenges in capital equipment spending and as our customized design customers Continue to work through excess capacity. While we anticipate the prevailing softness in system sales volumes To continue in the short term, we have implemented strategic measures to attract new customers, including brands, retailers And digital platforms. Additionally, we are targeting new growth regions within key textile production hubs To diversify our customer base and establish a healthy pipeline for 2024 and beyond.

Speaker 2

In addition to diversifying our customer base and entering new markets, we have taken various actions Expect to approach breakeven on adjusted EBITDA basis for the Q4 of this year, even at a quarterly revenue run rate in the mid $60,000,000 range due to a favorable sales mix of higher margin consumables and quarterly OpEx In the low to mid $30,000,000 range, we are also aiming to deliver profitable growth for the full year 2024. As a result of our focused R and D, marketing and other efforts, we had a hugely successful ITMA trade shows in Milan. We had very high customer engagements with new customers from key textile regions such in India, China, Turkey, Morocco and from LatAm countries such as Argentina, Brazil and Mexico. We also secured High number of quality leads and sales orders for both direct to fabric and direct to garment systems. For example, at ITMA, we signed a deal with 1 of the top textile manufacturers in India, Which we are planning to deliver in the Q3.

Speaker 2

This new relationship opens up a new market for us in India, a market we believe As a potential to meaningfully grow over the next several years, approximately 60% deals signed We're from net new customer opening the door for additional systems, consumables and services sales, Providing us with healthy pipeline for 2024 and beyond. The level of energy and innovation Kornit brought to ITMA was incredible with hundreds of customers and prospects providing favorable feedback for our portfolio. We also unveiled our new Apollo high throughput platform and secured several new orders. We expect to recognize revenues for the Apollo in the Q1 of 2024 and are currently focused on building During the Q2, we installed our first beta system in the U. S, Which is now up and running and we are in the process of installing the 2nd beta in this region.

Speaker 2

As we have stated previously, the Apollo platform has the potential to provide us with annual consumable and services revenue Of approximately $1,000,000 per system once installed and running at high utilization rates. In summary, we have built solid foundation for future growth and Kornit's long term growth drivers remain firmly intact, A view reinforced by our recent experience at ITMA, we have made substantial progress throughout the first half of this year As evidenced by our successful introduction of new technologies and solutions, our MAX platform has been well received by the market, Becoming the new standard in the market, our quality of prints, XDI capabilities And our ability to sustainably print white on dark fabrics have opened up new markets And driven increased customer interest and engagements. As a result, We continue to diversify our business and bolster our pipeline. We have also materially adjusted our cost structure and operation, Reallocating resources to further enable growth engines, such as launching the Apollo platform and capitalizing On growth opportunities in new markets to our direct to fabric business, we remain confident Our strategy, product roadmap and solid balance sheet position us well to generate meaningful long term growth. On a final note, this morning, we issued our 3rd impact report, which highlights Our activities and the progress we made on Kornit's long term impact strategy, Demonstrating our commitment to a more sustainable fashion and textile industry.

Speaker 2

With that, let me turn the call over to Lori for a closer look to our Q2 financial and Q3 guidance. Laurie?

Speaker 3

Thank you, Ronen, and good day to everyone. As Ronen mentioned, 2nd quarter revenues were 56,200,000 In line with the guidance range we provided in May, we experienced strong double digit year over year revenue growth from both consumables and services. Yet as expected, meaningfully lower year over year system sales due mainly to MAX upgrades. In EMEA, while consumables growth was robust due to a larger installed base and increased usage, The year over year decline was driven by lower system sales as customers continued to encounter financing challenges. We continue to explore ways to support qualified buyers to secure financing and now have a number of third party financing partners lined up.

Speaker 3

We continue to seek additional partners who understand our business and how the company's solutions help our customers. The APAC region also experienced healthy consumables and services growth as compared with the same period last year. As Ronen said, we continue to develop a meaningful pipeline of long term growth opportunities in this region, especially in key textile producing countries such as India and China. Moving to margins. Non GAAP gross margin was 36.1% compared with 38.6% in the same period last year.

Speaker 3

Lower system sales volumes drove the year over year decline in gross margin even as higher margin consumables grew nicely and as the profitability of services meaningfully improved. We continue to expect gross margin improvement Throughout the balance of this year, given the historical cadence of consumables as a percentage of sales being progressively higher in the 3rd 4th quarters. Turning to expenses. Total 2nd quarter non GAAP operating expenses were $34,100,000 down approximately 16% from $40,700,000 in the same period last year. The year over year decline Primarily reflects the impact of our previously completed workforce reductions and lower marketing spend.

Speaker 3

As a result, Adjusted EBITDA loss for the Q2 of 2023 was $10,700,000 an improvement as compared with adjusted EBITDA loss of $15,700,000 in the same period last year. Adjusted EBITDA margin for the Q2 of 2023 Was negative 19%, again, in line with the guidance range we provided in May. Our cash balance, including bank deposits and marketable securities at quarter end was approximately 592,000,000 Cash used in operations during the Q2 was $15,500,000 driven primarily by the operating loss and changes in working capital. Accounts receivable increased due to the timing of collections as well as a higher balance associated with extended payment terms to select customers, While inventories declined sequentially, we continue to remain focused on improving working capital to drive cash conversion. Since the beginning of the year, we have repurchased approximately 938,000 shares under our share repurchase program for an aggregate amount of $21,800,000 resulting in an average price paid per share of $23.20 The initial 6 months court approved period for the company's share repurchase program of up to $75,000,000 Expired on June 15.

Speaker 3

We have applied for and received a new approval from the Israeli court covering the unused balance of our previously authorized share repurchase program for an additional 6 month period. Given our strong balance sheet, we continue to believe that we can opportunistically repurchase shares without impacting our ability to execute the Q3 of 2023 to be between $58,000,000 $62,000,000 and adjusted EBITDA margins to be in the negative 6% to negative 13% range. As a reminder, the guidance for revenue and adjusted EBITDA margin includes The impact of the non cash expense associated with the fair value of the company's warrants to our largest global strategic account. As Ronen mentioned, We currently expect to approach breakeven on an adjusted EBITDA basis for the Q4. And before I hand it back to Ronen, I want to announce that Andy Backman, our Global Head of Investor Relations, will be leaving Kornit at the end of this month to pursue a new opportunity.

Speaker 3

Since joining Kornit, Andy has played a pivotal role in leading and transforming our Investor Relations program, We are also excited to announce that Jared Mayman, who is here with us today in Israel, will be assuming the role of Head of Investor Relations. Jared comes to us from Berenberg Capital Markets, where he covered Kornit as a sell side analyst for the past 2 years. Jared, welcome aboard, and we all look forward to working with you and Sarkis. With that, I would like to turn it back over to Ronen to open the call up for Q and A. Ronen?

Speaker 2

Thank you, Laurie. Operator, we are ready for the Q and A session.

Operator

Thank you. We will now conduct a question and answer One moment while we poll for our first question. Our first question comes from Eric Woodring with Morgan Stanley. Please proceed.

Speaker 4

Super. Thank you guys for taking my question and good morning. So good to see the uptick in impressions and improvement in utilization both in And now some of this early data that you're pointing to in 3Q. Maybe just based on your investor conversations and any kind of telemetry data that you have, Any way that you can kind of gauge where you think average utilization might be today? And How long does that mean your customers can continue to sweat their assets before they really start to expand capacity?

Speaker 4

Would love if you could just double click on that and then I have a follow-up. Thank you so much.

Speaker 2

Thank you, Eric. Good morning to you as well. This is an excellent question. It really depends on the type of segments we are looking into, okay? So when we're talking about utilization and underutilized, mainly we refer to our Customers in the customized design, where they saw a huge peak during 2020, the second half of twenty twenty, 2021 And then they invested a lot in many new systems, and they saw the downside at 2022.

Speaker 2

What we see in Q2 and we saw it already in Q1, we saw them increasing volumes. Some of them Going into double digit growth, across our installed base, we see double digit growth not only in the strategic account, but Across all our installed base, and we see it also in the supplies revenues. Overall, we see a good improvement On the utilization, however, we will need to wait for the peak season and to see that They're getting into high utilization in order for them to reach to a point that they need to invest in additional capacity. We assume that those key customers on the customized design will get into this cycle only next year After the peak season, after they have a better visibility. Currently, the trends of supplies continue to be very positive Across those type of customers.

Speaker 2

On the other hand, we see customers that are in different market segment. If it's in the DTF, direct to fabric or if it's in the replacement of the screen market, then we We see massive growth in specific customers across U. S, EMEA and Asia Pacific. We see them adopting the MAX technology. If it's the Atlas MAX and in the future, we will see it also on the Apollo.

Speaker 2

We see them growing very rapidly and actually we can start to see them buying additional systems and growing. So As I mentioned, depends on different markets, but overall, we see a very positive trend.

Speaker 4

No, that's super helpful. Thank you, Ronen, for that color and kind of that bifurcation between DTF and DTG. The second question I just want to pick your brain on was, in your prepared remarks and in the press release or presentation, you mentioned A strong pipeline for 2024 and beyond post ITMA. Can you maybe just double click on that comment and talk about some of the devices that Saw some of the strongest interest at ITMA. Any new trends that emerge that you think are important for all of us to think about?

Speaker 4

And then any kind of advice or guidance that you could provide us in terms of how to think about the timing Revenue recognition for any of those new products that are now in your pipeline. And that's it for me. Thanks so much.

Speaker 2

Yes. So thank you, Eric. So I'll touch on it first just to follow-up for the impression of IITMA. IITMA was Incredible successful event for Kornit. We saw, first of all, from the market We saw all the market trends that we were talking for years really happening.

Speaker 2

Customers and visitors that came to our booth were talking about How do they move into on demand manufacturing, onshore moving to production onshore and nearshore, sustainability becoming A big issue for the brands and retailers and they're all looking for pigment solution and by far we have the best pigment solution. We met with hundreds of visitors, if it's brands, retailers, customer, prospects, different partners. And the excitement of the solutions that we have shown on ITMA was remarkable. People were amazed by the MAX technology And the MAX technology is now the new standard, the new benchmark in the industry. Everybody is talking about it.

Speaker 2

And it's taking us deeply into the screen market, into the replacement market, which is a totally new market that we never played there before. The Atlas Max Plus with the additional capability of additional productivity, the Qualyset, the XDI, Really opening for us not only additional capacity within our customer, but new market entries. For but ICBA was very successful event for our Atlas Max Poly. Atlas Max Paul is gaining momentum within retailers, sports retailers and sports brands. We see it both in the professional sport, but also in the athleisure market.

Speaker 2

We closed quite few orders of the MAX poly and we have a very strong pipeline moving forward into H2 and 2024. The Apollo was unbelievable success, was running around the clock. People were amazed. For the first time, they can see a system that's running at 400 garments an hour In full productivity with 1 operator, this is a breakthrough for this industry based on MAX technology. We got multiple orders for the Apollo.

Speaker 2

As I mentioned, we're already running the beta I'm installing the second one. The feedbacks are great. This will position us deeply into the screen market And we expect a substantial growth on the Apollo next year. The recognition of the units that we are going to That we installed and we're going to install this year will happen only in Q1. Presto, presto marks With the new ink, which focus on that on the black Our ability to print on that fabric with white ink opened for us for the first time really the fashion market, but also the home decor.

Speaker 2

But more than that, for the first time we are talking and we had a very strong funnel and opportunities Within different hubs of textile market in the world, if it's the India, if it's in Turkey, if it's in Brazil, Mexico, We have a very strong pipeline going there, a lot of excitement. It was the one of the hit of this event. Of course, we show that the Soma Dryer, the RSS, the Kornit X, overall great feedback on our solution. And this show really show us that from focusing on customized design now Kornit switched gear The replacement market both in the direct to fabric going after the replacement which is a massive market, But also in the direct to garment, which is a very big opportunity for us. We collected more than 1,000 leads during the show.

Speaker 2

Out of them, we already identified 100 of opportunities, real opportunity. We qualify, We follow-up with those customers hundreds of opportunities. We also got Very nice orders and LOIs. Out of those orders and LOIs, close to 50% of them Already converted to PO or in the place to be converted very, very soon to PO. So 50%, we've never seen such A hyphen conversion.

Speaker 2

Actually from all the deals that we go doing and the LOIs, 60% are from new customer. And when we look at the opportunities We have more than 90% net new customer, which opened for us massive market opportunity moving forward. Overall, when we look at the show, we show there that one word is leadership. Kornit show we are the leader of this And all the eyes are looking at Kornit. Now in terms of conversion, some of the deals we converted already in Q2, Few of you will see also in Q3 and Q4, but the majority will be only in 2024, Throughout the 2024, now we're in the process of really going 1 by 1.

Speaker 2

As I mentioned, many of those leads become an Many of them are very, very hot. We're still facing macroeconomics challenges With the interest rate and people are waiting, some of them waiting for the peak season, some of them just waiting to see what will happen In the market, but they're all excited about our solution. They're all serious about it and we believe that we'll be able to convert many of them Into 2024, we believe 2024 will be the year not only by scanning the Apollo and the new Atlas Max The new Atlas Max Plus and the Presto Max with the new ink, but it's the year that we will show Again, growth and we will show a profitable growth in 2024.

Speaker 4

That was amazing. Thank you, Ronen. Good luck to you guys.

Speaker 2

Thank you.

Speaker 1

Our next question comes from

Operator

Brian Drab with William Blair. Please proceed.

Speaker 5

Hi, thank you. I'm on 2 simultaneous calls, so I'm going to try and just ask my questions and then get back in the queue. Can you talk about the upgrade timing, particularly at some of the bigger customers going into 2024 upgrade to MAX technology? And also, the Presto demand, which I know is there's a ton of interest in the Presto at the Itmann How many of those did you sell and or signed letters of intent for? And when do you what's the timing like of Delivery of some of those orders and revenue generation.

Speaker 5

I'm sorry, I'm just going to jump back into the queue though. Thank you.

Speaker 2

Thank you, Brian. So as regarding to the upgrades, we H1 was very strong in terms of Implementing upgrades from Atlas to Atlas Max, some of it with our key customers, some of it with smaller customers, We expect Q3 or another strong quarter for upgrades across the different regions. We do not expect Q4 to be a strong quarter for upgrades. Customers are very busy in Q4, and we do not expect To do an upgrade during Q4, so we are very, very busy right now completing all the upgrades that are possible with our customers In Q3, we are already aware of customers that are expecting to continue the upgrades in Q1 and Q2 next year. Some of them are strategic customer.

Speaker 2

As for our global strategic customer, we passed All the testing regarding the quality and the productivity, and we just expect Waiting to get green light when to start the upgrades on their installed base. So those are regarding the upgrades. You will see it again in Q3 and first half of next year. Regarding the Presto, as I mentioned, Presto, what we have shown with the quality of the new inks that We present an ability to print on dark fabric with white ink, the XDI Open for us for the first time the replacement market. Now let me explain what is the replacement market.

Speaker 2

Till now, we were selling the Presto mainly for customers that were looking for really short runs, printing all kinds of It would be fashion, garments, show front and even on the core show front. For the first time, we are We're now dealing with massive textile manufacturers in major hubs around the world That looking to transform the business to a more sustainable on demand, but not for short runs, really for mainstream production And doing the calculation of the total cost of ownership, the ability to print on almost Any fabric without any pretreatment, any post treatment, any washing, any waste of water, fully sustainable, Makes a lot of sense to many of them to move now to the Aprosto solution, Aprosto Max solution. We will see a strong Q3 on the Cresto. We expect a Strong one. We expect also a strong Q4, but many of the deals or many of the opportunities that we got at ITMA and the deals that we signed at ITMA will be implemented only beginning of 2024.

Speaker 2

But we see a massive opportunity and a growth engine for Kornit for the first time. DTA direct

Speaker 1

Toya, next question please.

Operator

Our next question comes from Terry Rozno with Barclays. Please proceed.

Speaker 5

Hi, thanks for taking my question. I wanted to ask about Amazon. Broadly speaking, how is the relationship going? And last you mentioned that some systems that they ordered hasn't been shipped yet. So I was wondering if they did shipped and were installed.

Speaker 5

And if there's any update with Amazon potentially upgrading their portfolio to systems like the Apollo?

Speaker 2

Yes. So thanks for the question, Tavy. So with our global strategic customer, we have a very, very close relationship. And as I mentioned before, we're always working with them on long term plans, 3 years plans, And their business is doing very good. They had a great H1.

Speaker 2

We Number of impressions that is growing without getting into numbers, but that's a strong double digit impression that is growing. As you all recall, last They were supposed to open new sites. We sold many systems. Those sites were delayed. Finally, those sites are ready.

Speaker 2

We actually in those days, we are installing on both sites those many, many systems. So They will be ready for the peak season for Q4 to run. So we expect a massive growth in terms of impression From our global strategic customer into Q4 and definitely into 2024. As for additional Capital investment, it's still within their internal discussion. There are multiple opportunity of capital investment And different timetable from them.

Speaker 2

One of them we were talking about upgrading their fleet of Atlases to Atlas Max. As I mentioned, they already did all the testing. Now they're even looking into the Atlas Max Plus And potentially, they did all the testing. We passed them. And they just need to give us the green light to move ahead.

Speaker 2

So this is internal decision of these global strategic customers and we are waiting for it. Another opportunity is really to Trade in the old fleet of Avalanches and trading them into the MAX technology, if it's The Atlas Max Plus or the Apollo, I can tell you that they are very excited about the Apollo. Looking at the future growth coming from this platform, as we mentioned on previous calls, They will be testing the Apollo very, very soon. So they will be able to gear up into 2025 with the Apollo. So this is another major opportunity.

Speaker 2

Of course, with this strategic customer, global strategic customer, there are other opportunity, If it's with the fashion department or business and looking into both the direct to fabric, We see an opportunity also on the Soma dryers and other areas. So it's a massive We are supporting them very closely. We are proud to be to partner with them and we are proud to see the growth moving forward.

Speaker 5

Thanks, Lundin.

Speaker 1

Thanks, Tavy. Latanya, next question please.

Operator

Our next question comes from Jim Ricchiuti with Needham and Company. Please

Speaker 6

Hi, good morning. This is actually Chris Grenger on for Jim. Thank you for taking the questions. Late in June, you announced the Amaze deal. And I was just wondering if you could elaborate on that deal, Whether it entails incremental units or is largely leveraging the existing Fulfiller network And what you see in terms of additional enterprise scale prospects for Kornit X?

Speaker 6

Thank you very much.

Speaker 2

Yes. Thank you for the question. So it's an interesting deal, but it's another A proof point for the direction that the industry is taking. We see massive opportunities with digital platform, Platform like Canva, like Wix and we announced with Amaze. What Amaze It was important that they chose not only Kornitix as the platform, but they chose Atlas Max as the only platform that will print The declaration and the government.

Speaker 2

So this is a very, very important message. As for the business Just starting. We already connected them with a few of the global fulfillment network. I can tell you that one of them already ordered a few system because of disconnection in North America, Which is another testament to the value of connecting digital platform and demand generation to our customers that are buying system from us. So we expect and we believe that AMASE will grow.

Speaker 2

There's a big potential Not only in the U. S, but in Europe and Asia Pacific, and we support them like we support other digital platform, like we're supporting Brands and retailers, and the nice thing that we are connecting is to our customers, to our installed base, By more systems and more inform us.

Speaker 1

Great. Got it. Any next question please? Thanks, Chris.

Operator

Our next question comes from Derek Palm with Craig Hallum. Please proceed.

Speaker 7

Yes. Thanks. Hi, everyone. Thanks for taking the question. I guess just starting off, it seems like the implied 2nd half outlook in terms of revenue is a little bit lower relative to where we were 3 months ago.

Speaker 7

So I'm just kind of curious, What's changed? How much of maybe some activity that you thought would have landed this year and got And then just as you sort of look at other ways to convert customers, I'm curious if you can give us a little bit more color on sort of financing alternatives. It sounds like you've maybe opened up that option. And I'm just curious If you think that could be a big driver of conversions going forward?

Speaker 2

Yes. So Thank you for the question. If you remember that we were talking about the visibility that we have for H2 and we always said that we have Kind of 70% visibility, which coming from the supplies, the ink and from the services. And actually, As of today, the ink and the consumable is actually trending better than what we expected And it's growing faster, which is a great message because it shows the health of our customers and it shows They will need more system in the future. We're also trending better on the Services and services revenue is growing faster and also gross margin looks very, very nice there as well And trending in a very positive way.

Speaker 2

The place that we are below what we expected In terms of total revenue is systems. Now on systems side, let's look at it from 2 angles. 1, in terms of Finally, we have really line of sight, line of sight for pipeline. As before ITMA, Actually, we're almost blind how H2 will look like. Today, we have a very clear line of sight For H2 and beyond, we have the pipeline for 2024.

Speaker 2

We know We are dealing with a very, very clear order pipeline for the second half of this year. Some of the pipelines that you wanted to convert after Itmann, we understand now that it will take longer and it will take us to 2024 mainly due to the macroeconomics. Customers looking for financing, some of them prefer to wait On the fans before they are jumping in, some of them prefer to wait for the peak season and taking decision only after the peak season. So this is the reason why we are saying H2 in terms of system We'll be still a bit lower than what we wanted it to be. However, the good news We took measures in advance, not only the supplies gross margin and the gross Revenue and gross margin, both on supplies and services looks good, but we took measurements on the OpEx And we are going to reach a breakeven on an adjusted EBITDA basis, And we are going to approach breakeven on an adjusted EBITDA basis in Q4.

Speaker 2

We feel very comfortable about it. As for 20 24, as I mentioned before, we are aiming for a profitable year that we will grow versus 2023.

Speaker 7

And just to begin yes, thanks for that. That was a very helpful detailed answer. And just to be clear on Q4 specifically, I think you had mentioned approaching breakeven on a revenue run rate that's now towards the mid-60s versus 70 previously. So are you effectively guiding revenue in that sort of mid-60s range for Q4? I just want to confirm that.

Speaker 2

We are guiding only for Q3. We are not guiding for Q4. We are saying that we can be both Reaching approaching breakeven in the mid-60s with OpEx In the low to mid-30s. This is what we believe that we can do. We are not guiding for that, But this is kind of indication where we see right now the business.

Speaker 7

Understood. All right. Thanks.

Speaker 1

Thanks, Greg. Next question please.

Operator

Our last question comes from the line of Mr. Chris Moore from CJS

Speaker 8

Hey, guys. Thanks for taking the question or 2. So it sounds like the ITMA good morning. ITMA conversion rate LOI to purchase orders was quite high, getting better. Is there any way you can size the purchase orders to date?

Speaker 2

We are not providing those numbers specifically. What I can tell you that Kornit today after ITMA with the technologies that we bought both to the DTG and the TAF, Direct to Fabric, is a different company. It's much more diverse, much stronger than ever before. If you look at Kornit in the past, we were a company that 90% of our revenue came from the DTG, A lot of it from few key customers, strategic customers, a lot of it from North America. Today, we are a different company, A company that direct to fabric becoming a very, very important market and growth market.

Speaker 2

Within the DTG, It's not only the customized design. We are getting to the replacement market, which is much, much bigger and many of those deals now Going there mainly with, of course, with the Apollo and the Atlas Maxes. We are entering to new geographies, if it's India, China is growing, Mexico, Turkey, Morocco and many, many other hubs that we never been able to get there Because customized design was not relevant and replacement market is very relevant for them and each one of them is huge. We are getting to many, many new key customers, strategic customers. The deals that I mentioned in India, in India is one of the largest Textile Manufacturers and potential to buy many, many systems only with these customers And definitely many other will follow.

Speaker 2

In China, we just installed in Q2 a DTS in totally new Application, I don't want to get right now to the application. I would like to keep it confidential, but this Totally new application, very exciting one with potential to tens of units at only this customer. Massive, massive customers, totally new opportunity, new market and new applications that we never been there before. Other than that, we can see the growth coming from retailers. Few retailers that we are working with them are With the brands totally different level of engagement, brands needs to move to on demand production, Onshore production, sustainability becoming critical for those brands and we have A high level engagement with different tiers within the brands.

Speaker 2

Another market that we were talking about it For a few years, but finally is growing is the sports market with now with the Atlas Poly and we see it also with the Presto Max getting to this market is a big opportunity and we're starting to get Orders and the pipeline looks great. Another market is the home decor Within DTS, that's really now is picking up. So Kornit today is in a different space And the future starts now for Kornit. We promised to the market that we are going to be approaching breakeven. 2023 was a year of transition for Kornit moving from H1 to H2 delivering all the products We're delivering to ITMA, bringing the business back into breakeven on adjusted EBITDA basis into Q4 And 2025 will be the year that Conit will be back to profitable growth.

Speaker 8

All right. Thank you for that, Ronen.

Speaker 2

2024, yes, what do you see? 2025. 2024 will be the year that take on it will be back to Profitable growth. If I mentioned 2025 is a mistake.

Speaker 8

Got it. Thank you.

Speaker 1

Thanks, Chris.

Operator

Mr. Bachman, we have no further questions at this time.

Speaker 1

Great. Thank you so much, Latoya, and thank you All for joining us today. As always, if you should have any follow-up questions, please feel free to reach out directly. Natalia, will you please close the call? Thank you so much.

Operator

Thank you. This does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation and have a great day.

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Key Takeaways

  • Q2 revenues of $56.2M met guidance, driven by double-digit growth in impressions and consumables despite soft system sales amid capital spending challenges.
  • Customer usage continued to strengthen, with impressions on pace for another double-digit increase in Q3, supporting solid consumables growth and improved services revenue through MAX technology upgrades.
  • The company is diversifying via strategic measures—targeting brands, retailers, digital platforms and new production hubs in India, China, Turkey, Morocco and LatAm—yielding over 1,000 ITMA leads and 60% net-new customers.
  • New product launches include the high-throughput Apollo platform (400 garments/hour), with two beta systems in the US and anticipated revenues in Q1 2024, each unit’s potential of ~$1M in consumables and services annually.
  • Cost actions led to a 16% reduction in non-GAAP operating expenses and narrowed Q2 adjusted EBITDA loss to $10.7M, with a target of approaching breakeven in Q4 on a mid-$60M revenue run rate and profitable growth in 2024.
A.I. generated. May contain errors.
Earnings Conference Call
Kornit Digital Q2 2023
00:00 / 00:00