Kornit Digital Ltd. 2026 Q2 Earnings Call

Thank you, operator. Good day, everyone, and welcome to Kornit Digital's second quarter 2026 earnings conference call. With me today are Ronen Samuel, Kornit's Chief Executive Officer, and Assaf Zipori, our Chief Financial Officer. For today's call, Ronen will share his overall commentary on the second quarter, followed by Assaf, who will review our results and provide guidance for our third quarter before we open up the call for Q&A. Before we begin, I would like to remind you that forward-looking statements within the meaning of the U.S. securities laws will be made on this call. These statements involve known and unknown risks and uncertainties. I encourage you to review the company's filings with the SEC, including our annual report on Form 20-F, which identifies specific risk factors that could cause actual results to differ materially. Additionally, we will reference certain non-GAAP financial measures.

Reconciliations of the most comparable GAAP measures can be found in the earnings release published today and posted at ir.kornit.com. At this time, I would like to turn the call over to Ronen.

Ronen? Thanks, Andy, and good day, everyone.

Thank you for joining us today. The second quarter marked another important step in Kornit's transformation. We delivered revenue of $55.3 million above the high end of our guidance, generated positive adjusted EBITDA, also above the high end of our guidance range, and positive operating cash flow for the 11th consecutive quarter. We also increased annual recurring revenue by $7 million, bringing total ARR to $33.8 million, representing 79% year-over-year growth, while revenue from all-inclusive click model increased by 112% compared with the prior year period. In addition, trailing 12 months impression grew 15%, reflecting higher production volume across our install base. We continue to see healthy growth in system deliveries, expanding our production footprint and customer base. Approximately 40% of our system sales during the quarter came from new customers, demonstrating our continued ability to expand the market while growing alongside existing customers.

Importantly, approximately 60% of system sales in both Q2 and the first half of 2026 were to traditional screen printers, providing clear evidence of the momentum we are seeing in the transition from analog to digital production. These results reinforce the progress we are making against our strategy. We are delivering revenue growth while significantly expanding annual recurring revenue, improving the quality of our growth, and giving us greater visibility into the future. A key driver of this progress is our all-inclusive click model, which is increasing the share of the business built around long-term customer commitments. Every new all-inclusive click agreement creates a long-term partnership, typically built around a 5-year commitment. For our customers, AIC lower upfront investment and provides the flexibility to scale production as their business grows. As a result, we are seeing higher system utilization, stronger customer engagement, and deeper adoption of the Kornit platform.

For Kornit, AIC strengthen customer relationship and aligns our economics directly with our customer success. As our customer grow, we grow with them. What give us confidence today is not simply the financial performance we delivered this quarter. It is what we are hearing from customer around the world. One thing is becoming increasingly clear, the economics of manufacturing are changing. Brands, retailers, and traditional screen printers are looking for greater flexibility, shorter production runs, faster response time, and manufacturing closer to the point of demand. While inventory risk and labor shortages continue to pressure traditional manufacturing models. We are seeing this transition particularly clearly among traditional screen printers, where digital is increasingly replacing screen production across a growing range of applications. These are not short-term trends. They represent a structural shift in how our industry will manufacture over the coming decade.

Having spent more than three decades in this industry, I believe we are witnessing one of the most significant manufacturing transition of my career. Customers are no longer asking whether digital production has a role. They are asking how quickly they can shift from analog to digital. That exactly what we have been preparing for. For years, we have invested in industrial production systems like Apollo, Atlas MAX, and Presto MAX PLUS while expanding into software, AI, and automation. As the industry moves towards digital manufacturing, Kornit is positioned as a manufacturing platform, bringing together industrial production systems, software, AI, and automation into one integrated solution. We are no longer simply helping customers buy better printing systems. We are helping them build smarter, more profitable manufacturer businesses. Our ambition isn't simply to replace analog printing. It's to make on-demand digital manufacturing the new standard for apparel production.

Our customers are the clearest proof that this transition is already underway. Let me share a few examples. Jerry Lee, one of the leading screen printers in the U.S. and a new customer to Kornit, recently invested in two Apollo systems and two Atlas MAX platforms, illustrating how traditional screen printers are transitioning production from analog to digital. Another great example is Printful, one of our largest and most strategic global customers. Already operating a large fleet of Atlas MAX systems, they recently added two Apollo systems, reflecting the value they are realizing from the Kornit platform and their continued confidence in Kornit. ShirtMonkey, one of the U.K.'s leading print-on-demand providers, expanded from Atlas MAX to both Apollo and Atlas MAX through our all-inclusive click model, demonstrating how AIC can accelerate digital adoption with lower upfront investment.

Finally, SNQS, a leading screen printer in India, expanded from Atlas MAX to Apollo within just one year to support higher-volume screen replacement, demonstrating how mainstream screen printers are increasingly scaling digital production as they transition more of their core production from analog to digital. While these customers operate in different markets and applications, they all point to the same conclusion. Manufacturers are increasingly choosing digital production because it delivers a smarter, more flexible, and more profitable manufacturing model. As we look ahead, we enter the second half of the year with stronger backlog visibility, a healthy pipeline, and continued momentum across both new customer acquisition and expansion within our install base.

Based on what we see today, we expect revenue in the second half of 2026 to be approximately 15% higher than the first half of the year, positioning us to deliver high single-digit revenue growth for the full year while continuing to improve profitability and generate positive operating cash flow. Before I conclude, I'd like to leave you with one final perspective. Many people still think of Kornit primarily as a capital equipment company. The reality today is quite different. Approximately 80% of our revenue is recurring or highly recurring in nature, generated through annual recurring revenue, ink, services, and software. This fundamentally changes our business model, making it more resilient and giving us greater visibility into future revenues. At the same time, the industry's accelerating shift from analog to digital manufacturing represents a significant structural growth opportunity for Kornit.

Combined with a highly recurring business model and market-leading technology, this gives us confidence in our ability to create sustainable, long-term value for our customers and shareholders. I'd like to thank our customers for their continued trust, our partners for their collaboration, our employees for their relentless commitment and execution, and our shareholders for their continued support. With that, let me turn the call over to Assaf.

Assaf? Thank you, Ronen, and good day, everyone.

Let me walk you through our second quarter financial results and the continued progress we're making across the business. Second quarter revenue was $55.3 million, growing 11.2% year-over-year and exceeding the upper end of our guidance range. Services revenue increased 34.7%, while product revenue grew 4.3%, both benefiting from higher customer activity and continued expansion in the utilization of our installed systems. Annual recurring revenue reached $33.8 million, representing 79% growth year-over-year and 26% sequentially, reflecting continued momentum in the adoption of our all-inclusive click model. Importantly, ARR represents only the next 12 months of minimum commitments under our AIC agreements. With these agreements typically spanning five years, they represent approximately $142 million in total contract value, providing strong visibility into future revenues. AIC delivered another strong quarter, with revenue increasing 112% year-over-year and 32.7% sequentially.