Kornit Digital Ltd.

Good morning, everyone, and welcome to Corny Digital's first quarter 2021 earnings conference call. 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 objectives, plans, strategies, statements of preliminary or projected results of operations or a financial condition, and all statements that address activities, events, or developments that the company intends, expects, projects, believes, or anticipates will occur in the future. Forward-looking statements are subject to known and unknown risks and uncertainties and are based potentially on inaccurate assumptions that could cause results to differ materially from those expected or implied by the forward-looking statements. The company's actual results could differ materially from those anticipated for many reasons, and I encourage you to review the company's filings with the Securities and Exchange Commission, including the company's annual report on Form 20F filed on March 25, 2021, which identifies specific risk factors that could cause actual results or events to differ materially. Any forward-looking statements are made as of this call hereof, and the company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise, 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 posted on the company's investor relations website. I will now turn the call over to Ronan Samuel, Corneet's Chief Executive Officer, and Alan Rosner, Corneet's Chief Financial Officer. At this time, I would like to turn the call over to Ronan.

Thank you, Monica, and thank you all for joining us on our earning call. I'm excited to share with you a strong start to the year and outstanding first quarter results. We significantly exceeded our guidance on top line and profitability, and our outlook for the year is very strong. As the world moves into the post-pandemic era, the textile industry is in desperate need to accelerate its digital transformation and mass adoption of digital, sustainable, on-demand production. The business opportunity ahead of us is enormous, and we are laser-focused on introducing continued innovation and scaling our business on all fronts. Our first quarter results are another steps on our path to become a 500 million revenue run rate business ahead of plan. Total revenue increased by 152% year over year to 66.1 million, net of 3.1 million in warrants related to a global strategic account. We experienced another record quarter of shipments for our mass production systems spread-headed by the Atlas and the Presto. Our recurring consumable business continued to scale, and we continued to outperform our profitability goals on services. During the second half of the last year, we discuss engagements on major global expansion projects with multiple strategic accounts, which we are now rolling out. In March, we announced that Printful will purchase more than 50 Atlas systems during 2021 as part of its global expansion plan, and the rollout began this quarter. As an early adopter of Corneet technology, Printful has grown from a small print operation in the emerging customers' design segments to become a global leader in taking digital creative concepts and making them real. Their growth demonstrates the overwhelming potential of digital transformation by creating a mega marketplace that empowers digital natives to conceive and scale their brands. We are proud to help Printful reach the next stage of their journey. We are witnessing parallel expansion goals across our key and strategic accounts. As an example, we expanded our partnership with a leading supplier of licensed and private label apparel, which produces uniquely designed clothing for some of the largest gaming licensors, TV studios, and mega retailers in the world. And they are experiencing tremendous growth. This supplier added eight new Atlas systems to his fleet this quarter and expects continued growth in the coming years. As for our global strategic account, their execution remains very strong as we move into accelerated implementation phase of their ambitious global expansion plans. We delivered a record number of press assistance in the first quarter, doubling shipments sequentially from the fourth quarter. Our recurring DTF consumable business has almost tripled from the fourth quarter, and we're very encouraged by this momentum as we continue to build Kornitz brand recognition in the heart of the fashion and home decor industries. The Corny Tel Aviv Fashion Week was a tremendous success. More than 40 designers showcased how diversity and individual expression can be enriched and celebrated hand in hand with a vision of a more sustainable world. While the event was focused primarily on building awareness, the business momentum this event created is remarkable. and we look forward to the global rollout of these initiatives in top fashion capitals globally. Last week, we shared our exciting partnership with mega online brand and retailer, ASOS, and its supplier, Fashion Enter UK, as part of ASOS Fashion with Integrity Corporate Goals. As part of this partnership, Joint teams are implementing Cornit end-to-end workflow-enabled microfactory to react quickly to seasonal shift in demand and establish more efficient, low-impact sustainable production process. We expect this partnership to expand into a mega online brand. Scaling of our new software workflow business line is progressing very well. And we are engaged in strategic activity with brands, licensed stores, mega online marketplaces, existing fulfillers, and net new logos of all sizes looking to leverage our unique cloud-based software workflow platform to adopt a digital native supply chain for on-demand textile production at a global scale, as well as automate the production flow. In Q1, we significantly overachieved our internal targets for new and existing Kornit customers adopting our workflow solutions. And our pipeline continues to grow as customers of all sizes embrace the strategic value of our offerings. Two weeks ago, we made our first strategic new product announcement of the year with the launch of our MAX technology, which establishes a new standard of on-demand fashion and apparel production. The MAX technology delivers unparalleled retail quality combined with our revolutionary XDI 3D print capabilities for new high-density graphic decoration that can replace embroidery, vinyl, and heat transfer analog process in a single, waste-free digital process. We also introduce our new patent-pending robotic automation technology to significantly ease the burden of manual labor and increase the productivity. The MAX technology dramatically expands the reach of digital on-demand textile production into the center of mainstream fashion and apparel and significantly expands our addressable market into lucrative segments like professional team sports, high-end at leisure, and diverse categories of fashionwear. The first product from the MACS line is the carbon-neutral Atlas MACS which is commercially available with deliveries starting in June and initial revenue contribution anticipated in the second half of the year. The Atlas Max is delivered with the new XDI 3D technology built in. An upgrade to the Kornit Atlas systems will be available during the first quarter of 2022. This is just the beginning of revolutionary future new products coming from the Max line which will unlock additional massive and exciting market segments for Cornit. In summary, we had an exceptional start to the year and our backlog continues to grow. In our last quarterly earning call, we discussed that we expect to see significant sequential growth from the first quarter of the year through each of the subsequent quarters. We now believe we can deliver a stronger sequential growth in the subsequent quarters than we originally anticipated. Before I turn the call over to Alon, I would like to personally invite all of you to join us next week for a virtual investor event in which we will share additional highlights of our strategy, execution plans, goals for our software workflow business line, and our longer-term financial goals. is in a remarkable position, and I'm more confident than ever in our valuable position, our leadership position, and our dedicated people. I look forward to seeing all of you virtually next week. Now I will turn the call over to Alon for a closer look to our numbers and our guidance. Alon.

Thanks, Ronan, and good morning, everyone. Before beginning the financial overview, I would like to remind you that the following discussion will include GAAP financial measures as well as non-GAAP results. A full reconciliation of our results on a GAAP to non-GAAP basis is available in the earnings press release issued earlier today and on the investor section of our website. Now, let's dive into the financials. We are very pleased with our strong first quarter results, which once again exceeded our guidance on the top line and profitability. First quarter revenue increased 152.3% year-over-year to 66.1 million, net of 3.1 million non-cash warrants impact, and was well ahead of our guidance of 61 to 65 million, excluding the impact of warrants. Our first quarter results were driven by record shipment of our mass production DTG and DTF systems and execution of major global expansion projects with multiple strategic accounts. Services revenue for the first quarter was $8.2 million, net of non-cash warrants impact of approximately $0.3 million, accounting for 12.4% of total revenue, an increase of 113.8% year-over-year. The first quarter was strong in the Americas, with revenue more than doubling from the first quarter of last year and accounting for 68.3% of total revenues. Revenue from EMEA accounted for 23.7% of revenue and more than tripled from the first quarter of 2020. While Asia-Pacific continues to experience COVID-related travel limitations, we are pleased with the rebound in sales, which accounted for 8% of revenue and more than doubled from the first quarter of last year. In the first quarter, we had two customers that contributed more than 10% of total revenue, and our top 10 customers accounted for 61.6% of total revenue. Moving to profitability. Non-GAAP gross margin in the quarter, net of warrants impact, rose to 47.1%, an improvement of over 14 percentage points year over year. On a gap basis, gross margin in the quarter was 46%, an improvement of 15 percentage points year over year. Our first quarter gross margin expansion is attributed to significantly higher mix of mass production systems and continued acceleration of services profitability. Moving to our OPEX items, I will discuss these items on a non-gap basis. we continue to invest in the business to accelerate growth. Each of the following line items reflect headcount additions and investments supporting the growth opportunities ahead of us. Research and development expenses were 8.9 million or 13.5% of revenue compared to 6.1 million or 23.4% of revenue in the first quarter of 2020. The increase in R&D is a result of the accelerated investment in new products, innovative applications, and use of materials. Sales and marketing expenses in the quarter were 9.9 million or 14.9% of revenue, compared to 7.7 million or 29.4% of revenue in the first quarter of 2020. We continue to invest in expanding our go-to-market capabilities marketing and brand awareness programs, and customer-facing activities. General and administrative expenses in the first quarter were 5.8 million or 8.8% of revenue, compared to 5.3 million or 20.3% of revenue in the first quarter of 2020. The mild increase in G&A costs is mainly related to additional headcount, professional services, and facilities expenses and is a reflection of tight budget control and continued operational leverage as we scale our infrastructure. We ended the quarter with 700 employees, a year-over-year increase of 135 employees from the first quarter of last year, and an increase of 28 employees compared to the previous quarter. For the remainder of 2021, we will continue to invest in growing the organization to support our business mainly in R&D and sales and marketing. Non-GAAP net profit for the first quarter was 7.7 million or 16 cents per share on a fully diluted basis compared to a loss of 8.9 million or 22 cents per basic share in the first quarter of 2020. First quarter gap net profit was 5.1 million or 11 cents per share on a fully diluted basis compared to a loss of 10.1 million or 25 cents per basic share for the first quarter of 2020. Adjusted EBITDA for the first quarter of 2021 was 10.8 million compared to negative adjusted EBITDA of 9.2 million in the first quarter of 2020. Net cash provided by operating activities was $5.1 million this quarter compared to net cash used in operating activities of $13.1 million in the first quarter of 2020. We ended the quarter with strong backlog, including $23.7 million of deferred revenue and customer advances. We continue to expect the deferred revenue balance to convert to revenue in 2021. Our cash balance, including bank deposits and marketable securities at quarter end, was $438.7 million compared to $435.9 million as of December 31, 2020. Turning to our view on the second quarter of 2021, as Ronen discussed, We continue to execute on large global expansion projects with strategic customers and ended the first quarter with a strong backlog and great momentum in the business. We plan to continue investing in scaling our go-to-market and technology roadmap to capitalize on the massive opportunities ahead of us. For the second quarter of 2021, we expect revenue to be in the range of 76 million to 80 million and non-GAAP operating income to be in the range of 11.5% to 13.5% of revenue. As has been our practice in the past, these numbers assume no impact of the fair value of issued warrants in the quarter. In summary, we are very proud of our Q1 results as we continue to execute on our strategy and are very confident in our ability to meet our 500 million run rate goal ahead of plan. We invite you to attend our virtual investor event next week where I will share more insight into our long-term growth plans and I look forward to seeing you all there. I will now turn the call back to Ronen.