Kornit Digital Ltd.

Thank you, Operator, and good morning, everyone. Welcome to Cornute Digital's second quarter 2021 earnings conference call. With me today are Ronan Samuel, Chief Executive Officer, Alon Rosner, Chief Financial Officer, and Amir Sharqed, Executive Vice President and Corporate Development. 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 our financial condition, and all statements that address activities, events, or developments that the company intends, expects, projects, believes, or anticipates will or may 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 maturely from those expected or implied by the forward-looking statements. The company's actual results could differ maturely from those anticipated for many reasons, and I encourage you to review the company's filings with the SEC, including the company's annual report on Form 20F filed on March 25, 2021. which identify specific risk factors that may 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 expected 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 site. Now, I would like to turn the call over to Ronan. Ronan?

Thank you, Andy, and thank you all for joining us on our earning call. Before I jump into the review of the quarter, I first want to say that we are very pleased to have Andy recently join the company as our new global head of investor relations. Andy, welcome. So let's turn to what was another truly amazing quarter for Cornete across the board, a quarter where we significantly beat expectations So tremendous top and bottom line growth posted a very strong gross margins and ended the quarter with an extremely strong backlog and pipeline. We delivered total revenue of 81.7 million for the quarter, net of 6.6 million in warrants related to a global strategic account, significantly exceeding the high end of our guidance and reflecting a 118% year-over-year growth and 24% growth on a sequential basis. We saw a very strong growth not only in our systems and consumable businesses, but also in our service organization, which posted over 70% year-over-year growth. we again saw very strong growth with key customers as well as with net new customers, and our pipeline has never been stronger. During the second quarter, we completed beta testing and began shipping our Atlas Max systems. We are seeing very strong order backlog for the Max and have received excellent customer feedback, not only on the increased productivity and unique XDI capabilities, but also on the unparalleled print quality and durability, which is truly on another level in the industry. Max upgrades for the Atlas install base will be available in the first quarter of next year and we expect significant revenue contribution from those upgrades next year. We continue to experience strong tailwinds as it comes to the market adoption of our DTS Microfactory solutions as leading global brands continue to embrace the advantages of sustainable on-demand proximity production. For example, an Arizona-based full-service fashion design recently acquired Chronit Presto, the most advanced single-step solution for direct-to-fabric printing. With the addition of the Presto, they are now able to offer sustainable on-demand print, cut-and-sew services to their customers who includes many emerging designers and brands. This is a perfect example of the KONE DTF Micro Factory solution. Turning to customer engagements, we continue to execute on massive global expansion projects with strategic customers, and we expect these projects to have a meaningful contribution to our business in the quarters to come. In parallel, we see strong growth of new customers, both in the DTG and DTF product lines. Last month, we hosted a VIP customer event in Düsseldorf, in addition to our first in-person customer event in the U.S. since the start of the pandemic at our newly renovated Customer Experience Center in New Jersey. we hosted more than 200 customers globally, and the event was a huge success as it provided the most comprehensive display of our capabilities, partnerships, and customer engagement since the outbreak of COVID-19. Customer feedback was extremely positive, as evidenced by the number of committed orders we received as a result of those events. and the massive growth of opportunities in our pipelines. Building upon this great success, we are already deep in the execution of our much anticipated September event at the New York Fashion Week, as well as the formation of the first Kornit LA Fashion Week event in November. After a long pandemic pause, we are also very glad to be participating this fall in printing United Orlando and FESPA Amsterdam. So, we have a ton of activities planned for the next several months that will further contribute to our growing 2022 pipeline, so stay tuned for additional details. We continue to see great momentum for Cornet X as evidenced by our recently announced partnership with Canva, the largest online design studio and content providers in the world. We have already began implementation efforts with Canva, in addition to over 80 implementation projects we currently have in backlog for CornetX, as well as multiple strategic partnership discussions with leading online marketplaces and fashion brands. We were very excited to announce this morning the acquisition of Voxel 8, which will help us to accelerate the execution of our 4.0 strategy to digitize on-demand sustainable textile production. Through Voxel 8 advanced and proven 3D technology, which has been tested by some of the world's leading fashion and footwear brands, including Hush Puppies, which is part of Wolverine Worldwide, we will disrupt the business of fashion, empowering completely new creative decorative concepts and never-before-seen functional textile applications, while exploring new lucrative opportunities in the functional apparel and footwear markets. I want to welcome the Voxel 8 team to the Cornice family and look forward to achieving many great things together. In summary, we had a very strong second quarter and first half of the year. We are more confident than ever in our outlook for the remainder of this year and into next year. We believe we are well on our way to becoming the operating system for on-demand sustainable fashion and a 1 billion revenue company by 2026. Now, I will turn the call over to Alon for a closer look at the numbers and the guidance. Alon.

Thanks, Ornan, and good morning, everyone. As Ronen said, we are very pleased with our very strong second quarter results. Revenue increased 118% year over year and 24% sequentially to $81.7 million, net of $6.6 million non-cash warrant impact. Revenue was also well ahead of our guidance of $76 million to $80 million, which excluded the impact of warrants. Our second quarter results were again driven by strong orders for DTG systems, in addition to increased demand for consumables and services. This significant growth was due in part to continued momentum with strategic accounts, which we expect to continue into the second half of the year. Services revenue for the second quarter was $9.5 million, net of the non-cash warrant impact of 0.4 million, accounting for 12% of total revenue, an increase of 70% year-over-year and 16% sequentially. Our top 10 customers accounted for approximately 64% of total revenue. Geographically, all regions were up both year-over-year and sequentially. The Americas and EMEA regions more than doubled their prior year quarter revenue and accounted for 71% and 22% of total revenue, respectively. While Asia Pacific continues to experience COVID-related travel limitations, we've been able to successfully manage the business. Revenue in Asia Pacific increased 56% from second quarter of last year and accounted for just under 7% of total revenue. Moving to profitability. Non-gap gross margin for the quarter, net of the impact of the warrants was 48.2%, an improvement of over 400 basis points year over year. On a gap basis, gross margin in the quarter was 47.2%, an improvement of over 500 basis points year over year. Second quarter gross margin expansion was due to the increased mass production system sales, strong consumables, as well as continued profitability from our services business. Going forward, we expect the ongoing shift to higher mix of mass production systems to continue, along with continued acceleration of services and software revenue growth to drive our gross margin expansion. Moving on to OPEX. As I mentioned last quarter, we continue to invest in the business to accelerate growth. For the second quarter, OPEX was $29.2 million higher than the previous quarter, but below our internal targets, mainly due to timing of hiring, which occurred later in the quarter. Research and development expenses were $9.2 million for the second quarter or 11.3% of revenue as compared to $6.7 million or 17.8% of revenue in the second quarter of 2020. Sales and marketing expenses in the quarter were $12.5 million or 15.2% of revenue compared with $7.4 million or 19.9% of revenue in the second quarter of 2020. The increase was due to the expansion of our go-to-market capabilities, marketing and brand awareness programs, and customer-facing activities. General and administrative expenses in the second quarter were 7.5 million or 9.1% of revenue. as compared to 4.9 million or 13.2% of revenue in the second quarter last year. Our non-GAAP operating margin net of the warrants impact was 12.5% versus negative 6.8% in the year-ago quarter. This increase was driven by the higher gross margin I discussed earlier combined with increased operating leverage in the quarter. We ended the quarter with 763 employees, a year-over-year increase of 189 employees and an increase of 63 employees as compared to the first quarter. For the balance of 2021, we will continue to invest in growing the organization to support the business, mainly in R&D and sales and marketing. Non-GAAP net profit for the second quarter was $10.5 million or $0.22 per share on a fully diluted basis compared to a loss of $1.3 million or $0.03 per basic share in the second quarter of 2020. Second quarter gap net profit was $5.6 million or $0.12 per share on a fully diluted basis compared to a loss of $4.6 million or $0.11 per basic share for the second quarter last year. Adjusted EBITDA for the second quarter was $18 million as compared to negative adjusted EBITDA of $0.9 million in the year-ago quarter. Net cash provided by operating activities was 5.2 million this quarter compared to net cash used in operating activities of 9.2 million in the second quarter of 2020. We again ended the quarter with a very strong backlog, including 15.6 million of deferred revenue and customer advances. We continue to expect our deferred revenue balance to convert to revenues in 2021. And finally, our cash balance including bank deposits and marketable securities at quarter end was 441.8 million. With respect to Voxel 8, we expect the revenue contribution for the remainder of this year and next year to be immaterial with an OPEX impact of approximately 1 million per quarter. This acquisition is in line with the long-term financial model we previously discussed which assumed the potential impact of technology acquisitions. Turning to guidance. Based on our current visibility in the business, including our very strong backlog and pipeline, we expect revenue for the third quarter to be in the range of $88 million to $92 million and non-GAAP operating income to be in the range of 12% to 14% of revenue. As a reminder, consistent with our practice in the past, this guidance assumes no impact or fair value of issued warrants in the quarter. In summary, we are very proud of our very strong second quarter and first half 2021 performance as it further validates our strategy and is a result of all the hard work and dedication of the entire team of Cornit. And with that, I will now turn the call back to Ronen.