Kornit Digital Ltd.

Ladies and gentlemen, good morning and welcome to the Coordinate Digital Fourth Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star and zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mr. Jared Maimon, Investor Relations for Cornet Digital. Please go ahead, sir.

Thank you, Operator. Good day, everyone, and welcome to Cornet Digital's fourth quarter and full year 2023 earnings conference call. Joining me today are Chief Executive Officer Ronan Samuel and Lori Hanover, Cornet's Chief Financial Officer. For today's call, Ronan will recap the full year 2023 provide comments on the fourth quarter, and then discuss our view on 2024. Lori will then review the fourth quarter and full year numbers and provide our first quarter outlook before we open it up for Q&A. 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. 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 with the SEC on March 30, 2023, 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 would now like to turn the call over to Ronan. Ronan?

Thanks, Jared, and thanks to everyone for joining us on today's call. Before we dive into fourth quarter results, let's take a moment to reflect on the transformative journey of 2023, a year that reshaped not only our industry, but also Kornit's standing in the market. In 2023, as the cost of capital rose and consumer preferences continued to shift, the industry continued to recognize the need to reduce inventory, improve time to market, limit dependency on broken offshore supply chains, and produce sustainably. The traditional practice of overstocking does not make sense in a market characterized by ever-changing consumer preferences. As a result, many retailers spent 2023 working through excess inventories that had piled up since the pandemic while shifting their focus towards fixing their operating models and supply chains. The ideal supply chain that these retailers are seeking utilizes lean inventory management and is backed by fast and constant in-season replenishments. Entering 2023, knowing that we were heading into a challenging macro environment, we defined a few key business objectives that would ensure Cornit was best prepared for its next phase of long-term profitable growth. These objectives included strengthening our product portfolio, broadening the application we serve, diversifying our customer base, successfully launching our Apollo platform, expanding our direct-to-fabric business and optimizing our operating model. A key pillar in our strategy of transitioning the market from analog to digital production has been to offer a portfolio of innovative digital solutions that deliver a retail quality and efficiency. After a few years of major R&D investments, we arrived to ITMA 2023 with a remarkably wide portfolio of solutions for on-demand sustainable production. We cemented our leading position with the Max technology as the new industry standard for quality, introduced the Apollo platform for bulk production, enhanced our DTF offering for unprecedented capabilities, expanded the application reach of our Poly offering, integrated smart curing technology into our mass production solutions, made major software enhancement to the CornitX platform, and brought added value ancillaries like our RSS smart pallet adjustment technology. With our revolutionary solutions, we managed to penetrate new market segments such as bulk apparel, at leisure, fashion, home decor, technical and footwear, and new geographies such as India, Latin America, and other key textile production hubs across the globe. Our diversification efforts extend beyond market segments and geographies. We are also now engaged with new types of customers, such as Tier 1 manufacturers, value-added suppliers, and directly with major brands, digital platforms, and retailers. Turning to the Apollo. As you may have seen, after successfully installing all three Apollo beta systems for the peak season in Q4, we delivered on our plan of bringing digital apparel production to the mainstream with the launch of the Apollo in January. The feedback from the industry leaders on the Apollo has been outstanding. Customers refer to the release of the Apollo to the start of a new era in direct-to-garment, pushing the boundaries of speed quality and sustainability further than ever before. The Apollo represents a quantum leap in direct-to-garment printing technology, ensuring businesses can meet the evolving demands of the fashion and textile industries. Simultaneously with the launch, we hosted customers and prospects at one of our better sites with North American retailers to demonstrate the system at an industrial scale. The event was very successful and I'm also pleased to report that one of our better customers has already disclosed their plan to add several more Apollos to their facility throughout 2024. In 2023, we also made significant strides in the direct-to-fabric market. Our new ink solution, Anvil at ITMA, combined with our MAX technology has created a best-in-class solution in the growing digital pigment market. This market is going through a massive transition into just-in-time sustainable production, and Cornit is leading the market. we continue to believe that a direct-to-fabric market represents a significant long-term growth opportunity, especially with global brands and retailers who have committed to move to sustainable production and offer maximum flexibility. Turning to our operations, in 2023, we worked diligently to achieve our goal of returning to break-even profitability on an adjusted EBITDA basis. And despite a more challenging environment than we anticipated in the second half, we achieved this goal in the fourth quarter. A key factor to this return to profitability was consistently strong growth in consumables through 2023. This year-over-year improvement in both impressions and consumables indicates continued digestion of capacity within our install base, which we view as a positive leading indicator for future systems demand. Additionally, we have and continue to realign our operating expenses with the current market environment In 2023, this realignment included cost reduction and efficiency initiatives across our operations. In the first quarter of 2024, we extended this effort through a restructuring and realignment effort designed to prepare Cornete for its next phase of growth. This restructuring including a meaningful reduction in force, adjustment to our go-to-market strategy, a reorganization of certain business segments, changes to our leadership team, and improved operating efficiencies in our supply chain. We expect these proactive measures to contribute to our return to consistent profitability and allow us to protect our robust balance sheet. Laurie will expand on the implications of these cost-saving measures in her prepared remarks. Turning now to the fourth quarter, today we reported fourth quarter revenues of 56.6 million within the range of the guidance we provided in November, an adjusted EBITDA margin of 0.3%, which was above the high end of our guidance range. As a reminder, This includes the impact of the fair value of the issues warrants. Despite the persistent macroeconomics headwinds, fourth quarter results were driven by a good peak season where we saw double-digit year-over-year growth in impressions and in our consumable revenues. This marks our fourth consecutive quarter of year-over-year impressions growth. Releasing the Apollo is also giving us the opportunity to introduce a creative recurring base revenue model which shifts CAPEX to OPEX for some customer with this system. This offering sets minimum level of production, reduce barrier to entry, provides more predictability and visibility for our customer and for us, shortens the sales cycle, and improves our opportunity to address screen printers. We expect this revenue model to generate around $1 million in revenue per system per year. With that said, in 2024, we continue to expect modest revenue growth and adjusted EBITDA profitability. Our outlook assumes that the challenging macroeconomics backdrop we experienced in 2023 continues into 2024. Based on the actions we have taken today to improve our operating efficiency and our working capital position, we now anticipate generating positive cash flow from operations for the full year. So in conclusion, we ended the year on a solid footing. During the fourth quarter, we experienced a good peak season with nice growth from some of our key customers and worked diligently to bring the business back to break-even results. Entering 2024, we are focused on our key long-term growth drivers, which include further movement into mainstream bulk production expansion of our direct-to-fabric business, engagement with key demand generators, and further penetration of new segments in key textile production regions. We plan to focus on these areas while returning to profitability and cash flow generation on a full year basis. Before I pass the call over to Lori, as you all know, Israel faced a horrific, barbaric attack in the second half of 2023. While some of our people were impacted, we were resilient and continue to fully support our customers throughout the most important time of the year. We continue to prioritize the safety of our people in Israel and remain confident that our contingency plan secure our business continuity. I want to thank our tremendously dedicated people for their resilience in this difficult time and to thank many of you for your continued support. Now, let me turn the call over to Lori for a closer look at our fourth quarter and full year 2023 financials and first quarter guidance. Lori.