Kornit Digital Ltd. Q4 FY2020 Earnings Call

Greetings. Welcome to Kornit Digital's Fourth Quarter 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. Please note, this conference is being recorded. I would now turn the conference over to your host, Allise Furlani with The Blueshirt Group. Thank you. You may begin.

Thank you, operator. Good afternoon, and welcome to Kornit Digital's fourth quarter and full-year 2020 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 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 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 quarterly report on Form 6-K, filed on November 10, 2020, which identifies specific risk factors that may cause actual results or events to differ materially. Any forward-looking statements are made as of this call 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 Ronen Samuel, Kornit's Chief Executive Officer and Alon Rozner, Kornit's Chief Financial Officer. At this time, I would now like to turn the call over to Ronen. Ronen?

Thank you, Allise. Thank you all for joining us this evening on our earnings call. I am pleased to report an outstanding fourth quarter, significantly exceeding guidance for top-line growth and profitability, capping off a record second-half 2020 for Kornit. This proved to be a transformative year in Kornit's history. While 2020 will be remembered for the global pandemic, it is also the year in which the textile industry hit an inflection point. The massive leap in e-commerce and the exposed inefficiencies of the traditional textile supply chain create strong tailwinds to the digital transformation that Kornit is leading. In 2018, we laid out our management goal to become a $500 million revenue run rate business at the end of 2023. Upon completion of the second year in this journey, we are more confident than ever in our ability to achieve this goal ahead of plan. Turning to our Q4 results. We finished 2020 on a very strong note with total revenue growing 49% year-over-year to $72.3 million, net of $1.8 million in warrants related to global strategic accounts. We delivered record gross margin and we significantly exceeded our operating profitability goal for the full year while generating a record of $34.3 million net cash from operating activities. While traditional retail is recovering from the effects of the pandemic, e-commerce and online marketplaces continue to boom across verticals, including core fashion brands, athleisure, merch, sports licensing, customized apparel, and home decor. As a result, key and regional accounts are adding multiple Atlases, Vulcans, and AVHDs to their existing fleets. We see multiple customers that started with entry-level systems from Kornit only 12 to 18 months ago moving rapidly to purchase high-throughput systems. We also see a very healthy mix in our order book of net new versus existing accounts across our geographies. The Presto is an absolutely game changer for the fashion industry and the level of engagement with manufacturers for top fashion brands continues to grow. The recurring consumable business from DTF is gaining volume and we experienced tremendous year-over-year growth in the fourth quarter. On a regional basis, Americas continued to set new record highs, EMEA delivered a good quarter, particularly in the UK and Germany with continued movement to the adoption of higher throughput systems. While Asia-Pacific continues to struggle with pandemic challenges, our new leadership is making strategic alignments required to capitalize on the massive opportunity and we expect to see a strong recovery in 2021. We enable our customers to have an incredibly successful peak season reflected in the staggering year-over-year growth of our recurring consumable business. Services continue to outperform our expectations on growth and profitability, and I am very proud of the execution of our customer success teams. In Q4, we announced our new business line, leveraging the strategic foundation of Custom Gateway. Our cloud-based software workflow platform is unique and we are experiencing huge interest from brands and fulfillers looking to adopt on-demand business models at a global scale as well as automate and optimize the production flows. We received multiple orders from customers across regions and the pipeline continues to grow. We believe there is a huge opportunity for Kornit to build an incremental recurring business model, and we have an exciting roadmap of new software applications and value-added services. 2020 was a phenomenal execution year for Kornit throughout an unprecedented pandemic environment, demonstrating the accelerating demand for our products and the continued execution of our team. Turning to 2021, our outlook for the year is very strong, supported by the highest level of visibility and confidence in our history. We started the year stronger than ever with accelerating industry tailwinds, an impressive backlog of global expansion projects with strategic accounts that we are in the process of fulfilling, and an extremely robust pipeline. 2021 will be an exciting year filled with significant strategic initiatives. We will launch powerful new products, which will drive further penetration into the heart of the fashion, apparel, and home decor industry. We are going to launch a breakthrough proprietary automation technology that substantially increases throughput, usability, and consistency of operation. We will be introducing a groundbreaking proprietary 3D textile application that will bring to the market unique embroidery, high-density printing, and vinyl heat transfer effects. This first-of-a-kind application will enable entirely new product creation, disrupt the traditional embroidery market, and significantly expand Kornit's addressable market. We will scale our new software workflow business line. We will execute on massive global expansion with our strategic accounts. We will expand our footprint in key segments, grow our activities with mega brands, as well as penetrate new market verticals while continuing to drive customer success. I will also note that ESG has been a strategic focus area for Kornit from the beginning, especially as it comes to driving sustainability in the textile industry. 2021 will mark the year in which we take our long-term ESG program to the next level. Our dedicated ESG team is working with the best professionals in the industry to prioritize the execution of our many initiatives, and our first impact report will be published in the second half of the year. Last week, we announced Kornit Fashion Week Tel Aviv and excitement around this event is building rapidly. The widely recognized international event will showcase how innovation and technology meet the fashion world to create a future that is more expressive and sustainable, solving the industry's most pressing problems. More than 40 leading fashion designers will be participating in this international showcase of sustainable fashion, and it will give observers insight into the many ways technology empowers even the most demanding designers to deliver fashion that is sustainable without compromising world-famous quality. We couldn't be prouder to be part of this, and it demonstrates our commitment to expand our footprint in the fashion industry. Last year, we were hoping to host all of you in Israel for our business unusual event planned with hundreds of customers, partners, and investors at a first-of-a-kind event. While global travel restrictions remain challenging to predict currently, we remain optimistic and aim to hold this extraordinary industry event during the second half of 2021. So stay tuned. In a moment, I will turn the call over to Alon Rozner for his first earnings call as the CFO of Kornit. Alon brings more than 20 years of financial management experience to the role, and his exceptional leadership capabilities will be essential as we continue to execute on our profitable growth strategy. Kornit is stronger than it has ever been, and we enter 2021 more confident than ever in our ability to execute on the massive opportunities ahead of us. Moreover, we believe Kornit's initiatives will further disrupt the industry, enabling our customers to achieve even greater success while fueling Kornit's growth and profitability well beyond 2021. Now, I will pass the call over to Alon. Alon?

Thank you, Ronen, and good evening everyone. Since joining Kornit in December, I have had the opportunity to immerse myself in the business and operations as well as get closely familiar with my colleagues and professional teams across Kornit. I am excited about the journey ahead of us as we continue to transform the textile industry and scale profitably. 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 pro forma 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 Investors section of our website. Now, let's dive into the financials. We are very pleased with our strong fourth quarter results, which significantly exceeded our expectations on top- and bottom-line. Fourth quarter results were record-high for Kornit across key financial parameters including revenue, profitability, and cash flow from operations. Fourth quarter revenue increased 49% year-over-year to $72.3 million, net of $1.8 million non-cash warrants impact and an increase of 26% compared to the previous quarter. Our fourth quarter results were driven by strong demand for our industrial and mass production systems mostly in North America and Europe and very high growth in consumables during the peak season. Services revenue for the fourth quarter was $10.9 million, net of $280,000 non-cash warrants impact, accounting for 15% of total revenue, an increase of 70% year-over-year and an increase of 35% compared to the previous quarter. As a reminder, Custom Gateway revenue and cost of goods are mostly included in services. We continue to improve our service contract attach rate, which is growing our recurring revenue stream. As Ronen mentioned, it was a strong quarter in the Americas with 75% of total revenue coming from that region, 20% from EMEA and 5% from the Asia-Pacific region. In the fourth quarter, we had only one customer that contributed more than 10% of total revenue. Our top 10 customers accounted for 62.1% of total revenue. Moving to profitability. Non-GAAP gross margin in the quarter, net of warrants impact, reached 51.8%, an improvement of 160 basis points year-over-year and 370 basis points from the previous quarter. Our GAAP basis gross margin in the quarter was 51.1%, an improvement of 170 basis points year-over-year and an improvement of 400 basis points from the previous quarter. Our strong gross margin is a result of the demand for our high-end systems, high demand for ink, profitable service revenue, and continuous operational efficiency. Moving to our OpEx items. I will discuss these items on a non-GAAP basis. We continue to invest in the business to support the accelerated growth opportunities ahead of us. During the fourth quarter, we didn't have any adjustments or expenses related to COVID-19 and we do not expect any costs going forward. Adjusted research and development expenses were $8.7 million or 12.1% of revenue, compared to $5.7 million or 11.6% of revenue in the fourth quarter of 2019. The increase in R&D is a result of the accelerated investment in R&D for new products and innovative applications and attributed to headcount additions and use of materials. Sales and marketing expenses in the quarter were $10.2 million or 14.2% of revenue, compared to $8.5 million or 17.4% of revenue in the fourth quarter of 2019. We continue to invest in expanding our go-to-market capabilities and in customer-facing activities. However, travel and events expenses were lower this quarter due to continued travel limitations in some areas. General and administrative expenses in the fourth quarter were $6.7 million or 9.2% of revenue, compared to $4.5 million or 9.2% of revenue in the fourth quarter of 2019. The increase in G&A cost is mainly related to additional headcount, professional services, and an increase in D&O insurance costs. We ended the quarter with 672 employees, a year-over-year increase of 125 employees and an increase of 15 employees compared to the previous quarter. The year-over-year increase was in line with our growth plans, both organically and inorganically with 53 new employees joining us from Custom Gateway. Looking forward to 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 fourth quarter was $11.5 million or $0.24 per share on a fully diluted basis, up from $7.1 million or $0.17 per share in the fourth quarter of 2019. Fourth quarter GAAP net profit was $5.9 million or $0.12 per share on a fully diluted basis, up from net income of $4.8 million or $0.11 per share for the fourth quarter of 2019. Adjusted EBITDA for the fourth quarter of 2020 was $14.8 million, compared to adjusted EBITDA of $7.8 million for the fourth quarter of 2019. Net cash provided by operating activities was $34.3 million this quarter compared to $14.9 million in the fourth quarter of 2019. The increase was mainly due to the increased level of activity and advance payments from customers. We enter 2021 with a strong backlog, including $27 million of deferred revenue and customer advances. We expect the deferred revenue balance to convert to revenue in 2021, largely in the second and third quarter. Cash balance, including bank deposits and marketable securities, at quarter end was $436 million, compared to $264 million as of December 31, 2019. The increase in cash was mostly driven by the successful offering of $163 million in September and our operating profit. I will now briefly recap our full-year 2020 results. Our full-year results were impacted by COVID uncertainty in the first quarter. Then we experienced strong growth in the business in the second half of 2020, which resulted in a record close to the year. Full-year revenue, net of $5.4 million non-cash warrants impact, was $193.3 million, an increase of 7.5% year-over-year. Full-year GAAP net loss was $4.8 million or $0.11 per share on a fully diluted basis compared to net income of $10.2 million or $0.26 per share in 2019. Full-year adjusted EBITDA was $14 million compared to adjusted EBITDA of $26.9 million in 2019. Turning to our view on the first quarter of 2021. We enter 2021 with strong industry tailwinds, a backlog of large expansion projects and great momentum in the business. For the first quarter of 2021, we expect revenue to be in the range of $61 million to $65 million and non-GAAP operating income to be in the range of 8% of revenue to 10% 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 Q4 results as we continue to execute on our strategy and capitalize on the long-term opportunity ahead of us. Kornit is in a very strong position, and we are more confident than ever in our ability to achieve our $500 million run rate goal ahead of plan, while expanding gross margin and profitability. I will now turn the call back to Ronen.

Thank you, Alon. With that, we are ready to open the call for questions.

Thank you. Our first question is from Jim Suva with Citigroup Investment Research. Please proceed.

Thank you very much, and good evening, and thank you for all the details thus far, and congratulations on the good results and outlook. On the outlook, can you talk to us a little bit about the supply chain, specifically components? It seems like there are a lot of shortages around the world, fewer airplanes flying around. In terms of your ability looking forward, do you have enough components for like one quarter or three quarters? Or how should we think about potential constraints to your supply chain?

Thank you, Jim. Good question. We don't see any constraints on the supply chain. As you know, we produce our systems in Israel, working very closely with our contract manufacturers, both Sanmina and Flextronics. We are just about to move to our new ink plant that has capacity well above what we will need in the next 10 years. So we don't see any constraints on the supply chain. The only negative side on the supply chain, as you know, the cost of shipping is going up everywhere and we see it as well in our business; the cost of logistics is going up.

And then my last question is, on your meetings with customers, typically shaking hands, in-person meetings and trials, are those getting better now that there are some parts of the world such as Israel that are opening up with a vaccine a little bit sooner than, say, North America? Or is it still kind of pretty challenged, because your results are really strong? I am just wondering if things are starting to get a little more visibility from where you sit for demand?

Yes. So again, great questions. Bottom line, when we are looking at Q4, actually, the mix that we have between net new customers to existing customers is very healthy. We see many net new customers joining our business. And we are gaining this momentum, actually meeting with them, in many cases, through Zoom meetings, visiting other customers or reference sites. We are doing live demonstrations from our experience center all around the world, including in Israel, live with our customers and it’s very, very efficient. They are sending us the material in advance. We are doing all the testing. We are sending them back the material after it was produced and printed. So it's working quite well. Actually, in terms of productivity, I can tell you, even from my end, I find myself sometimes having three or four Zoom calls in one day with key customers and it's very, very efficient and beneficial.

Thank you so much for the details and congratulations.

Thank you.

Thank you.

Our next question is from Tavy Rosner with Barclays. Please proceed.

Hello. This is Peter Zdebski on for Tavy. Congratulations on the quarter and welcome to you, Alon.

Thank you.

I was wondering if you could give us some color on the consumables mix for the year or the quarter. What I am wondering is, typically, in the fourth quarter, you would have a mix skewed a bit more towards - more towards consumables than the rest of the year. I am wondering if that's changed at all given the sort of accelerated pace of system sales you have been seeing? And then also, I am sorry if I missed it, but did you mention any greater than 10% customers in the quarter?

Hi, this is Alon. So yes, I mean, typically Q4, we have higher demand for consumables, and this quarter, it was the same and even stronger. We had very strong demand for consumables, which supported our business very well.

I can add that in this quarter Q4, we broke the record in terms of supply growth, really, really strong supply growth. We are not sharing the numbers, but it's well above what we expected and we see the momentum moving into 2021. In terms of your second question about customers that have more than 10%. We have only one customer that had this quarter more than 10%, and it wasn't our global strategic account. It was not a global strategic account.

That's great. Very helpful. Thanks so much.

Our next question is from Brian Drab with William Blair. Please proceed.

Hi. Congratulations. Thanks for taking my questions. I am wondering if you could talk a little bit more about the automation solution and when might we hear more about that? How much does it speed up the process? Is it applicable to machines across your portfolio? Is there anything else you can share today on that?

Yes. Brian, thank you very much for the question. So the automation, it's a breakthrough solution. There is nothing like this in the market. We have strong IP on the solution and we are planning to release it in the mid of the year. This solution is an option on top of the portfolio that we have, will serve the Atlas portfolio, including the new systems, the new portfolio that we are going to release in the second half of the year. And in terms of efficiency and productivity, it really depends on the operators that are running the systems. So today, for example, the Atlases can run at above 100 impressions per hour. But the limitation of running constantly 100 impressions or above per hour on the Atlas is actually the operator. Sometimes, the operators are taking breaks, and they are tired and maybe they can do it in one hour, but the second hour, they will go down to 80. The automation enables the operator to do his job in a constant way, much more easily and with consistent quality in the end. So it will improve the quality. It will improve the ease of use and the productivity. We expect that the productivity will increase by around 20% on average.

That's really helpful. Thanks. And so it's a solution, just to be clear, that doesn't completely remove the need for an operator, but it makes the operator much more efficient.

Correct. It doesn’t totally remove the operator. It helps the operator to load and unload from the systems in a consistent way. In some cases, we can see one operator running two systems with this automation.

Got it. Okay. Thanks. And then can you help me envision this 3D embroidery application a little bit better? And also talk about how much that expands your addressable market, as you alluded to in the press release?

Yes. So we are not ready to share too much information at this stage. We are going to share much more information in April. And, of course, we are going to show it to the market in June. It will be part of the new portfolio that we are releasing to the market. Again, it's a breakthrough solution. There is no other digital solution that can enable those application. Some of those applications have never existed before. So what the system, the new system will enable to do is to print actually on garment, on any type of garment, it could be polyester, it could be cotton blended, 3D images. So actually, we can build 3D images which can go up to 700 microns above the surface and emulate all kinds of applications. One of the applications is embroidery. We are getting excellent results and excellent feel of embroidery. Another application is high-density vinyl, which is very important, for example, for the sports and athleisure market. And also for heat transfer, which is also relevant very much for the sports market. So we believe, at this point, that in terms of the addressable market, it will increase Kornit's addressable market by about 25% to 30% from what we have today. So it's a huge increase for our TAM, and we believe that on top of that, it will create new applications that were never been able to produce before.

That's great. And just one clarification. Is it a system that embroiders, or does it simulate embroidery as part of the solution?

It simulates embroidery. It’s printing, but it feels and looks like embroidery with many, many additional advantages. Okay. But we will keep it a bit later in April, we are going to share a bit more information about it.

Our next question is from Patrick Ho with Stifel. Please proceed with your question.

Thank you very much and congrats on the nice quarter and to the year. Ronen, first off, you posted some very strong services numbers, and in your prepared remarks you talked about the increasing attach rates. Can you give us a little bit of color if some of those attach rates are now for multiyear type of service agreements? Or are they still kind of close to year contracts which you have to get quote renewals with these customers?

So we are already about a year and a half ago when we moved to a full contract. Every machine that we sell is sold with a contract. There is no other way to buy from us a machine, and it's not for one year; it's for multiple-year contracts. We see a very nice recurring revenue coming from the services business.

Great. That's helpful. And maybe as a follow-up, Alon, in terms of the operating model. You guys posted very strong gross margins. Obviously, the product mix had contributed to that. As you look at 2021, you talked about OpEx increasing to help grow with the business. One, can you talk about some of the focus items in R&D? Are they for the embroidery product that's going to be released or are they for others that are yet to be seen until, say, 2022 and beyond? And how much do you need to add more in terms of the sales and marketing front to support these new initiatives?

Okay. So as we said, we continue to invest in the organization. As you mentioned, the focus is R&D and sales and marketing, the go-to-market. In regard to R&D, we invest actually across the board. We are enhancing our capabilities in the core occupations in R&D, in software, in new projects, and in workflow. So there is a massive investment in R&D. We did it in Q4 and we will continue in 2021. The same goes with sales and marketing. We increase our coverage with professional salespeople across all regions. Yes, I mean we will continue to invest in 2021 the same.

Let me add one more point. As we mentioned, on our mission for the $500 million run rate goal, we said and we are committing to expand our gross margin and to bring leverage also on the bottom line of the operating profit. So you will see during 2021 leverage on operating profit. We will bring small leverage on the operating profit. We don't want to maximize it because we see a massive opportunity in the marketplace, and we would like to invest as much as we can while maintaining our commitment to the market. But we would like to invest as much as we can in more feet on the street, in more R&D, and other parts of the businesses because this is the time to invest and to grab the market and not to milk the cow to the maximum.

Thank you very much.

Our next question is from Jim Ricchiuti with Needham & Company. Please proceed.

Hi, thank you. Good evening. I have a question regarding your strong quarter for supplies, particularly the performance of Presto. Ronen, could you elaborate on what you're observing in that area? It seems like utilization is quite high. Is that a general trend or are specific customers starting to implement this more extensively?

Yes. So we have tremendous success on the Presto. Now let's ask on the success, from where it is coming. Actually, these inflection points are going on in the textile market as we have discussed. We can see the move to onshore production on the textile, whether it is in the fashion markets or in the home decor market. We can see it across Europe, the U.S., and even in Asia really moving to onshore or nearshore production. We have a system which is the Presto, which is the one of a kind and we are the only ones that enable onshore production in a fully sustainable way without any pretreatment or post-treatment. I can tell you this week we have many designers preparing here in our facility in Israel for the Kornit Tel Aviv Fashion show. They are amazed with what they can see coming out from the Presto. They are actually designing on the floor, their ideas, and they can see it immediately going out of the press ready to just cut and sew. This is unheard of, and we are gaining huge momentum. The ability, the quality, and the hand-feel are nothing like you can see in other places in the market. We believe that the entire market, the entire textile world, and the fashion and home decor market is moving into on-demand production on onshore, and we have the right solutions to address this market.

Thank you. It appears that you're pleased with the progress at Custom Gateway. And I guess you have only had the business for less than a half-year. Can you say, Ronen, looking out at the second half of 2020, how many of your existing Kornit customers have you been able to bring into the Custom Gateway solution portfolio?

So, Jim, we are not ready to share numbers at this stage of its performance. But in the middle of the year, we will be able to share a bit more numbers on the business line and also targets for the future that we expect from this business. What I can tell you is that there is a huge excitement, both from the marketplaces, from brands, from retail, from online players, and also from our customers joining to the Custom Gateway solution. We really enable our customers to be more efficient on the production flow. We enable our customer to connect to major brands. We can see a huge increase coming in terms of the volume of impressions that are coming from brands and marketplaces directly to our customers. We see a very, very nice increase in the impressions coming from this system. So we see a big potential for revenue and margin growth coming from this business moving forward, and we are very optimistic about this move.

Thank you. And last question, if I may, just with respect to the new products, the ones that you are most excited about. For the most part, the contribution that you are anticipating for these products this year, are they skewed more to the second half? Will we see a contribution in Q3?

Yes. Absolutely. In Q3, we will see contributions from the new products, including the automation and also from the application. So we will see it already in H2.

Our next question is from Rod Hall with Goldman Sachs. Please proceed.

Yes. Thanks for the question. I wanted to start off with the revenue that you printed in the guidance, total long ways ahead of your guidance for the Q4 and really strong guidance in Q1. Could you maybe highlight the one or two things that surprised you there and pushed that way above the high end of your guidance range for Q4? And then I have a follow-up.

So a few things. First of all, we discussed already on the growth in the supplies. So it was a very, very strong supplies quarter in Q4. It was also a very strong quarter for the service growth while our systems were also very strong. So it's a combination of all those three businesses. And what we see on the system is things that we have never seen before. We see relatively new customers who have just joined Kornit about a year ago, increasing capacity volume very dramatically and purchasing multiple systems. When I say multiple systems, we see a few cases of orders for more than 10, more than 20, and even 50 systems without getting to names of customers and even more than that. So surprisingly, what surprised me is the magnitude of seeing so many customers ordering multiples of systems.

Is that just, Ronen, a critical math thing, do you think? Like, do you feel like just kind of point of recognition that these things that are out there and what could be done with them that's driven this acceleration all of a sudden?

The acceleration is coming from the inflection point that we were talking about two quarters ago. It's really about the move into e-commerce. The online marketplaces are booming. The move into onshore. We can see the growth in the strategic accounts and existing accounts. Our systems, you know, the growth in the Atlases, the Vulcans, the AVHDs, the Presto, which is a relatively new segment for Kornit, new products for Kornit. The business is growing fantastically. We can see the mix between new customers and existing customers. The recurring revenue is very, very strong. It was a very, very strong peak season. So it's a combination of all those factors.

I think that it was not only our customers preparing their infrastructure for the peak season, but they kept investing, and we got strong demand also during the peak season until the very last day of the quarter. So we see, again, as Ronen mentioned, this is absolutely related to the inflection point and not just the short-term peak season.

Okay. Thanks for that. And then my last question was just on Poly Pro. Could you maybe give us a little update on how things are going there?

Yes. So on Poly Pro, we are getting a very nice demand. We are starting to see a very good traction of the current Poly Pro solution. Part of the NPI, the new product introductions that we are bringing in the middle of the year is the additional solution, expanding the portfolio of the Poly Pro and taking it to the next level in terms of productivity, quality, and efficiency. You will see an amazing quality, durability coming out of this new product that we are bringing to the market. It will really open for us the athleisure and the sports market, and we are very optimistic about the growth that we will see next year from the Poly market.

Okay. And that's the same thing as the 3D printing thing? Or is it totally different? I thought they were different but is it the same thing you are talking about here?

No. It's different.

And our next question is from Greg Palm with Craig-Hallum Capital Group. Please proceed.

Yes. Thanks for taking the questions and congrats on the results here. I know you don't usually give full-year guidance but looking back at history, Q1 tends to always be the low point of the year and usually you see a kind of a step-up in revenue in the second half versus the first half. So I am just curious, is there anything unusual that we should expect this year? Or would you expect the sort of same seasonality trend to hold this year as well?

Greg, you are absolutely right. You should expect the same seasonality.

Okay. Great. And if we think about that specifically, maybe help us bucket out what the largest drivers of that are? I mean you have kind of alluded to this new customers, and I'm curious if that's outside of your core business? Or is that sort of incremental customers in sort of that core area? Is it capacity expansions from existing customers and then maybe what the contribution expectations are for new product as well?

Yes. So what we can say is that our existing customers and even customers are adding capacity because they expect 2021 to be a growth year for them. They see the demand and they see the volume coming. They are actually in a constant peak season already from the April-May timeframe, then constant peak season. During December, it was the peak of the peak and this peak continues into the Q1, and they are adding more capacity. For example, our strategic accounts and our key accounts are adding more capacity, many of them opening additional sites whether across the U.S., across continents, moving into Europe and even into Asia. So we see expansion of additional sites and expansion within the site of additional capacity of more systems. They are also moving to higher capacity systems. So many of them are moving from the Avalanche into the Atlases. We see also growth into the Vulcans. So this is one area we see the growth coming also from totally net new customers. Digital customers that are entering see the opportunity in this market, and they are starting and they are gaining momentum very, very fast. As I mentioned, the Presto is a relatively new product for Kornit, and so is the DTF, which is a big growth engine for us as well. And on top of that, the Poly, which was nonexistent a year and a half ago, again, we are now gaining momentum in that area as well.

Okay. And if I could just sneak in one clarification. I think your answer to a previous question about Q4 and what drove sort of the upside. I think you mentioned that the growth rate or at least the answer almost implied like the growth rate in the consumables business surpassed the growth of systems. Was that right? Or did I mishear something?

No. I think that the growth was across all fronts. I mean we had nice growth in systems, in consumables, and in service. And we had very high growth in consumables as we highlighted. But the growth was in all different types of business we have.

Okay. Great. Thanks for all the color. Best of luck going forward.

Thank you.

Thank you.

And that does conclude our question-and-answer session. I would like to turn the conference back over to management for closing remarks.

Great. So I want to thank everyone for joining us this afternoon call. I would like to take this opportunity and to thank our employees for their dedication and their passion for our customers. I would also like to thank our investor community for their trust and partnership. 2021 will be an exciting year for Kornit, and we are more confident than ever in our ability to execute on the massive opportunities ahead of us. We would like to wish all of you good health and hope to see you soon face-to-face, not through Zoom in 2021. We wish all of you good night from Tel Aviv. Thank you very much.

Thank you. This does conclude today's conference. You may disconnect your lines at this time and thank you for your participation.