Kornit Digital Ltd. Q4 FY2024 Earnings Call

Greetings, and welcome to Kornit Digital Fourth Quarter and Full Year 2024 Earnings Conference Call. As a reminder, this call is being recorded. I would now like to turn the conference over to your host, Mr. Jared Maymon, Investor Relations for Kornit Digital. Mr. Maymon, you may begin.

Thank you, operator. Good day, everyone, and welcome to Kornit Digital's fourth quarter and full year 2024 earnings conference call. Joining me today are Chief Executive Officer, Ronen Samuel; and Lauri Hanover, Kornit's Chief Financial Officer. For today's call, Ronen will recap the full year 2024, provide comments on the fourth quarter, and then discuss our view on 2025. Lauri 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 20-F filed with the SEC on March 28, 2024, 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'd now like to turn the call over to Ronen. Ronen?

Good morning, everyone, and welcome to Kornit's fourth quarter and full year 2024 earnings call. Before we dive into our results, I want to take a moment to reflect on the significant transformation Kornit experienced in 2024. This year was a turning point, one in which we successfully executed our strategy, returned to profitability, and positioned the Company for sustained profitable growth. At the beginning of 2024, we set clear objectives: return to positive EBITDA, generate meaningful cash flow and establish a scalable, disciplined model that fuels long-term expansion. Thanks to the dedicated effort of our teams, I'm pleased to report that we not only delivered on these goals but also introduced game-changing innovation, strengthened our market position, and expanded into new strategic adjacencies. Today, we are pleased to report Q4 2024 revenues of $60.7 million and an adjusted EBITDA margin of 13.8%, both within our guidance ranges, demonstrating the successful implementation of our strategy and ongoing business momentum. We also reported $26.7 million of operating cash flow in the quarter. These results marked two significant milestones: achieving positive EBITDA for the full year and generating substantial operating cash flow. Our Q4 performance was fueled by a successful peak season and growing impressions across our key customers. One of the most exciting highlights of Q4 was the Apollo platform performance during the peak season. Having delivered 15 Apollo systems throughout the year, with most becoming fully operational during the critical period, customer feedback has been excellent, reinforcing Apollo's role as a key enabler of mass-scale digital production. 2024 was not just about financial milestones. It was about laying the foundation for Kornit's long-term success. We introduced industry-defining solutions, including Apollo, Atlas MAX Plus, and Vivido Ink roll-to-roll, setting new benchmarks for quality, cost efficiency, and sustainability. Apollo has redefined mass-scale digital production, delivering unmatched productivity, automation, and consistency. The strong market response is evident in our growing pipeline, which is already filling up for 2025 deliveries. Additionally, we have successfully upgraded a significant portion of our installed base, transitioning customers from Atlas to Atlas MAX and are now beginning to upgrade them to Atlas MAX Plus. This upgrade path was reinforced by Printful's recent announcement highlighting the growing adoption of our latest technology and its ability to drive efficiency and quality at scale. Our all-inclusive click model is revolutionizing our customers' embrace of digital technology, driving strong adoption, accelerating penetration in the screen-printing market, and already generating meaningful annual recurring revenue, which we will start reporting as promised on our Q1 earnings call. We have expanded our horizon to new markets, including bulk apparel, footwear, and home decor, while deepening our presence in key regions. In bulk apparel, we have delivered Apollo and Atlas MAX systems to major screen printers adopting digital technology for the first time, marking a significant step in the transformation of high-volume apparel manufacturing from analog to digital. In footwear, we delivered our solution to three different customers in Asia, with one already in full production for major global brands. This customer has seen strong initial adoption and is now scaling up with additional systems planned for deployment in the first half of 2025, reinforcing the growing demand for digital production in the footwear sector. We fundamentally shifted our go-to-market approach, emphasizing customer success, account management, and recurring revenue growth. We also strengthened our team with top-tier talent across all functions, ensuring we have the right leadership in place to drive sustained execution. In conclusion, we have built a business that is resilient, profitable, and poised for long-term success. Beyond our innovation, we continue to deliver shareholder value. We have executed $75 million of our previously announced $100 million share repurchase program, which we expect to complete by mid-2025. As we enter 2025, Kornit is in the strongest position it has ever been. The market is showing signs of improvement, driven by a clear shift among brands, retailers, and creators towards on-demand manufacturing. This transition is becoming increasingly critical for businesses aiming to respond swiftly to evolving consumer demand while minimizing excess inventory and waste. Additionally, there is significant shift toward nearshore and onshore production as companies seek enhanced supply chain resilience and faster turnaround times. While these trends are positive, certain macroeconomic uncertainties persist. Recent political developments in the U.S. and potential tariffs on Mexico have raised concerns among some of our customers regarding nearshore manufacturing. Furthermore, potential inflationary pressures stemming from these policies could impact consumer purchasing power. We continue to monitor this dynamic closely while supporting our customers in navigating these shifts effectively. As we stated in our last call, 2025 is about execution, translating the strong foundation built in 2024 into scalable, profitable growth, strengthening our market leadership, and driving the industry forward with our innovative solutions and business models. With our continued focus on innovation, customer success, and disciplined financial management, we are confident in our ability to drive significant value for our customers, employees, and shareholders. With that, I will now turn the call over to Lauri for a closer look at our financials. Lauri?

Thank you, Ronen, and good day to everyone. Fourth quarter revenues were $60.7 million, within the guidance range we provided in November. This quarter's year-over-year growth of 7% resulted mainly from growth in system sales and revenue recognized under our AIC model. For the full year 2024, revenues were $203.8 million compared with $219.8 million in 2023. The decline resulted from lower systems and services sales and was partly offset by growth in consumables. Moving to margins, fourth quarter non-GAAP gross margin was 55.1%, up from 48.6% in the same period last year. This year-over-year improvement was primarily driven by higher product revenues from systems and AIC, the absence of a warrant impact this quarter, and cost base reductions resulting from the initiatives announced at the beginning of 2024. For the full year 2024, non-GAAP gross margin rose to 48.6% compared with 38.4% in 2023. The increase was largely attributable to a more favorable sales mix driven by consumable sales, reduced warrant impact, and the cost base reductions. Looking at expenses, total fourth quarter non-GAAP operating expenses were $28 million, a decrease of about 7% from $30.1 million in the same period last year. For the full year 2024, non-GAAP operating expenses decreased about 14% to $109.8 million. This reduction in expenses reflects the impact of the restructuring initiatives implemented at the end of 2023 and beginning of 2024. Moving to EBITDA, our adjusted EBITDA in the fourth quarter was $8.4 million, marking a meaningful improvement over the adjusted EBITDA of $0.2 million in the same period last year and the adjusted EBITDA of $1.5 million last quarter. Adjusted EBITDA margin for the fourth quarter of 2024 was 13.8% compared with 0.3% in the same period last year. For the full year 2024, adjusted EBITDA was $0.3 million, which was up significantly versus negative $30.9 million in 2023. Improving profitability was a key objective for us as we entered 2024, and we are pleased with this improvement of $31.2 million year-over-year, which resulted in positive adjusted EBITDA for the year. Adjusted EBITDA margin for the full year was 0.2% compared with negative 14% in 2023, with the improvement being driven by reduced operating expenses, improvement to sales mix, and the reduced warrant impact. Our cash balance, including bank deposits and marketable securities at quarter end, was approximately $512 million. For the fourth quarter, operating cash flow increased to $26.7 million versus $2.6 million in the same period last year. And on a full-year basis, 2024 operating cash flow was a robust $48.7 million compared with negative $34.7 million in 2023. This positive cash flow was primarily driven by strong collections and improved profitability. Our primary use of cash during 2024 was our share repurchase program. We used $84.1 million of cash on repurchases during 2024, bringing the total gross amount used on repurchases to $121.6 million at an average execution price of $24.40. During the fourth quarter, we entered an accelerated share repurchase program, under which we plan to repurchase approximately $75 million of our ordinary shares. Under the terms of the ASR agreement, we received an initial delivery of approximately 1.8 million shares in exchange for a prepayment of $75 million. The final number of shares repurchased will be dependent on our average daily VWAP through the end of the contract. We expect this program to close in June. This $75 million represents a majority of the $100 million program we announced at our investor event in September, and we expect to complete the remaining $25 million through opportunistic repurchasing. As Ronen mentioned, 2025 will be a year of execution for us, meaning it will be a year where we aim to turn our vision, innovative solutions, and the business model we laid out at our investor event into measurable results. These measurable results include the annual recurring revenue generated by our AIC model. We will begin to disclose this metric during our first quarter of 2025 earnings. In the meantime, the investments made in our AIC model can be seen on our balance sheet under equipment on lease net. Turning to first quarter guidance, we currently expect revenues for the first quarter of 2025 to be between $45.5 million and $49.5 million and adjusted EBITDA margin to be in the negative 4% to negative 9% range. That concludes our prepared remarks. With that, I will now turn it back over to Ronen to open up the call for Q&A. Ronen?

Thank you, Laurie. Operator, we are ready to receive questions.

Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. The first question comes from Greg Palm at Craig Hallum Capital Group. Please go ahead.

Ronen, you talked about 2024 a little bit and 2025 is sort of another year of execution. Maybe tell us what you perceive as your goals for the year and how that relates to top line growth potential?

Yes. Thanks, Greg. First of all, I would like to touch on a bit about 2024 because it was a turning point for Kornit. I hear that we set very clear targets in front of us to move to positive EBITDA and generate substantial cash from operations, and we have delivered on that. And this was a transformative year for us. On top of that, you can see that in Q4 we moved back to growth. And on top of that, of course, we introduced many new products like the Apollo, the Atlas MAX Plus, the Vivido for the roll-to-roll, and many more. One of the things that we are very proud of and that will contribute to your question about 2025 is a new model, the AIC and the ARR that is generating, and we're coming out of 2024 with meaningful ARR that's going to contribute for 2025. We set a really clear target to penetrate the bulk apparel and the screen market, which we did major steps into it, and some of the major screen players are now using Apollo’s and other solutions from Kornit. We entered new adjacencies like footwear, which we see acceleration in, and home decor, and all of those will contribute to 2025. Major changes and revamps of our go-to-market focusing on customer success, account management, and recurring revenue, and really bringing new talent across our team specifically for the go-to-market. In conclusion, when you look at 2024, we delivered on what we promised. We built a resilient business, a profitable business ready for expansion and profitable growth. Now, as I mentioned in my prepared remarks, 2025 will be a year where we will see profitable growth in every quarter, and we will continue to generate positive cash from operations. To do that, we need to keep focusing on execution. Our team is fully focused on execution, and I'm going to touch on a few fundamentals that we will focus on in 2024 to make it happen. So, on top of what we've delivered in 2024 and 2025, on the Apollo specifically, we set a clear target to deliver 30 systems. This is on top of the 15 systems that we have delivered in 2024, and we are coming into 2025 with a strong pipeline and good visibility on those 30 systems, which will contribute significantly to our top line and also our bottom line. Building and continuing to build ARR is super important. The new AIC model is really opening for us new markets, new customers, and generating very healthy revenues and ARR, which we are going to start reporting from the next earnings call of Q1. And we are putting a lot of focus on that, and we have internal targets on how we would like to end the year in terms of ARR versus where we start the year. There is significant growth that we are building on. Another area of focus is continuing to penetrate the screen market. What we see in this market is a clear move from analog to digital. We see a massive opportunity there. We have already penetrated some big accounts, and we have a very healthy pipeline to convert to digital. Another very important and fundamental KPI for the year is really about impression growth. First of all, we are going to measure it every quarter. We are looking at it on a daily basis. We have a clear target on how we want to end the year in terms of the impression, and those impressions are coming from existing customers. We are starting to see nice growth in our existing customers, and also on the capacity utilization of the systems, but also from net new customers specifically in markets that we never operated in, like the screen market, the footwear, the home decor, and others. Another focus area for 2025 will be the roll-to-roll. While 2024 was relatively soft in the roll-to-roll market, we see a much healthier funnel for the roll-to-roll business in 2025, specifically in the area of fashion, footwear, and home decor. Overall, bottom line, we believe that 2025 will be a year of profitable growth and massive execution by the team. We feel very good entering 2025.

I mean when you put that all together, does that give you an ability or a potential to get back to double-digit growth or would you rather not commit to a certain number at this point?

Yes, so as you know, we are guiding only quarter by quarter. So, I wouldn't want to guide for the year. We have better visibility for 2025. Some of this visibility is coming first of all from the Apollo. A major part of the revenue in 2025 will come from the Apollo, and we have a very good line of sight on where we are going to install it. Another area that is improving our visibility is the AIC. We are coming into 2025 with a nice meaningful revenue on AIC, and it's going to grow substantially along the year. Of course, we have the inks and services which is almost a recurring revenue for us. So, we have clear visibility on that. But we also came to Q1 with some capital expenditure orders in hand already. So, we have good visibility for Q1 and for the rest of the year. As for the cost structure, we did significant cost improvements during 2024, and we feel that we are under control for the cost. Therefore, we have good visibility to our EBITDA.

Thank you. The next question comes from the line of Brian Drab from William Blair. Please go ahead.

The first one is just could you give us a little more color, Ronen, on the roll-to-roll opportunity in 2025? And, you had a lot of momentum and LOIs that show in Italy, and then high interest rates weighed on that business. But why was it soft in 2024, and what has changed that makes you more optimistic about 2025?

Thank you, Brian. So, roll-to-roll, when we're looking at it, there are a few things that have changed. One of them is that we are just about to release the new products, which include the Vivido, which is currently ending beta testing and receiving excellent feedback from our customers. This brings the quality of the roll-to-roll to a very similar quality of the reactive ink in terms of the darkness of the black and improvement on the hand field. We also see that the market is really looking for a much more sustainable on-demand way of manufacturing, and Kornit is by far leading this revolution with our unique pigment capabilities. On top of that, we are coming out of two and a half years of very soft market in the fashion sector. Many of our customers in the last two and a half years were working partially. Some sites were closed, and some sites were working only one shift, and we see the change. They're receiving more demand from their retailers and brands, and they're scaling up production. We see this trend across the board. Still, there is room for improvement, but we see the change in the market. Furthermore, we see growth in impressions from existing customers. We are monitoring every day the number of impressions that they are printing on our roll-to-roll, and we see very nice growth, and we expect some of them to acquire additional systems this year. As I mentioned in my prepared remarks, on footwear specifically, we managed to penetrate already three major players in Asia. One of them is already managing to scale the business and is now producing for large brands, and has already placed an order for additional systems that we are going to deliver in the first half of 2025, which we have full commitment and visibility on. Additionally, we penetrated the home decor market in 2024, specifically in H2 2024, and we put a lot of effort into pursuing home decor. At the beginning of this year, we held an important event in Frankfurt called Heimtextil Steel, where we received positive feedback from some of the biggest retailers, brands, and manufacturers. Our solution is a perfect fit for home decor due to the pigment, the resistance, and durability characteristics. Home decor is shifting more toward unique and short runs, and on-demand models, which we find to be a significant opportunity for us. In fashion, we managed to penetrate a few big players who are transitioning from analog to digital or from reactive to pigment, and some of them are scaling up and will need more capacity. Overall, our funnel entering 2025 is much stronger for the roll-to-roll market, and the team is optimistic that we will be able to deliver better results in 2025 compared to 2024 in the roll-to-roll sector.

Okay. Thank you for that comprehensive answer. I'll just ask one more for now, I think. The Apollo is obviously still critical to the story going forward, and it sounds like it's performing very well in the field from talking to you and from talking to customers. Can you just elaborate on what you saw in terms of its performance during the holiday season? What were customers able to produce maybe per hour, or what was the feedback from customers using the Apollo and the quality throughout the holiday season?

Yes. So, Apollo, as I mentioned in previous calls, is a game changer. It's a game changer for our existing customers, and it's a game changer for us and for new markets that we are entering specifically the screen and the move from analog to digital. When we analyze our customers that are using the Apollo today, there is a mix of customer types. There are existing customers utilizing Apollo for very short runs or one-off productions, but they are also using the Apollo to convert volume that they are currently printing on analog or screen to digital. We also have new types of customers who are completely new to digital for the first time. They are entering this market using the Apollo and transitioning mid and long-run jobs from analog to digital. Some of these customers are retailers, while others are fulfillment centers. This mix has been encouraging as it is opening new markets and providing incremental impressions. This year, as I mentioned, we managed to deliver 15 systems. Many of these systems were installed right before the peak season, and all of them performed during that critical period. I am pleased to share that the performance of the systems exceeded our expectations. This, of course, is a complex new product introduction and new platform, and like any new platform, there are challenges, but this has been the best introduction of a new platform that Kornit has delivered to date, given the complexity in terms of automation, capability, and productivity. Customer satisfaction levels are very high. To measure satisfaction, I can tell you that without exception, each one of those customers who received a system either has already ordered a second system or more, or is about to order additional units in 2025. So, we are very satisfied with how this has progressed. In terms of utilization and capacity, we have reached our goals, and customers have met that goal as well, while we plan to improve availability and capacity of the systems throughout 2025. We are entering 2025 with a very healthy pipeline and good visibility to deliver on those 30 systems during the year.

Okay. And before, Ronen, you said 15 orders were in hand; is that still around that same level?

I mentioned that we have 15 commitments from our customers. Today, we have even more commitments in terms of orders. I didn't mention how many orders we have in hand. We have very good visibility and line of sight to deliver systems during 2025.

Thank you. The next question comes from the line of James Ricchiuti from Needham & Company. Please go ahead.

I was wondering, Ronen, if you can give any update on equipment purchases or upgrades from your large global strategic account? I don't recall you talking about that in the call, or I may have missed it.

So, thanks, James. First of all, I would like to relay, first of all, to one of our key strategic customers, which we have announced major upgrades, which is Printful. They have announced it. During 2024, they upgraded their entire fleet of Atlas’, 86 to be accurate of Atlas' into Atlas MAX, and now we are in a process to upgrade the entire fleet also to Atlas MAX Plus, and they were sharing the satisfaction about the quality, the productivity, and the additional capability in terms of applications that they can run. So, we are very satisfied with this. As for our global strategic customer, our relationships are very close. We are working collaboratively. Like many of our key customers, they had a very strong peak season and overall, had a very healthy year, similar to many of our other key customers. As I mentioned in the past, we are hopeful that this year they will continue with the plan to upgrade some of their fleets into Atlas MAX. We reported that in Q4 there were some upgrades, and we hope that we will see additional upgrades coming from this customer this year.

Got it. Laurie, can you help us at all in terms of how we should be thinking about gross margins in Q1 just given seasonality and the ongoing development of the AIC model?

Hi, thanks for the question. In Q1, as you rightly pointed out, it's the seasonally low quarter, which has an impact on gross margins. As you know, we have adjusted our cost base, and we are always looking to improve efficiency. Depending upon the mix that we'll see in that quarter, we would expect the gross margins to be similar to what we've seen in the past, which is the lowest gross margin that we have during the year.

And if I could, one quick one. Ronen, you mentioned the issue around the geopolitical situation in tariffs, and I think you talked about Mexico. Are you actually seeing or hearing any changes in terms of uncertainty as it relates to customer behavior given this? Or I'm just curious what has changed, if anything, in terms of customer behavior around the issue of tariffs?

So, we were talking a lot about the nearshore, and we see the move to nearshore, and some of our key customers have moved to nearshore. So, we took the opportunity to touch base with each one of them and ask them what they would do if a tariff occurs. The answer is mainly that we hear from them is wait and see. None of them really has a clear understanding of if it will happen, when it will happen, and what actions they are going to take. Some of them are looking potentially to move some operations onshore into the U.S., which could have positive implications for Kornit, but there is a lot of uncertainty. Therefore, we don't have a clear picture. We are working closely with our customers, and they are uncertain. They are looking into what the final outcome will be.

Thank you. The next question comes from the line of Troy Jensen from Cantor Fitzgerald. Please go ahead.

Hey, thank you. Congrats on the nice results here. Maybe just a couple of questions for Laurie and kind of following up on Jim's question on gross margins. I think you said it could be as low as the lowest quarter last year. So, are you implying gross margins could be as low as 37.5%?

No, no. Hi, Troy. Let me clarify. What I said is that the first quarter is typically the lowest gross margin quarter of the year, which is something that we've seen in the past as well. I was not comparing it to the prior year.

Okay. So, we should expect well above that because last year was a big downtick for you guys in Q1.

Absolutely.

I'm not sure you weren't implying that. But then also just on guidance, I know you only give guidance on EBITDA, but we've got a model of EPS, and we need a financial income number. And that's changed a lot for you guys in the past quarter over quarter here. So, could you give us any color on what you think financial income is in Q1 and maybe for 2025?

Troy, we provide guidance in terms of revenue and adjusted EBITDA. We don't provide guidance on other elements of the P&L.

All right. Well, I'll take it offline, but I guess it's probably just interest income coming down as rates have dropped, so it drove it down sequentially a bit. Happy to follow up. So, alright, well, congrats and good luck.

Thank you. The next question comes from the line of Maiah Woodring from Morgan Stanley. Please go ahead.

Hi, this is Maiah on the line for Erik. Great end to the year, guys. Thank you for having us. I think maybe just to kind of double hit on gross margins. It looks like total company gross margins hit what looks like an all-time record high in the quarter, and product gross margins were quite strong. Can you maybe speak to some of the puts and takes driving that margin outperformance? How would you say the AIC model contributed to this? And were there any one-time dynamics to call out? And how sustainable is this step up in margins, realizing the seasonality impact as we look into Q1, but how sustainable would you say are these higher levels of margins looking forward?

Hi, Maiah. Thanks for the question. So first of all, as you correctly pointed out, our gross margin is very much affected by the seasonality and the mix within revenues. That being said, some of the key drivers are of course the volume, the volume of systems, the proportion of consumables in the mix. But we've also made great strides in terms of our cost base reduction, which gives us additional leverage in terms of our gross margin. And then we have the onboarding of the AIC model, which over time as it becomes a more meaningful element of revenue will also help support improved gross margins.

The only point that I will mention is that back in the investor event, what we said was that in 2025, you should see a moderate improvement in gross margin compared to this year. So, we are planning to expand it along the year.

Got it. Very helpful. And then maybe just one last one from me. You talk about good line of sight into the 30 Apollos this year. Is that still the cap in terms of capacity, or could you potentially up that if demand far exceeds that 30 for this year?

We have defined the 30 not because of capacity and definitely not because of the demand. The market is much bigger than those 30 systems. We are doing this only because we would like to make sure that every installation of the Apollo is successful. We are still learning a lot. We are working with our customers on each one of the installations, some with totally new types of customers. So, we are taking it step by step, doubling the number of systems from 2024 to 2025. 2026 will be the year that we will scale the Apollo to the next level.

Thank you. The next question comes from the line of Chris Moore from CJS Securities. Please go ahead.

Hey, good day. Thanks for taking a couple. Yes, maybe just one more on the 30 Apollos for 2025. Just trying to get a sense; obviously, it's still a work in process, but how many customers do you think are going to comprise that? Is it 20 customers? Is it 10? Are there a few that are taking quite a few? Just kind of any thoughts there.

I prefer not to throw a specific number right now, although we have a very clear line of sight on that. However, I would say that the two main audiences that will receive those Apollos in 2025 are: existing customers already using Apollo, and each of them is planning to add at least one system in 2025. There are a few who will add more than one system. The other audience consists of net new customers, who usually buy one system; we expect them to have only one system in 2025. These customers are coming from the screen and analog world, stepping into digital for the first time and will likely expand into 2026. Therefore, it's a mix, and I would estimate that it's approximately 50-50 between existing customers and new customers coming from the analog world.

Got it. That's helpful. Obviously, AIC is a game changer for Apollo. How important is AIC for Atlas MAX or MAX Plus at this stage?

Well, we see encouraging feedback and use of the AIC specifically on the Atlas MAX and the Atlas MAX Plus. We implemented a meaningful number of them during 2024. We have a healthy funnel in Q1 and for the rest of the year for the Atlas family in terms of the AIC. We see some of them going also to new screen printers, but they don't have the volume to justify Apollo. As you know, there are many thousands of screen printers, some small, and mid-sized. They cannot commit to the minimum volumes that Apollo can deliver, but they can definitely commit to the minimum volume on Atlas MAXs. Many of them are taking multiple Atlas MAXs; some of them are taking two or three Atlas MAXs. We already implemented this in 2024, and we have a good funnel for 2025.

Thank you. The next question comes from the line of Tavy Rosner from Barclays. Please go ahead.

Hi, Ronen and Laurie. Thanks for taking my questions. Really quick ones for me, most of them have been addressed. Looking at the demand side, so you spoke about the AIC and the pipeline. When you look ahead to 2025, any prospect of selling new systems not under the AIC? Is there still such a thing given the current macro environment, or is most of the demand now through the AIC?

As we shared on the Investor Day, it's very consistent with what we see today in the market both in 2024 and moving forward into 2025. First of all, the AIC model is only on the direct-to-garment side of the business. All the roll-to-roll business is on capital expenditure. There is no AIC at this stage for the roll-to-roll business. As for the direct-to-garment, when we look at the mix between capital expenditure and AIC, it's about 25% of the deals currently are under capital expenditure, while 75% are on AIC. So, for example, in 2024, while we delivered 15 Apollos, 10 of them were on AIC and 5 of them were on capital expenditure. What we are observing today is that if we need to categorize who chooses AIC and who is opting for capital expenditure, many of the new-to-digital customers coming from the analog world and transitioning to digital prefer to shift to AIC to secure predictable costs. For these customers engaging in digital for the first time, knowing exact costs is extremely important, and we see clear growth in this area. Conversely, existing customers already using our systems who understand their current costs, are evaluating running costs under capital expenditures against AIC options. Many of them are choosing capital expenditure because they find it more favorable against AIC.

Thank you. Ladies and gentlemen, as there are no further questions, I will now hand the conference over to Ronen Samuel for his closing comments.

Yes. So, thanks everyone for joining us on today's call. We are excited about what lies ahead for 2025 for Kornit, and we're looking forward to updating you on our progress on our next earnings call. Thank you very much.

Thank you. The conference call for Kornit Digital has now concluded. Thank you for your participation. You may now disconnect your lines.