Greetings, and welcome to the Kornit Digital's Third Quarter 2025 Earnings Conference Call. As a reminder, this call is being recorded. I would now like to turn the conference over to our 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 Third Quarter 2025 Earnings Conference Call. Joining me today are our Chief Executive Officer, Ronen Samuel; and Lauri Hanover, Kornit's Chief Financial Officer. For today's call, Ronen will provide comments on the third quarter of 2025 and provide an update on our progress. Lauri will then review the third quarter results and provide our fourth 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, 2025, 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 like to turn the call over to Ronen. Ronen?

Good morning, everyone, and thank you for joining our third quarter 2025 earnings call. This quarter, we delivered results above the midpoint of our guidance range with revenues of $53.1 million, representing 5% growth year-over-year. When including deals under our All-Inclusive Click (AIC) model, which are recognized over time, underlying business activity was even stronger this quarter. Under this model, revenue is recognized as customer print and consumer impressions rather than upfront, which builds recurring revenue over time even though it shifts part of the recognition to later periods. Our EBITDA margin came in at approximately 2%, reflecting continued progress towards full year profitability as we maintain disciplined cost control. I'm particularly pleased that we have achieved this growth while continuing to generate positive cash flow from operations for the eighth consecutive quarter. This performance reflects not only strong operational execution but also continued progress in transforming Kornit into a business driven by recurring revenues, expanding the addressable market while driving sustainable profitability. Beyond the financials, I would like to provide an update on our key focus areas: screen market penetration, Apollo adoptions and the expansion of our All-Inclusive Click model. The global screen printing market for bulk apparel represents around 14 billion annual impressions and more than 40% of those production runs are under 1,000 units, representing an addressable market of roughly 6 billion impressions. As production continues shifting towards shorter runs and faster delivery, Kornit is uniquely positioned to lead the transition from screen printing to agile, high-volume digital production powered by our advanced technology portfolio and the AIC model that lowers barriers to entry. Our goal remains to capture approximately 5% of this addressable market by 2030. In just 18 months since the first Apollo installation, adoption continues to accelerate as customers expand their fleets, increase utilization and push production to new levels. Across our early Apollo users, production has scaled rapidly with systems now averaging more than 1 million impressions annually and now over 40% of those impressions produced for bulk apparel. About 25% of these bulk jobs are above 500 copies, proving that digital is moving beyond short runs and increasingly replacing traditional screen printing in high-volume production. With a growing number of customers installing multiple Apollo systems, the shift towards digital as the preferred production method is clearly gaining momentum. Importantly, approximately 40% of all Apollo and Atlas MAX systems sold this year were to new customers, reflecting the growing confidence in Kornit's technology and the expanding opportunity ahead. Another area of progress is the continued expansion of our All-Inclusive Click model. Today, about 80% of Apollo systems operate under the AIC model, which removes barriers for customers and drives a growing stream of recurring revenue. AIC is strengthening Kornit's leadership in digital production, serving as a clear differentiator that attracts new customers and generates strong momentum across the industry. At the end of the third quarter, annual recurring revenue from AIC reached $21.5 million, up $2.6 million sequentially. Several deals that shifted into early Q4 have since closed, bringing ARR to $23.1 million today, and we expect further expansion by year-end as the program continues to scale. This milestone is especially meaningful given that the AIC is still in its early stages of global rollout and was only recently introduced in Asia, where we delivered our first Atlas MAX PLUS systems, and early in Q4 closed our first Apollo deal under the program. Asia is the largest textile producing region in the world, and early success there is another encouraging validation of our technology and business model. Over the past 12 months, Kornit customers produced approximately 232 million impressions, reflecting 5% growth on a trailing 12-month basis. We expect a solid increase in the growth rate of impressions on a trailing 12-month basis as we move through the fourth quarter, driven by continued ramp-up of Apollo systems and higher utilization across our installed base. Our progress can also be seen clearly in the success of our customers who are expanding capacity, scaling production and increasing utilization across their operations. In the third quarter, Mad Engine Global, one of the world's largest manufacturers of licensed and branded apparel added another Apollo under the AIC model on top of 2 existing Apollos and a large fleet of Atlas MAX PLUS systems. This expansion allows them to replace screen jobs, shorten production time and reduce waste and energy use. Hybrid Digital, a fast-growing wholesaler, added a second Apollo under AIC to better support peak season POD demand, move more of its bulk apparel production into digital and meet faster delivery requirements. Basic Thinking, a European manufacturer installed a second Apollo within 6 months to meet growing demand from leading fashion brands and strengthen its position as a digital-first producer. HFT71, part of the TBI Group, integrated Apollo with its existing Atlas MAX PLUS fleet to meet surging bulk demand and set a new production standard in Central Europe. And in Asia, Webling in South Korea became the first customer to adopt AIC, operating 2 Atlas MAX PLUS systems as part of a full digital transformation that replaced legacy screen capacity while improving time to market and production efficiency. This example shows that Kornit's technology and business model are delivering tangible results and accelerating the industry transition from screen to digital. I also want to touch on our expansion beyond our traditional apparel market segments. Last week at ITMA Asia in Singapore, we showcased our portfolio and announced the commercial launch of Kornit's digital footwear solution for the sports and athleisure markets. After 2 years of pilot programs with leading global brands, the solution is now commercially available and has already crossed the milestone of more than 1 million pairs of shoes produced using Kornit technology under well-known international brands. This achievement marks an important step forward in applying our digital platform to adjacent categories and demonstrate that our focused innovation engine continues to create new growth opportunities. We view footwear as a significant pillar of our long-term growth plan. The total addressable market is approximately 1 billion pairs annually, equal to about 2 billion print impressions and Kornit is well positioned to capture a meaningful share of this opportunity. Our solution directly addresses the footwear industry's biggest challenges such as slow development cycles, design limitations and overproduction by replacing complex analog decoration with a single-step digital process that delivers unlimited design freedom, durability and efficiency. Customers are excited because the design to production cycle, which once took months can now be done in days, enabling faster response to trends, lower waste and local on-demand production at scale. Following successful deployments of our new solution in China, we are expanding into Vietnam and Germany, establishing a new global standard for digital footwear production. These efforts are further supported by additional orders from existing customers secured during ITMA Singapore. Ten days ago, we also participated in PRINTING United in Orlando, where we engaged with many new potential customers and partners. The feedback was consistent. The industry's needs for agile, high-quality and sustainable digital production continues to grow, and Kornit remains the most advanced and trusted partner to enable that transformation. Before I close, I want to take a step back and reflect on the broader transition we are executing. Kornit is transitioning from one-time equipment sales to a recurring usage-based model through AIC and ARR. While this naturally shifts the timing of revenue recognition, it is a deliberate move. It strengthens long-term profitability, predictability and customer lifetime value. We are already seeing the benefits through stronger customer retention, higher engagement and increasing system utilization. Our plan for 2025 was to deliver profitability, generate cash from operations and drive growth both in revenue and even more importantly, in recurring revenue from the AIC model. We are on track to deliver on this plan. Looking ahead to the fourth quarter, we expect sequential growth in revenue, gross margin and EBITDA while continuing to expand our recurring revenue base through the AIC program. As we look ahead into 2026, we expect modest top-line growth in the low-single digits as we continue to deliberately transition more customers to AIC while driving strong growth in annual recurring revenue. At the same time, we expect continued EBITDA expansion driven by higher utilization, scaling recurring revenues and disciplined cost management. This evolution positions Kornit for sustainable, profitable growth and long-term value creation. In summary, we are executing with discipline, capturing a multibillion-dollar market opportunity as we transform how apparel is produced. Our recurring business model is scaling. Our technology is driving real impact, and we continue to look ahead with innovation into new segments like footwear and other adjacencies. The progress so far is just the beginning, and there is much more to come. I will now turn the call over to Lauri to further discuss our third quarter results and our guidance for the fourth quarter. Lauri?

Thank you, Ronen, and good day to everyone. Third quarter revenues were $53.1 million, within our guidance range of $49 million to $55 million provided in August. Year-over-year, we saw growth in product revenues, primarily attributable to an increase in consumable sales and continued growth of revenue from the AIC model. Service revenue also increased year-over-year due primarily to greater upgrade activity. Moving to margins. Third quarter non-GAAP gross margin was 45.8% compared with 50.3% in the same period last year. The year-over-year decline was primarily the result of inventory-related adjustments, U.S. tariff costs and lower service gross margin as expected. We have communicated targeted price increases that are expected to offset part of the tariff impact in the coming quarters. Looking at operating expenses; total third quarter non-GAAP operating expenses were $25.8 million, a decrease of $1 million or about 3.7% from $26.8 million in the same period last year. A large portion of our operating expenses are Israeli shekel denominated. The shekel appreciated more than 9% in the third quarter year-over-year. Had the U.S. dollar shekel exchange rate remained at the prior year level, operating expenses would have been $25 million or 7% below Q3 2024. Managing our operating expenses closely is within our control even in an uncertain environment, and we are expecting to realize more meaningful operating leverage over time as we continue to align our expenses with our base of revenue and near-term needs. For the third quarter, adjusted EBITDA was $1.1 million compared with $1.5 million in the same period last year. Had exchange rates in Q3 '25 remained at the level of the year earlier period, adjusted EBITDA would have reached $1.8 million. Adjusted EBITDA margin for the third quarter of 2025 was 2%, above the midpoint of the guidance range we provided in August. We still anticipate delivering adjusted EBITDA profitability on a full-year basis in 2025. As we move into 2026, we plan to continue shifting a greater share of system volume from the traditional CapEx model to AIC. As Ronen said earlier, ARR from systems shipped under the AIC model reached $21.5 million at the end of Q3. As a reminder, this figure does not represent recognized revenue, but rather the annualized recurring revenue we expect to generate based on systems shipped to date. We are focused on moving a greater portion of our system shipments to the AIC model with the goal of expanding this base of recurring revenue. This effort will strengthen our ability to project the coming quarters and year and is expected to drive an improvement in our gross margin over time. Moving to our balance sheet. Our balance sheet remains robust with our quarter end cash balance, including bank deposits and marketable securities, standing at $490 million. Operating cash flow was $4.3 million compared with $13.6 million in the same period last year. Cash flow less capital expenditures, including investment in equipment on lease for AIC in Q3 was $800,000 compared with $3.1 million in the same period last year. Ending with our fourth quarter guidance. We currently expect fourth quarter revenues to be between $56 million and $60 million and adjusted EBITDA margin to be in the 7% to 10% range. I'll now turn it back over to Ronen to open the call for Q&A.

Thank you, Lauri. Operator, we are ready for the session of the Q&A.

Our first question comes from Greg Palm with Craig-Hallum.

This is Danny Eggerichs filling in for Greg today. Can you provide insight into the broader demand environment and discuss how the performance of systems and consumables this quarter compares to your expectations from a few months ago? What are the current inventory levels for consumables, and how has customer activity changed regarding capital sales and AIC for Apollo?

Yes. Thank you, Danny. So regarding this quarter, the way we look at it, product, as you can see, grew year-over-year the same way the service. Service grew mainly due to upgrades that we delivered this quarter. Within the product, we see expansion both on the ink side, but also, of course, on the AIC that's starting to contribute to our revenue. Overall, we are shipping more and more systems. You don't see the systems, of course, that we are shipping on the AIC model, but they're going to contribute moving forward into Q4 and 2026. This is a major focus for us for growth. Hopefully, I answered your question.

Yes. No, that's helpful. Maybe just one on gross margin, maybe a little step down and a little below expectations. I know you kind of mentioned that inventory-related adjustment and some tariff stuff. Is there any way to kind of break out into a little more depth some of those impacts that you saw and how we should think about maybe the price increase offsetting those tariff impacts going forward?

Yes, I will leave this question to Lauri for a beginning.

Okay. So as you mentioned, we faced some headwinds resulting from inventory adjustments in addition to a greater impact from the effects of U.S. tariffs, which, of course, we didn't have last year. Both of these affected the product gross margin as well as the service gross margin this quarter. And as we said, we have communicated targeted price increases that we expect to offset a part of the tariff impact in the coming quarters.

Yes. You should expect to see an increase in gross margin in Q4. Q4 is traditionally our strongest quarter for gross margin. We also plan to continue to see year-over-year expansion in gross margin into 2023.

Okay. Great. Maybe just one last one for me. I appreciate you kind of giving that early 2026 outlook. I guess, what kind of visibility do you have at this point? I'm assuming a little bit more visibility transitioning to more recurring revenue. And what kind of gives you that confidence in your ability to grow next year?

Yes. So we are starting to have more and more visibility because of our recurring revenue and reaccruing revenue. Of course, we have the ink revenue, which is the reaccruing. We have the service revenue that is reaccruing, and we are building more and more the ARR from the AIC model that is the recurring revenue. And while taking a relatively conservative view on the systems that we will deliver next year on CapEx, we still believe that we can deliver growth next year, as I mentioned, low-single digit growth. But you will see a much stronger expansion on the EBITDA and, of course, accelerated growth on the ARR during the year.

And our next question comes from the line of Brian Drab with William Blair.

I would like to talk first just about the low-single digit outlook for 2026. Ronen, can you just talk about the thinking that goes into that, the components of that growth? And I guess, I would have thought that with the ARR that you're entering 2026 with that you would have expected to grow a little bit faster than low-single digits?

Yes. Thank you, Brian. And you're right. From one hand, we're entering with a nice ARR into 2026. We're also having better visibility on our pipeline. We have a stronger pipeline than we had before. But when we are looking at our growth rate, it reflects a deliberate and strategic transition towards building a more predictable, sustainable, profitable business. We are not only expanding our addressable market, we are really getting into the bulk apparel, footwear and additional categories, but also transforming, and this is the main impact, our model from one-time equipment sales to recurring usage-based revenue under the All-Inclusive Click model. This shift naturally moves part of the revenue recognition that we are planning for next year from the short term into future periods, but it creates a much stronger foundation of long-term growth, profitability and visibility. While we expect 2026 to deliver low-single revenue growth, we see meaningful expansion in EBITDA as we maintain a disciplined cost structure and continue scaling our recurring revenue base. The ability to grow ARR significantly while expanding profitability is a major milestone for us and a strong indicator of the durable growth engine we are building over the years ahead. So I hope I answered your question, Brian.

Yes, Ronen, that's helpful. My follow-up is, are you moving away from outright equipment sales in 2026? Has your strategy shifted recently to focus more on transitioning customers to AIC instead of equipment?

The answer is yes, because we see the AIC model as the preferred model for our customers. It reduces the barriers to investing in capital upfront, aligns the cost structure with revenues, and provides predictability. Customers using this program are utilizing the systems more, leading to higher impressions on systems under the AIC model. For us, it creates better visibility, stronger recurring revenue, and enhanced profitability and customer value from each of those systems. Therefore, we have intentionally decided to transition further into the recurring business model, the AIC. As a result, we expect a reduction in CapEx next year, while increasing the total number of systems. We have already seen significant growth in the number of systems this year compared to last year, and we anticipate even more growth next year. Most of these will be on the AIC model, meaning we won't see immediate revenue recognition within the same quarter, but rather over time, which will strengthen our business in the coming years.

Okay. So just to put a final note on this, I guess it seems like CapEx sales will be much lower. AIC revenue will probably increase significantly next year and maybe even more than double. But really, you're positioning the company kind of for 2027 and beyond is my impression right now, in terms of revenue drop.

Yes, as we mentioned, AIC revenue is becoming significant. By the end of Q1, we will likely start reporting separately on the AIC revenue as it grows even more important. Next year, you will see a significant increase in revenue from the AIC, which will offset some of the decrease in CapEx revenue. Overall, we still expect growth for the full year.

And our next question comes from the line of Chris Moore with CJS Securities.

This is Will on for Chris. Do you think the geographic mix of your revenue will look much different 2 to 3 years from now? And if so, what are the drivers?

Thank you, Chris. Currently, North America makes up about 65% of our revenue. In three years, it will still be our largest region. We certainly hope to see EMEA growing and recognize the significant opportunities in Asia. Specifically, in Asia, we are focusing on the footwear market. We were at ITMA last week and received excellent feedback, along with several new prospects in this area. Additionally, we are making inroads into the screen market in Asia. As I mentioned earlier, we closed two deals in Asia, both in the screen market and in the AIC. We have just introduced the AIC model in Asia, and we anticipate that the region will contribute more to our growth in the future. However, as it stands today, North America remains our biggest opportunity in both the screen market and fashion segment. We have a substantial installed base here, and we expect North America to continue growing and contributing significantly.

And can you remind us or add some color to what your thoughts are on free cash flow in 2026 and 2027?

As we presented earlier, as we drive our penetration with the AIC approach, we would expect our free cash flow to be negative, whereas our objective is to keep operating cash flow positive. Does that answer the question?

Yes.

And our next question comes from the line of Erik Woodring with Morgan Stanley.

This is Maya on for Eric. Last quarter you told us that second half revenue would grow kind of in the low-single digit range year-over-year. Your guidance for 4Q implies flat to slight declines. Over the past 3 months, what has really changed? And what supporting evidence can you provide to give us the confidence that you'll achieve at least the midpoint of 4Q results?

Yes. So first of all, Q3 we grew 5% year-over-year. Q4, we expect sequentially growth versus Q3. However, year-over-year, you're right, it's a decline based on our guidance. And the main driver is the move from CapEx deals to all-inclusive. So we do expect to see meaningful growth on the ink side, service probably will be flat or a bit lower than last year. But the main impact versus last year will be the move from CapEx deals that we delivered last year to all-inclusive deals that become ARR.

Got it. And then you kind of touched on this for 4Q, but it was good to see services return to year-over-year growth this quarter. I understand maybe in 4Q, we're thinking flat to slightly down. I guess how sustainable is upgrade activity as we look to 2026?

In 2024, we have a considerable number of upgrades that have positively impacted our service revenue. When evaluating the service revenue, particularly from the upgrades, we observed a year-over-year growth. The continuation of this growth depends on the upgrades and deals we are finalizing, as well as the availability of the upgrades we are providing. Most of our upgrades in 2024 were related to the Atlas to Atlas MAX transitions, and we have completed the majority of these. Some will carry over into this year, as we saw in Q3. For 2024, we expect to introduce new upgrades, particularly starting from the midpoint of the year, which will enhance our systems' capabilities. While I cannot share specific details at this moment, we are planning additional upgrades for 2026, especially aimed at our largest customers who may further transition their fleets to MAX technology.

And our next question comes from the line of Chris Reimer with Barclays.

Two quick ones on demand in the footwear and in textile. I mean, the footwear, I know you've been talking about this for a while. What's changed and how do you see customer adoption as a growth driver over the next 2 years? And then on the textile, you mentioned some of the new customers in the branded printing, but how do you see traction with textile customers?

Yes. Let’s begin with footwear. You’ll recall that we initiated this about two years ago, focusing initially on customers in China, which gradually expanded to more clients. Over time, they adopted more systems. We collaborated closely with these customers and major brands and have now reached a point where we believe we have the right solution. Currently, our customers are delivering over 1 million pairs of footwear uppers to the market. We've gained substantial insights into this market, which was unfamiliar to us two years ago, by connecting with numerous new potential customers. The decorated footwear market is substantial, with approximately 1 billion decorated and printed shoes produced annually, translating to around 2 billion impressions. This represents our target market, and we are just at the beginning of our journey. Our approach involves replacing outdated technology and transforming a complex production method that previously took months into a streamlined, agile process that meets the industry's durability standards. We are introducing significant innovations around this technology. We take pride in being unique as the only digital solution currently available. There was considerable excitement at ITMA from footwear manufacturers who viewed our offering as groundbreaking. We are effectively addressing the industry's main challenges, primarily the slow development process, which can now be reduced from months to merely days. There are no longer limitations on design, enabling precise production without waste or overproduction. We've experienced early success in China with two major manufacturers collaborating with many leading global brands. One of them placed an additional order for two systems at ITMA, in addition to the system they already possessed. We're also expanding into Vietnam and Germany with new orders already in the pipeline. While we recognize a significant opportunity, it’s essential to note that this is just the start. It will take time to fully capture this potential, but we expect it to be a substantial contributor to our growth over the next three years. Regarding the fashion market, we are focusing on the technical aspects. I previously mentioned signing a strategic agreement with a leading sports brand. The project is progressing, and in a few months, we will reach a decision point, potentially leading to substantial orders following the completion of the pilot. There is considerable interest in the technical sector in Germany, Central Europe, and Asia, particularly in the sports market, though we continue to supply systems to the fashion market as well. One of our largest customers in the customized design sector adopted a Presto system a few months ago and is now using it for all-over prints on hoodies and T-shirts, offering on-demand customization. This innovative direction presents an opportunity for rapid growth for them, with potential for others to follow suit.

And our next question comes from the line of Kieran McCabe with Cantor Fitzgerald.

I was wondering maybe if you could maybe touch on the improvement in OpEx year-over-year, kind of quarter-over-quarter, kind of what were the drivers and how they kind of met your plan? And really kind of what do you see as opportunities going forward to continue to optimize OpEx with your revenue line?

So we have been focused on allocating resources to drive our growth. So resources that were not part of driving growth were reduced. That is in addition to constant efficiencies that we are looking to achieve. As I mentioned, this quarter, you can see even with the unfavorable exchange impact that we were successful in reducing our operating expenses. We will continue to look to drive our operating expenses to match our level of revenue growth so that we achieve our profitability targets. And we'll do our best to manage that through what we expect will be a more significant impact next year because of exchange rates. Is that helpful?

Yes, it does. I'm curious about the demand outlook for 2026 based on the AIC model. Overall, what is your impression of the business environment in 2026? Are you feeling more optimistic about an uptick, or does it seem like it will be similar to this year? Please share your general perspective on the business environment expected in 2026, aside from the company's transition from a CapEx model to the AIC.

We believe our pipeline is in a stronger position now, with clearer visibility on both AIC model deals and CapEx projects. Notably, we have a robust pipeline for the screen replacement market and a promising pipeline for the footwear market as well. Additionally, we have strong visibility on ink and services, including the upgrades we plan for next year. Overall, we feel confident in our strategy, projecting modest growth in our top line of low-single digits and more significant growth in EBITDA.

And with that, there are no further questions at this time. I'd like to turn the floor back to Mr. Samuel, who will provide some closing remarks.

Yes. So first of all, thank you, everyone, for joining us on this call. As you can see, Kornit is going through a major transformation, both in terms of the markets, the addressable market that we are going after. It is the screen market, which is totally new to us, which is a massive opportunity and the main opportunity we are going after on top of the customized design market. And now also footwear and some other adjacencies that we are going after. On top of that, we are changing our business model into the recurring ARR AIC model, which is only now starting to gain momentum and penetrating new regions like Asia Pacific. And we see acceleration and adoption of Apollo with multiple systems being delivered to many of our customers. Our pipeline is getting stronger. We have better visibility both through Q4 and for 2026. And we believe that we are executing with passion and clarity to our strategy. So I would like to thank you again and hope to meet you soon in different events. Thank you very much.

Thank you, and with that, this does conclude today's teleconference. We thank you for your participation, and you may disconnect your lines at this time, and have a wonderful day.