Q2 2021 Kornit Digital Ltd Earnings Call

August 10, 2021

Yeah.

[music].

Second quarter 2021earnings conference call. Please note. This conference is being recorded.

I'll now turn the conference over to your host Mr. Andrew Backman Global head of Investor Relations for Quanta Digital you may begin.

Thank you operator, and good morning, everyone. Welcome to corner you Digital second quarter 2021 earnings Conference call with me today are run and family well.

Chief Executive Officer, Alon, Roessner, Chief Financial Officer.

And Amir Shack, and executive Vice President and corporate development.

Before we begin I would like to remind you that forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995, and other U S Securities laws will be made on this call.

These forward looking statements include but are not limited to statements relating to the company's objectives plans strategies statements of preliminary or projected results of operations or our financial condition and all statements that address activities events or developments that the company intends expects projects believes.

Or anticipates.

Will or may occur in the future.

Forward looking statements are subject to known and unknown risks and uncertainties and are based potentially on inaccurate assumptions that could cause results to differ 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 Companys filings with the SEC include.

Including the company's annual report on form 20-F filed on March 25, 2021, which identify specific risk factors that may cause actual results or events to differ materially.

Any forward looking statements are made as of this call hereof and the company undertakes no obligation to publicly update or revise any forward looking statements whether as a result of new information future events or otherwise expected as required by law. Additionally, the company will be making reference to certain non-GAAP.

Actual measures on this call. The reconciliation of these non-GAAP measures to the most directly comparable GAAP measures can be found and the company's earnings release published today, which is posted on the company's Investor Relations site now I would like to turn the call over to Ronen Ronen.

Thank you Andy and thank you all for joining us on our earning call.

Before I jump into the review of the quarter I for.

First 1 to say that we are very pleased to have Andy and recently joined the company and as our new global head of Investor Relations.

And welcome.

So, let's turn to what was another truly amazing quarter for core need across the board a quarter, we significantly beat expectations, So tremendous top and bottom line growth posted a very strong gross margins and ended the quarter with and.

<unk> strong backlog and pipeline.

We delivered total revenue of $81.7 million for the quarter net of $6.6 million in warrants related to our global strategic accounts significantly exceeding the high end of our guidance and reflecting a 118.

We'll send it over and goals and 24% growth on a sequential basis.

We saw a very strong growth not only no systems and consumable businesses, but also in our sales organization, which posted over 70% <unk> growth.

We again saw very strong growth with key customers as well as with net new customers and <unk>.

Pipeline has never been stronger.

During the second quarter, we completed beta testing and began shipping our Atlas.

At less Max systems.

We are seeing very strong order backlog for the Max and have received excellent customer feedback not only on the increased productivity and unique ex the <unk> capabilities, but also on the and parallel print quality and durability, which is truly.

On another level in the industry.

Max upgrades for the Atlas installed base will be available in the first quarter of next year and we expect significant revenue contribution from those upgrades next year.

We continue to experience strong tailwind as it comes to the market adoption of our <unk> factories solutions as leading global brands continued to embrace the advantages of sustainable on demand proximity production.

For example, and Arizona based full service fashion design recently acquired cool need per store. The most advanced single step solution for direct to fabric printing with the addition of the Presto. They are now able to offer sustainable on demand.

<unk> cut and sew services to their customers. We includes many emerging designers and brands.

This is a perfect example of the coordinate Dps micro factory solution.

Turning to customer engagements, we continue to execute on massive global expansion projects with strategic customers and we expect these projects to have a meaningful contribution to our business in the quarters to come in parallel we see strong growth.

Both of new customers, both in the BTG and DTF product lines.

Last month, we hosted a VIP customer event in diesel growth. In addition to our first in person customer event in the U S. Since the start of the pandemic at our newly renovated customer experience center in New Jersey.

And we hosted more than 200 customers globally and the event was a huge success.

It provided the most comprehensive display of our capabilities partnerships and customer engagement since the outbreak of COVID-19.

Customer feedback was extremely positive as evidenced by the number of committed orders. We received as a result of those events and the massive growth of opportunities in our pipeline.

Building. Upon this great success, we are already deep in the execution of our much anticipated September event, and then New York fashion week as well as the formation of the first co need and fashion week event in November.

After a non pandemic pause we are also very glad to be participating this fall in printing, United Orlando and first pass Amsterdam.

So we have a ton of activities planned for the next several months that will further contribute to our growing 2022 pipeline. So stay tuned for additional details.

We continue to see great momentum for core net ex as evidenced by our recently announced partnership with Camber and the largest online design studio and content providers in the world. We have already begun implementation effort with Canada. In addition.

And to over 80 implementation projects. We currently have in backlog for core net ex as well as multiple strategic partnership discussion with leading online marketplaces and fashion brands.

We were very excited to announce this morning, the acquisition of <unk>, 8 which will help us to accelerate the execution of our for zero strategy to digitize on demand and sustainable textile production.

So <unk> 8 advance and proven <unk> technology, which has been tested by some of the world's leading fashion and footwear brands, including Hush puppies, which is part of Wolverine worldwide, we will disrupt the business of fashion and powering completely New Creek.

<unk> declarative concepts and never before seen functional textile applications, while exploring new lucrative opportunities in the functional apparel and footwear markets.

I want to welcome the Vauxhall 18 to the core need family and look forward to achieving many great things together.

In summary, we had a very strong second quarter and first half of the year.

We are more confident than ever in our outlook for the remainder of this year and into next year.

We believe we are well on our way to becoming the operating system for on demand and sustainable fashion, and then 1 billion revenue company by 2026.

And now I will turn the call over to a loan for a closer look and the numbers and the guidance.

Loan.

Thanks, <unk> and good morning, everyone.

As Ron and then said we are very pleased with our very strong second quarter results.

Revenue increased 118% year over year, and 24% sequentially to $81.7 million net of $6.6 million noncash warrant impact revenue was also well ahead of our guidance of 76 million to $80 million, which excluded the impact.

So for them.

Our second quarter results were again, driven by strong orders for BTG systems. In addition to increased demand for consumables and services.

This significant growth was due in part to continued momentum with strategic accounts, which we expect to continue into the second half of the year.

Services revenue for the second quarter was $9.5 million net of the non cash warrant impact of zero point for a million accounting for 12% of total revenue and increase of 70% year over year and 16% sequentially.

Our top 10 customers accounted for approximately 64% of total revenue.

Geographically all regions were up both year over year and sequentially, the Americas and EMEA regions more than doubled their prior year quarter revenue and accounted for 71% and 22% of total revenue respectively.

While Asia Pacific continues to experience Covid related travel limitations, we have been able to successfully manage the business.

Revenue in Asia Pacific increased 56% from second quarter of last year and accounted for just under 7% of total revenue.

Moving to profitability.

Non-GAAP gross margin for the quarter net of the impact of the warrants was 48, 2% and improvement of over 400 basis points year over year on a GAAP basis gross margin in the quarter was 47, 2% and improvement of over 500 basis points year.

Year over year.

Second quarter gross margin expansion was due to the increased mass production system sales strong consumables as well as continued profitability from our services business going forward, we expect the ongoing shift to higher mix of mass production systems to continue along with <unk>.

Continued acceleration of services and software revenue growth to drive our gross margin expansion.

Moving onto Opex.

As I mentioned last quarter, we continued to invest in the business to accelerate growth for the second quarter Opex was $29.2 million higher than the previous quarter, but below our internal targets, mainly due to timing of hiring which occurred later in the quarter.

Research and development expenses were $9.2 million for the second quarter or 11, 3% of revenue as compared to $6.7 million or 17, 8% of revenue in the second quarter of 2020.

Sales and marketing expenses in the quarter were $12.5 million or 15, 2% of revenue compared with $7.4 million or 19, 9% of revenue in the second quarter of 2020.

The increase was due to the expansion of our go to market capabilities marketing and brand awareness programs and customer facing activities.

General and administrative expenses in the second quarter were $7.5 million or 9.1% of revenue and.

As compared to $4.9 million wholesale 14, 2% of revenue in the second quarter last year.

Our non-GAAP operating margin net of the warranty impact was 12, 5% versus negative 6.8% in the year ago quarter.

This increase was driven by the higher gross margin I discussed earlier combined with increased operating leverage in the quarter.

We ended the quarter with 763 employees a year over year increase of 189 employees and an increase of 63 employees as compared to the first quarter.

For the balance of 2021, we will continue to invest in growing the organization to support the business, mainly in R&D and sales and marketing.

Non-GAAP net profit for the second quarter was $10.5 million or <unk> 22 cents per share on a fully diluted basis compared to a loss of $1.3 million or <unk> per basic share in the second quarter of 2020.

Second quarter GAAP net profit was $5.6 million or 12 cents per share on a fully diluted basis compared to a loss of $4.6 million or 11 cents per basic share for the second quarter last year adjusted.

Adjusted EBITDA for the second quarter was $18 million as compared to negative adjusted EBITDA of <unk> 9 million in the year ago quarter.

Net cash provided by operating activities was $5.2 million this quarter compared to net cash used in operating activities of $9.2 million in the second quarter of 2020.

We again ended the quarter with a very strong backlog, including $15.6 million of deferred revenue and customer advances. We continue to expect our deferred revenue balance to convert to revenues in 2021.

And finally, our cash balance, including bank deposits and marketable securities at quarter end was $441.8 million.

With respect to Vauxhall 8 we expect their revenue contribution for the remainder of this year and next year to be immaterial with and Opex impact of approximately 1 million per quarter.

This acquisition is in line with the long term financial model, we previously discussed which assumed the potential impact of technology acquisitions.

Turning to guidance.

Based on our current visibility and the business, including a very strong backlog and pipeline. We expect revenue for the third quarter to be and the range of $88 million to 92 million and non-GAAP operating income to be and the range of 12% to 14% of revenue.

As a reminder, consistent with our practice in the past this guidance assume no impact for fair value of issued warrants in the quarter.

In summary, we are very proud of our very strong second quarter and first half 2021 performance as it further validates our strategy and is a result of all the hard work and dedication of the entire team of corn it and.

And with that I will now turn the call back to run in.

Thank you alone and.

And now we're ready to take questions from the audience.

If you would like to ask a question. Please press star 1 on your telephone keypad and a confirmation tone will indicate your line is and the Q U.

Press Star 2 if you would like to remove your question from the queue.

And for participants using speaker equipment and may be necessary to pick up your handset before pressing the star keys.

And please poll for questions.

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

Yeah. Good morning, guys. Good evening, I guess and thank you for the opportunity to ask questions. So.

Wanted to I.

And I guess, a comment I mean, the revenue numbers here and look very strong.

The core net ex backlog for us.

Seems very exciting and youre talking about <unk> implementation projects and backlog.

And we know that could be.

Huge driver and that business and the future just curious what the timeline on those and how long does it take to implement those and when do we see those impacting numbers and then I have a follow up question.

Okay.

Great. Thanks for all for the questions.

We see first of all.

Perfect storm and the industry.

We really believe that this is about time to change is that the industry to on demand is low.

Production and we'll see.

EBIT production and kinetics is the driver for changing this industry on top of the of course digitizing the production flow.

Yes, we have a big.

A long list of.

Orders for more than 80 projects right now.

And to implement the kony ex.

Growth with fulfill and that would like to join the network.

Both with marketplaces with brands is huge interest also from the retail environment for we are very very pleased with the adoption of ex and the vision that we're driving and the change we are driving and the marketplace. Some of those projects are short term projects many within 90.

Days of implementation some of them will take longer.

I'd say about 6 months to 9 months, we will.

Be able to implement most of the projects that the pipeline in the meantime, we'll I'm sure we'll get into more projects.

A few major projects.

We are driving like the cash.

Projects that we expect it to drive tremendous amount of volume.

And to our customers.

Okay. Thanks, Ron and then my follow up on the.

The margin guidance EBIT margin guidance is below what we were expecting and I just wondered if you could give us a little color on that is that because of the volume augmentation projects youre doing that.

The speed of delivery et cetera, just curious what.

And drove that sequential decline and those EBIT margins and the guide and I think it's also year over year decline.

So the key drivers for the gross margin and as we all know first is the level of.

Business day.

And then.

For the Opex and the investment and in the organization.

And in Q2, we had a great result.

Had great operational leverage and we continue to invest and the organization our Opex day increase.

In Q2 as you saw.

However.

Pete.

Consider <unk>.

Working at low.

To add more resources to accelerate the activities and we expect that and see.

And ill.

Investments additional opex in Q3.

Together with a bit different makes and Q3 and which takes.

And the operating margin back to the level of debt.

We expect again.

According to a lockdown.

And then.

And continuous improvement of the operating margin.

Are you a lot of you guys, assuming for walk down and impacts there or or is it just that you are hiring to keep up with the growth.

And what should we think of as the main driver there.

The main drivers for what again please.

The market and the margin guide for the the difference between.

The margin and the Q3 guide into Q2 actuals.

Yes.

Is that you are hiring to try to keep up with all the growth. So you are adding personnel cost and there or.

Is there some assumption of block and Greek lockdown due to delta that drags out or just kind of what is the.

If we think about the main thing that drives that.

And what would that be.

Yes, so for in terms of the mix, we don't expect.

Very different mix and in Q3.

So the impact on gross margin for that.

<unk> will be.

Immaterial and we invest also in therefore related activities.

And service supporting that and customers and also also and.

And in building.

And the system.

So overall, our gross margin is not expected to be very different and.

And then the.

And the investment.

In the Opex going to be higher in Q3 than in Q2 and this is the main driver, yes, Roger comment from my perspective.

Okay and.

Expansion both on gross margin.

And on operating margin and if you compared to last year, you will see expansion both on gross margin and operating margin.

Our Q3 versus Q3 definitely Q2 versus Q2.

The reason why we guided 12%.

Operating margin to 14%.

Because we are intending to continue investing and opex accelerating the growth of Opex and all.

Order to continue to accelerate the growth of revenue, we see massive opportunity there, but as we promised to our investor.

We are heading into 2026 was above 20% operating profit.

And we feel confident about it.

Alright, that's great guys. Thank you for the answers and congratulations on a really strong revenue numbers here.

Okay. Thanks, Thanks, Rob net.

And Joe.

Our next question is from Jim Suva with Citi. Please proceed.

Thank you and I'd like to add also great results.

Can you talk a little bit about lead times for.

First of all lead times for procuring all of the parts and equipment that you need.

For your projects products or is it getting better or is it stable is it getting worse and then I have a follow up question. Thank you.

Yes, so I'll start and maybe alone will add on top of that we definitely see pressure on lead time lead times for some of the for us getting much longer if it took us weeks, sometimes it's months and even year.

Year to wait for some of the long lead items.

Lastly, we have very very good visibility for this year and we have excellent visibility.

Ability for next year for this year, and we don't see any limitation on delivery and northern system.

And not on ink.

For for next year, and we are ready.

Place the orders with our suppliers for all the long lead time.

And so we don't see.

And so any any issue and supply chain and also for next year in parallel we see some price increase not to match that impacting us.

And on a big way we free.

And we are in control, but we see some price increase for.

For miles for clients.

Hello, and anything that looks like.

I think thats the main point here is.

Because of the greater visibility, we were able to secure production slots as well as the main lead times for our quarters ahead. So we don't see any impact on supply.

It's all.

We do some we do.

You'll see some impact on cost but.

As of now.

Not material for our business.

Great and then as my follow up question.

For the customer standpoint, their lead times of customers come in and want to.

Or new Atlas or something like that as an example are those lead times starting to stabilize and I assume we're looking at delivery dates probably now and the year 2022 as opposed to 2021 or how should we think about the lead times from a customer perspective.

Yes, very good question, so with most of our <unk>.

<unk> customers, we are working on on 1 of your plan with that with some of them even longer than that but we have a very clear visibility and we are planning ahead of time.

And of course, net new customers upcoming and we are planning ahead of time inventory levels and we have enough inventory.

What we can supply them, if we're getting any surprise order.

So usually we can be we can deliver.

And then within.

And 1 month to 2 months of and older we are increasing for production.

In Israel, we already have with a contract manufacturer.

Manufacture and Israel.

Next.

And submit and another local manufacture.

And we are about to open and other sites outside of Israel next for you to increase the capacity and the growth that we see in the business.

Thank you and congratulations to the strong results.

Thank you. Thank you Tien <unk> question here.

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

And <unk> can.

Can you talk a little bit about that acquisition and just.

And what what Youre acquiring there I guess it looks like they have a proprietary print Ted it.

It seems like they are proprietary consumables are you going to incorporate.

Those print heads into your Nextgen machines and.

How long might that take and have you done any calculations around how much that expands here.

The addressable market.

Well answer.

And I'd say, yes, and yes of growth.

Look first of all we are acquiring great.

Group of people.

Knowledgeable great.

Great attitude, we feel it is.

Great.

Fit here in terms of culture.

Technology and proprietary technology with this technology, we can enhance our exploration capabilities. We can take it to many direction, we will be able to hope for.

Never before seen and versatility of declaration and I would say something like.

Let's talk about reflective we think is electric and sports.

Breathing high density silicone.

<unk> capabilities.

We'll be able also to try and practice.

And practical features such as enhanced <unk>.

Compression material for.

Our sportswear and therapy therapy.

Cushioning and impact resistance and waterproofing. So it will open for us major opportunity both in the market that we are serving now and also new market that we are planning to go after all within the fully digitized single step production for special for me.

So we are planning to embed that technology on top of our solution today.

Crestor.

And at Le and enabling our customer to enter 2 new application more capabilities and for US also to get to new markets. At this point of time, we are not sharing.

And what is the increased market potential and the latest state tax sharing and.

The rollout the application and the technology and by that total share being increased market that we see I can tell you. It's a huge market that we see and formal process you can all see when you're looking at Vauxhall 8.

Web site that we're focusing on the footwear and.

Mark and this is by itself is a huge opportunity for future opportunities not depressed market for food to go after we have an immediate opportunity with market that we are selling now as I mentioned there.

Reflective and metallic.

And we have an equity plan, how can we integrate it and to bring it to the market as soon as possible.

Great. Thanks, Thank you and.

Can you make any comments on revenue for Q versus <unk>, given you have a little more visibility.

Compared with the last time, we asked that question.

Yes, and we're not guiding for Q4.

You know we are getting only 1 quarter I can say that we have.

And all visibility for Q4.

We feel very comfortable going to be a very strong year for us.

And more importantly, even starting 2021 on the right foot.

Revenue pecking order for 2.

And 2022.

And we already taking orders we have a long list of customers that.

Asking for upgrades of their Atlas to Atlas <unk> and customers are asking for.

Bye.

<unk> as well as day.

And so let's talk first for Mark that we are bringing the Atlas poly the automation, so we have and exciting.

Quarters, and quantified impact growth and opportunities.

Okay. Thanks, a lot round it.

Thank you.

Next question Joe.

Our next question is from Jim Ricchiuti with Needham and company. Please proceed.

Hi, Thank you.

A question on the.

The upgrade opportunity for for Atlas, Max and it sounds like Youll be beginning that and Q1 when would you anticipate just based on the interest level that you have now for upgrades from the existing installed base. When would you anticipate completing upgrades with those go through.

Large part of 2020.2.

And thanks for the for the question, but just to make sure that the audience.

I understand the value of the assets Mark. So we just ended better and we've got amazing feedback from our customers.

I'm very proud to say that 1 of the feedback was that final legal and it is bringing a product out of the bulk of that is mature.

And mature company. So we are very proud to be and disposition on top of that all of them are talking about the quality that bring for it is <unk>.

Different standard.

Place and the quality and the different level of course, the ex D and total debt.

3 day mention and opening to totally new application and new market growth.

And the productivity is and the menu for customers also key customers.

We're exposed to the automation and Theyre very excited so.

As a really huge benefits to our customers and to the market.

And we expect to start upgrading our installed base Q1, as you mentioned we expect.

Revenue recognition already in Q1 for this.

Upgrade for the installed base as we have a large installed base of Atlas.

Seaspan.

With some big accounts that we know theyre going to upgrade.

The Atlas Mark it will take more than 1 quarter I guess it will take the entire 2022 to upgrade and most of the fleet.

The other flux.

Got it thank you for that and then.

Just with respect to the pipeline.

And <unk> ex the when you talk about the.

And <unk> implementation projects are the bulk of those.

For fillers.

Or I'm, just wondering if theres any way to give us a sense as to how that might break out between fulfill those brands marketplaces.

Some sense as to how those that project pipeline looks.

So.

Okay.

It's a good question, we are not providing the detail.

Fleet on the eighties.

I can tell you is that larger amount of those 8 is our fourth pillar of growth the wall, but joining but we had some big names of.

Marketplaces Grand retails.

Also a part of those.

Implementation projects at this stage and we cannot share more split on those eighties.

Orders that we have in place.

Got it okay.

Thanks, I'll jump back in the queue congratulations on the quarter.

Thank you very much thank you.

Our next question is from David Mizrahi with Bahrenburg. Please proceed.

Hey, guys. Congrats on good quarter I, just wanted to for about 1 of the earlier questions.

Can you just comment potentially on the order backlog and maybe the book to Bill I need talked about 80% between ex.

And without and snacks and other.

And that will legacy systems and that's all.

Yes, so David Thank you very much I cannot say too much on the mix and the type of customers as I mentioned most of those AC projects.

For filler our installed base that would like to join Corning.

And.

And network.

Some of those <unk> are with big.

Marketplaces lack and.

And brands retail.

And.

Yes, those are the the main.

The main cash.

Customers would.

I would like to join the network Windows.

And 80 projects.

Okay got it.

And then also just I wanted to clarify it sounds like the acceleration is going to be more broad base of assets and errors and a stronger performing better and kind of.

Just want to have a feel for what and particularly the biggest drivers for acceleration through the remainder of the year.

Yes.

And we received formula and very strong and we already as I mentioned focusing on 2022.

On the old and new products are coming in Q1.

We see a perfect storm perfect storm and many directions for stress the flow from the market and Mark.

Trends online and continue to booming.

And sustainability.

<unk> is becoming the main discussion with every brand.

The on demand manufacturing.

And it's Super important.

Consumer really wants to add variety. So it's really a perfect storm from the markets and but if you ask from a business how do we see so we see a major growth ex.

Corrosion and I would say.

Growth with our strategic accounts.

For the board.

Growing within the carbon side.

And expanding.

Opening new sites multiple.

Region, we see the growth also on the supplies they are using the system around the globe and.

And we see actually many net new customers joining.

And this is great both from the brand perspective, but new for fillers.

Traditional for pillars are joining as well.

<unk> is definitely a major growth.

<unk>.

And drive them moving forward, we see the concept of micro factory gaining momentum.

Both in the and world and in the home before.

Absolutely Atlas Max and the ramp that we have done a few weeks ago created and massive panel and Oprah.

Quality for all of Us for expansion this year next year.

You know, bringing novel Oxalate is another story and another volume that we can bring to our customers and changing the industry into more on demand and sustainable way, we have massive events and sort of thinking about the New York fashion, We think about the core.

And a faster week printed United first, but finally, we have face to face meeting with customers that will really create this momentum and we are going to demonstrate all our technologies and those.

Shows.

And this is on top of a very very strong pipeline that we already have as you saw our guidance. If you calculated for Q3 is more than 50% growth year over year.

As last year and last year Q3 was a very strong quarter for us.

So we are very proud of the growth of the business and the momentum.

And yes, we feel very comfortable about this year and next year.

Alright, Thank you guys.

Thanks, Joe that question. Please.

Our next question is from Greg Palm with Craig Hallum Capital Group. Please proceed.

Yes. Thanks. This is Danny agro John for on for Greg Today, and thanks for taking the questions.

I guess, maybe if you could just touch on progress with with the big brands that Youre working with and maybe how those partnerships are starting to materialize.

So at this stage I don't have much news to share with you other than we are working with and less number of brands both on the call and ex <unk>.

Both of changing the supply chain into on demand some of them.

Early buying our equipment, we announced about that.

And the UK.

Getting into the micro factory with their with the Presto.

Announced about the relationship with Adidas.

There's many many multiple interaction and growth within the brand.

As of today.

And some news to share with you if I can disclose at this stage.

Got it that's helpful and then I guess congrats on the access and this morning of oxalate in terms of the M&A pipeline looking forward I guess, how are you guys looking at that.

Yes, we are.

We're very excited.

And I think that looking at many different technology. This group will report to the CTO organization and the CTO was very involved in.

Defining what technology, we are looking for and what will help us to bring new applications to the market.

We.

We're evaluating.

Oxalate technology for few months.

And found it suitable to print on government together with our technology.

The wet on wet and opening for us new application for the textile and home before both on the TPG and the DTF.

So we see.

<unk> potential for growth coming from this technology as I mentioned, we are very pleased with the team there and the engagement.

And having this team based in Boston.

It's also a huge benefit for us so.

And to attract more talent to our team. So overall I think is a very strategic.

Acquisition, and we will.

You'll start seeing the fruit of this acquisition in the coming quarters.

If I can add this acquisition is the <unk>.

A great example of.

The accelerated execution that we are talking about organically and inorganically.

<unk> technologies that will support our.

Our business and will support our long term financial model. So this is exactly according to our plan to take us that.

Long term plan of $1 billion.

Great. Thanks for taking the questions and congrats on the results.

Thank you. Thank you John next question. Please.

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

Hi, good afternoon, and thanks for taking my questions most of them have been asked.

Just maintain and <unk>.

And I hate I don't know if you touched on it already but is there any ongoing revenue stream that you will be maintaining going forward.

We thank you for the question yes.

The company generating some revenue is not material to <unk> revenues and.

We are.

Going to drive the technology to be different areas and where they are today.

And don't see any impact on top of the revenue top line as we mentioned in terms of the Opex It will add some.

Something like $1 million Opex expenses.

On a quarterly basis.

But it was taking into account and now.

Mobile so we don't see a material impact on our operating profit as well.

Great and then and just looking at the growth and when you. When you look at this quarter and because of the momentum for coming quarters. When you look at growth in general would you say that the majority come from incremental sales to your existing customer or converted and its coming from new customer household.

We think of the split.

It's really a mix.

As I mentioned.

And explosion that we see with <unk>.

Digi key customers something really unique.

And there continues to grow and expand.

And by multi service and ink and services and we are talking with them for long term.

And the plans even with some of them for 3 years plan.

And so we're very optimistic there on the other hand, we see many net new customers joining on the DCF of course is relative net.

Net new segment for Us new product line for US we are going up.

So most of them are net new but we see it also and the BTG.

Many net new and we see net new coming both in now.

For a mature market like.

North America, but we see for force in Asia and EMEA.

And of course, EMEA EMEA had a very good quarter this quarter with growth both in the Central Europe, UK, Germany, but we see also eastern Europe.

Other key Spain.

And very strong we also see big potential and in Latin America, mostly net new customers are joining and in Latin America.

At this stage, we are not stretching the growth with the potential of net new that joining us on top of the growth profile for <unk> customers are expanding very fast.

Great. Thank you, everyone and congrats on the solid quarter.

Thank you.

Thanks for your next question Joe.

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

Thank you very much and and congrats on a nice quarter.

And they run and first off and in terms of the Max upgrades, you're talking about that will be introduced in the first quarter of 2022.

Can you give a little bit of color.

Are they the existing strategic accounts that have been with you for a long time or are they recent new customers say over the past year or 2.

And what the Max products, where are you seeing the greatest traction in terms of the upgrades.

Okay.

So the average for the Max Day Festival for the Atlas and store base.

Many of those assets installed base are already within our strategic accounts as you mentioned, but many of them also with customers.

And only 1 assets of 2 offices.

We believe that it will the most of them both our strategic accounts that we are talking and and they will engage in the beta testing and.

Seeing the product and the lab and and the experience center.

And we'll update to Atlas Max So we'll buy the upgrades, but we believe also the relative small customer with 1 and 2 system will also upgrade to the assets marketplace.

Clear.

For the average when you calculate the 20% production and when you calculate the quality and the variety of material you can greenfield and new application that you can.

Prince with wisdom.

Atlas Max.

It is so clear and there is no question that DIY is really fast.

And we expect most of our installed base to do it during 2022.

Great that's helpful and maybe as my follow up question for along you mentioned about the supply chain and how you're managing through that situation and it sounds like it's being managed pretty well and can you talk about the COVID-19 related costs and what I'm kind of trying to get there is with some of the.

The recent outbreaks.

<unk>.

Situation changing again are you seeing any changes in logistics costs and freight costs.

And is that part of what you're mentioning about some of the cost for pricing going up.

Okay.

Yes.

In general.

We see.

Good impact if I can say and also the whole situation by the acceleration of E Commerce and <unk>.

And the development of our business. So this is in general.

And the momentum is very positive for our business, specifically for the supply chain and logistics.

So yes, we see we see the pressure on our logistic cost.

But.

I think that it comes together with the operational leverage that we are talking and.

We are able.

<unk>.

To deal with this increasing in cost by moving more and more shipments.

Doing it by sea, rather than air and saving some some growth.

Larger quantities, so we can secure.

Peter slot and better prices for for logistics. So all in all we see some impact but it <unk>.

Really minor and.

I mean, as we can see and in the results it doesn't really impact our profitability or gross margin I would just add that I believe.

We believe that our team is doing tremendous job in.

Working with our suppliers too.

And to control the increase of course and.

And also the logistic cost.

And when we are monitoring it and why do we see and increasing growth.

Compared to benchmark, we are in a very good place and we're very pleased on that.

As we mentioned and we are continue to be committed to that you would see expansion on our gross margin and you saw this quarter you will see the rest of the year.

And we will enter 2022 with the new products.

And with additional expansion on gross margin.

Great. Thank you very much.

Our next question is from Chris Moore with CJS Securities. Please proceed.

Hey, Thanks for taking my question, maybe just back to the to the Atlas Max upgrade for a second line I'm, just trying to get a sense of that.

The scale of the upgrade opportunity.

Is there any way you can put kind of rough numbers around either the number of atlas's there out there that could potentially be upgraded or.

Just kind of.

In terms of.

Kind of.

What that could mean.

Perspective.

Yeah.

And number 100% upgrade in in 2022 of them just have no sense in terms of what that might mean from a revenue perspective.

Yeah. So.

We're not providing that.

Number of offices, we have and the fee and low low we already mentioned and the year goal as we crossed the 200 offices, but we have and the field we mentioned it.

Of course, we have so.

Much more than 202.

<unk> hundred the emphasis in the field, we expect large large portion of them too.

To upgrade to the Atlas Max and.

And.

We expect.

Revenue Covenant and 2022 out of it.

Got it I'll leave that 1 there.

1 last 1 for me.

T F e-commerce and more important part of the mix can you talk a little bit more about you know kind of GTS sales process for <unk>.

TG and CTF cream any significant talent and challenging.

Squire much incremental sales infrastructure.

Yes, so first of all a great question, we have been where it has been.

Our dedicated team.

But going out there and selling the DTA not only sell a supporting and.

And the support is also application themes.

We are a business manager for the Dcs so its totally different type of product line and customers that we are approaching with this with the DPF and the Presto specifically solution around it is totally different and also the value proposition we.

We are really looking here and enablement.

Enable them and on demand manufacturing, which was not.

And the available and you could do it with the traditional technology.

Ink and assets, Inc, which require long process of replacement of.

Greetings and.

And steaming and then washing using lots of tons of water and these forces.

And really a lot of pollution and you cannot run it for 100 meters.

For hundreds of hundreds of meta and notice.

No.

And technology with the pigment ink.

And step solutions that you take any fabric and print directly on top of it it doesn't matter if it's blended.

Natural fiber cost and all.

All polyester.

And without pretreatment without post treatment you can free 1 of dress you can bring 1 of them for their home.

We have evolutionary and the industry and now we're moving into the Croatia and at home into a variety and fashion.

See the excitement of designers and seeing that this technology, you will see the excitement and New York fashion week and <unk> fashion.

Blake fashion week of all those design and are using the technology and now really can express themselves and more important for the consumer that really for the first time and they can buy and be unique with there.

Design needs also.

<unk> and major change and the industry, we are driving and major changing industry and we expect low.

Non stem growth coming for.

Q2 2021 Kornit Digital Ltd Earnings Call

Request a DemoDemo

KRNT

Kornit Digital Limited

Earnings