Yahoo Finance Kornit Digital Ltd. (NASDAQ:KRNT) Q1 2024 Earnings Call Transcript
Kornit Digital Ltd. (NASDAQ:KRNT) Q1 2024 Earnings Call Transcript May 8, 2024
Kornit Digital Ltd. beats earnings expectations. Reported EPS is $-0.11, expectations were $-0.12. Kornit Digital Ltd. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good morning, ladies and gentlemen, and welcome to the Kornit Digital First Quarter 2024 Earnings Conference Call. At this time all lines are in a listen-only mode. Following the presentation we will conduct a question-and-answer session. [Operator Instructions] and this call is being recorded Wednesday, May 8, 2024. I'd now like to turn the conference over to, Jared Maymon, Global Head of Investor Relations. Please go ahead.
Jared Maymon: Thank you, operator. Good day everyone and welcome to Kornit Digital's First Quarter of 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 provide comments on the first quarter of 2024. Lauri will then review the first quarter numbers and provide our second quarter outlook before we open it up for Q&A. Before we begin, I’d like to remind you that forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and other US 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?
Ronen Samuel: Good morning, everyone and welcome to our first quarter of 2024 earnings call. Today, we reported revenue of $43.8 million and adjusted EBITDA margin of negative 18%, which is within the guidance range we provided in February. I am pleased to report that we also generated positive cash from operations during Q1 which was ahead of the plan. Overall, while our markets remain challenging, we saw few positive signs in the quarter, including continued year-over-year improvements to utilization, impressions and consumable sales. We also saw a strong reception by our industry on both the Apollo and the initial pilot for a new all-inclusive click or AIC model. First on the Apollo. After announcing general availability in January, we successfully concluded the Beta-programs in all three of our initial Apollo sites.
These customers gave very positive feedback overall on the systems and have all cemented the systems as a permanent piece of their production floor. In addition to this, one of our beta customers has already placed an order for four more Apollo's in addition to the beta systems. And they have indicated to us that they expect to order another two systems this year. This means by the end of 2024, we expect this customer to have seven Apollo's on the production floor. This customer is planning to use their Apollo's to transition mid-size runs from the screen printing business to digital. Last week, another beta customer placed an order for the second Apollo, which is another encouraging sign that the product is adding significant value and is functioning as expected for these customers.
Beyond our beta customers, we have already built a strong pipeline's of orders from both new and existing customers in 2024. And we have already started to add to our pipeline for 2025. As a result, we are now working with our contact manufacturers to increase production capacity of the Apollo systems for 2024 and beyond. One of the factors helping to build this strong pipeline of the Apollo is the AIC program, which we announced the pilot last quarter. The feedback overall from our industry has been highly positive with both new and existing customers expressing the preference for the model. We’re confident that the introduction of this program even with its initially limited scope has helped us to make strong progress in situations where we would not have been able to traditionally.
After improving our customer success organization, advancing our quality standards, and improving the TCO of our solutions, the last step which we have needed to overcome is removing the barriers to entry and expansion. These barriers have historically included uncertainty in unit economics, and large initial capital investment. Solving these barriers to entry is key in our current market to help our industry continue their digital transformations through challenging macro-economics headwinds. And even more important, longer-term, to help us capture the major digital conversion opportunity that has always been core to our vision. We also see the model as being favorable for us, especially given the volatility in our market today. The minimum volume requirements inherent in the AIC program give us a clear line of sight into the revenue potential of this model which is more predictable than our traditional model due to its recurring nature.
So overall, we believe this is a strong solution for both our customers and us, and we expect to deliver additional systems within the pilot program this year, which we will closely monitor in the field. I’d also like to provide an update on our direct-to-fabric business and expand on the new product announcement we made at FESPA. First our direct-to-fabric business as a strategic pillar of our digital transformation strategy continues to drive revenue diversification for us across our product mix, application served and geographical concentrations. This quarter, we saw in direct-to-fabric production a strong double-digit growth year-over-year in ink and impression. I am also happy to report that we are continuing to progress with our key customer in China in the footwear market, which could be a remarkable opportunity for Kornit in the medium-term.
Lastly, we are in the middle of our beta testing with few customers for the ATLAS MAX plus. The initial feedback is very encouraging, both on the increase in productivity of around 15% to 20% and the improvements in production consistency, flexibility and additional applications. One of these new applications is the new Max Transfer solution, which we have announced at FESPA in March. The solution brings the same level of consistency, quality, and sustainability that our customers have come to expect from Kornit products and adds placement versatility for certain incremental applications that our customers seek to address. We see this as a complementary solution to our customers, which will expand our addressable impressions. We received encouraging feedback on the solution, and we will continue to share updates with you as we work through the developments.
So in conclusion, macroeconomic conditions remain challenging to start the year as expected. However, we saw several positive signs that our new products and models are resonating well with both new and existing customers. Moving forward we’re dedicating our attention and resources to ensuring that we have put all the necessary pieces in place to deliver on our mission of transitioning long-run production to sustainable on-demand production globally. Now, let me turn the call over to Lauri for a closer look at our first quarter financials and the second quarter guidance. Lauri.
Lauri Hanover: Thank you, Ronen and good day to everyone. First quarter revenues were $43.8 million, within the guidance range we provided in February. This quarter consumables grew year-over-year, which was again more than offset by a decline in systems and service sales as expected. Moving to margins. First quarter non-GAAP gross margin was 37.5%, compared with 30.2% in the same period last year. The year-over-year improvement is primarily attributable to a better mix between comparatively higher margin consumables and systems and lower fixed costs due to our restructuring efforts. Looking at operating expenses. Total first quarter non-GAAP operating expenses were $27.1 million, a decrease of $5.3 million, or 16.6% from the $32.4 million in the same period last year.
This reduction in expenses reflects our cost savings and restructuring initiatives. As discussed in our previous call we took decisive action to align our cost structure with our revenue expectations and to enable operating leverage when we return to growth. Included in this restructuring was a meaningful workforce reduction, a consolidation of facilities and a phasing out of our legacy platforms. As such, we incurred additional restructuring charges of $1.7 million for the first quarter as expected. We continue to expect this restructuring plan to save approximately $20 million in expenses during 2024 versus the full year 2023. First quarter adjusted EBITDA loss of $7.8 million was significantly better than the adjusted EBITDA loss of $14.7 million in the same period last year.
Adjusted EBITDA margin for the first quarter of 2024 was negative 17.9% near the top-end of the guidance range we provided in February again reflecting a meaningful improvement year-over-year. Our cash balance, including bank deposits and marketable securities at quarter end was approximately $551 million. This quarter we generated positive cash flow from operations of $4 million. This achievement was primarily the result of a strong collections focus and it underscores our commitment to returning to positive operating cash flow in 2024. As Ronen highlighted, we are encouraged by the response to-date of the AIC offering. There is both a higher level of engagement with targeted customers and a higher ratio of sales closed with the AIC model versus our expectations.
Also, the qualified opportunities now in discussion appear likely to convert to orders in a similarly higher proportion, as we have seen in Q1. Should this be the case it will reduce our revenues in the short-term meaning the second half of this year. We’re committed to tightly monitoring, managing and learning from this pilot program, due in large part to the short-term impact on revenues and cash. Moving on to our share repurchase program. For the first quarter of 2024, we repurchased approximately 424,000 shares spending an aggregate amount of $7.9 million. The average price paid per share net of fees was $18.55. Approximately $11.4 million remains available for share repurchases under our previously authorized program. Turning to second quarter guidance.
We currently expect revenues for the second quarter of 2024 to be between $47 million and $52 million, and adjusted EBITDA margin to be in the negative 10% to 0% 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?
Ronen Samuel: Thank you, Lauri. Operator, we are now ready to take questions from the audience.
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