Kornit Digital(KRNT) - 2023 Q4 - Earnings Call Transcript

Financial Data and Key Metrics - Q4 2023 revenue was $56 6 million within the guidance range with double-digit year-over-year growth in consumable sales offset by a decline in systems and services sales [43] - Full-year 2023 revenue was$ 219 8 million compared to $271 5 million in 2022 primarily due to lower system sales [76] - Q4 2023 non-GAAP gross margin improved to 48 6% from 36 4% in the same period last year driven by higher-margin consumables [70] - Full-year 2023 non-GAAP gross margin was 38 4% slightly up from 38 2% in 2022 due to higher consumables volumes and ASPs and growth in services [44] - Q4 2023 adjusted EBITDA margin was 0 3% at the high end of guidance marking an improvement year-over-year and sequentially [59] - Full-year 2023 adjusted EBITDA loss was$ 30 9 million with a margin of -14% compared to -11 3% in 2022 due to lower revenues [59] - Q1 2024 revenue guidance is $43-48 million with adjusted EBITDA margin expected to be -16% to -26% [3] - The company expects modest revenue growth and adjusted EBITDA profitability for full-year 2024 [75] Business Line Data and Key Metrics - Consumables sales showed double-digit year-over-year growth in Q4 2023 indicating improved system utilization [66] - System sales were weak in Q4 2023 mainly due to the macro environment [38] - Service revenue grew strongly in 2023 and is expected to continue growing in 2024 [38] - The Apollo platform represents a new incremental market in bulk apparel production with strong customer interest and a robust pipeline for 2024 and beyond [78][79] - The company is piloting a new recurring revenue model for the Apollo platform shifting from CapEx to OpEx which is expected to generate around$ 1 million per system per year [41][15] Market Data and Key Metrics - The direct-to-fabric market represents a significant long-term growth opportunity especially with global brands and retailers moving to sustainable production [20] - The company has expanded into new geographies such as India Latin America and other key textile production hubs [19] - The MAX technology has become the industry standard for quality with strong customer adoption and upgrades [39] - The company is seeing growth in new market segments such as bulk apparel athleisure fashion home decor technical and footwear [19] Company Strategy and Industry Competition - The company is focused on transitioning the market from analog to digital production with innovative solutions like the Apollo platform and MAX technology [57] - Key objectives include strengthening the product portfolio broadening applications diversifying the customer base and optimizing the operating model [63] - The company is leveraging its cash position for organic and inorganic growth opportunities including share repurchases and potential M&A [26] - The recurring revenue model for the Apollo platform is expected to create more predictability and visibility for both the company and its customers [15] Management Commentary on Operating Environment and Future Outlook - The consumer environment remains uncertain impacting customer purchasing appetite and visibility [2] - The company expects a challenging macro environment in 2024 similar to 2023 [2] - Despite macroeconomic headwinds the company is focused on returning to profitability and cash flow generation in 2024 [69] - The company sees strong potential for growth in the direct-to-fabric market and is investing in new technologies and business models to capture this opportunity [20][41] Other Important Information - The company took a $19 1 million restructuring charge in Q4 2023 to align its cost structure with revenue expectations and enable operating leverage [45] - The restructuring plan is expected to save approximately$ 20 million in operating expenses in 2024 [16] - The company repurchased 2 7 million shares in 2023 spending $55 8 million and plans to continue repurchasing shares in Q1 2024 [46] - The company has a strong cash position with$ 556 million in cash and marketable securities at the end of Q4 2023 [65] Q&A Session Summary Question: Can you confirm if the beta units for Apollo will be recognized as revenue in Q1? [5] - Answer: Revenue recognition for the Apollo beta units will be split over the years with the recurring revenue model and some revenue will be recognized in Q1 [85] Question: What is the outlook for Apollo's contribution in 2024? [5] - Answer: Apollo is expected to contribute meaningfully in 2024 with more revenue skewed towards the second half of the year [29][103] Question: What is the update on Atlas MAX upgrades? [7] - Answer: The company had a strong year for MAX upgrades in 2023 and expects continued upgrades in 2024 with the introduction of the Atlas MAX plus [7][8] Question: What is the catalyst for unlocking customer spending? [94] - Answer: The recurring revenue model and the need for sustainable production are key catalysts for unlocking customer spending [94][95] Question: What is the outlook for 2024 revenue growth? [97] - Answer: The company expects modest revenue growth in 2024 driven by ink services and systems with higher visibility on ink and services [113] Question: What is the potential for the recurring revenue model in other products? [114] - Answer: The company is starting with the Apollo platform and will consider leveraging the model to other products and segments if successful [114]