Executive Summary / Key Takeaways

• Kornit Digital is undergoing a significant strategic transformation, shifting from a niche provider of customized digital textile printing to a leader in mass-scale, on-demand production, driven by its innovative technology and disruptive All-Inclusive Click (AIC) business model.
• The company achieved a notable turnaround in 2024, returning to full-year adjusted EBITDA profitability and generating substantial operating cash flow, laying a resilient foundation for future growth.
• Key technological differentiators like the Apollo platform and MAX series, combined with the AIC model, are enabling Kornit to penetrate the vast analog screen printing market and expand into new verticals such as footwear and home decor.
• Despite near-term headwinds including soft consumer sentiment, temporary customer inventory destocking, and longer sales cycles for new market penetration, Kornit anticipates stronger performance in the second half of 2025, with expanding Annual Recurring Revenue (ARR) and a clear path to meaningful growth in 2026.
• Kornit's strong balance sheet and specialized, sustainable technology provide a competitive moat, positioning it to capitalize on urgent industry trends towards localized, agile, and eco-friendly manufacturing.

Driving the Digital Revolution in Textiles

Kornit Digital Ltd. ($KRNT), established in 2002 and headquartered in Rosh HaAyin, Israel, stands at the forefront of a profound transformation within the fashion, apparel, and home decor segments of the textile industry. The global apparel market, historically optimized for low-cost, offshore bulk production, is now grappling with evolving consumer demands for instant gratification, endless variety, fast delivery, and sustainability. This paradigm shift necessitates a move towards on-demand, nearshore, and onshore manufacturing, a transition Kornit is uniquely positioned to lead. The company's overarching strategy is to drive impression growth across its customized design installed base while aggressively accelerating its penetration into the screen printing market by converting analog workflows to digital and capturing net new impressions in bulk apparel.

The competitive landscape for digital textile printing is dynamic, featuring established players like Epson, HP Inc. , and Canon (CAJ). While these competitors offer broad inkjet printing solutions, Kornit differentiates itself through specialized, end-to-end solutions tailored for textile applications. Kornit's focus on user-friendly software and consumables, particularly for on-demand printing, provides a distinct advantage. Its strong balance sheet further enables disruptive business models like the All-Inclusive Click (AIC), which competitors, given their financial positions, may find difficult to replicate at scale.

Technological Edge: The Power of Apollo, MAX, and NeoPigment

Kornit's core competitive advantage is rooted in its differentiated technology, which offers tangible and quantifiable benefits over traditional and alternative digital printing methods. At the heart of its innovation is the NeoPigment ink technology. This proprietary ink enables vibrant, durable prints across a wide range of fabrics with a significantly reduced environmental footprint, eliminating the need for pre-treatment and post-treatment processes that consume vast amounts of water and energy. This translates into superior sustainability, lower operational costs for customers, and a stronger competitive moat for Kornit, allowing for premium pricing and fostering customer loyalty through recurring consumable revenue.

The Apollo platform represents a "game changer" for mass-scale digital production. Designed to penetrate the analog screen printing market, Apollo delivers unmatched productivity, automation, and consistency. It is capable of running jobs of thousands of units, a volume previously unreachable for digital solutions. Management indicates that a single Apollo system can replace at least three carousel screen presses and enable customers to reduce their headcount by 15 to 20 employees, delivering substantial operational simplicity and cost savings. The Apollo's performance during the Q4 2024 peak season exceeded expectations, reinforcing its role in enabling high-volume digital production.

Complementing Apollo is the MAX Technology Portfolio, including Atlas MAX, Atlas MAX Plus, and Atlas MAX Poly for direct-to-garment (DTG), and Presto MAX for roll-to-roll applications. Most of Kornit's installed base has already been upgraded to Atlas MAX, with upgrades to Atlas MAX Plus currently underway. The Atlas MAX Plus, for instance, increases productivity up to 150 garments per hour. The new Vivido Ink for roll-to-roll applications is receiving excellent feedback, improving print quality and hand-feel, further enhancing Kornit's offerings in the fashion, footwear, and home decor segments. These technological advancements collectively contribute to Kornit's competitive moat by offering superior print quality, unmatched agility, and a better total cost of ownership, directly impacting financial performance through higher average selling prices (ASPs), lower customer operating costs, and improved margins.

Disrupting the Business Model: The All-Inclusive Click Advantage

Kornit's All-Inclusive Click (AIC) model is a "printing as a service" approach that is fundamentally disrupting the hardware-centric industry. This model bundles systems, consumables, and services into a predictable cost-per-impression structure, effectively lowering the barrier to entry for high-volume manufacturers by eliminating the need for significant upfront capital investment. This aligns Kornit's success directly with its customers' production volumes and operational efficiency.

The AIC model is gaining meaningful traction. Annual Recurring Revenue (ARR) from AIC contracts reached $14.5 million by the end of Q1 2025 and further increased by $4 million to approximately $19 million in Q2 2025. This growth reflects progress in building a more predictable and resilient revenue stream. While ARR is tracking below internal expectations due to a slower-than-anticipated rollout and the internal balancing act between CapEx and AIC deals, the company expects ARR exiting 2025 to be "meaningful for the beginning of 2026," setting the stage for substantial growth. Approximately 75% of new DTG business, encompassing Apollo and Atlas MAX systems, is expected to be on the AIC model. New customers, particularly those transitioning from analog screen printing, favor AIC for its predictable cost structure and reduced risk, while existing digital customers may opt for CapEx if they can operationalize efficiently. This model is being adapted to suit various customer operational models, including those running single shifts, and to incentivize longer production runs with lower costs per impression.

Financial Performance: A Return to Profitability and Strategic Investments

Kornit Digital demonstrated a significant financial turnaround in 2024, achieving positive adjusted EBITDA of $0.3 million for the full year, a substantial improvement from negative $30.9 million in 2023. This was driven by aggressive restructuring initiatives in late 2023 and early 2024, which reduced non-GAAP operating expenses by approximately 14% to $109.8 million for the full year 2024.

In the first half of 2025, Kornit reported revenues of $46.5 million in Q1 and $49.8 million in Q2, representing a modest year-over-year growth of 2% in Q2 and 5% for the first half. Q2 gross margin stood at 46.3%, with an adjusted EBITDA margin of negative 2.3%, an improvement from negative 1.6% in the prior year. Product revenues saw growth, largely attributable to a doubling of system sales year-over-year and the continued expansion of the AIC program. However, service and consumable revenues were softer than expected in Q2 2025. Service revenue declined due to fewer Atlas MAX upgrades compared to a strong 2024 period, while consumable revenues were impacted by key customers drawing down inventory that had been built up in late 2023 and early 2024 due to geopolitical tensions. This inventory destocking is expected to normalize in the second half of 2025.

The company also generated robust operating cash flow of $48.7 million in 2024, compared to negative $34.7 million in 2023, underscoring its disciplined focus on cost control and working capital improvements.

Kornit maintains a robust balance sheet with $489 million in cash, bank deposits, and marketable securities as of Q2 2025. The company completed its $100 million accelerated share repurchase program in Q2 2025, having repurchased 6.7 million shares for $164.8 million since 2023 at an average price of $24.54 per share. This reflects a commitment to shareholder value while balancing organic investments in the AIC program and potential strategic acquisitions.

Expanding Horizons: New Verticals and Strategic Partnerships

Kornit is actively expanding its market reach beyond its traditional customized design segment into new high-value verticals. The screen printing market, a critical pillar of its long-term growth plan, represents a massive addressable opportunity of 5 billion impressions for runs under 1,000 units, significantly larger than the 220 million impressions currently produced by Kornit's customers. The company is making strong progress here, with new customers increasingly adopting Apollo and Atlas MAX Plus systems under the AIC model. Notable examples include Promos, one of the largest screen printers in the U.S., which expanded from one Atlas MAX Plus to three and added an Apollo in Q2, and Flashship Print, a net new digital customer, adopting one Apollo and two Atlas MAX Plus systems under AIC.

Beyond apparel, Kornit is making meaningful progress in the footwear market, with additional systems installed at key customers across China, Vietnam, and Europe for mass-market sports footwear production. One customer in Asia is already in full production for major global brands and plans additional system deployments in H1 2025. The company also penetrated the home decor market in H2 2024, recognizing it as a significant opportunity due to the pigment technology's resistance and durability, which aligns with the trend for unique and short runs.

Strategic partnerships are further strengthening Kornit's ecosystem. A partnership with MAS ACME, a U.S. subsidiary of MAS Holdings, leverages Kornit technology for short-run replenishment, enabling faster response times for major fashion and retail brands. The collaboration with Gooten, a leading print-on-demand platform, connects it to Kornit's Global Fulfillment Network (GFN), routing high-quality orders to over 250 production locations globally. Kornit also signed a strategic development agreement with one of the world's top sports brands to co-develop a proprietary application leveraging its unique functional technology, signaling future expansion into entirely new high-value markets.

Competitive Positioning: Differentiating in a Dynamic Market

Kornit's competitive standing is defined by its specialization, technological leadership, and innovative business model. Compared to diversified giants like Epson and HP Inc. (HPQ), Kornit's focused approach on digital textile printing allows for deeper expertise and tailored solutions. While Epson and HP offer broader inkjet solutions, Kornit's proprietary NeoPigment inks and specialized platforms like Apollo provide superior performance in textile-specific applications, potentially offering greater efficiency in color accuracy and waste reduction. This specialization enables Kornit to achieve higher gross margins in its core areas compared to the broader portfolios of its rivals.

The All-Inclusive Click (AIC) model is a significant differentiator. Competitors have not yet introduced a scalable "printing as a service" model, largely due to the substantial balance sheet strength required to finance the equipment on lease. Kornit's robust cash position allows it to offer this risk-reducing model, which is particularly attractive to new digital adopters from the analog screen printing world. This strategic move helps Kornit capture market share that might otherwise be hesitant to make large capital expenditures.

However, Kornit's smaller scale compared to its larger rivals presents certain vulnerabilities. Larger competitors like Epson and HP may benefit from faster innovation cycles due to their extensive R&D budgets and broader market reach, potentially leading to more robust cash flow generation and higher returns on invested capital. Kornit's customer acquisition costs might be higher in certain segments, and its reliance on specific suppliers for components could expose it to supply chain disruptions, though the company has mitigation strategies in place. Despite these challenges, Kornit's strategic focus on customer success, account management, and recurring revenue growth, coupled with its technological advantages, positions it to maintain and expand its market share in the rapidly evolving textile industry.

Outlook and Risks: Paving the Path for Future Growth

Kornit's management anticipates a stronger second half of 2025, with modest top-line growth in the low single digits, further expansion of the ARR base, and a setup for meaningful growth in 2026. The company maintains its target for full-year adjusted EBITDA profitability and positive cash flow from operations in 2025. Key to this outlook is the planned delivery of 30 Apollo systems in 2025, doubling the 2024 figure, with a strong pipeline and good visibility, particularly for shipments in Q3 and early Q4 in preparation for the peak season. The ARR from AIC contracts is expected to grow meaningfully by year-end, providing a stable revenue base for 2026.

Several risks could impact this outlook. Soft consumer sentiment continues to affect customer appetite for new capital investment. The temporary destocking of ink inventory by key customers, which impacted Q2 2025 consumable revenues, is expected to normalize in the second half of the year, but its duration remains a factor. Longer sales cycles for Apollo systems, particularly with net new customers from the traditional screen market, could delay revenue recognition. The slower-than-anticipated rollout and adoption of the AIC model, while improving, requires continued internal and external education. Furthermore, the bulk apparel segment's shift from analog to digital is a measured process that takes time. Geopolitical factors, including a recently announced 15% tariff on products originating from Israel, are being actively managed with mitigation strategies, though a material financial effect is not currently expected.

Conclusion

Kornit Digital is in the midst of a profound and profitable transformation, strategically pivoting to capture the immense opportunity presented by the apparel industry's urgent shift to on-demand, digital production. Its technological leadership, exemplified by the Apollo platform and MAX series, combined with the disruptive All-Inclusive Click (AIC) business model, provides a compelling investment thesis. While the company faces near-term execution challenges and macroeconomic uncertainties, its return to profitability in 2024, robust balance sheet, and clear strategic roadmap for 2025 and beyond underscore its resilience and potential. The expansion into new verticals and the growing base of recurring revenue from AIC contracts position Kornit to lead the digitization of the screen printing market, driving meaningful growth and enhanced profitability in the coming years. The company's ability to execute on its Apollo delivery targets and accelerate AIC adoption will be critical indicators of its continued success in shaping the future of textile manufacturing.