Prepared remarks
Greetings and welcome to Kornit Digital's Second Quarter 2026 Earnings Conference Call. As a reminder, this call is being recorded. I would now like to turn the conference over to Andy Backman, Chief Capital Markets Officer to Kornit Digital. Mr. Backman, please go ahead.
Thank you, operator. Good day, everyone, and welcome to Kornit Digital's Second Quarter 2026 Earnings Conference Call. With me today are Ronen Samuel, Kornit's Chief Executive Officer; and Assaf Zipori, our Chief Financial Officer. For today's call, Ronen will share his overall commentary on the second quarter followed by Assaf, who will review our results and provide guidance for our third quarter before we open up the call for Q&A. Before we begin, I would like to remind you that forward-looking statements within the meaning of the U.S. securities laws will be made on this call. These statements involve known and unknown risks and uncertainties. I encourage you to review the company's filings with the SEC, including our annual report on Form 20-F, which identifies specific risk factors that could cause actual results to differ materially. Additionally, we will reference certain non-GAAP financial measures. Reconciliations to the most comparable GAAP measures can be found in the earnings release published today and posted at ir.kornit.com. At this time, I would like to turn the call over to Ronen.
Thanks, Andy, and good day, everyone. Thank you for joining us today. The second quarter marked another important step in Kornit's transformation. We delivered revenue of $55.3 million, above the high end of our guidance; generated positive adjusted EBITDA, also above the high end of our guidance range; and delivered positive operating cash flow for the 11th consecutive quarter. We also increased annual recurring revenue by $7 million bringing total ARR to $33.8 million representing 79% year-over-year growth while revenue from All-Inclusive Click increased by 112% compared with the prior year period. In addition, trailing 12-month impressions grew 15% reflecting higher production volume across our installed base. We continue to see healthy growth in system deliveries, expanding our production footprint and customer base. Approximately 40% of our system sales during the quarter came from new customers demonstrating our continued ability to expand the market while growing alongside existing customers. Importantly, approximately 60% of system sales in both Q2 and the first half of 2026 were to traditional screen printers, providing clear evidence of the momentum we are seeing in the transition from analog to digital production. These results reinforce the progress we are making against our strategy. We are delivering revenue growth while significantly expanding annual recurring revenue, improving the quality of our growth and giving us greater visibility into the future. A key driver of this progress is our All-Inclusive Click model, which is increasing the share of the business built around long-term customer commitments. Every new All-Inclusive Click agreement creates a long-term partnership, typically built around a five-year commitment for our customers. AIC lowers upfront investment and provides the flexibility to scale production as their business grows. As a result, we are seeing higher system utilization, stronger customer engagement and deeper adoption of the Kornit platform. For Kornit, AIC strengthens customer relationships and aligns our economics directly with our customers' success. As our customers grow, we grow with them. What gives us confidence today is not simply the financial performance we delivered this quarter. It is what we are hearing from customers around the world. And one thing is becoming increasingly clear: the economics of manufacturing are changing. Brands, retailers and traditional screen printers are looking for greater flexibility, shorter production runs, faster response times and manufacturing closer to the point of demand while inventory risk and labor shortages continue to pressure traditional manufacturing models. We are seeing this transition particularly clearly among traditional screen printers where digital is increasingly replacing screen production across a growing range of applications. These are not short-term trends. They represent a structural shift in how our industry will manufacture over the coming decade. Having spent more than three decades in this industry, I believe we are witnessing one of the most significant manufacturing transitions of my career. Customers are no longer asking whether digital production has a role. They are asking how quickly they can shift from analog to digital. That's exactly what we have been preparing for. For years, we have invested in industrial production systems like Apollo, Atlas MATRIX and Presto MAX PLUS while expanding into software, AI and automation. As the industry moves towards digital manufacturing, Kornit is positioned as a manufacturing platform, bringing together industrial production systems, software, AI and automation into one integrated solution. We are no longer simply helping customers buy better printing systems. We are helping them build smarter, more profitable manufacturing businesses. Our ambition isn't simply to replace analog printing. It's to make on-demand digital manufacturing the new standard for apparel production. Our customers are the clearest proof that this transition is already underway. Let me share a few examples. Jerry Leigh, one of the leading screen printers in the U.S. and a new customer to Kornit, recently invested in two Apollo systems and two Atlas MAX platforms illustrating how traditional screen printers are transitioning production from analog to digital. Another great example is Printful, one of our largest and most strategic global customers. Already operating a large fleet of Atlas MAX systems, they recently added two Apollo systems reflecting the value they are realizing from the Kornit platform and their continued confidence in Kornit. Shirt Monkey, one of the U.K.'s leading print-on-demand providers, expanded from Atlas MAX to both Apollo and Atlas MATRIX through our All-Inclusive Click model, demonstrating how AIC can accelerate digital adoption with lower upfront investment. Finally, SNQS, a leading screen printer in India, expanded from Atlas MAX to Apollo within just one year to support higher-volume screen replacement, demonstrating how mainstream screen printers are increasingly scaling digital production as they transition more of their core production from analog to digital. While these customers operate in different markets and applications, they all point to the same conclusion. Manufacturers are increasingly choosing digital production because it delivers a smarter, more flexible and more profitable manufacturing model. As we look ahead, we enter the second half of the year with stronger backlog visibility, a healthy pipeline and continued momentum across both new customer acquisition and expansion within our installed base. Based on what we see today, we expect revenue in the second half of 2026 to be approximately 15% higher than the first half of the year, positioning us to deliver high single-digit revenue growth for the full year while continuing to improve profitability and generate positive operating cash flow. Before I conclude, I'd like to leave you with one final perspective. Many people still think of Kornit primarily as a capital equipment company. The reality today is quite different. Approximately 80% of our revenue is recurring or highly recurring in nature, generated through annual recurring revenue, services and software. This fundamentally changes our business model, making it more resilient and giving us greater visibility into future revenues. At the same time, the industry's accelerating shift from analog to digital manufacturing represents a significant structural growth opportunity for Kornit. Combined with a highly recurring business model and market-leading technology, this gives us confidence in our ability to create sustainable long-term value for our customers and shareholders. I'd like to thank our customers for their continued trust, our partners for their collaboration, our employees for their relentless commitment and execution and our shareholders for their continued support. With that, let me turn the call over to Assaf.
Thank you, Ronen, and good day, everyone. Let me walk you through our second quarter financial results and the continued progress we're making across the business. Second quarter revenue was $55.3 million, growing 11.2% year-over-year and exceeding the upper end of our guidance range. Services revenue increased 34.7% while product revenue grew 4.3%, both benefiting from higher customer activity and continued expansion in the utilization of our installed systems. Annual recurring revenue reached $33.8 million representing 79% growth year-over-year and 26% sequentially reflecting continued momentum in the adoption of our All-Inclusive Click model. Importantly, ARR represents only the next 12 months of minimum commitments under our AIC agreements. With these agreements typically spanning five years, they represent approximately $142 million in total contract value providing strong visibility into future revenues. AIC delivered another strong quarter with revenue increasing 112% year-over-year and 32.7% sequentially. The model continues to drive higher system utilization while closely aligning our economics with our customers' success. As Ronen mentioned, approximately 80% of our revenue today is recurring or highly recurring in nature generated through ARR, ink, services and software. This provides greater resilience and visibility while supporting sustainable, profitable growth. Now turning to margins. Second quarter non-GAAP gross margin was 47.4%, an improvement of 110 basis points compared with the prior year period. The quarter included a net tariff-related benefit of approximately $830,000 driven by a $2 million tariff refund during the quarter. Underlying gross margin performance continued to improve sequentially reflecting higher customer activity, increased platform utilization and the continued evolution of our revenue mix. Turning to operating expenses. Second quarter non-GAAP operating expenses were $28.8 million, an increase of $2.1 million year-over-year. The increase primarily reflects expenses associated with our highly successful Konnections conference, which supported customer engagement and commercial momentum, together with approximately $1.9 million of foreign exchange headwinds. Adjusted EBITDA was $0.3 million compared with a loss of $1.2 million in the second quarter of 2025. Adjusted EBITDA margins improved 290 basis points year-over-year to 0.6%, exceeding the upper end of our guidance range. Turning to cash and our balance sheet. We ended the quarter with approximately $451 million in cash, bank deposits and marketable securities. Operating cash flow was approximately $8.5 million, marking our 11th consecutive quarter of positive operating cash flow and reflecting continued working capital discipline. Our balance sheet remains a significant strategic asset. It provides the flexibility to support continued investment in our AIC program, fund inventory to meet anticipated customer demand, invest in product innovation across our portfolio and pursue targeted acquisitions that strengthen our platform strategy with PrintFactory, which closed in the second quarter, serving as the most recent example. During the quarter, we also invested $5.4 million under our share repurchase program. Since the program began in 2023, we have repurchased approximately 9.5 million shares for about $205 million with approximately $60 million remaining under the current authorization. We remain committed to disciplined capital allocation strategy, balancing investment in long-term growth with returning capital to shareholders while maintaining strong financial flexibility. Turning to guidance. For the third quarter of 2026, we expect revenue between $55 million and $60 million with adjusted EBITDA margin between breakeven and 3%. Looking beyond the quarter, we expect second half 2026 revenue to be approximately 15% higher than the first half supporting high single-digit revenue growth for the full year, an improvement from the low single-digit growth we anticipated entering the year. Our outlook reflects continued confidence in customer demand and the strength of our commercial pipeline. As we continue to scale the business, our financial priorities remain clear: driving profitable revenue growth, improving margins, generating positive operating cash flow and investing with discipline to create sustainable long-term value for our shareholders. With that, let me turn the call back to Ronen.
Thank you, Assaf. Operator, by that, we are ready to get questions from the audience.
Questions and answers
The operator provided instructions on how to ask questions. Our first question comes from the line of Greg Palm with Craig-Hallum.
Congrats on the results. It definitely seems like things are stepping up here. Ronen, could you talk about what your view is and what's happened in the last few months year-to-date, this acceleration, and how the company stands today versus a few years ago? What's fundamentally different?
Yes. There are a lot of changes. What we clearly see is that the strategy we implemented starting two to two-and-a-half years ago is starting to deliver. We're delivering growth in revenue, in the top line; but significantly expanding our ARR, which is providing us much stronger visibility into the future. Moving into a recurring business model, as I mentioned, provides more predictability and resilience. We reached $33.8 million of ARR and this represents 79% year-over-year growth. We ended this quarter with an additional $7 million in ARR with AIC revenue growing by $6.5 million, which is growth of 112%. When we look at it, we need to understand that this ARR spans multiple years, typically a five-year model, which brings us to a total contractual value of $142 million. We're changing the business model of the company. Today, about 80% of our revenue is recurring or recurring-like revenue, which again provides visibility, predictability and resilience to the company. So from a business model perspective, the recurring mix is changing a lot of how we look at the future. But even more fundamentally, let's look at the technology we brought to the market in the last two years. Starting with Apollo, which is scaling up and really focusing on entering the screen market and bringing huge volume to our customers and to Kornit. The MATRIX, we introduced at the beginning of Q2 and we see massive adoption of the MATRIX getting into new markets and new applications like polyester. We are starting to do upgrades for the installed base. We are bringing automation, AI and software with PrintFactory. Our wall-to-wall business is gaining momentum. So from a technology perspective, we are a totally different company today and we're looking at ourselves as a manufacturing platform rather than just selling boxes. Look at the financial discipline. This is the 11th quarter of positive operating cash flow. There is a lot of discipline in the way we are executing and bringing the company back to profitability and to growth. And I think the most important thing is the addressable market. If you think about Kornit three years ago, Kornit was mainly focused on the customized design market, which is a very lucrative market but is a niche within the overall apparel market. It's continued to grow and Kornit continued to lead this market. But moving into the screen market, the bulk apparel market, is the biggest move Kornit has made. As we see today, 60% of the systems we delivered in Q2 and overall in H1 are going to the screen market, screen replacement, and we see those customers running longer jobs and scaling very fast. Many of them are leveraging the AIC model. So overall, we are a totally different company today and we are very pleased with the changes we have made.
I appreciate that color. A lot of us have been waiting for some time for this acceleration from analog to digital and it seems like it's finally starting to happen. Can you help us understand whether that is being driven more by the traditional screen printing industry, or how much is actually driven by your traditional customer base that is helping accelerate that shift?
It is being driven mainly by new customers we are penetrating in the screen market although we see growth within our installed base as well. Some customers that were focused on customized design now see the opportunity to penetrate the bulk apparel market with our technology, and some screen printers are leveraging digital technology to go after customized design. So it's a mixed bag. Several things are happening in the screen market. First, the market itself is changing. I'm traveling a lot, meeting many brands and screen printers; they're all talking about the same needs: agility, flexibility, faster turnaround. Run lengths are becoming much shorter. They need onshore or nearshore production and this is a massive change. Another big change is labor: labor is difficult to retain and find, and it is expensive, so automation is very important. These are major drivers for screen printers and anyone dealing with bulk apparel looking for new technology. Kornit has developed technology to meet the needs of the screen market. With the MAX technology and Apollo, we reached the level to meet quality, flexibility and total cost of ownership and deliver automation. Now, by bringing workflow together with PrintFactory and adding some AI capability into production, we're helping customers switch faster to digital. Another important accelerator is the AIC model, which reduces upfront capital investment for screen printers that are not used to investing millions of dollars in equipment. They now have predictability and know how much they need to pay per impression. Digital is now competitive on total cost of ownership per impression, even for longer runs. We see main screen printers in places you might not expect, like India and Sri Lanka, moving to digital and leveraging Kornit technology. The fact that 60% of our system sales went to this market speaks for itself. We are very pleased. Another benefit is that many of our customers are using our technology for much longer runs and scaling rapidly. New customers like SNQS and Jerry Leigh are scaling very fast leveraging the All-Inclusive Click model.
The operator provided instructions on how to ask questions. Our next question comes from the line of Erik Woodring with Morgan Stanley.
Congrats on the results. Ronen, two related questions. First, as you think about the 15% half-on-half growth into the second half, can you help us better understand where that growth will primarily come from — whether that's upgrades, system sales, consumables — and how that might differ from the first half? And then a quick follow-up.
First, Kornit has seasonality and H2 is typically stronger than H1. Many of our customers have peak season in late Q3 and Q4. Now, in terms of visibility, we are entering H2 with much better visibility. As I mentioned, 80% of our revenue is recurring or recurring-like, so we have very good visibility to more than 80% of our revenue already. We are entering with a strong pipeline and some orders already in hand for Q3 and Q4, and much of the growth is coming from systems. Some systems are CapEx and some are under the AIC model. We have good line of sight on AIC. AIC revenue is a major growth engine in H2 versus H1. Also, system sales drive consumables, and the main growth in H2 is consumables, specifically ink. So not only do we expect H2 to grow by about 15% versus H1, but we expect a significant expansion in gross margin and profitability because of consumables.
Thanks. And as a quick follow-up: you've seen four quarters of accelerating trailing 12-month impressions growth. Can you provide more detail on what you're hearing from customers about end demand? What could be causing this acceleration? Is it an industry dynamic or something unique to Kornit?
Overall apparel market growth is mixed, but within the apparel market many jobs are getting shorter, there are more SKUs, and time to market is more important. This is driving faster growth in digital, which benefits on-demand and onshore production. There are regional differences: we see very strong growth in the Americas, particularly North America. We also see differences by customer type: strategic customers are growing strongly while some long-tail customers may be declining. Overall, the main message is that a significant portion of the apparel market is moving to short runs and on-demand production, and digital is growing faster as a result. We believe Kornit is gaining share in that shift.
Our next question comes from the line of Brian Drab with William Blair.
Congratulations. First, on the 80% recurring figure: what's in the remaining 20%? Is that primarily outright system sales? And how have outright CapEx system sales influenced the first half and the second quarter results?
In the 20% non-recurring portion there are two main components: CapEx system sales and non-recurring services such as certain upgrades and one-time service items. Part of the services revenue is recurring, such as contracted spare parts and support, but some services are non-recurring. So product revenue includes consumables, AIC, and systems, and the CapEx portion sits within that product category.
Got it. In my model based on guidance and these factors, I assumed there wouldn't be significant outright CapEx system sales. I'm wondering if CapEx system sales were a bit higher than you expected or are they on track?
Units sold is higher than we expected at the beginning of the year. There's a split between systems sold on CapEx and those sold on AIC. AIC is growing strongly; Q2 ARR grew by $7 million, which reflects new systems sold on AIC. Part of product revenue is CapEx. We had a very good quarter in Q2 for CapEx and we believe that will continue in H2 as we have a strong pipeline. Overall, roughly speaking, the mix can be around 50% CapEx and 50% AIC on a quarter-to-quarter basis, but that mix changes between quarters.
I don't mean to focus too much on that point. Given the high level of recurring revenue and AIC growth, CapEx units would be upside if they materialize. One more: when you talk about success with traditional screen printers, is that mainly in the U.S., and is it driven in part by the need to change supply chain dynamics, or is it truly global demand for screen printer conversions?
It is absolutely global. We see strong adoption in Europe, India, Sri Lanka, Japan and the U.S. The same pressures—agility, flexibility, shorter runs, labor shortages and costs—are present globally. So the penetration into traditional screen printers is worldwide, not limited to the U.S.
And our final question comes from the line of Jim Ricchiuti with Needham & Company.
Congrats. A couple of questions. First, did you say what percentage of your new customer adds are screen printers? Does this now represent the majority of the new customer adds for Q2?
Yes. In Q2 and overall in H1, 60% of the systems we delivered, some on CapEx and some on AIC, went to screen printers. Many of those were net new customers.
You highlighted roll-to-roll business gaining momentum. Can you provide more color on progress in that area and what's driving the improvement in the direct-to-fabric part of the business?
We discussed roll-to-roll previously. 2025 was a slower year for roll-to-roll, and we've been focused on regaining momentum because we believe our technology is unique and the market is moving to digital, sustainability and on-demand production. Pigment is becoming necessary in many applications. We released Presto MAX PLUS with new capabilities to print on unique applications. Digital has advantages in footwear, home décor, technical and performance markets. Those are areas we focus on and our pipeline is getting stronger. I can hint that by the end of the year we will announce additional technology in this market. Overall, we are excited about the opportunity and we expect roll-to-roll to contribute to total revenue in H2 and to build a strong pipeline into 2027.
How would you characterize demand from your global strategic customer, including upgrades? How should we think about that customer's contribution to second half guidance?
I cannot provide specific details on this strategic customer's demand as that is their business. I can say that we started upgrades for their installed systems earlier this year, with large numbers of systems going through upgrades starting in Q1, continuing into H2 and likely into next year. We are working on multiple projects with our strategic customers and have excellent relationships, but I cannot share more specific information on that account.
Thank you. Mr. Samuel, we have no further questions. I will turn it back over to you for final remarks.
All right. Thank you, everyone, for joining us today. We are really pleased with the progress we delivered in Q2 and, more importantly, encouraged by what we see ahead. Our strategy is translating into results. Our recurring revenue base continued to grow and we are seeing increasing momentum as traditional screen production moves from analog to digital. We know there is still a lot of work ahead of us. Our focus remains on execution, customer success and continuing to build a stronger and more profitable Kornit. We'd like to thank our customers, our employees and our shareholders for your continued trust and support. We look forward to updating you again next quarter. Thank you and have a great day.
Great. Thank you, Ronen, and thank you, Assaf, and thank you all for joining us today. As always, please feel free to reach out to me directly should you have any follow-up questions. Shamal, if you could please give the replay instructions, I would appreciate it.
For replay instructions: you may contact or visit viavid.com for the replay information. We thank you for your participation. This concludes today's conference and you may disconnect your lines at this time. Thank you.