Greetings and welcome to Cornet 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 Cornet Digital. Mr. Backman, please go ahead.

Thank you, Operator. Good day, everyone, and welcome to Cornet 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. Ronen Samuel, Tomer Artzi, Ayelet Oryan Godard, Assaf Zipori

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 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 model increased by 112% compared with the peer-to-peer period. In addition, trailing 12-month impression grew 15%, reflecting higher production volume across our install base. Thank you very much. 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 up from 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 time, 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 shortened 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 transition 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 Metrics 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 Thank you very much. Thank you. Let me share a few examples. Jerry Lee, one of the leading screen printers in the US, 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. Shirt Monkey One of the UK leading print-on-demand providers expanded from Atlas Max to both Apollo and Atlas Metrics through our all-inclusive click model, demonstrating how AIC can accelerate digital adoption with lower upfront investment. Finally, SMQS, 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 stall 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 in services and software. This fundamentally changes our business model. Thank you very much. Assaf Zipori

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 1%. 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 CLIC 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. AAC 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, Inc., services, and software. This provides greater resilience and divisibility while supporting sustainable, profitable growth. Now, turning to margins. 2Q Non-Gap Gross Margins was 47.4%, an improvement of 110 basis points compared with the prior year period. The quarter included a net tariffs-related benefit of approximately $830,000 driven by a $2 million tariff refund during the quarter. Underlying gross margins performance continued to improve sequentially, reflecting higher customer activity, increased platform utilization, and the continued evolution of a 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 Connection 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 work in capital disciplines. 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 Print Factory, 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 authorizations. 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 and $60 million with adjusted EBITDA margin between break-even 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 and improvement from the low single-digit growth we anticipated entering the year. Ronen? Ronen?

Thank you, Assaf. Operator, by that we are ready to get questions from the audience.

Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 to remove yourself from the queue. For participants using speaker equipment, it may be necessary to pick up their handset before pressing the star keys. Our first question comes from the line of Greg Palm with Craig Hallam. Please proceed with your question.

Yeah, thanks for taking the questions and congrats on the results. Definitely seems like things are stepping up here. Ronen, just maybe talk to us a little bit about kind of what your view is and what's happened the last, you know, few months, year to date, this sort of acceleration and just Kind of thinking about the company where it stands today versus a few years ago, what's fundamentally different?

Yeah, thank you, Greg. Yeah, there's a lot of changes, and what we clearly see is that the strategy that we implemented actually starting two, two and a half years ago, starting to deliver. We're delivering growth in revenue in top line, but significantly expanding our ARR which are providing us much stronger visibility into the future. Moving into recurring business model, as I mentioned, providing more predictability but also resilience. We can see that as of today, we reach to $33.8 million of ARR, and this represents 79% year-over-year growth. We ended this quarter Q2 with additional $7 million in the AIC revenue or in ARR with AIC revenue going by $6.5 million, which is a growth of 112%. When we are looking at it, we need to understand that this ARR is multiple years, typically five years model. which bring us to a total contractual value of $142 million. We're changing totally the business model of the company. When we look at it today, we actually about 80% of our revenue is recurring or reoccurring revenues, which again, providing visibility and predictability and resilience to the company. So from a business model, from the recurring, it's changing a lot the way we are looking at the future. But even more fundamentally, let's look at the technology, what we've brought to the market in the last two years, starting with the Apollo that is scaling up and really focusing on entering to the screen market and bringing huge volume to our customers and to Kornit. The metrics, we just introduced it in the beginning of Q2, and we see a massive adoption of the metrics, getting into new markets, new applications like the poly. We are starting to do upgrades for the install base. We are bringing automation AI software with print factory. Our wall-to-wall business is gaining momentum. So from a technology perspective, we are a totally different company as of 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 in terms of bringing positive operating cash flow. So there's a lot of discipline in the way we are executing and bringing back the company to profitability and to go. And I think the most important thing is the addressable market. If you think about it, at Kornit three years ago, Kornit was mainly focused on the customized design market, which is a very lucrative market, but it's a niche market. and many more. are going to screen market, screen replacement. And we see those customers running not short run, really longer run jobs. And we see them scaling very fast. Many of them leveraging the AIC model. So overall, we are totally different companies as of today. And we are very happy with the changes that we've done.

Yeah, no, appreciate it. I know 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. But if you could kind of help us understand, is that being driven more by kind of that traditional screen printing industry, or how much is actually driven by kind of your traditional customer base that is actually kind of helping accelerate that shift itself?

Yeah, so it's been driven mainly from new customers that we are penetrating in the screen market, although we see also growth within our install base. Some of our customers that were dealing in customized design see the opportunity now leveraging our technology to penetrate also the bulk apparel. and we see also some screen printers that are leveraging digital technology to go after customized design. So it's a mixed bag, but we need to understand that a few things are happening in the screen market. First of all, is the market changing? Even without talking about the business model and the technology from Kornit's perspective, is the market changing? You know, I'm traveling a lot, meeting many brands, screen printers, they're all talking about the same thing. They need agility. They need flexibility. They need faster turnaround. The product in terms of run-less becoming much, much shorter. They needed on-shore or near-shore production. And this is a massive change. Another big change in this market is labor. First of all, labor is very difficult today to retain and to find, but it's also expensive. So automation is very, very important. So this is a major driver for screen printers and anyone that is dealing with bulk apparel that's looking for a new technology. Corit, for many years, was working for developing technologies that will meet the needs of the screen market. For the first time, when we introduced the MAX technology and the Apollo, we finally go to the level that we can meet the quality, the flexibility, the total cost of ownership, and the automation that brings with the Apollo. But think about it now that we are bringing the workflow together with Sprint Factory, Some AI capability as well into the production that really helping those customers to switch much faster into digital. Another thing that is very, very important and really accelerating the penetration of Kornit into the screen market is really the new model, the AIC model, which reduced the investment, the capital investment, up from capital investment from those screen printers that are not used to invest millions of dollars in equipment, but now they have predictability and they know exactly how much they need to pay per screen. Impression, Per Copy, and Digital now is very, very competitive and going after longer run in terms of the total cost of ownership of Per Impression. Other things, you know, in the end, what we need to look at in the screen market is about the customer. Again, few examples, but the example of Jerry Lee, SMQS in India, we see really mainstream customers In places that you wouldn't expect, like India, like Sri Lanka, like other places moving to digital and leveraging Kornit technology. And I gave a few examples. And the results to see 60% of our system cells going to the to this market speaks by itself. So we are very, very pleased. We also, another benefit that we see with our customers and many of them really when we're monitoring what they're printing, we see that they're starting to use our technology for much longer runs and they're scaling some of the new customers like SMQS, like Jerry Lee, Scaling very, very fast leveraging the all-inclusive Qlik model.

Okay. Thanks for all the thoughts. I appreciate that new TCV disclosure. I think that'll be really helpful. Thank you.

Great. Thanks, Greg. Next question, please.

Thank you. Our next question comes from the line of Eric Woodring with Morgan Stanley. Please proceed with your question.

Great. Good morning, guys. Thanks so much for taking my questions and congrats on the results. Ronen, maybe starting just with two related questions. First, as we think about the 15% half-on-half growth into the second half, can you help us just better understand where exactly that growth will primarily come from? Whether that's upgrades, system sales, consumables, and how that might be different from the first half. And then just a quick follow-up, please. Thank you.

Yeah, first of all, as you know very well, Cordis has a seasonality in our business, and always H2 is stronger than H1. Many of our customers have peak season during the end of Q3 and Q4, so traditionally H2 is stronger than H1. Now, in terms of visibility, we're entering H2 with much better visibility. As I mentioned, 80% of our revenue is recurring, reoccurring, so we have a very good visibility to more than 80% of our revenue already. We're entering with a very strong pipeline and some orders already in hand into Q3 and even in Q4. A lot of it is coming from systems. Some of the systems are CAPEX systems. Some of the systems are Thank you very much. Also, in terms of the system cells that we are seeing, and of course, the main growth in H2 is the consumable, is the ink. So overall, not only we expect H2 to grow by 15% versus H1, but we expect a significant expansion in our growth margin and specifically in our profitability because of the

Thank you, Ronen. And then maybe just a follow-up. You've seen four quarters of accelerating trailing 12-month impressions growth. Can you maybe just provide a bit more detail to us about what you're hearing from your customers in terms of their end demand? What could be causing this acceleration? Is it an industry dynamic? Is it maybe somewhat unique to Kornit? Maybe just elaborate a bit on why we're seeing accelerations in impressions growth. Thanks so much, guys.

Thank you. So, overall apparel market, and you can read the reports like anyone else, is not doing great. There's ups and downs. Thank you very much. to the growth of digital. So digital growing much, much faster because a lot of the move is moving to show trans on demand and on show production. There are differences between the different regions. We see very strong growth in North America region. This is the leading region in terms of the growth. We see also differences between types of customers. between the screen printers to the customized design, between strategic customers to the long-tail customers. We see strong growth in most of our strategic customers. They are growing very, very nicely. On the long-tail, we see customers that are declining. So it's all over the place, but overall, the main message that a lot of the apparel market is moving into short runs, on-demand, and by that overall digital enjoying from it and specifically Kornit, we believe we are gaining share.

Awesome. Thank you so much, Ronen. Best of luck to you guys.

Thanks, Eric. Next question, please.

Thank you. Our next question comes from the line of Brian Drab with William Blair. Please proceed with your question.

Hi. Thanks for taking my questions. Congratulations. First question is just on the 80% that's What's in that 20%? Does that mean 20% is outright system sales? And how have outright system sales influenced the first half and second quarter results?

Yeah. So in the 20%, there are two main components. One is system sales, capex system sales. And another thing is spare parts Services upgrades, sorry, not spare parts, upgrades on services that are not recurring. So part of the revenues that you see in services is not part of the recurring revenue. Okay, what is in part of the recurring revenue within the services is our contract and spare parts that we know the tendency of selling them.

Is it clear? Yes. Yeah, it's clear. It's helpful. I'm just, you know, in my model, I was, you know, based on the guidance and, you know, all these factors, I was kind of assuming there would not be significant outright, you know, CapEx system sales. I'm just wondering if those CapEx system sales are a little bit, you know, the unit sold is a little bit higher than you expected, or is it on track?

Units sold is higher than what we expected in the beginning of the year. You see there is a split between unit sales that we are selling on CAPEX to unit sales that we are selling on AIC. As you can see, AIC is growing strongly. The ARR, for example, in Q2 grew by $7 million, which means it's a new system that we sold to the market. on the AIC model. In parallel, of course, part of the product that you see, the product revenue, which in the product revenue you have consumable, you have AIC, and you have system, there is a CAPEX portion there. Actually, we had a very good quarter in Q2 for the CAPEX, and we believe that it will continue also in H2 as we have a strong pipeline. Overall, in terms of system delivery, I would say something at this rate that 50% of the systems are on CAPEX delivery and 50% of the systems are on AIC. It changed between one quarter to another.

Yeah, okay, thank you. I don't mean to focus too much on that point. I think a lot of people have been thinking about the model. It's easier to forecast, given you have such a high level of recurring revenue, we're forecasting Thank you. And then can you just touch on when you talk about the success you're having with screen printer customers, the traditional screen printers, is that So the answer is very clear, absolutely global. And we see a very strong adoption of

I mentioned, for example, India with SNQS, which is a manufacturing country. I even hinted into Sri Lanka, but we see it in Japan and, as I mentioned, in Europe. U.S., yes, absolutely. U.S. is growing. U.S., we see a very nice penetration into traditional screen printers. I mentioned a few in previous calls. and this call as well. So it's all over the globe and the same pressure that customers seeing in the U.S., we see it also in Europe and in Asia.

Okay. Thanks very much.

Great. Thanks, Brian. Next question, please.

Thank you. And our final question comes from the line of Jim Rashudi with Needham & Company. Please proceed with your question.

Hi, thanks. Good afternoon. Congrats. A couple of questions. I may have missed this information if you gave it, but did you say what percentage of your new customer ads are screen printers? Does this now represent the majority of the new customer ads that you alluded to for Q2?

Yeah, so what we mentioned in Q2 and overall in H1, that 60% of the systems that we have delivered, some of them on CAPEX and some of them on AIC, went to screen printers. Many of them are new customers.

Okay, many of them. Ronen, you also highlighted the roll-to-roll business gaining momentum. I was hoping to get a little bit more color there. on the progress in this area and what's driving the improvement in that direct fabric part of the business.

Yeah, as you know, we spoke about it in the previous call as well. 2025 was a slow year for a wall-to-wall, and we are putting a lot of focus to gain, again, momentum because we believe that we have a unique technology and the market is moving more and more into digital, into sustainability. We just released a new product which is called Presto Max Plus with new capability to be able to print on unique applications that digital has an advantage in specific markets like the footwear, like home decor, like technical markets. and Performance Market. So those are the areas that we are focusing. Our pipeline and our funnel are becoming stronger. I can hint that by the end of the year we are going to announce about additional technologies that we are bringing to the market, very exciting technology. I cannot share more than that, but there will be additional technology in this area. Thank you very much.

How would you characterize the demand that you're seeing from your global strategic customer, including upgrades? How should we think about the contribution from that customer also as it relates to your second half guidance?

Yeah, so I cannot relate to the demand and growth of our global strategic customer. This is their business, and if they would like, they will share. I cannot share specific information. I can share what I shared in the past, that we started this year an upgrade for their system. They have large amounts of systems that are going through upgrades. There are multiple projects that we are working together with these strategic customers, global strategic customers. We have excellent relationship, but I cannot share more information specifically on this account.

Fair enough. Thank you.

Thank you. Mr. Samuel, we have no further questions. I will turn it back over to you for final remarks.

All right, so 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 continues 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 strong and more profitable cornets. We'd like to thank you, thanks to our customers, our employees, our shareholders for your continued trust and support. We look forward to updating you again on the 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. Shamali, if you could please give the replay instructions, I would appreciate it.

Thank you. And as far as the replay instructions, you may contact or visit vivid.com for the replay information. And with that, we do thank you for your participation. This concludes today's conference, and you may disconnect your lines at this time. Thank you.