Kornit Digital Ltd. (KRNT) Earnings Call Transcript & Summary

Hello, everyone, and thank you so much for joining us here today. My name is Jim Suva, and I'm the IT hardware, tech supply chain and telecom equipment analyst here at Citigroup Investment Research. We're very pleased for you as an investor to join us here to the TMT, technology, media and telecom, conference called TMT West. This year, we're hosting it all virtually due to the coronavirus. This session is with Kornit Digital. I very much want to lay out a few items for people to be aware of. First of all, Kornit has a few prepared slides, which they will do a screen share for you to take notes on. If you do need copies of this, just let us know, and then we will be doing some interactive Q&A at the end. Due to the large audience, we will not be opening up everyone's line. So please e-mail me, [email protected], and I will ask the question on your behalf. That will ensure high quality of audio and video. We also note this is not for media or press. If you're media or press, please disconnect. And we do note that there are disclosures, both for Citigroup Investment Research as well as Kornit at the end of their slides as well as on the website for this conference. We also do want to note any one subject to MiFID II should have the applicable research agreement in place. I now want to introduce Kornit. We've got the full management team here, both the CEO, Ronen Samuel; and the CFO, Alon Rosen (sic) [ Alon Rozner ]. Both the CEO and CFO will be on for both the interactive Q&A at the end as well as the presentation at the beginning. They are connecting from Israel, and we very much appreciate them spending time with us here virtually. And we very much look forward to everyone coming together in person, hopefully, at some point in the year 2021. We do now want to transition the time over to Kornit's management in their presentation before interactive Q&A. Gentlemen, please take it away.

Jim, thank you very much. Pleasure to be with all of you this morning. We have also on the call from the Kornit, Guy Avidan, our previous CFO; and Amir Shaked who is our Corporate Development. I'm going to share my presentation, so be with me for a minute, and we will start sharing. All right. So again, good morning. It's a great pleasure to be here. Just to remind everyone, we just ended Q4. I'm not planning to get into too much details about Q4 because we are going to announce the results only on February 15. But I can say that it was amazing quarter. We finished a very strong quarter for Kornit. We are starting a very strong year for 2021. We have a very strong visibility. And I'm going to share with you why, what's going on in the market, how come we have such a strong momentum in the H2 of 2020 and we are starting such a strong year with a great visibility for not only the H1 but also for H2 of this year. So before getting into all of these, just for the new people -- team members, the people that are joining the call and don't know much about Kornit. So Kornit was founded in 2002. We have about 1,300 customers. Some of them are the biggest companies of the world, like Amazon; like Adidas; Fanatics; Printful; many, many more; many of them with many, many systems, but we have also a long tail of customers with 1 or 2 systems. We have about 700 employees already. In the last few years, we were growing at 24% CAGR. We're expecting to -- even to accelerate it moving forward. We have a very attractive business model. We have a recurring revenue. About 50% of the revenue we are generating is recurring that's coming from the ink and the services we are dealing in a huge market, the textile market, both in the direct-to-garment and direct-to-fabric. I'm going to touch on it. And when we are looking at all the megatrends that we are going to discuss, actually, the COVID-19 is a strong, strong tailwind and created an inflection point in the textile market, in the fashion market, in the home decor market, which really propelling our growth moving forward. We are selling solutions for production for direct-to-garment and direct-to-fabric, the solution built out of systems, hardware, ink, software and, of course, services. We are dealing in 2 main markets. Just to explain, I would say a lot of DTG and DTF, what does it mean? DTG, direct-to-garment, printing on garment directly. If it's T-shirt, if it's hoodie, if it's sweatshirt, if it's hat. This is one type of market. The other market is direct-to-fabric, printing on rolls of fabrics. And then after printing on the roll of fabric, converting them to a product, and the product could be a dress. Probably, you can see behind me a dress that was produced by Kornit; or a sofa; or for the home decor, a curtain or anything else. We have a proprietary technology. We are a market leader, one of the reasons is because of our technology. We are the only one that can print on any type of media. When I say media, it's fabric, without pretreatment, without posttreatment, with the best print quality, best hand feel and with full sustainable way. Sustainable is very important. I will touch on it. As you know, the textile market is second most polluted market, and we'll discuss it in the next few slides. So I mentioned that the industry is at an inflection point. And what's propelling the inflection points of the main market trends that I'm going to touch on them is about the consumer habits, is about the e-commerce, is about the retail meltdowns, all of those really propelling the growth. And when we are talking about the consumers, the consumer today would like to express themselves. They would like to wear things even in Zoom that can share their experiences. They're getting used to click. They will click on TikTok, they will click on Instagram, they will click on Facebook, and immediately, connect to an e-commerce website and will order what they want. And they would like immediate gamification. They don't want to wait. And they would like to have an endless variety because they would like to be unique. And this is a major driver from a consumer perspective. And other trends, big, big, big trends is the e-commerce. And the e-commerce was booming for the last 10 years. It was growing really rapidly. What happened in the last 6 months or more call it in the last 3 months is that the e-commerce was really growing the same pace for the last 10 years. So it's a disruption. And what does it mean? The expectation is that 66% of the apparel will be purchased through the e-commerce in 2024. And when the e-commerce is fully digital, you have to connect it to a supply chain, to a different supply chains that is digital. If you connect it to analog supply chain, you are not solving the issue of really direct-to-consumer, and we are going to discuss it later on. What we can see is that the brands, they have kind of a good story and a bad story. The COVID really hit strongly the brands. Many of them in the first half was reporting reductions of revenue and sales. But on the other hand, they all reported a huge growth of the online business. The online business is growing, and they all started to invest more and more in online. Even the new CEO of Nike is coming from eBay because he understands the online space, and they all understand that they have to move online. And again, if you're moving online and you have a digital platform, now you need to use it as a digital platform, and you can enable your customers endless -- an endless amount of different products of SKUs, but you don't want to carry inventory. And this is one of the main issues that they are suffering. What we've seen is a major meltdown. And the meltdown of the retail market was before the COVID, but accelerated during the COVID. And a consumer is moving, and instead of buying the goods and the apparel in the retail shops, they are going and buying it online. And again, it's connected to the digital world. What happened in -- during the COVID and also before the COVID, we saw that for the brands, it was very difficult to forecast what the consumer is going to purchase. And in many cases, they were stuck with huge pile of inventory that they had to throw away. And now the brands are all talking about moving DTC, direct-to-consumer, and to change the supply chain. And when they're saying changing supply chain, they're talking about moving to on-demand manufacturing. So instead of having the products sit on the shelf and trying to push it to the market, they can -- having different products on the website, a large amount of different products on the website and produce it into an order. Only once the order is getting, they're getting it. They're placing their order into the fulfillers, into the contract manufacturers, or they're manufacturing by themselves and shipping it to the consumer within 24 hours. The traditional way of doing it, of producing in China, large quantity, and shipping it to the consumer in the U.S. and Europe is not relevant anymore. We can see production moving onshore, near-shore. And everything is talking -- everyone is talking about all the brands, talking about changing the supply chain to become more agile, closer to the consumer and with a much larger variety to meet the consumer needs. As I mentioned, sustainability is one of the key elements that we all need to drive and to improve. The world is tougher, and we see the impact of sustainability all around us. And the second most polluted industry is the textile market and fashion market. Actually, when we look at it, the textile markets generate 20% of the industrial water pollution globally. Another input, 92 million tons of waste being generated. Most of this waste that are being generated are those products that were never sold. The brands were focusing that someone will buy them, but they didn't buy them, and they need to throw it away. And beyond -- to produce those products, you consume huge amount of water. What we know now that the consumer is much more sensitive, and they are looking for to brands that care about the industry, that produce in a green environment. And also, we can see on a daily basis, all the brands are publishing, that they are moving into circular economy, into more sustainable, and the way to do it is with digital because these are sort of 2 main things: one, producing with our technology doesn't consume water. 0 amount of water versus tons of waters are being consumed on conventional. But the main advantage with digital technology is that you actually produce what the consumer needs. You don't need to produce it in advance. You get an order and you produce it immediately, and you can produce 1 copy or you can produce 10,000 copy, it doesn't matter, and then shipping it to the consumer. So Kornit is now ready to accelerate. And before I explain why we are ready to accelerate, I want to touch a bit about 2020. And 2020 was a very, very unique year from any aspects. So I would start by saying that we started the year very strong after a very strong 2019, and then the world shut down. Q1 was a disaster. All our customers telling us, well, we have to shut down the -- our shops. And they had to close down, stop ordering, not consuming ink. But around April time frame, March-April time frame, they started calling us and telling us, we've never seen such a surge of orders from the online market. And everything started to move online, and they started to be -- to enter into peak season. Already for May, our customers were on peak season and growing and growing, and actually they ended the year now in December after Christmas. With continued peak season, we saw huge consumption of ink, but a lot of many orders of systems all around the world, both in the DTG and the DTF. We had a very successful year in terms of the new products that we released in 2019. We sold more Atlases in Q3 than the entire 2019, just an example. We saw a huge growth in the adoption of the Presto of the DTF. We introduced also new products like the Vulcan Plus and the Konnect in 2020, and we saw a real, real good adoption for those products. I mentioned the V shape. The V shape is so strong. We saw some midsized customers that they used to have 2, 3 systems from Kornit. And today, they are carrying 30. This is the magnitude that we saw, and it's not 1 or 2. We saw a few of them growing really crazy. In terms of strategic account, we -- really, this year was -- we worked very closely with our strategic account, including the global accounts, on expanding strategic account, looking and expanding to be closer to the consumer, opening more sites if it's in North America, in the U.S. or Europe or even expanding to Asia, and we saw it from a few of our strategic account. We continued to invest. Actually, we understood already in April that the coronavirus, the COVID, is a strong tailwind to our market and to the Kornit. And instead of releasing people and starting to cut costs, we actually invested more, we invested more in R&D. We invested more in scaling our go-to-market because we understood that the day is coming immediately. And we saw it coming. And we really, by investing more in our R&D and coming now with new products next year, we increased our moat around our technology and our products and solutions, and we strengthened our leadership position. And we also did an acquisition. In this year during the pandemic, we decided we're doing acquisition. We did a very strong and strategic acquisition for Kornit, the Custom Gateway, which we are going to discuss later on why it's so important? Why it's so strategic? We put a goal -- actually, this goal of the $500 million run rate business by end of 2023. To remind a few of you -- many of you that remember, this goal we put to our investment community in 2018, in September 2018. And we said, in 2023, we are going to be a run rate business of $500 million and expanding our margin and expanding our profitability. And today, I can tell you that more than any time before, I'm more confident that we are going to reach it. And hopefully, we're going to do it earlier, sooner than later, from an organic perspective. I'm not talking about inorganic expansion. So we really see a huge growth. The next year is going to be a fantastic year, continue the momentum of the H2 2020. In terms of the market, you can ask yourself, what is the potential of Kornit to go? How much Kornit to go? So let's talk about this market. When we are talking about direct-to-garment, printing on T-shirt, for example, the T-shirts market is 16 billion T-shirts are being decorated on an annual basis, something like that, about 16 billion. And the focus is that it will go to 25 billion. Within these 16 billion T-shirts that are being decorated now on an annual basis, digital is only 1%. Actually, our customer are printing a bit more than 100 million impression, 100 million T-shirts. What does it mean? It means that we -- with all those market trends of on-demand manufacturing, of sustainability, of the e-commerce, of the social media, it means that digital is going to expand. And for us to capture the $500 million, we just need to capture 2% of the market in 2023 of the $25 billion. Another interesting market is the DTF, direct-to-fabric, which I mentioned. It's a market for printing for fashion and home decor. It's a huge market. And we actually released a product about 2 years back, which is the Presto, less than 2 years back. We were niche. We were a new market, a newcomer to the market with this product. Today, I can announce, we are the market leader of the industrial DTF pigment ink market, by far. We are, by far, the market leader there and why? Because we are the only one that you can take a fabric, any type of fabric, it could be polyester, it could be cotton, blended, and you can print on it directly without pretreatment, without posttreatment, in the best quality, print quality, in the best durability, and the hand feel meet the standard of the industry. And we can see major player, I'll give you an example of a customer in Italy who is the main producer for the fashion house working with Versace and many, many brands are using this technology. So looking forward, what are the catalysts of growth? Where are we going? How are we going to accelerate? So I'm going to touch on a few catalysts. Of course, it's definitely about the solution. Today, we have a wide range of products from systems that are focused on the industrial space, on the mass production, we introduced the Atlas, it's super successful; the Vulcan Plus; the Poly which is specialized on polyester printing; and the technology on the DTF. On top of that, now, we have different type of ink sets for different products. We have different type of workflow that's becoming more and more important for the industry, for our customers, for the brands. And we are going to discuss it in a minute. Of course, we have services. And now services, we are selling with every machine, services become profitable in Q3. And we said from now on, it will continue to be profitable and a growth asset for our business, and we are starting to sell ancillaries with our third parties. In terms of technology, where do we invest in technology. You will see next year, we will come with new products to the market. In June, we are going to announce those products. We're going to have an event in Israel. We'd like again to extend invitation to all of you to come to Israel in June to see those products. The products will focus on taking the quality to the next level, on bringing the productivity to much higher level and lowering the TCO to capture longer runs. But on top of that, what you are going to see for the first time, Kornit is going to lead for a new application, enabling new applications that were -- never existed before. Something that really will wow the industry, what digital -- what you can do with digital that you couldn't have done before, and you cannot do it with analog technology. On top of that, we are going to bring a lot of automation. For the first time, you will be able to run our system with semi-automation, and you will see also future full automation solution. You will see a lot of investment around the workflow, and I mentioned that I won't touch on it. And we are going to invest also on new ancillaries that we are going to bring to the market. In terms of the workflow, I mentioned a lot about the workflow. And it's a -- part of it is the Konnect, but part of it is the Custom Gateway acquisition that have become super successful. Custom Gateway is about 2 main products. Think about like this. One product is about managing the flow of our customers. Who is the customer? Our fulfiller, our contract manufacturers. They are getting many, many jobs. They have to have a workflow that manage a job, sending the job to the right machine, making sure that the quality is correct, making sure that the product is being shipped to the right customer and so on. All this is being done with the Custom Gateway. Another product, which is very, very important for us is the cloud-based products that connect the brands, connect marketplaces, connect retails with a network of fulfillers, of contract manufacturers all around the world. So if your consumer sits in China and would like to order, for example, let's take nike.com, you would like to order from them a product. That product can be produced in China instead of being produced anywhere else, close to the consumer and being shipped to the consumer. So the workflow will enable the brands to connect to a network of fulfiller producing on demand in the same quality. So quality consistency is very, very important with brand integrity, which is so important for the brands. But also, it will connect to marketplaces and retail, as I mentioned before. Think about it like this, you know the Uber. You -- all of you understand the Uber model of connecting people, passenger to taxi driver. Here, we are connecting impressions and brands into fulfiller, into contract manufacturers, yes. But on top of that, we are the one that's selling the taxis, the machine, and we are the one that's selling the gasoline, which is the ink. So this is the business model. We are building a new business model that is being led by Guy Avidan, our ex-CFO. And this business model will be based on transaction fee, subscription fee that are starting to run through the systems. We're already working with major brands, some major merchandise brands like Disney are working on this system. So we see a huge potential of growth, both for the brands connecting them with fulfiller, our customers that will consume more ink and more systems, but also, of course, growth for Kornit. In terms of the market, we're always talking about looking at expanding into new markets. So I was talking about the markets in the DTG, looking at their customized design, which are the main market that Kornit grows to be. But we are getting more and more now to the promotional market. I mentioned Disney is one of our customers, but we have many more customers that are using the promotional market, and promotional market is moving also digital because it's moving online. One area is sports market. It doesn't make sense if you will go to a marathon, will wait 2 days before the marathon to collect your T-shirt. Everything now is being done online, and once it's being done online, then it makes sense to do it digitally. Brands, today, we are engaged out of the top 10 apparel brands of the world, 5 of them already using our technology. This is a major achievement. We see a great momentum going from the brand. They all understand, they're all talking about DTC. They all understand that they need to move from selling on the e-commerce what they have in inventory, and if you will go, for example, now to nike.com and choose a T-shirt that you like, most likely, you won't find the size or the color that you want, which doesn't make sense. And they understand that they need to move to on-demand manufacturing instead of selling what they're having in the inventory or what they don't have in the inventory, getting the order, and then producing it immediately and shipping it to the consumer. Another market is the DTF. We see a great adoption, both in the fashion and home decor. Think about the home decor. The experience of the consumer to go -- today to go to the IKEA, getting to the IKEA, you know that you need at least 3 hours. Just to walk there, on the way, that will save you a hotdog, but in the end, you will come, you want to buy a sofa, you will have to choose between the blue sofa to the yellow sofa, think about it. You can go online to IKEA, choose your sofa, and then you will have endless amount of choices of the design, 10,000 of choice of design and you can even design yourself. This is where the world is moving. In terms of other growth engine, the recurring revenue is very, very important. Recurring revenue, both from the service today, every machine we are selling with service contract, and this is why we start to see profitability coming from the service organization. We can invest more, and we call it customer success, focusing a lot about the ink. And the nice thing about the model is, today, we are selling a machine, let's assume, $0.5 million of systems. This $0.5 million of system of Atlas will generate in the next 5 years, $1 million of revenue stream out of the ink and the services. We're also expanding go-to-market. And in the go-to-market, it is not just expanding feet-on-street in North America and Europe and Asia, we're actually moving direct. We moved last year directly in North America, that become super successful. This year, we moved direct in U.K. or last year, in 2020. This year, we are planning to move direct also to Germany, continue to move direct in Germany and other places around the world, which really push the growth of the -- of our customers and -- as well for Kornit. I will stop for -- here for a second because I'm sure many of you will ask, well, you have a lot of cash on your balance sheet. You just raised another $150 million and you have about $400 million or more than $400 million on your balance sheet, what are you going to do with it? And you saw one example of acquisitions that we've done. But I would like also Amir to say a few words about what are we planning to do on M&A as activities moving forward. Amir?

Yes. Great. Thank you, Ronen, and hello to everybody. Pleasure, pleasure to be here. So like Ronen described, this 2020 was a very special year for us. We executed on our first sort of strategic acquisition of Custom Gateway. We've been very focused on the integration process of Custom Gateway. In general, we have a very disciplined approach to how we look about our inorganic strategy. For us, it's about -- we have a very strong organic growth in the business, and we're very focused on execution. So when we come to evaluate inorganic opportunities, it's about augmenting the growth. It's about accelerating growth. It's about closing gaps. And we've really framed 4 major areas when we look at the different categories for acquisition. Software workflow is a high strategic area of focus for us. Custom Gateway, we spent a long time in the market evaluating the opportunities. Custom Gateway was the best fit for us. It gave us a phenomenal platform that allows us to get into the market immediately with what we're trying to achieve. What we are looking at is future acquisition in the software workflow space. We've already identified some places where we believe the market will require deeper domain expertise. So that's one area of focus for us. You should expect us to see executing in the future as well. It's mostly about technology, add-ons and domain expertise, add-ons that we want to bolt on to the existing platform that we have. Our second area, I think if you look back, when we moved direct in North America, we combined it with an asset acquisition of some of the existing distribution channel for us in North America. That was very successful for us. And hence, I think everybody sees the results and the scale-up in North America. So we are constantly looking in other territories to see whether there are inorganic opportunities for us, whether it's places we want to move direct, we just want to scale, we want to go direct touch. It could be in the form of distribution. It could be in the form of services integration and things of that kind. Our third area is portfolio expansion. Portfolio, I'll touch maybe on the 2 last points together, portfolio expansions and a complement -- and ancillaries. So one area is obviously the area of ancillaries. On the production floor, obviously, we're looking to sell broader solutions, and our customers are expecting us to deliver broader solutions. So even before and after the printing process, there are other parts of the process on the production floor. They could be hardware driven or software driven. In some areas, we operate today through third parties and through OEM partners. But you will see us executing in that area in the future, where we believe we need to bring some of those technologies closer to us and take full responsibilities. We're constantly looking to see in areas, for example, we mentioned DTF, it's a high-growth business for us, whether we can expand our portfolio through inorganic acquisitions. We're very disciplined there. Kornit has a very proprietary technology and intellectual property. So it must fit with our differentiation in the market. But we are constantly to see if we can accelerate the portfolio expansion on the DTF side. I think that pretty much covers everything.

Thank you, Amir.

Yes. Thank you, Ronen.

Thank you, thank you very much. We are running a bit late on time, so I want to run fast, and we have our future -- our new CFO, which we would like to introduce him and that he will share with you his first 30 days experience from the company. So before handing over to Alon, our new CFO, so about 2021, we started 2021, 4 days ago. We have focused very much all successful new product introduction. We have new products, exciting products, I mentioned both in terms of systems, both for DTG, DTF, but also new applications, very exciting. We are going -- focusing on large-scale project. When I said that we have great visibility to 2021, we are working on major, major expansion with our strategic accounts across the world, major projects that are going to happen in 2021. Scaling new business line, the new business line of Custom Gateway, connecting the brands, the retail market, the marketplaces, really, we would like to see accelerating growth within this business. The next one, accelerating growth in new market segments, the DTF, very successful. We would like to see it continue to grow, and we're going to put there more focus. And the last one, we are focusing on customer success. Customer success is not only about service, it's really about how can we enable our customers to utilize and to print more utilizing our systems. Now we'll hand over to Alon for a short introduction and to share with us his few comments about his impression from Kornit from his first 30 days with Kornit.

Okay. Thank you, Ronen. Good morning, good afternoon, good evening. I joined Kornit a few weeks ago after a long journey at Orbotech. Orbotech is a technology company providing inspection and production solutions to the electronics industry. Over the years there, I did several senior roles in finance, operations and business. And in my last role there, I was the CFO. I heard great things about Kornit before I joined, and I can tell you that after several weeks with the company, I'm even more excited. From a new CFO view, I see key winning factors at Kornit, both on the financial side but also on the business side. The first one is the accelerating megatrends, moving to e-commerce, to on-demand digital transformation. These megatrends is a huge opportunity for us. It's translated to huge addressable market for us, both in quantity and in dollars. Kornit is by far the market leader with a great, great technology and great innovation, and we continue to invest a lot in innovation. As we heard from Ronen, Kornit has almost unlimited growth opportunities, both organic within the company and inorganic, and very strong financial and operational model. As you can see, very impressive revenue growth, which is coming both from new systems and a very healthy business, recurring business from ink, services and upgrades. Our system revenues are accounted about 50%, and then about the additional 50% is coming from our increasing installed base. Our revenues CAGR in the last few years was 24%, and we continue with accelerated growth towards the $5 million (sic) [ $500 million ] in run rate in 2023, as mentioned by Ronen and beyond. In the quarterly breakdown, you can see the impact and the uncertainty we experienced in the first quarter of 2020 as a result of the COVID-19 and then the recovery during the second quarter and the ramp-up and the great business in Q3, which continues. The gross margins continue to improve. The drivers for the gross margin increase are coming both from the technology and the solutions we provide to our customers, which allow us to keep ASPs and even increase ASPs when we provide great value to them as well as operational leverage and many cost reduction activities. The growth in business, obviously, improved profitability and cash generation, but our strategy is to continue and invest a lot in growing the business, mostly in R&D and sales and marketing. And last, we have very strong balance sheet, which allow us to maximize the business and capture future opportunities and continue growing the business. As said, very, very exciting, and definitely, the right company for me.

Thanks, Alon. Great to have you here. You already are bringing huge value to the company. I will end before the questions with our vision, of course. We are very proud of our the vision because we are making something to make the world much better, more sustainable, where everybody can bond, connect with -- between the brands, to the consumer, to the fulfillers, can design whatever they want; can express their identity; and having unlimited products for mass production to mass customization, and everything, one impression at the time. Thank you very much. I would like now to open the call back to you, Jim, for questions.

Thank you so much, and we want to welcome your new CFO there, and it's very interesting to note it wasn't a displacement. It was an on-purpose transition as you go after new opportunities. I've got a couple of questions e-mailed me -- in to me. And the first one is to talk about, hey, there's no trade shows out there. You normally have a big presence at trade shows. You have your giant printers, you're printing live on things. Given no trade shows, what are kind of the big revenue drivers or sales efforts that you've been doing? Because during COVID, you have continued to put up great results. How should we think about your pipeline of growth and comparing it to no trade shows and how you're overcoming this challenge?

Well, it's a great question because the answer is that today, we've never been in such a strong funnel before. So you can say why you don't need trade shows. So I'm not saying we don't need trade show. Trade shows bring value, you can connect live. We all miss to touch each other. But what happened today that we see new customers connecting with us through webcast. We are doing live demonstration from our demo center all across the world with our potential customer, with existing customers, and our funnel was never as strong as today. So there's a lot of digital activities that we are doing with marketing, a lot of local activity next to customers leveraging other customer to demonstrate the solution if it is someone that's really new and don't know our solution or bringing them to the different demo center. So actually, it's going very well, and the result in the end is in the funnel.

And then our final question before I ask you about what's your so exciting to be CEO of the company, when we will conclude on that. But the last question is, can you talk a little bit about, you recently announced an acquisition in August, called, if I remember right, Custom Gateway. Can you talk a little bit about that and also including Guy's new responsibility, who investors have gotten to know over the years, it appears he's having a new responsibility. Can you talk about those 2 items?

Great. So instead of me talking about that, Guy is on the call, he's here, and he can share with you his first impression of the new business, how he's running it and the value that Custom Gateway is bringing. Guy?

So first, it really is exciting, and I see it as a huge opportunity for me. Ronen already touched the vision, and in a nutshell, is to build a very sophisticated mesh network that will connect fulfillers with brand retailers, et cetera. So it really is a unique thing. Nobody has ever done that before in our space. And it already started. So we're seeing some very nice successes. In terms of contribution, obviously, there's the direct contribution, we touched it, there's going to be revenues from subscription as well as transaction fees. And it's tightly coupled with the Kornit business. So any transaction at the end of the day represent a printed impression, which means more ink, more consumables, additional utilization and more capacity to our machines. So the end result is also more machines to our existing and new customers. Obviously, as a solution, it actually increased the engagement level with our customers and the stickiness of our offering.

Great. Thanks so much. And as we conclude now, Ronen, as CEO, and you've been there for a while, and the stock has done well, your sales have done well. Let's maybe 1, 2 or 3 things that keeps you so excited being CEO of the company because you've accomplished so much that you want to leave investors with about why they should be owning your stock?

In the end, every -- I would say a few things, but in the end and is the most -- more important thing is about people. As an investors, when you're looking at many companies, technology is important, market is important. You're investing in people. And you need to have people that you can trust them. You need to have management teams that are -- they have the right experience, they know the market, you believe in them, they have the right drive, they have the right passion to do it, and they care about customers. And the one thing that I'm very proud of is about the team that we have that's supporting me and the entire company and our customers, and this is something that we are very, very proud of. Of course, meeting customer, seeing that they're basing their business, and some of them huge business based on your technology, going visit them, see a hole full of Atlases with more than 50 Atlases in 1 big hole walking around the clock and they are making money is an amazing experience. And again, to be in a position really as a market leader with no big threat around you, with a market that the potential is just the beginning, we're just scratching the ground, but it's clearly we crossed the chasm because this tailwind of the COVID created something that none of us expected and finished the year very strong, starting the year even stronger than that, that we are very, very happy with the situation that -- being part of that.

With that, I'd like to thank the team for Kornit from connecting to us live in Israel here to me in Silicon Valley and to all of our investors globally. We hope you appreciate this, and we hope that in 2021, we can all get together in person. Ladies and gentlemen, this now concludes our meeting with Kornit Digital. Thank you so much for joining us today.

Thank you very much, everyone. Thank you, Jim.

Thank you.

Thank you.