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

Greetings, and welcome to Kornit Digital's First Quarter 2025 Earnings Conference Call. As a reminder, this call is being recorded. I would now like to turn the conference over to our host, Mr. Jared Maymon, Investor Relations for Kornit Digital. Mr. Maymon, you may begin.

Thank you, operator. Good day, everyone, and welcome to Kornit Digital's First Quarter 2025 Earnings Conference Call. Joining me today are Chief Executive Officer, Ronen Samuel; and Lauri Hanover, Kornit's Chief Financial Officer. For today's call, Ronen will provide comments on the first quarter of 2025 and provide an update on our market. Lauri will then review the first quarter results and provide our second quarter outlook before we open it up for Q&A. Before we begin, I would like to remind you that forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and other U.S. securities laws will be made on this call. These forward-looking statements include, but are not limited to, statements relating to the company's plans, strategies, projected results of operations or financial condition, and all statements that address developments that the company expects will occur in the future. Forward-looking statements are subject to known and unknown risks and uncertainties that could cause results to differ materially from those implied by the forward-looking statements. I encourage you to review the company's filings with the Securities and Exchange Commission, including the company's annual report on Form 20-F filed with the SEC on March 28, 2025, which identifies specific risk factors that could cause actual results to differ materially. Any forward-looking statements are made currently, and the company undertakes no obligation to publicly update any forward-looking statements, except as required by law. Additionally, the company will be making reference to certain non-GAAP financial measures on this call. The reconciliation of these non-GAAP measures to the most directly comparable GAAP measures can be found in the company's earnings release published today, which is also posted on the company's Investor Relations website. At this time, I'd now like to turn the call over to Ronen. Ronen?

Good morning, and thank you for joining us. I'm pleased to report that Kornit met expectations in Q1 and delivered on our commitments even as we operated in uncertain macro environment with new trade policy risk and soft consumer sentiment. Revenue came at $46.5 million and adjusted EBITDA margin at minus 8.4%, both within our guidance. We also generated positive cash flow from operations, demonstrating the strength of our model and disciplined execution. But the real story this quarter lies beyond the numbers. The apparel industry is undergoing one of its most significant disruptions ever, and there has never been a better moment for Kornit as pioneering digital transformation to lead. Global supply chains have been optimized for low-cost offshore bulk production, which no longer meets the demands of today's consumer who expect instant gratification, endless variety, fast delivery, and sustainability. Brands and retailers are recognizing that producing closer to the consumer in smaller runs and only what actually sells is essential. This transformational shift is no longer optional, is becoming urgent, and Kornit's digital platforms deliver the agility that customer needs to win in today's marketplace, minimizing waste, freeing up working capital, and improving margins. Recent trade policy developments, including proposed U.S. tariffs on imports from Mexico, China, and other low-cost regions, further emphasizes this needs to change. Our customers, especially brands and retailers, are rethinking their supply chains and turning to Kornit and our fulfillment partners to localize production. We are also well positioned to work through this set of circumstances because most of our manufacturing is based in Israel rather than China or other heavily targeted regions, and we are not significantly reliant on tariff exposed imports. We have already taken proactive steps to mitigate potential impacts. And based on what we know today, we anticipate only a modest cost effect if new tariffs are enacted. In fact, today's environment only reinforces our strategic positioning. That said, we remain vigilant, and the ultimate impact will depend on how trade policies evolve. A recent regulatory change is already reinforcing this shift. The U.S. closure of the de minimis loophole on May 2nd, which had previously allowed sub-800 packages from overseas to enter tariff-free, is already disrupting the direct-to-consumer flow of low-cost garments from China. Brands are seeking alternative supply chains closer to the market, supported by early feedback from our customer base, which points to increased activities in the U.S. as a result. While macro conditions delay a few planned system purchases in Q1, we are seeing a much more powerful force at work, growing conviction among both brands and fulfillers that now is the time to move to on-demand mass production. This is no longer theoretical. Our technology is proven. The ecosystem is in place, and our customers are acting. Executives are telling us their organizations must adapt or risk falling behind, and they are choosing Kornit as a partner to lead that transition. Let's now dive into the three key execution priorities that are driving Kornit's transformation and long-term growth. First is the successful adoption and scale-up of the Apollo system, which is key to our breakthrough into mass production. Since its launch, Apollo has delivered remarkable growth in impressions, especially on longer production runs, which have traditionally been an analog stronghold. Apollo unlocking a high-volume segment that had long resisted digital, and we are now engaging with screen printers that previously wouldn't have considered this transition. What stands out is that we are now seeing these traditional screen printers running jobs of thousands of units on the Apollo, something previously unthinkable in digital. This demonstrates the strong economics and scalability of the platform. Additionally, customers are telling us that Apollo is replacing the need for at least three carousel screen presses and enabling them to reduce their headcount by 15 to 20 employees, delivering both operational simplicity and significant cost savings. Apollo's successful live debut last week at FESPA Berlin was an important milestone. FESPA is one of the industry-leading silk screen focused events and our participation allow industry leaders to experience Apollo in action. The conclusion from attendees was clear and compelling. Apollo removes the compromises that have held digital back. It delivers what silk screeners need in emerging marketplace: labor saving, automation, high-speed throughput, and silk screen level retail quality, all without waste, setup time, or inefficiencies of analog. Our pipeline continued to expand with many new customers, and early adopters have already added additional systems or are planning to follow on orders, clear validation of the Apollo performance and ROI. The momentum Apollo is experiencing is a key part of our broader strategic shift to scale beyond the customized design segment and into mass production, leveraging our complete MAX portfolio, including Apollo, Atlas MAX, Atlas MAX POLY, and Presto MAX to deliver the speed, quality, and agility the market demands. Interest is growing quickly from large fulfillers, global brands, and retailers seeking to replace legacy models and bring manufacturing closer to the consumer. Second is accelerating the adoption of our all-inclusive Click AIC model. This printing as-a-Service approach is disruptive in a hardware-centric industry and is gaining meaningful traction. AIC is designed to lower the barrier of entry to digital for our customers, changing how they buy, operate and grow with us and aligning our success with theirs. At the end of Q1, we reached a significant milestone. Our annual recurring revenue, ARR from AIC contracts, reached $14.5 million. These are multi-year contracts, so that $14.5 million represents a stable and growing base of recurring revenue contractually locked in for multiple years to come. This significant milestone validates our strategy of emphasizing recurring revenue streams, and it's only the beginning. Combined with our reoccurring consumable and service revenue, today, over 80% of Kornit's total revenue is recurring or highly predictable, driven by AIC, consumable, and service contracts. Our pipeline for this model continues to expand as more customers see the benefits, and we expect AIC to grow meaningfully throughout 2025, driving a larger portion of our revenue and fostering more win-win partnerships with our customers. Third is our impression growth, both from our existing installed base and increasing demand from new channels. This quarter, we began reporting impressions on a trailing 12-month basis and reached a record 222 million impressions, up 10% compared to the prior 12-month period, driven by a stronger system utilization and continued digital adoption. Each impression translates in recurring or reoccurring revenue and validate the growing value of our platform. To support this growth, we are focused on connecting demand with available production capacity, bridging between brands, retailers, and demand generators with our on-demand global fulfillment network. That connection of demand generation with fulfillment was the core theme at Connections, our flagship event held last month in Miami. What started as a small gathering has become a sold-out industry summit, bringing together hundreds of leaders from fashion, retail tech, and manufacturing. The takeaway was clear. The shift to nearshore, onshore, on-demand production in mass quantities is happening, and Kornit is at the center of it. A major highlight from Connections is our newly announced strategic partnership with MAS ACME, a U.S. subsidiary of MAS Holdings, one of the world's leading supply chain partners to top global fashion and retail brands, including Victoria's Secret, PVH, Nike, Lululemon, Gap Brands, and Marks & Spencer. MAS ACME is now using Kornit technology for short-run replenishment in the U.S., enabling faster response time, helping brands reduce markdowns, and avoiding costly stockouts. This partnership is a major validation of our platform's ability to support high-volume, time-sensitive production at scale and a key step towards reshaping global apparel supply chains. We have also announced our partnership with Gooten, a leading print-on-demand platform now connected to our global fulfillment network via KornitX. Gooten is leveraging our infrastructure to route consistent, high-quality orders into our installed base, helping demand generators scale reliable on-demand production across geographies and categories. In parallel, adoption is growing across digital native platforms like Custom Ink, Redbubble, TeePublic, Zumiez, Blue Tomato, Life Is Good, and Zazzle, all leveraging Kornit MAX technology to fulfill faster, locally and with consistent quality. So as we look ahead, yes, macro uncertainty remains, but the transformation of the apparel industry is undeniable. The need for speed, agility and relevance is the new standard. Kornit is leading this change with the right technology, a proven business model and the operational scale to support our customers' evolving needs. Based on what we see today, we continue to expect a full year for revenue growth, adjusted EBITDA profitability, and positive operating cash flow. While sales cycles may remain longer in H1, the momentum we are building across Apollo, AIC, impressions, and demand generation positions us well for stronger growth in the second half of 2025. Historically, Kornit has primarily served the custom design segment of the apparel industry, focused largely on one-off impressions. This niche has driven most of the impressions produced on our system to date, but the market ahead is exponentially larger. The mass production space for print runs under 1,000 units represent an estimated 4.5 billion impressions globally. With Apollo, our MAX technology portfolio and the proven economics of the AIC model, we now have the print quality, cost efficiency, and business readiness to go after this massive opportunity. And we are not just aiming for it. We are starting to capture it. Customers are shifting, use cases are expanding, and volume is moving. The opportunity ahead is enormous and Kornit is advancing with clarity, conviction, and purpose. We are not being reactive. We are playing offense and leading the transformation of how fashion is created, consumed, and delivered. And that future is on-demand, digital and much more sustainable. Thank you. I will now turn the call over to Lauri. Lauri?

Thank you, Ronen, and good day to everyone. First quarter revenues were $46.5 million, within the guidance range of $45.5 million to $49.5 million we provided in February. Year-over-year, we saw growth in product revenues, primarily attributable to the expansion of our AIC program. As a reminder, AIC revenue captures the value of our consumables, system and service used by customers during production. Service revenue declined year-over-year as we shipped fewer upgrades of the Atlas MAX, partly offset by a significant number of upgrades to MAX Plus, which sell at a comparatively lower ASP. Moving to margins. First quarter non-GAAP gross margin reached 45.2% compared with 37.5% in the same period last year. The year-over-year improvement is largely attributable to no warrant impact this quarter, but was also benefited by operating efficiencies. This quarter, we also had a one-time benefit from a materials recovery effort, which added approximately 2 percentage points to service margin. Looking at operating expenses. Total first quarter non-GAAP operating expenses were $27.4 million, a decrease of $0.3 million or about 1% from $27.1 million in the same period last year. Moving to EBITDA. First quarter adjusted EBITDA was negative $3.9 million. This was an improvement versus the negative $7.8 million we reported in the same period last year. Adjusted EBITDA margin for the first quarter of 2025 was negative 8.4% within the guidance range we provided in February. Our balance sheet remains robust with our quarter-end cash balance, including bank deposits and marketable securities, standing at $513 million. Operating cash flow was $5.8 million compared with $4 million in the same period last year. Cash flow, less capital expenditures and investment in equipment on lease for AIC in Q1 was $2 million compared with $2.7 million in the same period last year. Moving to our share repurchase activity. During the first quarter, we completed our $75 million accelerated share repurchase program. Through this program, we repurchased approximately 2.5 million shares at an average price paid of $30.40 per share. We repurchased an additional 330,000 shares through a traditional open market repurchase in the quarter for an average price paid of $23.45. This brings our total repurchases since 2023 to 5.9 million shares for a total consideration of $148 million, reflecting an average price paid of $24.76. As Ronen mentioned, we also began disclosing two new metrics this quarter. First is impressions or the number of prints produced on Kornit solutions. This metric is derived primarily from data reported through our Konnect software, which is installed on the vast majority of our newer DTG and roll-to-roll systems in the field. For strategic accounts that do not make use of Konnect, we approximate impressions based on consumable shipments and average ink laydown per impression. A similar approach is used to convert square meters printed on our roll-to-roll systems to impressions. The second new disclosure is ARR from AIC. We calculate this figure by multiplying the minimum annual volume commitment by the related price per impression for each contract. The sum of these individual contract ARR calculations is our reported figure. Contracts are only considered in this calculation once the system ships. Turning to second quarter guidance. Based on the current macroeconomic environment, we currently expect second quarter revenues to be between $49 million and $55 million and adjusted EBITDA margin to be in the negative 4% to positive 4% range. I'll now turn it back over to Ronen to open up the call for Q&A.

Thank you, Lauri. Operator, we are now ready to get the questions.

[Operator Instructions] The first question comes from Greg Palm with Craig-Hallum.

I guess I wanted to just start with maybe just a broader discussion on the backdrop. And we've been talking about this transition to screen for a while, especially over the last six to nine months, but a lot has changed even more recently with tariffs and trade supply chains, et cetera. So what are you seeing? What are you hearing from customers, just given what's occurred here in the last four or five weeks?

Yes. Thanks, Greg. So I will start by saying that the market, the fashion textile market is going through probably the biggest disruption ever. This is the second time this market is going through disruption in the last 5 years. And we were relating to many of the trends that happened in this market. But now those trends become super relevant, and we see it in the market. First of all, we see the consumer. Consumer would like instant gratification, endless variety, fast delivery. This is a must. Using the old model of production, mass production in low-cost countries like China, trying to forecast what the consumer would like to get the next day, is impossible. You have to ship. This old model is creating a $1 trillion of markdowns of waste and massive inventory, which is the biggest headache for the brands and retailers that they have to change. Now add on top of that, the tariff, the de minimis closure of the loophole, all of this creating a massive disruption, and we start to see brands, retailers are really moving and looking to connect to local manufacturing in order to become relevant to reduce their inventory and markdowns. What else we see, we are talking to many brands right now and retailers. In every boardroom of those brands, the main discussion right now, how do we change the supply chain? They cannot come again to the investors and the public and saying we didn't change. This is the second time that happened to them. And we see this move to onshore. They are talking with us, and Kornit is playing a major role in connecting them to our customers, to the fulfillers, and I'm going to touch on MAS in a minute as well. What happened as well now is that for the first time, there is a technology that can really capture the mass production. What Kornit proved is with the Apollo, with the MAX technology, we can go after mass production. Customers are using those systems running thousands of run lengths on each one of them, showing the capability, the ROI, and the cost effectiveness of this. We are going after a massive market, which is a $4.5 billion impression below the 1,000, and now our technology can capture this market share. We see many net new customers. What the growth that we see right now with Kornit is mainly coming from screen printers that are adding digital technology, Apollo's, and MAX technology for the first time. Is it in the U.S., is it in Europe, or in Asia? This is most of the growth that we have. And of course, the AIC model is really accelerating the shift to move to on-demand, to move to onshore production or nearshore production, make it much easier for new players to enter to the market. All of it as a proof point to show a company like MAS that deciding to change and help major brands in the U.S. to move to change the supply chain into on-demand to enable them to reduce the markdown to be more relevant, to bring faster product to the market show that what we have discussed for many, many years now is being accelerated, and we see the proof point with MAS and few others.

I'm not sure if you were alluding or hinting, but can you just talk about the Apollo placement number for the year versus previous expectations for 30? I know you had mentioned kind of longer sales cycles and some delayed placements in Q1. But what are your thoughts for the year? And is all this sort of macro stuff, is that impacting the timing of that 30 at all?

So first of all, I will start by saying about the Apollo, the feedback that we're getting, I will get into your question. So the Apollo, the feedback we are receiving from customers that are using it and from customers that are looking into it, if it's in FESPA or other events that we have, it's 2 words. It's a game changer. It's a game changer for the industry, both in terms of quality, in terms of automation, in terms of the production capability, and in terms of cost. We see existing customers that already bought one system, buying the second and the third, and even more systems. Our pipeline is getting bigger. But the interesting part is that our pipeline now is mainly built on net new customers that are coming from the screen market, many of them for the first time entering digital and they understand that they have no other way to fulfill what the consumer want or what their customer wants in terms of the agility and the Apollo and the MAX technology is the right technology for them. We also see many of them using the Apollo for long runs, really, really long runs. I'm talking one of the customers printed more than 10,000 garments, same garments on the Apollo, and they have also screened, and they understand it's more viable to do it on the Apollo. So really seeing the cost effectiveness of this. And they're also telling us that Apollo actually replacing 3 carousels and reducing, each Apollo reducing something like 15 to 20 headcount. So it's a major saving. And all over, we believe that the Apollo and the MAX technology is really opening for Kornit the opportunity to go after the mass production market, which is this $4.5 billion versus relative niche market that we were playing till now, which is the customized design that we were leading it and continue to lead it, but now the opportunity is much, much bigger. As for the expectation for this year, we still expect to deliver approximately 30 systems this year. We have a very strong pipeline. It's true that at least one customer that was planning to buy multiple systems this year decided to delay the process to a later stage. But our pipeline is filled and continues to be filled by net new customers and also existing customers, mainly focusing on stream replacement, on incremental volume, and we are optimistic about the 2025 and the future of Apollo.

The next question comes from Erik Woodring with Morgan Stanley.

Lauri, I obviously appreciate the new ARR disclosure, not to mention the other disclosures. I think it's extremely helpful for all of us and your investors. Can you maybe, though, just unpack this ARR number for us a bit? So $14.5 million of ARR, I believe that's Apollo and Atlas. I think the minimum for each product, I think, Atlas's minimums annually are $300,000, and Apollo is $1 million. So just units in AIC for Apollo versus Atlas. And I know you guys talked about that growing this year. Is there any way you could add a little bit of context to that to help us understand just how much we could think about AIC growing through the year, please? And then I just have a quick follow-up.

So Erik, I will start, and I'm sure Lauri will add on top of it, if I miss anything. So in general, what we reported is the ARR. And we are very pleased to see where we stand by the end of Q1. This is a mix of Apollo's and Atlas MAX and Atlas MAX POLY. There's a mix. We are not reporting exactly what is the mix. But I can tell you it's exceeding our expectation in terms of the ARR where we are today. More encouraging, we have a very, very strong pipeline for the AIC specifically. Already now in Q2, we are delivering. And in Q1, we delivered even more than what we expected, as I mentioned. So for the rest of the year, you will see continued growth on the ARR. Now, the ARR is the minimum commitment that customers are going to deliver on each one of the systems per the contract for 1 year. It's based on the minimum volume commitment multiplied by the Click price for those customers. You touched on a number. I would say it's not exactly accurate. It's close to what you have said. But it's shifting between long run to short run. So it's a bit more complex than that, but you are not far away from that. What we expect that this AIC, we already saw the contribution in Q1 of the AIC. Of course, the contribution in Q2 will be larger than Q1. And in H2, it will be very, very meaningful contribution to our revenue, the AIC. And therefore, this is one reason why we believe that H2 will be much stronger than H1 for our business. Lauri, anything to add?

No, that was perfect. So maybe just a follow-up, and it kind of leverages the first question as well, which is, I hear, you can see the data in the impressions. You can see the data in ARR here from AIC. And I think we can all kind of think holistically about why the shift to on-demand is urgent, same with the tailwinds from, for example, closing the de minimis loophole. I guess my question is like in a meaningful way, how long should we expect for these catalysts to play out? Meaning, are you seeing the benefits here immediately from a revenue and margins conversation? Or is this more conversations that are taking place today, and therefore, this is still a significant opportunity. But longer tail than that, it just takes multiple quarters or multiple years to get some of these customers over the finish line, and obviously, growing with you. I just want to make sure I kind of understand the pace at which we could see some of these tailwinds really start to play out for your company. And that's it for me.

This is a very good question, Erik. And we are not providing a very detailed guidance. But what I would say 2 things. One, in our investor event in September, we gave an indication where do we see the growth of the business for the next 5 years. And we said that we will reach very close to the $500 million. So you can see versus where we are today versus the impression, where we expect the impression growing into the next 5 years. Now, as part of the growth, some of the growth we see short-term. The growth of the Apollo, the MAX technology, getting into the mass production with screen printers, we already see it. It's very, very clear. We also see some retailers that are changing their business model and moving vertically and growing with us. The familiar name is Zumiez, but there are many more like Life Is Good, and I gave a long list of digital platforms that are moving and starting to produce, leveraging Kornit. So this is something we see. As for brands, if you are looking for major big brands, I can tell you, we engage with many of them. There are a few projects that are more shorter term. But with each one of them, there is pilots. And in the beginning, we are starting small, and then the intention is to grow and to scale. So if you expect it to happen in 1 or 2 quarters, I would say it will take longer. But we expect that already in H2 and definitely in 2026, some of those big brands will leverage our customer, will leverage the on-demand, and will leverage Kornit technology, vertically or through our fulfillers.

The next question comes from Brian Drab with William Blair.

First, just a small question. Can you clarify what we're talking about when we say the one-time materials recovery effort that added a couple of points to the service margin?

Sure. It was just an effort on the part of our service organization to attend to certain materials that needed to be brought back in and they did so and they finished with that activity. So we thought it was worthwhile to call it out.

And then are you able to give us any sense for how many Apollos have been placed to date in 2025? And also, I'm curious if you could comment at all on if you hit the 30 number for the year or roughly 30, how many new Apollo customers could you add in 2025?

Yes. So partially, I answered it before on the Apollo. We are not disclosing exactly the number of Apollos that we have right now in the field. I did mention very clearly that we're still expecting to deliver around 30 systems of Apollo this year. We have a very strong pipeline, which builds mainly on net new customers, but also existing customers that are buying additional systems. And I also mentioned a specific case of one of our customers that was planning to buy multiple systems and decided to delay. But those systems are being reallocated to new customers that are penetrating. So the good news is that we are becoming much more diverse, rather than having a few customers with many systems, we have many more customers that are starting to grow with us, with 1 or 2 systems.

I'll just try to ask Ronen, in a slightly different way just because the industry in so many industries this year, kind of February, March, April seems to have just paused. And I'm just wondering, do you expect to -- and maybe you don't want to answer this, I guess, but do you expect to place more Apollos in the second half of the year than you would have in the first half of the year? Is it somewhat dependent on a stronger second-half Apollo placement?

Part of the plan from the beginning was that the second half of the year will be stronger than the first half of the year. Part of the reason is the Apollo shipment. Many of the customers would like to be ready before the peak season. So we expect a large amount of Apollos to be shipped in Q3 and the beginning of Q4.

The next question comes from Chris Moore with CJS Securities.

Maybe we could start with, it sounds like it's not something that's keeping you up at night at this point in time. Is there any difference between the way direct sales are looked at versus the AIC model? I mean my understanding is most of the systems are shipped from Israel, spare parts from Europe. The AIC is maybe not technically a product sale. Any difference in the way that, that could be looked at?

So first of all, thanks for the question. So as you rightfully pointed out, I'll give a little bit more background. As you know, about 60% of our revenues are to the Americas. The majority of that goes to the U.S. And as you mentioned, the products we sell are largely manufactured in Israel, and that includes the systems, the inks, and a portion of the spare parts. It's important to note that some of those parts are actually manufactured in the U.S. So when we sell the product from Israel to our U.S. subsidiary, they sell it in turn to our end-user customers. For tariff purposes, what matters is the price at which we sell from Israel to the U.S. subsidiary, the manufactured goods. What they're used for, whether it's a straight sale or AIC, is not pertinent for tariff purposes. What is pertinent is the price at which we sell those goods to the U.S. subsidiary. That price is on a cost-plus basis, not the revenue price, cost plus. And of course, the parts that are actually country of origin U.S., are excluded, and that's about 10% to 15% of that cost. So consequently, we expect, barring any changes from the present state, that only a modest impact from the tariffs would be seen on the cost of goods sold.

And maybe just back to the competitive landscape. The AIC model, I think, it is a function of 2 things. You have great products, especially the Apollo, very strong balance sheet. Are you hearing anything in terms of competitors looking to try to create a similar AIC model?

We heard rumors about competitors that are talking with customers that they potentially can provide them something similar to AIC. We didn't see it in fact. And when we are looking at the cash position, balance sheet, or the situation of the companies that they are representing, we don't think it's a scalable model that they can bring to the market.

The next question comes from Troy Jensen with Cantor Fitzgerald.

Congrats on the nice quarter. I love the enthusiasm here, Ronen. Maybe quick to start with Lauri here. $14.5 million for the AIC, I'm assuming that's not a ratable number. It's not going to be 25% of it we're going to see next quarter. It's going to be maybe more back-end loaded or just correct me if that's wrong. And then when did you guys start really effectively selling AIC contracts? How long did it take to get to this level?

Okay. Thanks for the question, Troy. So as I mentioned, the ARR number for AIC that we're reporting is based on the minimum contractual impression number multiplied by the price per impression. And we do that at the point in which the system will ship to a customer. So from the point of shipment, it has to arrive, it has to be installed. It has to get up to production, et cetera, et cetera, et cetera. So it's not an immediate portion. As you mentioned, it's spread out over time, at least in the first year, after the first year should be fairly steady, okay?

Would it be more fourth quarter loaded though, given that everybody expects to print more in the fourth quarter? I guess that's one just the seasonality of the AIC revenue recognition.

Of the AIC well, yes, if our customers are in the customized design space, the fourth quarter is typically a stronger quarter for them. So in that sense, yes. But again, if we're reporting a deal in the third quarter until the customer gets up and running, it would take some time, right?

Right. Understood. And then just when did you start effectively selling it? How long did it take to grow to 14.5%?

We announced the AIC program at some point last year, maybe in the middle of the year, I think, and started marketing at that time.

And how about, Ronen, just for you, I'd love to get an update on the roll-to-roll market opportunity for you.

Can you repeat the question? I'm not sure I understood the question.

Roll-to-roll kind of more higher-end designer market. Lauri, you talked about this.

Yes. So we mentioned that roll-to-roll is going to be a growth year for these segments. And definitely in Q1, we see -- we saw growth versus last year Q1, and we expect for the rest of the year that it will be stronger than 2024. We start to see a nice traction in a few market segments. One of them, I mentioned in the previous calls, the footwear market. This has continued to grow. I can share that yesterday, we shaked hands with a new customer of -- actually is the second customer that already has systems for buying additional systems. So we shaked hands on this yesterday, and this is going to be delivered this quarter. So it's progressing. We see the appetite of those customers. They see the benefit, and this solution is commercial in the market, and you can buy footwear printed by Kornit technology. So this is one market segment. We can see also growth in the technical market with all kinds of unique applications in Asia and also in Europe. In the fashion industry, we see that we are getting more into the mainstream fashion industry with customers in India, in Latin America, in Colombia, specifically, we have a strong customer that is growing very, very nicely. So overall, there is a good progress of growth. We see nice growth on the impressions, and the feedback is getting stronger. We start to see a move in this market. It's still below what we expect it to be today in terms of the growth in this market, but the pipeline is getting stronger.

The next question comes from Chris Reimer with Barclays.

Most of my questions have been answered already, but I appreciate the time. Maybe just one for you, Lauri. Where are you guys finding any other opportunities to maybe just drive profitability a little more as you wait for the revenue side to kick in a little more?

Thanks for the question. So we are vigilant in looking for efficiencies in everywhere we can find them. I even highlighted one that impacted Q1. So we look at it in the way we operate in the processes, various expenses. We're very, very diligent and vigilant in this respect.

The only thing that I will add, the most important that adds to our profitability is, of course, impression growth. So we are doing a lot of activities with our customers, helping them, connecting them with demand generator, if it's brands, retailers, creators. The event that we had last month in Miami, the Connection event, was exactly about that, bringing into one room both retailers, brands, demand generators, connecting them with our customers. And this generated, of course, in the end, more impression to Kornit. Every impression is recurring or reoccurring revenue for Kornit, which is very, very important. The example of Gooten that we just mentioned as a new partnership this is an outcome of this event, and there are many more that will come.

The next question comes from Jim Ricchiuti with Needham & Company.

This is Chris Grenga on for Jim. The Gooten partnership, it sounds like a really interesting partnership and particularly in light of filling up capacity. How many more opportunities are there -- out there like Gooten to pursue to kind of feed the network with these like big, large partnerships?

Yes. Without getting to names, there are many, many digital platforms out there that all needs to move into on-demand. You don't want to work to -- as a consumer to go to a digital platform to ask for a product, and you get an answer that they don't have the size or the color, or the design. They have to move to on-demand, and we're approaching each and every one of them. We have already many great examples. One of our biggest customers is Printful that just announced the acquisition a few months back of Printify and many more, like the Zazzle and others that are using Kornit as a platform. Custom Ink is another big example of online digital platform that are leveraging Kornit technologies. Some of them are connecting directly through KornitX. Some of them, we connect them directly to our customers. And this is really driving growth to our customers and to Kornit, and is beneficial for the market.

And you had a healthy operating cash in the quarter, and it looks like you wrapped up the share repurchase plan. Just curious if you could comment on how you think about capital allocation priorities going forward in 2025 and what potential use of cash are you considering beyond the share repurchase program?

Okay. Thanks for the question. So of the approved $100 million share repurchase that we spoke about in September at the investor event, we have about $70 million remaining on that, which we expect to use in the near future. And at that time, we also laid out our capital allocation framework. In that framework, we spoke about, of course, the $100 million of returning capital to our shareholders. And while that is a fluid framework, and we can't say that it wouldn't change, we're not ready at this point to have that discussion yet. So also in that framework, we spoke about balancing organic investments like AIC with strategic acquisitions. We allocated a fairly sizable amount for the AIC program and a certain balance for acquisitions similar to those that the company has undertaken in the past. And we continue to review that and move forward.

We have a follow-up question from Brian Drab with William Blair.

I just found myself feeling like I needed to clarify one thing. So on the calculation of the ARR, I understand you've clearly stated a couple of times, it's the minimum cost per impression times the -- it's the cost per impression times the minimum contracted number of impressions. And if we get to the fourth quarter and every customer on AIC runs their machines, say, twice as much as they do in a normal quarter, just to put a rough scenario out there. Does the ARR calculation reflect that? Or it's still always just based on that minimum number of contracted impressions?

Yes. So great question, Brian, let me clarify. ARR always will reflect the minimum commitment that customer is signing on in the contract. The minimum commitment is the price per click that is paying Kornit multiplied by the minimum commitment of impression that he has to run. Even if you run twice, we will report as the ARR on the minimum. Where are you going to see the difference? Once we will start reporting on the AIC as a separate line, and this will probably be beginning of next year because it's going to be a significant number, then you will start to see the difference between the ARR to the actual revenue that's being captured from the AIC program. Hope it's clear.

The next question is a follow-up from Greg Palm with Craig-Hallum.

Just going back to your comments on the major Apollo customer that had committed and maybe delaying. I mean, I just want to make sure I'm clear. You used the word delayed, not canceled. And so I guess maybe a 2-part question, is there any potential that any of those units get placed this year? Is there a potential that they get placed next year? And is it more of a matter of trying to find the right place to put them, i.e., based on geography?

So I cannot get into specific. You probably all know who are the customers and they are okay, looking at the disruption that's happening in the market and asking themselves what is the next step from their perspective where they should produce. We are working very, very closely with them. I purposely used the word delayed and not canceled, it's delayed. We still hope that some of those units will happen this year. We are not waiting. We are reallocating those units to new customers. But if this customer will decide to implement a few of those systems, which we still hope that it will happen this year, we will do our best to support them.

Thank you. At this time, I would like to turn the floor back over to Mr. Samuel for closing comments.

Yes. So thank you all. I know it was a long call, many news at this call. I think you all understand that there was never a better time for Kornit to disrupt the market and to lead this change of moving to onshore mass production in a sustainable way. Thank you for joining today's call. We are very excited about the opportunity of going after the mass production. We see the progress about capturing those impressions, and we look forward to continue updating you and to give you transparency as much as we can moving forward. Looking forward to meet many of you on a personal level. Thank you very much.

Thank you. This does conclude today's teleconference. We thank you for your participation. You may disconnect your lines at this time, and have a great day.