Greetings, and welcome to Kornit Digital's First Quarter 2022 Earnings Call. As a reminder, this conference is being recorded. I'd now like to turn the conference over to our host, Andrew Backman, Global Head of Investor Relations for Kornit Digital. Mr. Backman, you may begin. Thank you, operator. Good day, everyone, and welcome to Kornit Digital's First Quarter 2022 Earnings Conference Call. With me today are Ronen Samuel, Kornit Digital's Chief Executive Officer, Alon Rozner, Kornit's Chief Financial Officer, and Amir Shaked-Mandel, Executive Vice President of Corporate Development. 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 US securities laws will be made on this call. These forward-looking statements include, but are not limited to statements relating to the company's objectives, plans, strategies, statements of preliminary or projected results of operations or our financial condition, and all statements that address activities, events, or developments that the company intends, expects, projects, believes, or anticipates will occur in the future. Forward-looking statements are subject to known and unknown risks and uncertainties and are based potentially on inaccurate assumptions that could cause results to differ materially from those expected or 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 on March 30, 2022, which identifies specific risk factors that could cause actual results or events to differ materially. Any forward-looking statements are made as of the date hereof, and the company undertakes no obligation to publicly update or revise 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, which was published today and is also posted on our website in the investor relations section. At this time, I would like to now turn the call over to Ronen. Ronen? Thank you, Andy, and good day, everyone. Thank you for joining us on today's call. I'm pleased to share that we delivered a good start to the year with revenues coming just about the high end of our guidance and operating margins in line with our expectations. For the first quarter, total revenues grew by 26% year over year to $83.3 million, net of $8 million in warrants related to our global strategic account. System revenue growth was very strong and overall system contribution to the revenue mix was very high. We saw diversification across the business within our top ten customers, with very strong performance of our global strategic account that continues to execute on its aggressive expansion initiatives throughout 2022 and 2023. We saw a record quarter in Asia Pacific and a strong quarter in both EMEA and the Americas. We continue to make progress with major brands, including one of the largest retailers in the world, who acquired several Atlas MAX systems this quarter. This major retailer is focused on the ability to scale and automate massive quantities of production, in addition to leveraging the incredible benefits of KornitX and our global fulfillment network. On the product side, we see a strong pipeline and adoption of the Atlas MAX with existing and new customers. We are moving along through the initial stages of the Atlas to Atlas MAX upgrades, which will continue to gain pace throughout the year and into 2023. We also received tremendous customer feedback on the automation upgrades, which will be selectively available in the second part of this year with commercial availability in 2023. We had an exceptional quarter for the Presto, especially in Europe and Asia Pacific, and see a lot of excitement and momentum around the Presto Max, which now represents the majority of the DTF pipeline. We also see an increasing backlog for Presto Max upgrades as customers tell us that enhancing the decorative capabilities for dark colored fabrics is a massive benefit. On KornitX, we continue to engage in several very interesting initiatives with some of the largest digital platforms, marketplaces, and brands in the world. We are particularly enthusiastic about the upcoming launch of our strategic partnership with Wix, one of the leading SaaS and e-commerce platform in the world with over 220 million users globally. Wix is a leading platform for creators and enterprises of all sizes that are looking to build a digital presence. With Kornit X, the Wix platform will enable its massive community to seamlessly add on-demand fulfillment services, opening to them exciting commerce and merchandising opportunities. We expect to go live later this quarter and are excited about our joint roadmap ahead. In addition to this massive opportunity in our pipeline of new partners, some of our existing Kornit X customers and partners continue to scale volumes and the total GMV running on the platform, and we are very satisfied with our progress. As mentioned on our last call, 2022 will be an exciting year of groundbreaking new product introductions. In early April, we hosted the extremely successful Kornit Fashion Week Tel Aviv, where we officially unveiled the Atlas MAX Poly and demonstrated our revolutionary game changer, Kornit Apollo. The Apollo is the most comprehensive digital single-step system targeting screen print mass production markets and the perfect solution for nearshore mid-run mass production with best-in-class MAX quality with the lowest TCE and the highest output per operator. Apollo uses smart curing from our recently completed Tesoma acquisition. We expect early customer engagement for Apollo in the second half of this year and commercial availability mid-2023. We see strong movement and growth in the market from brands and retailers shifting traditionally mass-produced offshore jobs to nearshore and onshore short-run production, supporting their lean inventory, fast replenishment, and in-season reactivity needs. Our strong portfolio of mass production MAX solutions and soon to come Kornit Apollo, all powered by our unique KornitX platform, place Kornit in a remarkable position to cater to these evolving market opportunities and trends. While we see these tremendous and growing tailwinds fueling our business, our customer and us are not fully immune to the overall macro headwinds and certain post-pandemic dynamics. We started this year with a strong backlog and robust pipeline, but as we move deeper into the first quarter, we began to see the macroeconomic volatility weigh on the pace of consumer purchases and on capital allocation decision of certain customers. As such, some of these purchases and expansion plans are now shifting out into later quarters. We remain excited with our growth plan for the full year and continue to expect the second half of this year to be much stronger than the first half in terms of both revenue and profitability. Considering the near-term volatility of the top line and the continued investment in major marketing events and the sales activity this quarter, we expect operating profitability in the second quarter to be lower than the first quarter, as Alon will discuss it shortly. We are extremely energized heading into Kornit Fashion Week London, which will take place next week. We expect over 600 brands, designers, retailers, influencers, investors and press to attend, where we will demonstrate how virtual and physical fashion worlds intersect. This coming event, as well as the FESPA event in Berlin at the end of May, will be a catalyst to develop our funnel and pipeline for the coming quarters. In summary, we remain focused on our mission to build the operating system for on-demand fashion and the massive opportunities ahead. As I mentioned, while we are not fully immune to overall macroeconomic headwinds and near-term volatility, we continue to expect to deliver ahead of plan the $125 million run rate business we originally targeted for the fourth quarter of 2023, and remain confident in our journey to become a billion-dollar business in 2026. We are working extremely hard to mitigate the external macro factors, and I remain extremely confident in our team and the value we deliver to our customers. Thank you again, and we hope to see you next week in London. With that, let me turn the call over to Alon for a closer look at the numbers and the guidance. Alon. Thanks, Ronen, and good day to everyone. We are pleased to report first quarter revenues of $83.3 million, net of $8 million non-cash warrant impact related to a global strategic account, which is just above the top end of our guidance range of $87 million-$91 million. As a reminder, our guidance assumes zero impact from warrants. As Ronen shared, we saw good diversification across the business in the first quarter. Systems revenues were very strong, primarily due to very strong sales for both Atlas and Presto. Services revenues increased 32% year-over-year to $10.8 million and were 13% of total revenues, net of non-cash warrant impact of approximately $350,000. Top 10 customers accounted for approximately 53% of total revenues this quarter. Looking at the regions. Asia Pacific had another record quarter with good mix of both Atlas MAX and Presto systems, including several Prestos in Japan and its first Presto MAX system in India. We continue to see very good interest in the region for both DTG and DTS systems in addition to Kornit X, with opportunities unfolding in Korea, China, Japan, Australia and India. EMEA delivered one of its best quarters ever, including upgrades from Atlas MAX. Building upon the strong go-to-market foundations executed over the past several years, we saw continued interest and momentum across the entire region for both Atlas MAX, Presto MAX and Kornit X. In the Americas, new customers included a major swim and sports apparel company who will be utilizing our Atlas Poly, a licensee for major professional sports leagues and direct mailing solutions provider, both utilizing Atlas. We continue to see strong momentum in Central America and Mexico as a result of nearshoring, including additional wins for Atlas MAX and a robust pipeline for Presto systems. Moving to margins. Non-GAAP gross margin, net of the impact of the warrants, was 41.5% compared to 47.1% in the same period last year. This was due to several factors, including a higher mix of systems as a percentage of total revenues, including sales to our largest strategic account, who has experienced significant growth in and beyond the U.S., and higher DTS sales in both Europe and Asia Pacific. In addition, we had lower consumables revenues as a percentage of total revenues. During the first quarter, we moved to mass production in our new ink manufacturing facility. We believe, as consumable sales pick up throughout the year, we will gain operational efficiencies on the fixed costs in the business. Looking forward, we expect gross margins in the second half of this year to revert back to similar levels we saw in the second half of 2021, primarily driven by new product introductions, an increasing percentage of revenues from our recurring revenues consumable business, operational efficiencies, and longer term, the acceleration of KornitX and other software-driven initiatives. Looking at macroeconomic issues and supply chain, we, like our customers, are not fully immune to overall macro pressures, including impacts from inflation and higher interest rates. In this environment, we are working hard every day to proactively address and mitigate these impacts on the business where possible. These include focused cost reduction project, continued supply chain initiatives, including dual sourcing strategies and long-term commitments, design adaptation, as well as selective price increases. Given our proactive supply chain initiatives, we remain confident in our ability to deliver on all our 2022 customer commitments and, utilizing our strong balance sheet, continue with our efforts to secure our 2023 supply chain requirements. Turning to expenses. Total first quarter operating expenses were $35.2 million, a decrease of 8% from the fourth quarter and an increase of 43% year-over-year. As I stated last quarter, we continue to invest in R&D to support our array of industry-leading NPIs, as well as in sales and marketing, as we see meaningful opportunities to generate long-term acceleration in revenue growth. Research and development expenses were $12.8 million in the first quarter, or 15.4% of revenue, as compared to $8.9 million or 13.5% of revenue in the first quarter of 2021, primarily due to continued investments in new product introductions and KornitX. Sales and marketing expenses were $14.6 million or 17.6% of revenue, as compared with $9.9 million or 14.9% of revenue in the same period last year, due to continued expansion of our go-to-market strategy and capabilities in all regions, including the transition to direct sales model in some regions, including EMEA. We continue to invest in brand awareness initiatives, including Kornit Fashion Week, Tel Aviv, and Fashion Week, London, as well as other customer-focused events, which will impact sales and marketing expenses in the second quarter. General and administrative expenses in the first quarter were $7.8 million or 9.4% of revenue, as compared to $5.8 million or 8.8% of revenue in the first quarter of 2021. The increase was due to staffing and other investments to support the overall business infrastructure. Non-GAAP operating loss was $0.7 million, net of $8 million of non-cash warrant impact. Excluding the impact of the non-cash warrants, operating margins were in line with our guidance of 7%-9% for the quarter, which again assumes zero impact of the warrants. We ended the first quarter with 913 employees, a year-over-year increase of 213, and an increase of 31 employees from previous quarter, primarily in R&D and sales and marketing. Non-GAAP net income for the first quarter was $0.2 million or $0.00 per share on a fully diluted basis, as compared to $7.7 million or $0.16 per share in the first quarter of last year. First quarter GAAP net loss was $5.2 million or loss of $0.10 per share as compared to GAAP net income of $5.1 million or profit of $0.11 per share for the first quarter of 2021. Adjusted EBITDA for the first quarter was $9.5 million, as compared to $10.8 million in the first quarter of 2021. Our cash balance, including bank deposits and marketable securities at quarter end, was $734 million, a decrease of approximately $64 million versus last quarter, primarily due to cash used in operations of $47.1 million and capital expenditures of $7.5 million in the first quarter. We came off a strong peak season in the fourth quarter and ramped order during the second half of the first quarter. The timing of sales later in the first quarter to our largest strategic account grew receivables materially quarter over quarter, producing a drag on cash flow. I want to emphasize that we see no collection issues in our receivables, and we anticipate cash collections to improve over the next several quarters. We also used our balance sheet to secure our supply chain, including building up key categories of inventory due to long lead times and shortages. This includes components for Atlas MAX and automation upgrades, which we expect to begin materializing in 2022 and into 2023. We also made advanced payments for key go-to-market programs. Turning to guidance. As Ronen mentioned, given the macroeconomic impact on consumables and capital allocation decisions of certain customers and overall near-term volatility, we currently expect second quarter revenues to be between $85 million-$95 million. We expect revenues in the third and fourth quarters to be stronger than the second quarter. In addition, considering the near-term volatility on the top line and the continued investments in the business, including investments in multiple NPIs and significant events like Fashion Week, Tel Aviv and London and industry events, including FESPA, we expect operating profitability in the second quarter to be lower than the first quarter. Specifically, we expect operating margin in the second quarter to be between -2% to 2% and EBITDA margins of 0% to 4%. Further, we expect higher operating margins in the second half of the year, with operating margins in the third and fourth quarters to be in the low to mid-teens. I want to reiterate that all guidance assumes 0 impact from fair value of issued warrants in the quarter with our global strategic account. With that, let me turn it back to Ronen. Thank you, Alon. Operator, we are now ready for the Q&A session. Thank you. At this time, we will be conducting a question and answer session. If you would like to ask a question, please press star then one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star and two if you would like to remove yourself from the question queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please while we poll for questions. The first question comes from Jim Suva from Citigroup. Please go ahead with your question, Jim. Thank you very much. I have a few questions. When you mentioned the slowdown, is the slowdown primarily related to your global strategic customer or is it not that and it's actually absolutely not that, and it's more the other accounts and customers that you're dealing with? I have a follow-up. Thank you, Jim. Actually, it's a mixed view. The slowdown that we see is coming mainly from the e-com segment. We have many customers that are building the business based on the e-com, and we see different view from different customers. You were referring to our global strategic account. Actually, in this case, we see a tremendous growth. Tremendous growth in Q1, tremendous growth in Q2, and we have very high expectation of continued growth, not only in 2022 but also in 2023. On the other hand, we see some other customers that saw during Q1 and now during Q2, a slower growth on the e-commerce, which impacts their business. By that delayed decision of acquisition of new system, and we saw a slowdown in specific customer also on the supplies during Q1 and now also during Q2. On the other hand, we see a very strong tailwind in other segments that we are serving. For example, in the retail market, customers that serving the retail space, we see a major growth. We see momentum moving job from offshore, from China, from Bangladesh to onshore and nearshore, and those customers enjoying it and growing really fast. We see also other small customers and strategic customers that working with both retail and e-commerce that continue to grow. DTF specifically, and the Presto MAX specifically is growing very fast. It was a very strong quarter for Q1, and we continue to see momentum into Q2 with the Presto MAX. Interesting to see the momentum that's coming from Asia. Asia is the second quarter record quarter for Asia, but also in EMEA. While other businesses see a slowdown in EMEA, we actually see a major growth coming from EMEA, and we expect a very strong Q2 also from EMEA due to some of the major activities that we are doing there with Fashion Week in London and FESPA. Atlas MAX, we see adoption, we see great feedback from customers, and we're also starting to see a very nice growth coming from KornitX. With the announcement today on the Wix partnership and few other partnerships that we are developing, we expect continued growth into H2 and material revenue coming into 2023. Jim, to summarize, is a mixed view. Definitely we saw and we see now in Q2 few customers that serving in the e-com that deciding to delay purchase of new system in Q2 to a later stage. Some of them will buy in H2, and some of them will delay it even to 2023. Okay. Thank you. My last or my follow-up is, you talk about an improvement in the second half of this year. What gives you the confidence or the conviction of that as opposed to what you're kind of giving for Q2 right now? 'Cause about three months ago, it seemed like this downshift wasn't likely to happen. I'm curious about your second half conviction. Thank you so much. Actually, we see Q2 kind of a bump on the road. We believe in the $500 million run rate earlier than expected than the Q4 2023. We believe in the long-term vision of the $1 billion in 2026 or before. All the fundamentals of the business are growing and accelerating. We see the offshore moving onshore. We see the consumer trends to have unique clothes. We see overall e-commerce is growing. It's just slowing down versus last year, where it was growing very fast. So all the major trends that we were talking, and definitely the sustainability and short-run printing, short-run production is a major driver to our growth. You were asking why we believe in H2 that it will be stronger. It will be much stronger than H1, and it will be much more profitable, as Alon mentioned, than H1. First of all, we have a line of sight to major orders. Some of them is from our global strategic accounts. You will continue seeing from the global strategic account revenue coming not only in Q2, but in Q3 and Q4 and definitely also in 2023. We have major product introduction during Q2, which is the Atlas Poly and the Presto MAX that we already got orders and the implementation will be during H2. We have very high visibility on orders. Remember that H2 always is much stronger in terms of ink consumption. Q4 is always peak season, you will see a much stronger H2 versus H1. Thank you so much. Thank you. Next question, please. Yes. The next question comes from Tavy Rosner from Barclays. Please proceed with your question. Hi. Thanks for taking my questions. I wanted to first talk about the progress with brands. You mentioned in the opening remark that you're seeing significant progress. How does it compare, you know, the level of interest compared to last quarter? I'm just curious to also get a sense of the conversation you're having with brands. Are they still talking about, you know, why adopting Kornit, or they're moving into rather when to adopt Kornit? Yeah, thank you. Very good question. We see accelerated engagement and growth on the brand side. We specifically see a very strong growth in EMEA with some of the biggest brands of the world. The brand that I mentioned in my opening remarks is one of the top five fashion brands of the world. They decided, first of all, to go vertically. They acquire few Atlas MAXes, and they are running them, and they're picking up production. They also will start working through KornitX. We see different behavior from different brands. Some of them adopting KornitX as the main vehicle, some of them would like to be fully vertical, and some of them having kind of the hybrid mode. We are working with, I can tell you tens of major brands and hundreds of mid-sized brands across the world. Many of them will be next week in London Fashion Week, and they are fully engaged with the vision to transform the business directly to consumer on demand and sustainable. The main driver for the brands, first of all, nobody wants to deal with the supply chain crisis that they were dealing in the last two years, both in terms of the waste that is being generated, in terms of being able to forecast what they need to deliver and when they're going to get, and the increased cost. They all want to move production locally onto nearshore. They would like to control the supply chain, and they would like to do it in sustainable way, without waste, and in sustainable production. This is why they would like to use digital and specifically Kornit. Those are the major trends. Of course, the entire behavior of the consumer is totally different from what it was in the past. Consumer today and people today would like to be unique, would like to have different clothes, and by that, the brand needs to react and to be proactive and to allow the consumer to choose much wider SKUs, even up to customization and personalization, and we see it across the board. Those are the main drivers for the brands to adopt digital and specifically Kornit. One more thing that I would say why they're adopting specifically Kornit and why Kornit is the one that's talking with the brands is quality. We are the only one that have the highest quality, the brand quality, both in terms of the appearance, in terms of the durability, that the brands needs. In the past, it was almost there. It was difficult to get there. Screen was better quality. With the MAX technology for the first time, Kornit surpassed the screen quality, and we are by far better both in terms of appearance, durability, application range, and now it's being very, very attractive with all the tailwind of the different market trends to adopt digital. All right. Thanks for that. I wanted to talk about KornitX. You mentioned the partnership with Wix, and I'm assuming that this will be helpful on the front end of the business. I'm just looking down the road, you know, what are the next stages, you know, for KornitX and the ramp up? Yeah. On KornitX, we see really a nice progress. The progress is both from the demand generation, companies like Wix, and I will touch maybe in other areas that we are focusing, but also on the GFN, the Global Fulfillment Network, that's fulfilling it everywhere around the world in consistent quality. We see progress on those two fronts. Of course, we are all the time improving the platform and the capability and the ease of use of the platform. In the last few months, we have many discussions, management discussions about areas of focus. We are focusing right now with KornitX. Main focus was on the fashion, the fashion industry, the fashion brands, but we're also focusing on major platforms like Wix. We are also now starting to work with a major gifting platform, one of the leading gifting platform of the world starting to use us. Canva is a great example of a platform that already running through KornitX. We're starting to see major adoption. We are talking with, I can tell you, with all or many platforms around the world, think about music platform, and TV platform and movie platform and so on. All of them have potential to use KornitX to monetize their platform, to create merchandise mainly around the fashion industry, leveraging KornitX, and we see major progress. As I mentioned, in H2 this year, we will start to see meaningful revenue coming from KornitX, and we expect KornitX really to accelerate growth in 2023. Thanks. Just the last one, if I may. Off of that competition, I'm starting to see more press releases from the manufacturers of screen printing equipment, you know, going into digital DTG solutions. Is that something that you're seeing as well? Are you concerned at all? The answer is that I'm not concerned. Actually, I believe that we build a very, very strong new moat around our technology, around our products. In the last two years, actually we've developed our products, and we created much bigger gaps versus any of our competitors. We always had competition, and we always will have competition. This is a very interesting market space. I don't see anyone else there with, first of all, the quality that we have by far, nothing to compare to the print quality that we have with the MAX, the durability that we have, the ease of use, the automation, the productivity now that we are bringing also with the Apollo. The mix of the platform that we have, both DTG and DTF, with the leading Presto technology. On top of that, the KornitX platform that really connecting demand to fulfiller. We are creating something different to many of our competitors. We are creating a platform. We are creating an operating system, end-to-end operating system, and none of our competitors really looking at this holistic. We're already dealing with most of the major players in the market. It's our, the fulfillers, brands, marketplaces, fully committed to us, and I believe this is just the start. The technologies that now we are launching this quarter with the Atlas Poly, with the Presto MAX, with unveiling the Apollo, which will be ready next year, which is a game changer, not only in the current segments that we're addressing, but really going after the replacement of the screen market. This is a game changer. This will accelerate the growth of Kornit, and I'm more confident than ever in our technology and ability to reach the $1 billion in 2026. Great. Thank you very much. I will see you in London. Okay, great. See you. Thanks, Tavy. Claudia, next question, please. Thank you. The next question comes from Rod Hall from Goldman Sachs. Please proceed with your question, Rod. Yeah, thank you. Morning, guys. So I wanted to or evening for you, I suppose. I wanted to dig into the demand situation a little bit more with you, Ronen. It sounded like there were large e-commerce customers that pushed out purchases. So you think that they're seeing lower demand for products themselves, their revenues are being impacted by macro, and then they're pushing these out? I guess the reason I wanna dig into this is we thought that as people travel more, as they get out more, this year, that demand for, you know, T-shirts and fashion more broadly would probably go up, not down. Just wanted to dig a little bit more into what you think is going on with that dynamic and what those customers are seeing on the ground, and then I have a follow-up. It's an interesting dynamic, and I'm not sure that I have the full answers. In terms of the demand, consumer demand, we see different behavior in different segments. As I mentioned, in the retail environment, we see customers that serving the retail that actually see a massive growth. I wouldn't say that the consumer demand is declining on T-shirts and hoodies and across the board. As I mentioned also with our strategic global customers, they see tremendous growth. Right. Okay? Across the board, not only in the U.S., but also in Europe. We have some customers, without getting to names, that are mainly driving the business on B2C, which see a slowdown. Some of them really gain a capacity during the last two years. They purchased additional systems and capacity, and they just don't see the same level of production that they used to see. Some of them seeing a plateau, some of them seeing a decline in their business. Few of them were planning to place order in Q2 to be ready for the peak season of Q4. At this stage, they decided to delay this decision due to the current situations that they see. Of course, if it's a bump on the road, they will continue to purchase it during H2. If not, it will come in 2023 from those customers specifically. Again, e-commerce is not going to disappear. E-commerce is growing, is growing now. It will continue to grow. This is the right direction. It's just a bit of a slowdown that they're feeling right now, and I'm sure that we'll see it coming back. Okay. That's great, Ronen. I wanted to ask you, Alon, if you could talk a little bit more about the margin mix in the quarter. I get that, you know, Amazon or I should say the strategic customer was stronger than we thought it would be. That was very strong, so I get that mix effect. I wonder what happened to ink and consumables. Did you see lower ink and consumables demand than you thought? Can you quantify, you know, what happened with ink and consumables at all for us? Thanks. Yes, sure. First, you know, just to continue Ronen's answer from previous question, which also relates to the margin. We don't see any dramatic change in the mega trends and the fundamentals in the market. I mean, we clearly see growth, and we have very solid business model to support this growth, and we are strong, you know, to deal with some volatility and uncertainty. Yes, we see some uncertainty now in the market, mostly related to the macro processes, the global economy. Then goes deeply into our margins. I think that the result in Q1 of margin is related to mix, to volume, and the timing of the deals. The mix in Q1 was a lot towards system, which is very good for us because it increases our install base. We saw very strong system sales both for DTG and DTS. We had a very strong quarter for DTS. In terms of volume, the consumables were lower. In terms of percentage, we saw growth in consumables. It was lower than we expected. There entered the volume factors into the game. We have the capacity in our new ink manufacturing. When we're manufacturing less, we get the hit of the fixed cost. That's why we say that as we go throughout the year where consumables portion will be higher, then we will go back to the levels of margin that we saw in the second half of 2021. our business- Okay. When you look at H2 will be similar to H2 2021, which means around the 50%+ on the gross margin. We are fully confident that we will continue to see expansion into 2023 on the gross margin on the way to reach to the 54%-55% gross margin as we promised to our investors. Great. Okay, thank you very much. Great. Thanks a lot. Thanks. Claudia, next question, please. Yes, the next question comes from Jared Maymon from Berenberg Capital Markets. Please go ahead, Jared. Hey, good morning, guys. Congrats on the good quarter and great news on Wix. That's really reassuring for your next business. First question from me. Can you hear? Yeah, absolutely. First question for me, just on the excess capacity that you guys have mentioned. I remember back in, I think it was Q3 2021, you guys mentioned that you had placed the entirety of your order for 2022 with your contract manufacturers. I'm wondering if you thought this kinda excess capacity could be a problem back then when you made that order, or if there's been kind of an incremental shift since then? If it's impacted that order, and then how heavily does this kinda weigh on your near-term guidance? Yes. We don't see any dramatic change in our plans going forward. There is a timing issue now and we have higher raw materials or inventory at the end of Q1. All of the increase in inventory was raw materials. We are not stuck with stock of systems that, you know, are waiting for sale. We are building our raw materials to be ready with the NPIs, with the upgrades and then we are ready for growth in second half of this year. We don't see any risks at this point for excess inventory. Okay. Got it. That's great. Thanks a lot. I'm just curious with the kinda near-term volatility that you guys are seeing. I'm wondering, is there any kind of decrease in appetite in M&A, or do you think maybe you're even a little bit more eager now that valuations have probably come down in the private market? We are engaged and looking very closely into all kinds of opportunities, mainly on the software side, on the M&As. The market now is more interesting and of course, we are looking deeply into that. Our strategic direction is very, very clear. We are not changing anything from the directions that we are taking as the company. We believe in the future. We believe in becoming the operating system for the fashion industry. Areas that we need to invest in M&A, we will continue to invest. There is no change in our plans. Okay. Got it. Okay. That's great. Just one last quick one from me. I'm just curious what sequentially, it looks like service gross margins declined. So I'm just wondering what happened there. I assume maybe it's related to the Atlas MAX upgrades, but curious what happened there and then what the outlook is for the next couple quarters. Fairly good problem. Decline year-over-year sequentially. Okay. quarter-over-quarter. You know, in service business, there are different components, and it's very much related to which project we do at each quarter. Overall, we are keeping investing and you know building our service organization, and it very much depends on specific projects. Overall, we continue to see continuous growth and improvement in service profitability, and this is the way we plan it going forward. This year we expect to see a major growth on the service, both revenue and margin. You will start to see more adoption of the upgrade kits in Q2 and definitely in H2, which will influence the service P&L, both on the top line and bottom line, on gross margin. You will see a major improvement there. Got it. Thanks, Ronen. Thanks. Great. Thanks, Jared. Claudia, next question, please. Okay. The next question comes from Brian Drab from William Blair. Please go ahead, Brian. Hi. Thanks for taking my questions. I just wanna clarify one thing. I know you said you're seeing some customers in the second quarter delaying decisions. It sounded like, Ronen, that you're saying you're not sure what some of those customers are going to do in the second half of the year. Or are there some of those customers that are saying, "We're delaying second quarter, we'll see you in the third quarter," or with all this economic uncertainty, is it really an unknown? Then getting back to where does the confidence come from for the second half of the year? Is it more related to some of these customers, you know, knowing that they're coming back, or is it more related to just the overall momentum from all the new product introductions and seasonality, et cetera? Yeah. It's Brian, thank you. It's a mix. Look, it's few customers that were planning to purchase in Q2 and decided to delay the purchases. It's not a big amount of customer. We see overall on the supply some kind of slowing down in Q1 and some slowing down also in Q2. Actually, in the last week, we start to see a different trend on supply. Hopefully, this trend will continue, a positive trend. Those customers that decided that we were planning that they will buy in Q2 and decided to delay, a few of them, we have a date with them for H2, but a few of them didn't decide if they will buy at all this year or it will be delayed to next year. The confidence that comes for H2 is not based on those customers. The confidence that comes for H2 is based, first of all, you know, we have recurring revenue. Almost 50% of our revenue is recurring, and it's H2 recurring is higher than H1 by this. This is the basic of our tendency of the business. On top of that, we have a few strategic customers, including our global strategic customers that we have already the orders and commitment, and we are producing the systems and so we don't see any risk on those. We see a growing pipeline on the new product introduction, mainly on the Presto MAX, that we are now producing them, and many of them will be shipped only in Q3 and Q4. The same thing on the Atlas Poly, which we are going to release it only by the end of this quarter, Q2, and the main impact will be into H2 revenue. Also, we start to see revenue coming from KornitX, mainly into H2. All in all, our confidence level into H2 that it will be much stronger, both in top line and operating profit, and also gross margin will be look totally different, very similar to the gross margin we saw H2 last year. It's very high. Got it. Okay. You know, there's been some discussion around. I mean, in the past you've had certain customers attend your analyst days and highlighted some strong relationships that you've had in the past. I'm curious, can you update us on, you know, any specifics around the strength of your relationship with Fanatics and Delta Apparel? Yeah. It's a good question. I was anticipating it. So, you know, first of all, we have a great relationship both with Fanatics and Delta Apparel, specifically DTG2Go. I cannot get into the specifics of their business. I recommend you, and I'm sure that you're approaching them, they will give you all the answers. In general, Fanatics decided to change their business model. Fanatics is a brand, and they decided actually instead of being vertical and produced by themselves, to outsource their production. They're outsourcing it both to DTG2Go, but also to other customers. I think this is the direction that we're foreseeing, and this is exactly why we have Kornit X, to enable those brands like Fanatics and like many others to fulfill through a network of fulfillers, but using Kornit technology. As for Delta Apparel, Delta Apparel is one of our largest customers. They have a fleet of Kornit. In the last two quarters, we are aware that they decided also to acquire a few systems from one of our competitors. Mainly, they look at it as more of a replacement for screen, not for short run, not for one-off, not for direct to consumer, more for the long run. We know that they are testing it. We know a bit more on that, but I will not get into it. We again believe that our solution and definitely what we are bringing to the market with the Apollo will be the best solution. I'm sure that we will work closely with Delta Apparel and Fanatics and the others to make sure that they continue working with us in strong partnership. We like them, they are customers, and we continue to support them for many years to come. Okay, thanks. Thanks very much. Thanks, Brian. Claudia, next question. Thank you. The next question comes from Jim Ricchiuti from Needham & Company. Please go ahead, Jim. Thank you. I wanted to go back to this global brand that purchased Atlas machines. How are they using these Atlas machines? Are they using it for an e-commerce application, or are they using it as kind of a hub to supply some of their retail stores? I'm not entirely clear on that. I can't get into too many details because then it will unveil who is the customer, who is the brand, and they would like to keep it confidential at this stage. They're actually building a unique business model combining both. In the end, they would like to address also directly the customers. It's a hub that they are building, but I cannot say more than that. To what extent, Ron, can you say if some of the ESG-type benefits of your technology played at all into their decision? Yes. I would say two things that played into their decision. First of all is quality. They would like to have the best quality in printing on garment. They were testing our solution. They're developing special garments for those solutions to have the best quality in the market. Quality is number one. Definitely sustainability is a key issue, and supply chain making it closer onshore production is also very important to them. I wanted to also a follow-up question just with respect to the upgrade of the Atlas fleet, the install base, in light of some of the changing dynamics that you're seeing in the market. I think in the past you've talked about as much as three-quarters of the existing Atlas fleet potentially upgrading to Max. Has that. Correct me if that's correct or not. Or are you seeing any change in light of the market environment? Just with respect to the market environment, am I correct in assuming this is mainly in the U.S.? It sounds like you're seeing good momentum in APAC and good momentum still in EMEA. I'll jump back in the queue. Thank you. In terms of the momentum, you know, Q1 was very strong as well in Americas. We actually see in Americas into Q2, a different, again, mix. We see actually a very nice growth in Latin America coming from Brazil and Mexico. More of the nearshore production is growing. We see few customers that are producing for retail, in Americas that are growing. We see also some slowdown in Q2 from, customers that may be in the e-com side. Indeed, it's more right now in the Americas. Again, I believe it's a very short-term bump, on the road. As for the upgrade of the Atlas to Atlas MAX, we are on a journey right now. First of all, we are not changing our focus of 75% of the installed base upgrading their Atlas to Atlas MAX. We are on the journey to create a new standard of quality. We believe that the MAX will be a new standard of quality for the industry. We are working very closely with the major brands to decide that this is the standard. Our KornitX will be based on the standard of Atlas MAX, on the MAX technology. Therefore, we're putting a lot of emphasis on that, and you will start to see more adoption of the upgrade kits during Q2 and mainly in H2, and while we're ramping up our service and support organization to implement it with our customers. Thank you. Thank you. Thanks, Jim. The next question. Thank you. The next question comes from Chris Moore from CJS Securities. Please go ahead, Chris. Thank you, and good morning. It's actually Dan in for Chris. You've talked quite a bit about nearshoring on this call. Can you give some specific examples? Is it happening yet? Where do you see it accelerating, and how big of an impact do you see it having long term on the business? Thank you. Yeah, we see it a lot both in EMEA. We see it definitely in the U.S. inside, but also in Mexico very strongly. We have few customer in Mexico that's growing very, very fast and doing nearshore for North America, but we have few customers inside North America that are starting to get bulk job that they never been used to get those in the past, moving actually directly from brands that used to produce in China and in the Far East and producing now onshore or nearshore. It's very obvious. It's very clear the trends, you know. We see it both on the digital side, but when we're talking to our customer, they see it also on the conventional side. A lot of the large orders are moving now onshore, both in EMEA and in Americas. That's great. One more for us. Given the slate of new product introductions, MAX, Poly, you know, Apollo, others, can you talk about the impact on Kornit's ASP and gross margin profile over time? Thanks again. On ASP, actually overall ASP of system in Q1 went up. Our focus is to sell more high-end products. You will continue to see the ASP improving along the year because we'll sell more of the Atlas Poly and more of the Presto MAX and even the Atlas MAX, of course, the ASP of the Atlas MAX is higher than the ASP of the Atlas. As well, unfortunately, we had to do some price increase, which also impacts the ASP, you will see it. In terms of the gross margin, I think what you've seen in Q1 is what I would call a one-off, and it came mainly from a very low mix between supplies to systems. We had a very low revenue on supplies in Q1. Some of it already because customers were acquiring supplies in Q4. They were focusing Q4 to be stronger, and they had supplies using it also for Q1, so ordered less supplies in Q1. We start to see new, different trends right now. We start to see an improvement and starting to get larger orders for supplies. Hopefully let's wait few more weeks to see that these trends continue. This is the major impact on gross margin. Gross margin for Q2 will be much better than the Q1, and H2 will be very similar to last year, so around the 50% or 50% plus in terms of gross margin, and you should expect in 2023 expansion on gross margin as well. Just to add, longer term, we keep our target in the long-term model to have gross margin between the 50%-54%. Very helpful. Thank you again. Thank you. The final question comes from Greg Palm from Craig-Hallum Capital Group. Please go ahead, Greg. Yeah, thanks for fitting me in here. I guess on gross margins, specific to systems, it sounds like you know, shipments were better than expected. I know there were some mix issues between you know, Presto and Atlas, but just trying to get a sense on how system margins were relative to expectations or prior quarters. Yeah. System margins was according to our expectations. Actually, it was a bit better than than we planned. We planned for a mix DTG and DTF. We said it also in previous quarters that we invest a lot in DTF, so we had good quarter for DTF. We planned for it, and overall, systems margins was even slightly better than what we planned. Okay, good. On the receivables comment for my follow-up, I think you blamed that on late quarter sales. I think you said specifically to the global strategic. Was that a pull forward of activity into Q1 from Q2, or was it, I don't know, maybe a push out of shipments from maybe mid-quarter to late quarter? I wasn't exactly clear what happened there. No. It was a timing issue of making decisions and getting the paperwork. The start of the year and the quarter was relatively weak after a very busy peak season, so people took some time off to relax. We saw the quarter building up in the second half of the quarter when we got the POs of the planned business for the quarter. We shipped relatively close to the end of the quarter. Just in a matter of timing, most of the AR is just not due and will be collected mostly in the second quarter. Yep, makes sense. Okay, thanks. Thanks, Greg. Thank you. Mr. Samuel, we have no further questions. I will turn the call over to you for closing remarks. Yeah. Thank you, operator, and thank you all for joining us on today's call. As mentioned earlier, we remain laser focused on execution across the board to capture the massive opportunity we see in front of us. I would like to thank all of you, and I would like to thank Kornit team for amazing work and hard work and passion, and to all the stakeholders for continued support and confidence in us. I'm looking forward to see many of you next week in London. We'd like to thank you and have a great day. Thank you very much. Great. Thank you, Ronen, and thank you, Alon, and thank you all for joining us today. As always, if you should have any follow-up questions, please do not hesitate to reach out to me directly, and we hope to see you in London. Thank you. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.