A. History and Development of the Company Our History Our legal name is Kornit Digital Ltd., and we were incorporated under the laws of the State of Israel on January 16, 2002. We shipped our first system in 2005. In April 2015, we completed our initial public offering, or IPO. Our ordinary shares began trading on the Nasdaq Global Select Market, under the symbol “KRNT,” on April 2, 2015. We are subject to the Israeli Companies Law, 5759-1999. Our principal executive offices are located at 12 Ha’Amal Street, Rosh Ha’Ayin 4809246, Israel, and our telephone number is +972-3-908-5800. Our website address is www.kornit.com (the information contained therein or linked thereto shall not be considered incorporated by reference in this annual report). Our agent for service of process in the United States is Kornit Digital North America Inc., located at 480 South Dean Street Englewood, NJ 07631, and its telephone number is (262) 518-0200. As a company whose ordinary shares are registered under the Exchange Act, we report publicly to the SEC. The SEC maintains an Internet site (http:// www.sec.gov) that contains reports and other information regarding issuers that file electronically with the SEC. Principal Capital Expenditures Capital expenditures in the years ended December 31, 2022, 2023 and 2024 were approximately $18.0 million, $7.0 million, and $15.1 million, respectively, and were principally used for the purchase of property, plant and equipment and, in 2024, for the production of equipment for lease. The aggregate amount for 2021 and 2022 included approximately $2.5 million paid for the land for our new 6,637 square meter ink manufacturing and storage facility in Kiryat Gat, Israel, which we opened on January 26, 2022. The total cost for land, construction of the facility, design and installation of the production line, was approximately NIS 69 million (approximately $22 million). We used cash on hand to finance the construction of that facility. 29 On April 5, 2022, we completed the acquisition of Lichtenau, Germany-based Tesoma GmbH, or Tesoma. Tesoma is globally recognized for the high-quality engineering and performance of its cutting-edge textile curing solutions. The total cash consideration for this acquisition was 15.4 million Euros. In February 2025, after having integrated Tesoma’s customer service, and research and development, teams into our overall business operations, we commenced the transition of Tesoma’s production activities to our third-party manufacturer. Consequently, production activities at Tesoma’s German facility were discontinued as of March 15, 2025. We did not make any capital expenditures for the acquisition of interests in other companies in 2023 or 2024, nor have we done so thus far in 2025. B. Business Overview We are a leading global developer and provider of innovative digital solutions for the printed textile industry. We aim to transform the industry by shifting demand generators and fulfillers from outdated and stagnant analog processes to innovative digital processes. Our solutions are designed to enable our customers to remain relevant, reduce waste, and adapt to shifting supply chain dynamics. We focus on the rapidly growing high throughput DTG (direct to garment) and Direct to Fabric segments of the printed textile industry. Our solutions include our proprietary digital printing systems, ink, and other consumables, associated software and value-added services. These solutions allow for printing large scale, short to medium runs, of complex images and designs directly on finished garments and fabrics. Our customers include fulfillers and demand generators, such as brands, licensors, and content creators, primarily within the fashion, apparel and home décor segments of the industry. We have developed and are offering a broad portfolio of differentiated digital printing solutions for the DTG market that provide answers to challenges faced by participants in the global printed textile industry. Our DTG solutions utilize our patented wet-on-wet printing methodology, which eliminates the common practice of separately coating and drying textiles prior to printing. This methodology also enables printing on a wide range of untreated fabrics, including cotton, wool, polyester, blends, lycra, and denim. Our patented NeoPigment ink and other consumables have been specially formulated to be compatible with our systems and overcome the quality-related challenges that pigment-based inks have traditionally faced when used in digital printing. Our software solutions simplify workflows in the printing process, by offering a complete solution from web order intake through graphic job preparation and execution. Building on the expertise and capabilities that we have accumulated in developing and offering differentiated solutions for the industrial DTG market, we also offer an industrial digital printing solution, the Presto MAX, which targets the on-demand Direct-to-Fabric market. While the DTG market generally involves printing on finished garments, the Direct-to-Fabric market is focused on printing on fabrics that are subsequently converted into finished garments, home décor and other items. The Presto MAX, like our predecessor Direct-to-Fabric products, the Presto and Allegro, utilizes our proprietary wet-on-wet printing methodology and houses an integrated drying and curing system. It offers a single-step, eco-friendly, stand-alone industrial Direct-to-Fabric digital textile printing solution. Consumers today have grown accustomed to shopping online with a vast selection of products advertising rapid shipping times; however, fulfillers and demand generators have historically relied on antiquated, pollutive, and labor-intensive production methods. With the rise of social media, consumers also increasingly expect that both their online and in-store shopping experiences will reflect the latest apparel trends, which are evolving more rapidly than ever before. To meet these consumer demands, many fulfillers and demand generators have faced rising inventories, higher variable costs, more unsold finished goods, and lower pricing. 30 When compared with analog methods of production, our solutions significantly reduce production lead times and enable our customers to produce smaller quantities of individually printed designs more effectively, sustainably, and cost-efficiently. Our solutions are also differentiated from other digital methods of production because they eliminate the need to pre-treat fabrics prior to printing, thereby offering our customers the ability to digitally print high quality images and designs on a variety of fabrics in a streamlined and environmentally friendly manner. We have an attractive business model, with our growing installed base of systems driving recurring sales of ink and other consumables. Our ink and other consumables are specially formulated to enable our systems to operate at the highest throughput level while adhering to high print quality requirements. We intend to capitalize on the continued growth of the DTG market by expanding our diverse global customer base, focusing particularly on fast-growing web-to-print businesses. We similarly strive to capture a greater share of the growing market for Direct-to-Fabric, which has emerged as a transformative technology within the apparel industry. Besides reaching new customers, we also seek to increase our sales to existing customers, particularly sales of our ink and other consumables. At the same time, we are pursuing new high-volume customers, including new customers in the screen replacement market, which should help drive an increase in the sale of ink and other consumables. We also expect to extend our serviceable addressable market by introducing new features and functionality that enhance the capabilities of our systems and inks and enable our systems to print on new types of media. We plan to accomplish these goals by investing in our direct sales force, developing new applications for our systems, introducing new solutions, and growing our relationships with channel partners. We constantly explore the possibility of adding new business models and concepts designed to grow our business and cater to our customers’ needs. Our go-to-market strategy consists of a hybrid model of indirect and direct sales, with a trend towards adopting a direct sales model in certain key markets. We have historically generated a significant portion of our sales through a global network of independent agents, distributors and value-added resellers that we refer to as our channel partners. Our channel partners, in turn, sell the solutions they purchase from us to customers for whom we provide installation services, or sell and install our solutions on their own. Our channel partners work closely with our sales force and assist us by identifying potential sales targets, closing new business, and maintaining relationships with, and, in certain jurisdictions, providing support directly to our customers. Maintenance and support for our systems is performed either by our own service organization or by service engineers employed by our distributors. This varies among the four regions we serve, depending on the infrastructure we have established in each region. We provide professional services directly to some of our customers in all regions. Our customers can renew maintenance and support contracts for additional periods by purchasing a maintenance and support package that covers remote support, software upgrades and onsite yearly maintenance or they can choose to rely on our support on a non-contractual time and material basis The General Textile Industry Textile is a flexible material formed using various processes, including weaving, knitting, crocheting, or felting. Textile is conventionally used in a broad range of applications including fashion, apparel, footwear and home decor. According to a report published by Statista in October 2024, the value of the global apparel retail market was approximately $1.73 trillion in 2023 and is forecasted to grow to $2.04 trillion in 2029, reflecting a compound annual growth rate (CAGR) of 2.6% between 2025 and 2029. Factors including rising income per capita, favorable demographics and shifting consumer trends are expected to drive long-term demand in the apparel market. 31 The global printed textile industry involves printing on fabric rolls, finished garments and unsewn pieces of cut fabric at various stages along the value chain in the production of goods for fashion, apparel, and home decoration. According to Future Market Insights (FMI), the global digital textile printing market is set to experience substantial growth over the forecast period, with a projected compound annual growth rate (CAGR) of 12.1% from 2024 to 2034. This remarkable growth is expected to drive the market from USD 2,989.6 million in 2024 to a forecasted USD 8,897.3 million by 2034, indicating strong demand for advanced printing technologies in the textile industry. Industry trends E-Commerce The global e-commerce market has undergone significant growth in the past two decades, expanding in the U.S. from only ~2% of total retail sales in 2003 to 16.2% in late 2024 according to the U.S. census bureau. The shift in retail sales channels has transformed how consumers purchase goods across industries, but many global retail brands have faced pressures as their traditional supply chains were not designed to serve e-commerce markets. Advanced technologies like virtual reality, 3D modeling, and artificial intelligence are being increasingly integrated to enhance online shopping. Concurrently, the creator economy is expanding, with social media and e-commerce platforms enabling creators to monetize their digital content. In 2024, e-commerce apparel sales are projected to reach $457 billion, accounting for 26% of the overall apparel market, and reflecting a 12% increase from 2023. Social Media Social media platforms, merging media and network categories, have significantly impacted the retail landscape, influencing communication, consumer trends, and brand perception. As of October 2024, 5.22 billion users (63.8% of the global population) were active on social media, with over 304 million users in the U.S. alone, according to DataReportal and Statista. This widespread use has enabled small and micro brands, often established by individuals or organizations with social influence, to achieve rapid recognition and growth, challenging traditional players to be more agile and responsive. Additionally, the convergence of gaming and social media, with games like Fortnite, Minecraft, and Roblox, highlights the evolution of online games into robust social media networks and interactive marketplaces, offering an alternative to traditional social media platforms. Sustainability The need to reduce or contain the ecological footprint of the textile and apparel industry is affecting the entire industrial system. The urgency for change has flowed through from political and environmental activists and scientists, into mainstream government regulators, and business leadership across the globe. A sustainable industrial system requires the formulation of new strategies and thinking, integrated into business and operational frameworks around sustainable manufacturing, supply chain design, sustainability performance measurement and ongoing management. While industrial production is considered part of the problem, it is now also considered as part of the solution. From a practical point of view, companies are focusing their sustainability strategies to include technological improvements that enable cleaner production, pollution prevention, and other sustainable manufacturing practices. 32 Overview of Textile Printing Processes The graphic and accompanying description below present various textile printing processes: Screen printing is the most commonly used printing process for textiles. The two primary methods of screen printing are rotary screen printing and automated carousel screen printing. The following chart summarizes the key steps involved in the analog printing process: Rotary Screen Printing Rotary screen printing is commonly used to print on outerwear, underwear, sportswear, upholstery, and linens. It involves multiple, time-consuming process steps. Rolls of fabric pass through rotating cylinders that are engraved with the image or design to be printed. Each cylinder then applies ink of a different color, which forms part of the image or design. This process is generally used to print a pattern on a fabric roll that is then cut and sewn into finished products. Rotary screen engraving is a costly process that takes between four and five hours per cylinder and is frequently done offsite. Preparation of colors typically takes an additional 30 minutes and the setup of the printer itself typically takes nearly 1.5 hours. The process can require up to seven people. The maximum size of an image or design is limited based on the circumference of the cylinders, which is typically no more than 60 centimeters. 33 The following diagram depicts the analog rotary screen printing process: Automated Carousel Screen Printing. Automated carousel screen printing is commonly used to print on finished garments and cut pieces. In automated carousel screen printing, a blade or squeegee squeezes printing paste or ink through mesh stencils onto fabric. The process typically employs a series of printing stations arranged in a carousel. At each station, one color of ink is pressed through specially prepared mesh stencils, or screens, on to the textile surface. Between color stations, there are also flash drying stations and cool-down stations to ensure that deposited ink does not inadvertently mix with the next color to be applied. Preparation of the mesh stencils is a specialized process, and its complexity is a function of the number of discrete color separations and screens that need to be prepared for a given design. The process of color separations, film production, and screen exposure and alignment typically takes approximately 1.5 hours for six colors. Once the screens and color separations are complete, preparation of the carousel typically takes between 40 and 60 minutes. After being manually loaded, the textile moves along the carousel from station to station where each color is applied separately. Unlike rotary screen printing, carousel screen printing does not require fixing the image or design with steam or hot air and, in most cases, does not require washing and drying the textile afterward. Digital Printing Processes Digital textile printing uses specially engineered inkjet heads, rather than screens and cylinders or mesh stencils, to print images and designs directly onto fabrics. As such, the use of digital technology eliminates multiple complicated, costly, and time-consuming steps, such as screen preparation or cylinder engraving, preparation of pastes or inks, and screen or cylinder alignment. Most fabrics need to be pre-treated before printing by submerging them in a solution that is designed specifically for the type of fabric and ink being used. This coating process is essential for achieving the desired chemical reaction between the ink and the fabric. The fabric is dried following pre-treatment. After the ink drops are applied, the printed fabric undergoes a process of fixation that is also specific to the type of fabric and ink being used. Digital textile printing generally uses either dye-based or pigment-based ink. 34 The digital textile printing market principally includes two types of printing processes: Direct-to-Garment (DTG) In DTG printing, an inkjet printer prints directly on the textile. DTG printing allows for printing images and designs onto finished textiles, such as t-shirts that have already been sewn and dyed. The following chart summarizes the key steps involved in the DTG printing process: Direct-to-Fabric In Direct-to-Fabric printing, rolls of fabric pass in-line through wide-format inkjet printers that are utilized to directly print images and designs onto rolling fabric. The following chart summarizes the key steps involved in the Direct-to-Fabric printing process: Recent technological developments in digital printing have supported the adoption of digital printing by the global printed textile industry, including by custom decorators, online businesses, brand owners and contract printers. As a result of consumer and macro trends, which were accelerated due to the COVID-19 pandemic, we believe that these businesses offer a significant and rapidly growing market for digital printing solutions. How Digital Textile Printing Addresses Industry Needs The following characteristics of digital textile printing are driving the shift from analog to digital textile printing: Manufacturing flexibility. Digital textile printing gives manufacturers the ability to print short runs, with personalization capabilities, in a cost-effective manner with a minimum order quantity of one unit. Unlike screen printing, digital printing costs remain the same when printing a single unit or multiple units. This allows printers to execute orders one by one without needing to accumulate large demand for a design before printing. In a post- COVID-19 world, manufacturing flexibility plays an essential role in building brands’ resilience. Companies must rethink their sourcing strategies while implementing cutting-edge supply chain management, and building in greater flexibility, in order to keep products at pace with customer demand. Design flexibility. Digital textile printing enables a larger variety of artwork to be imprinted, without limitations on number of colors per design and high-resolution imaging. Integration with advanced workflow environments. Digital textile printing is better suited for the transition of the production floor environment to full digitization, including connectivity to cloud networking elements and productivity analytics software solutions. Reduced time between design and production. The digital textile printing process allows for samples to be quickly produced, evaluated, and modified, which permits brand owners to increase the frequency and variety of replenishment cycles in response to fashion trends. Decreased risk of excess inventory. The costly and time-consuming upfront setup required in analog production methods is avoided when using digital printing technologies. By enabling the cost-efficient production of a smaller quantity of garments, digital printing mitigates excess inventory risk and improves profitability. Stocking blank garments or fabric and decorating them only when demand is identified significantly reduces the amount of inventory at risk. This reduces working capital requirements, thereby enabling the emergence of numerous online businesses focused on the sale of printed textiles. Reduced labor and physical space requirements. Digital textile printing requires significantly less labor to print an equivalent output due to the significant reduction in process steps. The combination of labor savings and a smaller floor footprint, coupled with lower energy consumption and a lack of environmental impact, enables manufacturers to move production closer to consumers in a cost-effective manner. The textile business is very seasonal and the need to retain employees bears a heavy financial burden. The move to digital printing significantly reduces the need for manpower and allows for a more flexible cost structure. 35 Sustainability. Digital textile printing significantly reduces industrial water consumption and discharge of toxic chemicals by eliminating the need to wash screens for color changes and repeated use. We estimate that this results in reduced environmental impact and in turn enables manufacturers to comply with regulatory and brand guidelines at a location of their choosing, in many cases in populated areas which are not industrial in nature. In addition, digital textile printing opens up opportunities to optimize processes and reduce the carbon footprint and energy expense used to decorate garments and fabrics. Our Products Our DTG solutions utilize our patented wet-on-wet printing methodology that eliminates the common practice of separately coating and drying textiles prior to printing. This methodology also enables printing on a wide range of untreated natural, synthetic, blends and man-made fabrics, including cotton, wool, polyester and lycra, and with throughputs ranging from 40 to approximately 400 garments per hour, depending on system type, garment type and operational capabilities. Our industrial and mass production DTG solutions are suited to the needs of a variety of customers, from smaller industrial operators with limited budgets to mass producers with complex manufacturing requirements. Products in this category are designed to print directly on finished garments such as shirts, sweatshirts, polos, fleeces, and more. Our primary systems within our DTG business include the Atlas MAX Plus, Atlas MAX Poly and Apollo. In April 2021, we supplemented our original DTG printing solutions with our Kornit MAX technology, which enables exemplary retail print quality and durability standards, together with enhanced production speed. The breakthrough technological innovation has been achieved thanks to new additional process and consumables capabilities, enabling optimal control over print quality and durability on a significantly larger media variety. Kornit introduced the XDI technology that allows layered 3D printing. This capability is available as part of Kornit’s unique MAX printing engine. Kornit XDi brings a new dimension to digital printing by enabling the printing of multiple layers to create 3D-effects. XDi’s unique premium applications open new markets for our customers and offer creative freedom powered by a simple, single-step, digital and sustainable process. Our customers are now able to do much more with their printing equipment and enter into higher margin premium markets. In July 2022, we introduced the Atlas MAX Poly, which extended our technological capabilities in high quality printing on polyester even further by leveraging the Kornit MAX technology and incorporating it as part of our proprietary polyester printing process, which is based on the NeoPigment® Olympia ink set. The Atlas MAX Poly harnesses an innovative low temperature curing ink set alongside a new process and consumables to deliver highest quality digital printing on dyed polyester as well as delivering improved productivity rates. These new capabilities expanded our opportunity within the sports and athleisure spaces. This platform is also equipped with Neon applications and a proprietary consumable called ProGuard, which acts as a barrier between the fabric and print and promotes the inhibition of dye migration. In addition, this solution improves print quality on polyester cotton blends. Apollo was launched in January 2024. The Apollo is a digital mass production platform, designed to be capable of printing up to approximately 400 shirts per hour, and handled by a single operator. The Apollo leverages the MAX technology, and the Eco-Rapid ink set and consumables. The printing technology is boosted by automation of loading and unloading, as well as integrated smart curing. Kornit’s RIP (Raster Image Processor) solution – K-RIP, is integrated into the Apollo, enabling it to print spot colors and specific Pantones with ease. We intend to continue developing and adding additional features to Apollo to further enhance flexibility, quality, and productivity. 36 Kornit’s new energy-efficient Smart Curing solutions includes Orion for mid-level production, and Titan for higher-capacity volumes - both optimized for compatibility with Kornit Atlas MAX systems and based on field-proven solutions developed by Tesoma. The Lunar smart curing platform brings the same capabilities to Kornit’s Apollo solution. These highly efficient curing systems sync production and finish for an end-to-end process that reduces both energy consumption and total cost of ownership (TCO). Smart curing systems allow integration between our different Max platforms to the curing system, increasing print quality, energy efficiency and flexibility. During 2023 we launched our Rapid Size Shifter (RSS) Pallet for our Atlas Max platform. RSS is a single adjustable pallet for multiple applications and product sizes. The RSS increases the speed and productivity of on-demand direct-to-garment production with a single pallet platform that addresses a wide range of applications, from T-shirts with or without neck tags and hoodies, to children’s apparel. This solution also reduces the downtime associated with pallet changes and streamlined production for accelerated time-to-market. In June 2024, we launched the new Atlas MAX Plus system which uses Kornit’s proven Atlas MAX platform to bring increased productivity of up to150 garments per hour. With integrated Smart Curing, Rapid Size Shifter pallets, and qualiset, the offering takes smart production capabilities a step forward introducing production flexibility, autonomous calibration, consistency. Building on the expertise and capabilities that we have accumulated in developing and offering differentiated solutions for the industrial DTG market, we also offer industrial digital printing solutions which target the on-demand Direct-to-Fabric market. Our Direct-to-Fabric products are designed to deliver printing on rolls of fabric that are subsequently converted into finished goods. Our Direct-to-Fabric capabilities cater to different market segments such as fashion and home décor. Like our DTG products, our Direct-to-Fabric solutions are designed to print on a wide range of fabrics. Our digital Direct-to-Fabric printing products also use our wet-on-wet patent and are a leading single-step, eco-friendly, stand-alone industrial Direct-to-Fabric digital textile printing products available on the market. Our system within our Direct-to-Fabric business include the Presto MAX. Our Presto MAX platform brings unique capabilities to the market allowing our customers to digitally print on dyed fabrics, utilizing our white NeoPigment® ink, both as a spot color and as a base. Presto MAX also allows printing using Neon colors to achieve expanded color gamut and a wide variety of applications. Presto MAX also includes Kornit’s innovative XDi technology allowing 3D-effects and enabling our customers to penetrate higher margin premium markets. During the last quarter of 2024, we commenced the final test stage of our “Vivido” ink set. The Vivido is expected to enable the printing of deep and natural blacks while reducing ink consumption and improving hand feel. Additionally, Kornit is anticipated to launch the Qualiset system also as part of the Presto MAX platform, which facilitates automatic machine calibrations ensuring quality and consistency. Our series of ink sets for DTG systems, includes NeoPigment®, NeoPigment® Rapid, NeoPigment® Eco-Rapid and NeoPigment® Olympia. The first two ink sets are designed for Kornit legacy products, while the Eco-Rapid is the most advanced ink set designed for retail quality. These three ink sets are available in seven colors (W+CMYKRG) and a complementary binding agent. NeoPigment® Olympia is designed for our polyester printing system, the Avalanche Poly Pro and the Atlas MAX Poly, and is available in five colors (W+CMYK), with an enhancer for the Avalanche Poly Pro and 7 colors (W+CMYKNyNp) on the Atlas MAX Poly. For our roll-to-roll systems, we offer the NeoPigment® Robusto ink set, which consists of up to nine colors (W+CMYKRGNyNp) in several different configurations. We also offer customers maintenance and support services, as well as value-added services and application consulting, aimed at optimizing the number of impressions printed by our systems. 37 Our Software Solutions Our DTG systems arrive with our QuickP Production software embedded. The software manages the system operation and prepares image files for printing. QuickP Production is a simple to use solution that allows users to control key operating parameters, such as print resolution, perform maintenance and calibration procedures and import image files and prepare them for print. As part of Apollo, we have included K-RIP, an embedded RIP (Raster Image Processor) solution, which is capable of supporting various types of files, including PDF files, and matches specific colors (such as spot colors and Pantones) with Kornit’s inks. It supports integration with an API workflow, which boosts the ability to automate the production floor. Kornit Konnect, our cloud-based, software analytics connectivity platform enables businesses to maximize productivity of their digital printing solutions. In its first phase, Kornit Konnect enables businesses to monitor production, analyze data, become insights-driven and manage their fleet, in order to eliminate blind spots. It includes a fleet management dashboard, data driven benchmarks, actual production costs, and cost structures per job, making it easy for businesses to learn more, react faster and perform better. In August 2020, we acquired Custom Gateway, a global provider of cloud-based software workflow solutions for both B2B and B2C business models. Custom Gateway’s solution enables Kornit to offer customers an end-to-end solution for on-demand production. KornitX’s technology, which is based on our acquisition of Custom Gateway, connects front end, web-based demand generators such as on-line stores and on-line brands as well as licensors with a digitized fulfillment process, enabling a digitized on-demand manufacturing process. With the KornitX production floor solution, orders are routed and managed to facilitate efficient on-demand production on a mass scale. Our Services Our service offering consists of system upgrade kits, maintenance and support, consulting and professional services. We continue to expand our services capabilities and aim to increase the number of customers that rely on our service for their systems. As of December 31, 2024, we had service contracts in place with approximately 34% of our industrial and mass production installed base. AIC™ – All-Inclusive Click business model In early 2024, the Company formally introduced the All-Inclusive Click (AIC™) model, which is designed to provide customers with a predictable, scalable, and cost-effective approach to digital printing. Under this model, Kornit retains ownership of the system, while the customer operates the system and is charged a fixed fee per impression produced. The fixed fee paid by customers covers system usage, ink, consumables, and service, eliminating the need for extensive capital investment. Customers commit to a minimum annual volume of impressions at the fixed price, typically over a five-year contractual period with successive one-year automatic renewals. If a customer surpasses its minimum volume commitment, incremental impressions are billed at a reduced rate, creating a strong incentive to optimize system usage and scale production. This structure directly aligns our revenue growth with the operational success of customers, in-turn enhancing and deepening the relationship. The AIC™ model is targeted at businesses seeking to expand their digital production capabilities without incurring upfront capital expenditure. Additionally, we believe that the model opens new market opportunities by attracting customers who may have previously been hesitant to adopt digital printing due to uncertainty in the unit economics of digital production. Customers exploring this model can now directly compare their existing unit production costs to AIC’s fixed price per impression while only needing to make assumptions on labor costs. 38 Kornit recognizes revenue from AIC™ over time as impressions are generated, which differs from our traditional selling model where the sale of a system is recognized at the time of delivery. Systems under the AIC™ model are reported as property, plant and equipment, net on our balance sheet and are depreciated over seven years. Currently, AIC™ is available for the Apollo and Atlas MAX systems. Our Strategy for Growth Our strategy includes three key pillars which are as follows: Expand in Growth Markets We plan to continue growing our customer base by targeting new customers in markets that are adjacent to those in which we have been operating. These markets include geographies where we have identified multiple leading global fulfillers or demand generators which are producing without cost-efficient and sustainable solutions to meet changing consumer preferences. Our strategy of expanding into key markets also includes reallocating our resources selectively to better penetrate the bulk apparel market for athleisure and home décor in addition to new segments including footwear and technical apparel. Maximize Impressions We are focused on increasing sales to existing customers by introducing new digital printing applications, developing new features and functionality of our systems, offering new system upgrade products to make it easier for customers to renew their fleets and update their installed base to the latest technology available, offering customers empowerment programs inclusive of basic and advanced training, with a goal of enabling our customers to increase utilization of their systems. With our move into solution selling, we are focusing on providing our customers with value added services including training programs, proactive services, production consulting and end-to-end workflow improvements. Through these value-added services, we can increase system availability and utilization, end-user product quality, and increase impressions, thereby requiring more ink and other consumables purchases as well as potential investment in new systems as our customers require additional capacity. Extend our leadership position through acquisitions and strategic partnerships We seek to continue to differentiate ourselves and extend our leadership position. We may supplement our internal efforts with selective inorganic initiatives such as acquisitions and strategic partnerships to enhance our positioning. For example, our acquisition of Polymeric Imaging in 2015 expanded our ink technology capabilities, our acquisitions of the digital DTG printing assets of SPSI in 2016 enabled us to strengthen our direct sales channel and gain access to a large screen-printing customer base, the acquisition of business assets from Hirsch in 2019 helped us transition to a full direct sales model in North America, and our acquisition of Tesoma in 2022 provided us the ability to integrate the curing step of the DTG printing process directly into our solutions via the Apollo. Our Customers Our diverse global customer base consisted of approximately 865 active customers as of December 31, 2024. Our installed base serves a variety of customers, operating through different business models. Self-Fulfillment. Companies that produce printed textiles and sell their own designs. Hybrid Printers. Companies that produce printed textiles both in-house and outsource to third party fulfillment providers. Third Party Fulfillment Centers. Companies serving as third party fulfillment for printed textile retailers. 39 Government Regulation We are subject to various local, state, federal and international laws, regulations, and agencies that affect businesses generally, and our business in particular. These include: ○ Israeli environmental, health and safety regulations, including conditions set by the Israeli Ministry of Environmental Protection for the operation of our manufacturing and development facilities which use chemicals and produce waste materials, as further detailed below; ○ the U.S. Foreign Corrupt Practices Act and the U.S. Anti-Money Laundering Act, as well as similar laws in Israel, UK and the European Union; ○ laws pertaining to the hiring, treatment, safety and discharge of employees; ○ import/ export control regulations related to chemicals and hazardous substances, as described below; ○ Israeli tax regulations, as described under “ITEM 5. Operating and Financial Review and Prospects- Taxation and Israeli Government Programs Applicable to Our Company” below; and ○ CE regulations for the European market. Israeli Environmental, Health and Safety Regulations. Our manufacturing and development facilities use chemicals and produce waste materials, which require us to hold business licenses that may include conditions set by the Israeli Ministry of Environmental Protection for the operations of such facilities. We are also subject to extensive environmental, health and safety laws and regulations governing, among other things, the use, storage, registration, handling and disposal of chemicals and waste materials, the presence of specified substances in electrical products, air, water and ground contamination, air emissions and the clean-up of contaminated sites. In the future we may incur expenditures of significant amounts in the event of non-compliance and/or remediation, whether fines or other civil, administrative or criminal sanctions, including the revocation of our toxin permit, business permits, or other permits and licenses necessary to continue our business activities. In addition, we may be required to pay damages or civil judgments in respect of third-party claims, including those relating to personal injury, including exposure to hazardous substances that we use, store, handle, transport, manufacture or dispose of, or property damage. Some environmental, health and safety laws and regulations allow for strict, joint and several liability for remediation costs, regardless of comparative fault. We may be identified as a potentially responsible party under such laws. In addition, our customers may need to obtain regulatory permits to operate our systems in their facilities. Import/Export Control Regulation of Chemicals and Hazardous Substances. The export of our products internationally subjects us to environmental laws and regulations concerning the import and export of chemicals and hazardous substances. In the European marketplace, electrical and electronic equipment is required to comply with the Directive on Waste Electrical and Electronic Equipment, or WEEE, which aims to prevent waste by encouraging reuse and recycling, and the Directive on Restriction of Use of Certain Hazardous Substances, or RoHS, which restricts the use of ten hazardous substances in electrical and electronic products. Additionally, we are required to comply with certain laws, regulations and directives such as the United States Toxic Substances Control Act, or TSCA, and the Registration, Evaluation, Authorization and Restriction of Chemical Substances, or REACH. These laws and regulations may require the testing and registration of some chemicals that we ship along with, or that form a part of, our systems and other products. If we fail to comply with these or similar laws and regulations, we may be required to make significant expenditures to reformulate the chemicals that we use in our products and materials or incur costs to register such chemicals to gain and/or regain compliance. Additionally, we could be subject to significant fines or other civil and criminal penalties should we not achieve such compliance. 40 C. Organizational Structure Our corporate structure consists of Kornit Digital Ltd., our Israeli parent company, and six wholly-owned subsidiaries: (1) Kornit Digital Technologies Ltd., which was incorporated on July 5, 2006 under the laws of the State of Israel, (2) Kornit Digital North America Inc., which was incorporated on September 12, 2007 under the laws of the State of Delaware, (3) Kornit Digital Europe GmbH, which was incorporated on April 20, 2011 under the laws of Germany, (4) Kornit Digital Asia Pacific Limited, which was incorporated on November 18, 2009 under the laws of Hong Kong, (5) Kornit Digital UK Ltd., which was incorporated on August 30, 2017 under the laws of England and Wales, and (6) Kornit Digital Japan KK which was incorporated on March 9, 2020 under the laws of Japan. Tesoma GmbH (a German company, whose production activities were recently transferred to our third-party manufacturer) is wholly owned by Kornit Digital Technologies Ltd. Custom Gateway, which currently operates under the name Kornit Digital/KornitX, was incorporated on May 5, 2010 under the laws of England and Wales, and is wholly owned by Kornit Digital UK Ltd. Custom Gateway Limited has several subsidiaries. Kornit (Shanghai) Digital Co., Ltd., which was incorporated on December 8, 2021, is wholly owned by Kornit Digital Asia Pacific Limited. D. Property, Plant and Equipment Our corporate headquarters are located in Rosh Ha’Ayin, Israel in an office and research and development facility consisting of approximately 125,658 square feet. The lease for this office expires in December 2028, with an option for us to extend the lease for an additional two years. In January 2022, we announced the official opening of a new, modern, ink manufacturing facility in Kiryat Gat, Israel. We own the property and the building at this facility (subject to a 49-year lease agreement with the ILA, which will renew for an additional 49 years). Our capital expenditures for 2021 and 2022 included approximately $2.5 million paid for the land for our new 71,440 square foot ink manufacturing and storage facility in Kiryat Gat, Israel. The total cost for land, construction of the facility, design, and installation of the production line, was approximately NIS 69 million (approximately $22 million). We used cash on hand to finance the construction of that facility. Our U.S. headquarters are located in Englewood, New Jersey. We have entered into a lease for these headquarters, which includes approximately 15,845 square feet of offices and a warehouse. The lease for this location expires in February 2028. We maintain additional sales, support and marketing offices in: Dusseldorf, Germany; Hong Kong; the United Kingdom and Japan. We also maintain a disaster recovery site in Milwaukee, Wisconsin, where we are able to manufacture the fixation agent for some of our printers and ink. In November 2022, we entered into a new agreement for the lease of 18,256 square feet, in addition to our existing 14,057 square feet, for our office in Dusseldorf, Germany, which we have been using as an experience center. The lease will expire in 2028, with an option to extend the lease for two additional five-year periods.