The information contained in this section should be read in conjunction with our financial statements for the year ended December 31, 2024 and related notes and the information contained elsewhere in this annual report. Our financial statements have been prepared in accordance with U.S. GAAP. This discussion contains forward-looking statements that are subject to known and unknown risks and uncertainties. As a result of many factors, such as those set forth under “ITEM 3.D. Risk Factors” and “Cautionary Note Regarding Forward-Looking Statements,” our actual results may differ materially from those anticipated in these forward-looking statements. 41 Overview We develop, design and market innovative digital printing solutions for the global printed textile industry. Our vision is to revolutionize this industry by facilitating the transition from analog processes to digital methods of production that address contemporary supply, demand, and environmental dynamics. Our solutions are designed to enable our customers to remain relevant, reduce waste, and adapt to shifting supply chain dynamics. We focus on the high throughput DTG, DTG Mass Production 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 that allow for printing large scale short and longer 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. 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. 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 developed and offer 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, 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 the Allegro, utilize our proprietary wet-on-wet printing methodology and house an integrated drying and curing system. It offers the sole single-step, eco-friendly, stand-alone industrial Direct-to-Fabric digital textile printing solution available on the market, following its predecessors the Presto and the Allegro. We primarily sell the Presto MAX to innovative web-based businesses operating on-demand models that require a high degree of variety and limited quantity orders, as well as to fabric converters, which source large quantities of fabric and convert the untreated fabrics into finished materials to be sold to garment and home décor manufacturers. We believe that with the Presto MAX we are well positioned to take advantage of the growing trend towards customized fashion, home décor and on-demand fabric printing, where there is an increased focus on sustainable production. We began selling the Presto MAX commercially in 2021, two years after having introduced our Direct-to-Fabric digital textile printing solution, the Presto in 2019. 42 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 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 that 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. We have an attractive business model, with our 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 constantly explore the possibility of adding new business models and concepts designed to grow our business and cater to our customers’ needs. 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 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 with the Apollo, 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. Recent Developments Share Repurchase Programs On September 10, 2024, we announced that our board of directors has authorized a new program for our repurchase of up to $100 million of our ordinary shares from time to time (our prior $75 million repurchase program that was initially approved in December 2022 and was extended in July 2023 and January 2024 had already expired prior to that time, in July 2024, and repurchases could no longer be made under it). In order to facilitate our repurchase of ordinary shares under our new share repurchase program, on November 10, 2024, we entered into an accelerated share repurchase agreement with Goldman Sachs International, or Goldman Sachs, to repurchase $75 million of our ordinary shares. Please see “Item 16E Purchases of Equity Securities by the Issuer and Affiliated Purchasers” for more information concerning our share repurchase programs. A. Operating Results The information contained in this section should be read in conjunction with our audited financial statements for the years ended December 31, 2022, 2023, and 2024 and related notes and the information contained in “ITEM 18. Financial Statements”. Our financial statements have been prepared in accordance with US GAAP. 43 Components of Statement of Operations Revenues Systems, Ink and Other Consumables, Value Added Services We generate revenues from the sale of our systems, ink and other consumables, and services, including software subscriptions and transaction-based revenues. Our growing installed base generates recurring revenues from ink and other consumables sales. We do not, however, consider period-to-period changes in our total installed base to be a helpful metric in assessing our performance because we sell a number of different systems that have significantly different throughput characteristics and average selling prices. Our installed base does not, therefore, serve to indicate revenues from future systems sales, however, because we have not experienced material changes in the prices at which we sell ink and other consumables, we believe the amount of the increase in revenues from ink and other consumables generated each period from our growing installed base is a key measure of success for our recurring revenues strategy. We generate the services portion of our revenues from the provision of post-warranty service contracts, spare parts to our distributors and customers, system upgrades, time and material-based services, software subscriptions and transaction-based revenues. We have historically sold our products directly and through independent distributors who resell them to customers. Sales by our distributors accounted for approximately 13% and 9% of our revenues during 2023 and 2024, respectively. We recognize revenues in accordance with ASC No. 606, “Revenue from Contracts with Customers”. As such, we recognize revenue under the core principle that transfer of control to our customers should be depicted in an amount reflecting the consideration we expect to receive in revenue. Therefore, we identify a contract with a customer, identify the performance obligations in the contract, determine the transaction price, allocate the transaction price to each performance obligation in the contract and recognize revenues when, or as, we satisfy a performance obligation. We periodically provide customer incentive programs, including product discounts, volume-based rebates, and warrants, which are accounted for as variable consideration that is deducted from revenue in the period in which the revenue is recognized. These reductions to revenue are made based upon reasonable and reliable estimates that are determined by historical experience and the specific terms and conditions of the incentive. Our business is seasonal. Either the third or fourth quarter has historically been our strongest quarter in terms of revenues, and the first quarter has been our weakest. This seasonality coincides with spending in anticipation of the holidays towards the end of the year, especially in the United States and Europe. Since sales of ink and other consumables generate higher gross margins than systems sales, gross margin in the third or fourth quarter tends to be higher than gross margin in the first quarter, when our customers typically reduce their system utilization rates significantly, and therefore purchase less ink and other consumables. See “Critical Accounting Estimates-Revenue Recognition”. 44 Geographic Breakdown of Revenues The following table sets forth the geographic breakdown of revenues from sales to customers for the periods indicated: 2022 2023 2024 $ % $ % $ % (in thousands except percentages) U.S. $ 138,515 51.0 % 123,550 56.2 % $ 115,034 56.4 % EMEA 93,243 34.3 60,706 27.6 50,089 24.6 Asia Pacific 24,396 9.0 22,006 10.0 21,509 10.6 Other 15,364 5.7 13,524 6.2 17,193 8.4 Total revenues $ 271,518 100 % 219,786 100 % $ 203,825 100 % The change in the revenues by geographic region set forth in the above table reflects the general trends for our revenues for 2024 compared to 2023, as described below under “Comparison of the Years Ended December 31, 2024 and 2023-Revenues”. Shipping and handling Shipping and handling fees that are charged to our customers are recognized as revenue in the period shipped and the related costs for providing these services are recorded as a cost of revenues. Cost of Revenues and Gross Profit Cost of revenues consists primarily of payments to the third-party contract manufacturers who assemble our systems and who are responsible for ordering most of the components for those systems. Cost of revenues also includes components for our systems for which we are responsible, such as print heads, as well as raw materials for ink and other consumables. Cost of revenues includes personnel expenses, such as operation and supply chain employees, and related overhead for the manufacturing of our systems, as well as expenses for service personnel involved in the installation and support of our systems, shipping and handling fees, amortization of intangible assets, and overhead for the manufacturing process of ink and other consumables. Gross profit is revenues less cost of revenues. Gross margin is gross profit expressed as a percentage of total revenues. Our gross margin has historically fluctuated from period to period as a result of changes in the mix of the systems that we sell and the amount of revenues that we derive from ink and other consumables versus systems. In general, we generate higher gross margins from our high throughput systems compared with entry level systems. In addition, customers that purchase our high throughput systems generally use larger quantities of ink and other consumables, which generate higher margins than sales of systems. We currently offer maintenance and support for all our systems sold in the United States. We seek to increase the number of customers that rely on us to provide maintenance and support for their systems by expanding our maintenance and support capabilities. In addition to driving gross margin improvement, we believe this provides us with an opportunity to work directly with customers with the goal of reducing system down-time, educating customers on how to optimally use our systems to drive increased utilization and growth in impressions printed, expanding the variety of print applications, as well as increasing sales of post-warranty service contracts and other professional application development services. We are seeking to generate increased revenues from our services offering, including increasing sales of post-warranty service contracts, selling upgrade kits, and providing other professional services, to leverage the fixed cost component associated with our service organization and increase the contribution margin. Operating Expenses Our operating expenses are classified into three categories: research and development expenses, net, sales and marketing expenses, and general and administrative expenses. For each category, the largest component is generally personnel costs, consisting of salaries and related personnel expenses, including share-based compensation expenses. Operating expenses also include allocated overhead costs for facilities, including rent payments under our facility leases. 45 Research and Development Expenses, net. The largest component of our research and development expenses, net of government grants, is salaries and related personnel expenses for our research and development employees. Research and development expenses also include, purchases of laboratory supplies; expenses related to beta testing of our systems; amortization of intangible assets; and allocated overhead costs for facilities, including rent payments under our facilities leases. We record all research and development expenses as they are incurred, except for development expenses, which are capitalized in accordance with ASC 350-40. Our current research and development efforts are primarily focused on our next generation of Direct-to-Fabric and DTG systems. We are also investing in the development of new ink formulas for our new systems, in order to expand the range of fabrics on which we can print and improve color quality and diversification of our high-resolution images and designs. We are improving our software solutions to simplify workflows in the printing process, by offering a complete solution from web order intake through graphic job preparation and execution. Sales and Marketing Expenses. The largest component of our sales and marketing expenses is salaries and related personnel expenses for our marketing, sales and other sales-support employees. Sales and marketing expenses also include trade shows, other advertising and promotions, including distributor open houses and media advertising; sales-based commissions, allowance for credit loss and allocated overhead costs for facilities, including rent payments under our facilities leases. We market our solutions using a combination of internal marketing professionals and our network of channel partners. General and Administrative Expenses. The largest component of our general and administrative expenses is salaries and related personnel expenses for our executive officers, financial staff, information technology staff, and human resources staff. General and administrative costs also include fees for accounting and legal services, insurance and costs for facilities, including rent payments under our facilities leases, partially allocated to other departments. Finance Income, Net Finance income, net consists of interest income, foreign currency exchange gains or losses and bank fees. Foreign currency exchange changes reflect gains or losses related to changes in the value of our non-U.S. dollar denominated financial assets, primarily cash and cash equivalents, and trade payables and receivables. As of December 31, 2024, we did not have any indebtedness for borrowed amounts. Interest income consists of interest earned on our cash, cash equivalents, short-term bank deposits and marketable securities, offset by amortization of premium on marketable securities. We expect interest income to vary depending upon our average investment balances and market interest rates during each reporting period. Taxes on Income The corporate tax rate in Israel has been 23% for 2018 and all subsequent years. However, as discussed in greater detail below under “Taxation and Israeli Government Programs Applicable To Our Company - Israeli Tax Considerations and Government Programs,” we and our wholly owned Israeli subsidiary, Kornit Digital Technologies Ltd., which we refer to as Kornit Technologies, are entitled to various tax benefits under the Israeli Law for the Encouragement of Capital Investments, 1959, or the Investment Law. We consolidate the two separate results of our Israeli operations only for tax purposes such that net operating loss carryforwards of Kornit Technologies generated from 2014 onwards can be used to offset our taxable income. Kornit Technologies currently has enough carryforward net operating losses to offset our taxable income. Beginning in January 2019, and with respect to its taxable results from 2019 onwards, our Israeli subsidiary further elected to apply the terms of the Investments Law as per its “Preferred Technological Enterprise,” or PTE, status. In each of 2022, 2023, and 2024, our effective tax rate was the blended rate of our Israeli tax and those of our non-Israeli subsidiaries in their respective jurisdictions of organization. 46 Comparison of Period-to-Period Results of Operations In this section we provide data, as well as discussion and analysis, with respect to our results of operations for the last two years. While our statements of operations in Item 18 of this annual report cover each of the three years ended December 31, 2022, 2023, and 2024, the data, and discussion and analysis, in this Item 5.A do not address the year ended December 31, 2022, or a comparison of our results of operations for that year compared with our results of operations for the year ended December 31, 2023. In order to view that data, and discussion and analysis, please see “ITEM 5. Operating and Financial Review and Prospects - A. Operating Results - Comparison of Period-to-Period Results of Operations - Comparison of the Years Ended December 31, 2022 and 2023” in our Annual Report on Form 20-F for the year ended December 31, 2023, which we filed with the SEC on March 28, 2024. Comparison of the Years Ended December 31, 2023 and 2024 The following tables present a comparison of the various components of our results of operations for the years ended December 31, 2023 and 2024, both in absolute amounts and as a percentage of our revenues in those respective years. Year Ended December 31, 2023 2024 (in thousands) Revenues Products $ 161,045 $ 148,086 Services 58,741 55,739 Total revenues 219,786 203,825 Cost of revenues Products 91,516 61,697 Services 61,313 50,366 Total cost of revenues 152,829 112,063 Gross profit 66,957 91,762 Operating expenses: Research and development, net 50,060 41,578 Sales and marketing 66,836 58,413 General and administrative 37,592 29,086 Total operating expenses 154,488 129,077 Operating loss (87,531 ) (37,315 ) Financial income, net 24,150 22,350 Loss before taxes on income (63,381 ) (14,965 ) Taxes on income 970 1,835 Net loss $ (64,351 ) $ (16,800 ) Year Ended December 31, 2023 2024 (as a % of revenues) Revenues Products 73.3 % 72.7 % Services 26.7 27.3 Total revenues 100 100 Cost of revenues Products 41.6 30.3 Services 27.9 24.7 Total cost of revenues 69.5 55.0 Gross profit 30.5 45.0 Operating expenses: Research and development, net 22.8 20.4 Sales and marketing 30.4 28.7 General and administrative 17.1 14.3 Total operating expenses 70.3 63.3 Operating loss (39.8 ) (18.3 ) Finance income, net 11.0 11.0 Loss before taxes on income (28.8 ) (7.3 ) Taxes on income 0.4 0.9 Net loss (29.2 )% (8.2 )% 47 Revenues Revenues decreased by $16.0 million, or 7.3%, to $203.8 million in 2024 from $219.8 million in 2023, which is net of $13.8 million and $3.3 million, in 2023 and 2024, respectively, in fair value of the warrants associated with revenues recognized from Amazon. The decline in revenues was primarily driven by a 32.3% decrease in systems revenues to $33.2 in 2024 from $49 million in 2023 and a 5.1% decrease in service revenues to $55.7 million in 2024 from $58.7 million in 2023 offset in part by a 2.5% increase in ink and other consumables revenues to $114.9 million in 2024 from $112 million in 2023. The decrease in systems revenues was attributable to macro-economic headwinds and other pressures, which continued to impact customers’ systems purchasing decisions and the decline in service revenues was due principally to lower sales of AtlasMAX upgrades in 2024. Cost of Revenues and Gross Profit Cost of revenues decreased by $40.7 million, or 26.7%, to $112.1 million in 2024 from $152.8 million in 2023. Gross profit increased by $24.8 million, or 37.0%, to $91.8 million in 2024 from $67 million in 2023. Gross margin increased to 45.0% in 2024 compared with 30.5% in 2023. The increase in gross profit and gross margin reflects the higher proportion of comparatively higher gross margin ink and consumables revenue in our sales mix, lower charges related to the fair value of warrants deducted from revenues, and cost base reductions resulting from the restructuring. Operating Expenses Year Ended December 31, 2023 2024 % of % of Change Amount Revenues Amount Revenues Amount % ($ in thousands) Operating expenses: Research and development, net $ 50,060 22.8 % $ 41,578 20.4 % $ (8,482 ) (16.9 )% Sales and marketing 66,836 30.4 58,413 28.7 (8,423 ) (12.6 ) General and administrative 37,592 17.1 29,086 14.3 (8,506 ) (22.6 ) Total operating expenses $ 154,488 70.3 % $ 129,077 63.4 % $ (25,411 ) (16.4 )% Research and Development, net. Research and development, or R&D, expenses, net of government grants, decreased by 16.9% in 2024 compared with 2023. The decrease in net R&D expenses was due primarily to the reduction in work force (as described in “Item 6.D. Employees” below), as well as a decrease in materials used as compared with 2023. As a percentage of total revenues, our R&D expenses decreased to 20.4% in 2024 from 22.8% in 2023. Sales and Marketing. Sales and marketing expenses decreased by 12.6% in 2024 compared with 2023. This decrease was due primarily to the reduction in the average number of employees (as described in “Item 6.D. Employees” below), as well as lower spending on events and other marketing activities. As a percentage of total revenues, our sales and marketing expenses decreased to 28.7% in 2024 from 30.4% in 2023. General and Administrative. General and administrative expenses decreased by 22.6% in 2024 compared with 2023. This was due primarily to the reduction in personnel (as described in “Item 6.D. Employees” below) . As a percentage of total revenues, our general and administrative expenses decreased to 14.3% in 2024 from 17.1% in 2023. Financial Income, Net Financial income, net, totaled $22.4 million in 2024 compared with $24.2 million in 2023. The $1.8 million decrease was due primarily to lower average balances and interest rates on our bank deposits and marketable securities. Financial expenses in 2024 declined to $1.7 million from $3.7 million in 2023 due mainly to lower exchange rate differences. Taxes on Income Taxes on income amounted to $1.8 million in 2024, compared with $1.0 million in 2023. The change was due mainly to (i) the valuation allowance recorded in 2023 against deferred tax assets, and (ii) prior years’ taxes. For more information, please see Note 14 to our consolidated financial statements that appear in Item 18 of this Annual Report. 48 For more information concerning our income tax expenses, please see the risk factor in Item 3.D above that begins “We may be subject to additional tax liabilities in the future as a result of audits of our tax returns.” Taxation and Israeli Government Programs Applicable to Our Company Israeli Tax Considerations and Government Programs The following is a brief summary of the material Israeli tax laws applicable to us, and certain Israeli Government programs that benefit us. General Corporate Tax Structure in Israel Israeli companies are generally subject to corporate tax on their taxable income. Since 2018, the corporate tax rate has been 23%. However, the effective tax rate payable by a company that derives income from an Approved Enterprise, a Benefited Enterprise, a Preferred Enterprise, a Special Preferred Enterprise, a Preferred Technology Enterprise or Special Preferred Technology Enterprise (as discussed below) may be considerably less. Capital gains derived by an Israeli company are generally subject to the prevailing corporate tax rate. Law for the Encouragement of Industry (Taxes), 5729-1969 The Law for the Encouragement of Industry (Taxes), 5729-1969, generally referred to as the Industry Encouragement Law, provides several tax benefits for “Industrial Companies”. The Israeli companies are an “Industrial Company” as defined by the Israeli Law for the Encouragement of Industry (Taxation), 1969. The Industry Encouragement Law defines an “Industrial Company” as a company resident in Israel, which was incorporated in Israel and of which 90% or more of its income in any tax year, other than income from certain government loans, is derived from an “Industrial Enterprise” located in Israel or in the “Area”, in accordance with the definition under section 3A of the Israeli Income Tax Ordinance (New Version) 1961, or the Ordinance, and owned by it. An “Industrial Enterprise” is defined as an enterprise which is held by an Industrial Company whose principal activity in any given tax year is industrial production. The following tax benefits, among others, are available to Industrial Companies: ● amortization of the cost of purchased know-how, patents and rights to use a patent or know-how that were purchased in good faith and are used for the development or promotion of the Industrial Enterprise, over an eight-year period commencing on the year in which such rights were first exercised; ● under limited conditions, an election to file consolidated tax returns with related Israeli Industrial Companies controlled by it; and ● expenses related to a public offering are deductible in equal amounts over three years, commencing in the year of the offering. Eligibility for benefits under the Industry Encouragement Law is not subject to receipt of prior approval from any governmental authority. There can be no assurance that we will continue to qualify as an Industrial Company or that the benefits described above will be available in the future. Law for the Encouragement of Capital Investments, 5719-1959 The Law for the Encouragement of Capital Investments, 5719-1959, generally referred to as the Investment Law, provides certain incentives for capital investments in production facilities (or other eligible assets) by “Industrial Enterprises” (as defined under the Investment Law). 49 The Investment Law has been amended several times over the recent years, with the three most significant changes effective as of April 1, 2005, or the 2005 Amendment, as of January 1, 2011, or the 2011 Amendment and as of January 1, 2017, or the 2017 Amendment. Pursuant to the 2005 Amendment, tax benefits granted in accordance with the provisions of the Investment Law prior to its revision by the 2005 Amendment remain in force but any benefits granted subsequently are subject to the provisions of the 2005 Amendment. Similarly, the 2011 Amendment introduced new benefits to replace those granted in accordance with the provisions of the Investment Law in effect prior to the 2011 Amendment. However, companies entitled to benefits under the Investment Law as in effect prior to January 1, 2011 were entitled to choose to continue to enjoy such benefits, provided that certain conditions are met, or elect instead, irrevocably, to forego such benefits and have the benefits of the 2011 Amendment apply. We have examined the possible effect of these provisions of the 2011 Amendment on our financial statements and have decided not to opt to apply the new benefits under the 2011 Amendment and the 2017 Amendment for our company, and for our Israeli subsidiary we elected to apply the benefit under the 2011 Amendment. The 2017 Amendment introduces new benefits for Technological Enterprises, alongside the existing tax benefits. The following discussion is a summary of the Investment Law following its most recent amendments: Tax Benefits Subsequent to the 2005 Amendment The 2005 Amendment applies to new investment programs and investment programs commencing after 2004, but does not apply to investment programs approved prior to April 1, 2005, referred to as Approved Enterprises. The 2005 Amendment provides that terms and benefits included in any certificate of approval that was granted before the 2005 Amendment became effective (April 1, 2005) will remain subject to the provisions of the Investment Law as in effect on the date of such approval. Pursuant to the 2005 Amendment, the Israeli Authority for Investments and Development of the Industry and Economy, or the Investment Center, will continue to grant Approved Enterprise status to qualifying investments. The 2005 Amendment, however, limits the scope of enterprises that may be approved by the Investment Center by setting criteria for the approval of a facility as an Approved Enterprise. The 2005 Amendment provides that Approved Enterprise status will only be necessary for receiving cash grants. As a result, it was no longer necessary for a company to obtain the advance approval of the Investment Center in order to receive the tax benefits previously available under the alternative benefits track. Instead, a company may claim the tax benefits offered by the Investment Law directly in its tax returns, provided that its facilities meet the criteria for tax benefits set forth in the 2005 Amendment. Companies or programs under the new provisions receiving these tax benefits are referred to as Benefited Enterprises. A company that has a Benefited Enterprise may, at its discretion, approach the Israel Tax Authority for a pre-ruling confirming that it is in compliance with the provisions of the Investment Law, as amended. Tax benefits are available under the 2005 Amendment to production facilities (or other eligible facilities) which are generally required to derive 25% or more of their business income from export to specific markets with a population of at least 14 million in 2012 (such export criteria will further be increased in the future by 1.4% per annum). In order to receive the tax benefits, the 2005 Amendment states that a company must make an investment which meets certain conditions set forth in the amendment for tax benefits, including exceeding a minimum investment amount specified in the Investment Law. Such investment entitles a company to receive a “Benefited Enterprise” status with respect to the investment, and may be made over a period of no more than three years ending in the year in which the company requested to have the tax benefits apply to its Benefited Enterprise. Where a company requests to have the tax benefits apply to an expansion of existing facilities, only the expansion will be considered to be a Benefited Enterprise and the company’s effective tax rate will be the weighted average of the applicable rates. In such case, the minimum investment required in order to qualify as a Benefited Enterprise must exceed a certain percentage of the value of the company’s production assets before the expansion. The extent of the tax benefits available under the 2005 Amendment to qualifying income of a Benefited Enterprise depends on, among other things, the geographic location within Israel of the Benefited Enterprise. The location will also determine the period for which tax benefits are available. Such tax benefits include an exemption from corporate tax on undistributed income for a period of between two to ten years, depending on the geographic location of the Benefited Enterprise within Israel, and a reduced corporate tax rate of between 10% to 25% for the remainder of the benefits period, depending on the level of foreign investment in the company in each year. The benefits period is limited to 12 years from the year the company first chose to have the tax benefits apply. 50 A company qualifying for tax benefits under the 2005 Amendment which pays a dividend out of income derived by its Benefited Enterprise during the tax exemption period will be subject to deferred corporate tax in respect of the gross amount of the dividend distributed (grossed-up to reflect the pre-tax income that it would have had to earn in order to distribute the dividend) at the corporate tax rate which would have otherwise been applicable. Dividends paid to Israeli shareholders out of income attributed to a Benefited Enterprise (or out of dividends received from a company whose income is attributed to a Benefited Enterprise) are generally subject to withholding tax at source at the rate of 15% (in the case of non-Israeli shareholders - subject to the receipt in advance of a valid certificate from the ITA allowing for a reduced tax rate, 15%, or such lower rate as may be provided in an applicable tax treaty). The reduced rate of 15% is limited to dividends and distributions out of income derived during the benefits period and actually paid at any time up to 12 years thereafter. After this period, the withholding tax is applied at a rate of up to 30%, or at a lower rate under an applicable tax treaty (subject to the receipt in advance of a valid certificate from the ITA allowing for a reduced tax rate). In the case of a Foreign Investors’ Company (as such term is defined in the Investment Law), the 12-year limitation on reduced withholding tax on dividends does not apply. During the years 2010 to 2019, we were entitled to a tax exemption for undistributed income (“Trapped Profits”) and a reduced tax rate under the Benefited Enterprise programs under the Investment Law. Our company enjoyed these tax benefits until 2019. On November 15, 2021, a new amendment of the Investment Law was enacted harshening the rules with respect to determining the profits from which a dividend was distributed and providing that part of any dividend distribution will be deemed as distributed from the Trapped Profits, according to a certain formula. The Israeli government agreed to grant a relief of 30%-60% on the amount of tax which should have been paid on distributable earnings in order to encourage companies to pay the reduced taxes during the next 12 months (the “Temporary Order”). In November 2022, we applied the Temporary Order to our exempt profits accrued prior to 2022. Tax Benefits under the 2011 Amendment The 2011 Amendment canceled the availability of the benefits granted to companies in accordance with the provisions of the Investment Law prior to 2011 and, instead, introduced new benefits for income generated by a “Preferred Company” through its “Preferred Enterprise” (as such terms are defined in the Investment Law) as of January 1, 2011. The definition of a Preferred Company includes an industrial company that was incorporated in Israel, which is not wholly owned by a governmental entity, and which has, among other things, Preferred Enterprise status and is controlled and managed from Israel. Pursuant to the 2011 Amendment, a Preferred Company is entitled to a reduced corporate flat tax rate of 15% with respect to its preferred income derived by its Preferred Enterprise in 2011 and 2012, unless the Preferred Enterprise is located in a certain development zone, in which case the rate will be 10%. Such corporate tax rate was reduced to 12.5% and 7%, respectively, in 2013 and increased to 16% and 9%, respectively, in 2014 and through 2016. Pursuant to the 2017 Amendment, in 2017 and thereafter, the corporate tax rate for a Preferred Enterprise which is located in a specified development zone was decreased to 7.5%, while the reduced corporate tax rate for other development zones remains 16%. Income derived by a Preferred Company from a ’Special Preferred Enterprise’ (as such term is defined in the Investment Law) would be entitled, during a benefits period of 10 years, to further reduced tax rates of 8%, or to 5% if the Special Preferred Enterprise is located in a certain development zone. As of January 1, 2017, the definition of “Special Preferred Enterprise” includes less stringent conditions. The tax benefits under the 2011 Amendment also include accelerated depreciation and amortization for tax purposes. Dividends paid to Israeli shareholders out of preferred income attributed to a Preferred Enterprise or to a Special Preferred Enterprise are generally subject to withholding tax at source at the rate of 20% (in the case of non-Israeli shareholders - subject to the receipt in advance of a valid certificate from the ITA allowing for a reduced tax rate, 20% or such lower rate as may be provided in an applicable tax treaty). However, if such dividends are paid to an Israeli company, no tax is required to be withheld (although, if subsequently distributed to individuals or a non-Israeli company, withholding of 20% or such lower rate as may be provided in an applicable tax treaty will apply). 51 The 2011 Amendment also provided transitional provisions to address companies already enjoying existing tax benefits under the Investment Law. These transitional provisions provide, among other things, that unless an irrevocable request is made to apply the provisions of the Investment Law as amended in 2011 with respect to income to be derived as of January 1, 2011: (i) the terms and benefits included in any certificate of approval that was granted to an Approved Enterprise which chose to receive grants and certain tax benefits before the 2011 Amendment became effective will remain subject to the provisions of the Investment Law as in effect on the date of such approval, and subject to certain conditions; (ii) terms and benefits included in any certificate of approval that was granted to an Approved Enterprise which had participated in an alternative benefits track before the 2011 Amendment became effective will remain subject to the provisions of the Investment Law as in effect on the date of such approval, provided that certain conditions are met; and (iii) a Benefited Enterprise can elect to continue to benefit from the benefits provided to it before the 2011 Amendment came into effect, provided that certain conditions are met. Kornit Technologies has filed a notification that it wishes to apply the new benefits under the 2011 Amendment. New Tax benefits under the 2017 Amendment that became effective on January 1, 2017. The 2017 Amendment provides new tax benefits for two types of “Technology Enterprises”, as described below, and is in addition to the other existing tax beneficial programs under the Investment Law. The 2017 Amendment provides that a technology company satisfying certain conditions will qualify as a Preferred Technology Enterprise and will thereby enjoy a reduced corporate tax rate of 12% on income that qualifies as “Preferred Technology Income”, as defined in the Investment Law. The tax rate is further reduced to 7.5% for a Preferred Technology Enterprise located in development zone “A”. These corporate tax rates shall apply only with respect to the portion of the Preferred Technology Income derived from R&D developed in Israel. In addition, a Preferred Technology Company will enjoy a reduced corporate tax rate of 12% on capital gain derived from the sale of certain “Benefitted Intangible Assets” (as defined in the Investment Law) to a related foreign company if the Benefitted Intangible Assets were acquired from a foreign company on or after January 1, 2017 for at least NIS 200 million, and the sale receives prior approval from the National Authority for Technological Innovation (previously known as the Israeli Office of the Chief Scientist), referred to as the Israel Innovation Authority (“IIA”) . The 2017 Amendment further provides that a technology company satisfying certain conditions will qualify as a “Special Preferred Technology Enterprise” and will thereby enjoy a reduced corporate tax rate of 6% on “Preferred Technology Income” regardless of the company’s geographic location within Israel. In addition, a Special Preferred Technology Enterprise will enjoy a reduced corporate tax rate of 6% on capital gain derived from the sale of certain “Benefitted Intangible Assets” to a related foreign company if the Benefitted Intangible Assets were either developed by the Special Preferred Technology Enterprise or acquired from a foreign company on or after January 1, 2017, and the sale received prior approval from the IIA. A Special Preferred Technology Enterprise that acquires Benefitted Intangible Assets from a foreign company for more than NIS 500 million will be eligible for these benefits for at least ten years, subject to certain approvals as specified in the Investment Law. Dividends distributed to Israeli shareholders by a Preferred Technology Enterprise or a Special Preferred Technology Enterprise, paid out of Preferred Technology Income, are generally subject to withholding tax at source at the rate of 20% (in the case of non-Israeli shareholders - subject to the receipt in advance of a valid certificate from the ITA allowing for a reduced tax rate, 20%, or such lower rate as may be provided in an applicable tax treaty). However, if such dividends are paid to an Israeli company, no tax is required to be withheld (although, if such dividends are subsequently distributed from such Israeli company to individuals or a non-Israeli company, withholding tax at a rate of 20% or such lower rate as may be provided in an applicable tax treaty will apply). If such dividends are distributed to a foreign parent company holding, solely or together with another foreign company, at least 90% of the shares of the distributing company and other conditions are met, the withholding tax rate will be 4% (or a lower rate under a tax treaty, if applicable, subject to the receipt in advance of a valid certificate from the ITA allowing for a reduced tax rate). 52 We believe that we and our Israeli subsidiary meet the conditions for “Preferred Technological Enterprises”, and accordingly are eligible for the tax rate of 12% on income that qualifies as “Preferred Technology Income”, as defined in the Law. The tax rate for Preferred Technological Enterprises located in development zone A is 7.5%. From time to time, the Israeli Government has discussed reducing the benefits available to companies under the Investment Law. The termination or substantial reduction of any of the benefits available under the Investment Law could materially increase our tax liabilities. B. Liquidity and Capital Resources As of December 31, 2024, we had $35 million in cash and cash equivalents, $206 million in short term deposits and $271 million in marketable securities, which, in the aggregate, total $512 million. Our cash requirements have principally been for working capital, capital expenditures and acquisitions, and in 2023 and 2024, our cash was also used for repurchasing our ordinary shares. Historically, we have funded our working capital requirements, primarily for inventory, accounts receivable and capital expenditures, from cash flows provided by our operating activities, investments in our equity securities, and cash and cash equivalents on hand. We have funded our acquisitions from the proceeds of our public offerings, including, most recently, our November 2021 follow-on offering, and from cash on hand. In 2024 our capital expenditures included investment in equipment under lease, and in both 2024 and 2023, other expenditures were directed towards improvements and expansion of our worldwide locations and corporate facilities, and investment and improvements in our information technology. The most significant elements of our working capital requirements are for inventory, accounts receivable and trade payables. We partially fund the procurement of the components of our systems that are assembled by our third-party manufacturers. Our inventory strategy includes maintaining inventory of systems and inks and other consumables at levels that we expect to sell during the successive three-month period based on anticipated customer demand. In order to hedge against the potential discontinuation of supply of inventory from our main facilities due to the ongoing military conflicts involving Israel, we increased our inventory levels in the primary global regions in which our sales occur. Our accounts receivable decreased in 2024 primarily due to collection efforts. Our trade payables increased in 2024 due mainly to an increase in materials purchases. Based on our current business plans, we believe that our cash flows from operating activities and our existing cash resources will be sufficient to fund our projected cash requirements for at least the next 12 months. Our future capital requirements will depend on many factors, including our rate of revenue growth, the timing and extent of spending to support product development efforts, the expansion of our sales and marketing activities, the timing of introductions of new solutions and the continuing market acceptance of our solutions, as well as other business development efforts including acquisitions. We believe that our current cash reserves will suffice for any such acquisitions, although there can be no assurance that we will not need to seek additional equity or debt financing in order to cover the cost of such potential acquisitions. We provide below a summary of our consolidated statement of cash flows for the last two years. While our statements of cash flows in Item 18 of this annual report include cash flow data for each of the three years ended December 31, 2022, 2023, and 2024, the data and discussion contained in this Item 5.B is limited to a comparison of our liquidity and capital resources- including cash flows- for the years ended December 31, 2023 and 2024. For a discussion of our cash flows for the year ended December 31, 2022, and a comparison of those cash flows with those for the year ended December 31, 2023, please see “Item 5. Operating and Financial Review and Prospects-B. Liquidity and Capital Resources” in our Annual Report on Form 20-F for the year ended December 31, 2023, which we filed with the SEC on March 28, 2024. 53 The following table presents the major components of net cash flows for our last two fiscal years: Year Ended December 31, 2023 2024 (in thousands) Net cash provided by (used in) operating activities $ (34,682 ) 48,725 Net cash provided by investing activities 26,212 31,488 Net cash used in financing activities (56,522 ) (84,815 ) Net Cash Provided by (Used in) Operating Activities Year Ended December 31, 2024 Net cash provided by operating activities in the year ended December 31, 2024 was $48.7 million. Net cash provided by operating activities in 2024 reflected a net loss of $16.8 million, the elimination of non-cash expense line items, such as share-based compensation expenses of $21.8 million, restructuring expenses of $1.2 million, depreciation and amortization of $13.0 million and the fair value of warrants deducted from revenues of $3.3 million, and a decrease of accounts receivable of $28.2 million, a decrease in inventory of $3.0 million, and an increase in trade payables of $2.2 million. These changes were only partly offset by a decrease in accrued expenses and other liabilities of $9.0 million. The decrease in trade receivables, net reflects lower days sales outstanding, or DSO, of 116 days for the year ended December 31, 2024, compared with 155 days for the year ended December 31, 2023. The decrease in accrued expenses and other liabilities, as well as in trade payables, and the increase in inventory, were due primarily to lower business activities, including reduced systems sales throughout the year. Year Ended December 31, 2023 Net cash used in operating activities in the year ended December 31, 2023 was $34.7 million. Net cash used in operating activities in 2023 reflects a net loss of $64.4 million and the elimination of non-cash expense line items, such as share-based compensation expenses of $22.6 million, restructuring expenses of $19.1 million, depreciation and amortization of $14.7 million and the fair value of warrants deducted from revenues of $13.8 million. These adjustments were offset by the elimination of certain non-cash changes to our operating assets and liabilities, which, when eliminated, had a net impact of increasing the cash used in our operating activities, including an increase of accounts receivables of $19.2 million, a decrease in accrued expenses and other liabilities of $10.5 million and a decrease in trade payables of $6.5 million, partially offset by an increase in inventory, net of $11.0 million. The increase in accounts receivables reflects a higher portion of receivables with extended payment terms, with days sales outstanding, or DSO, increasing to 155 days for the year ended December 31, 2023, compared with 91 days for the year ended December 31, 2022. The decrease in accrued expenses and other liabilities, as well as in trade payables, and the increase in inventory, were due primarily to lower business activities, including reduced systems sales throughout the year. 54 Net Cash Provided by Investing Activities Year Ended December 31, 2024 Net cash provided by investing activities in the year ended December 31, 2024, was $31.5 million. Net cash provided by investing activities for the year ended December 31, 2024, was primarily attributable to proceeds from short-term bank deposits and marketable securities of $109.3 million, only partly offset, by $62.7 million investments in marketable securities and purchase of property, plant and equipment, including equipment under lease, of $15.9 million. Year Ended December 31, 2023 Net cash provided by investing activities in the year ended December 31, 2023, was $26.2 million. Net cash provided by investing activities for the year ended December 31, 2023, was primarily attributable to proceeds from short-term bank deposits and marketable securities of $67.2 million, partly offset by the purchase of property, plant and equipment of $7.0 million and the $34.0 million investment in marketable securities. Net Cash Used in Financing Activities Year Ended December 31, 2024 Net cash used in financing activities was $84.8 million for the year ended December 31, 2024 and was primarily attributable to the repurchase of ordinary shares in an amount of $84.1 million. Year Ended December 31, 2023 Net cash used in financing activities was $56.5 million for the year ended December 31, 2023 and was primarily attributable to the repurchase of ordinary shares in an amount of $55.8 million. C. Research and development, patents and licenses, etc. For a description of our research and development programs and the amounts that we have incurred over the last three years pursuant to those programs, please see “ITEM 5. Operating and Financial Review and Prospects- A. Operating Results- Components of Statement of Operations- Operating Expenses- Research and Development Expenses, net” and “ITEM 5. Operating and Financial Review and Prospects- A. Operating Results- Comparison of Period to Period Results of Operations- Comparison of the Years Ended December 31, 2023 and 2024- Operating Expenses-- Research and Development, net” and the corresponding portions of our Annual Report on Form 20-F for the year ended December 31, 2023, which we filed with the SEC on March 28, 2024. D. Trend Information Our results of operations and financial condition may be affected by various trends and factors discussed in “ITEM 3.D Risk Factors,” including “If the market for digital textile printing does not develop as we anticipate, our sales may not grow as quickly as expected and our share price could decline”, and “Macro-economic headwinds caused by inflation, relatively high interest rates and limited credit availability have been adversely impacting our revenues and profitability, and may continue to do so”, and in “ITEM 4.B Business Overview-Industry Overview.” Additional trends that could potentially impact our results of operations and financial condition include changes in political, military or economic conditions in Israel and in the Middle East, and (given the rising level of cyber-attacks globally and targeting of Israeli companies), any potential cyber-attack on our IT systems. We believe that any such trends could have a material effect on our results of operations, liquidity, or financial condition or could cause our reported financial information not to be necessarily indicative of future operating results or financial condition. 55 E. Critical Accounting Estimates Our consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United States (U.S. GAAP). These accounting principles are more fully described in Note 2 to our consolidated financial statements included elsewhere in this annual report and require us to make certain estimates, judgments and assumptions. We believe that the estimates, judgments and assumptions upon which we rely are reasonable based upon information available to us at the time that these estimates, judgments and assumptions are made. These estimates, judgments and assumptions can affect the reported amounts of assets and liabilities as of the date of the financial statements, as well as the reported amounts of revenues and expenses during the periods presented. To the extent there are material differences between these estimates, judgments or assumptions and actual results, our financial statements will be affected. We believe that the accounting policies discussed below are critical to our financial results and to the understanding of our past and future performance, as these policies relate to the more significant areas involving management’s estimates and assumptions. We consider an accounting estimate to be critical if: (1) it requires us to make assumptions because information was not available at the time, or it included matters that were highly uncertain at the time we were making our estimate; and (2) changes in the estimate could have a material impact on our financial condition or results of operations. We believe that the following significant accounting policies are the basis for the most significant judgments and estimates used in the preparation of our consolidated financial statements. Revenue Recognition We generate revenues from sales of systems, consumables and services. We generate revenues from sale of our products directly to end-users and indirectly through independent distributors, all of whom are considered end-users. We recognize revenue under the core principle that transfer of control to our customers should be depicted in an amount reflecting the consideration we expect to receive in revenue. Therefore, we identify a contract with a customer, identify the performance obligations in the contract, determine the transaction price, allocate the transaction price to each performance obligation in the contract, and recognize revenues when, or as, we satisfy a performance obligation. Revenues from products, which consist of systems and consumables, are recognized at the point in time when control has transferred, in accordance with the agreed-upon delivery terms. Revenues from services are derived mainly from the sale of print heads, spare parts, upgrade kits, software subscription and service contracts. Our print heads, spare parts and upgrade kits revenues are recognized at the point in time when control has transferred, in accordance with the agreed-upon delivery terms. Service contracts and software subscriptions are recognized over time, on a straight-line basis, over the period of the service. For multiple performance obligations arrangements, such as selling a system with a service contract, installation and training, we account for each performance obligation separately, as it is distinct. The transaction price is allocated to each distinct performance obligation on a relative stand-alone selling price, or SSP, basis, and revenue is recognized for each performance obligation when control has passed, or service has been rendered. In most cases, we are able to establish SSP based on the observable prices of services sold separately in comparable circumstances to similar customers and for products based on our best estimates of the price at which we would have sold the product regularly on a stand-alone basis. We reassess the SSP on a periodic basis or when facts and circumstances change. We do not account for training and installation as a separate performance obligation due to its immateriality in the context of our contracts. Accordingly, revenues from training and installation are recognized upon the delivery of our systems. We periodically provide customer incentive programs in the form of product discounts, volume-based rebates and warrants, which are accounted for as variable consideration that are deducted from revenue in the period in which the revenue is recognized. These reductions to revenue are made based upon reasonable and reliable estimates that are determined according to historical experience and the specific terms and conditions of the incentive. 56 In cases in which old systems are traded in as part of sales of new systems, the fair value of the old systems is recorded as inventory, provided that such value can be recoverable. Inventories Inventories are measured at the lower of cost or net realizable value. Cost is first-in, first-out cost basis. Inventory costs consist of material, direct labor and overhead. We periodically assess inventory for obsolescence and excess and reduce the carrying value by an amount equal to the difference between its cost and the estimated net realizable value based on assumptions about future demand and historical sales patterns. This valuation requires us to make judgments, based on currently available information, about the likely method of disposition, such as through sales and expected recoverable values of each disposition category. These assumptions about future disposition of inventory are inherently uncertain and changes in our estimates and assumptions may cause us to realize material write-downs in the future. As of December 31, 2024, we had $60.3 million of inventory, of which $32.5 million consisted of raw materials and components and $27.8 million consisted of completed systems, ink and other consumables. We recorded inventory write-offs of $11.4 million, $22.0 million, and $4.6 million for the years ended December 31, 2022, 2023, and 2024, respectively. Recently Issued and Adopted Accounting Pronouncements For a summary of recent accounting pronouncements applicable to our consolidated financial statements see Note 2, “Significant Accounting Policies” to the Consolidated Financial Statements included in Part III, Item 18 of this Annual Report on Form 20-F.