Kornit Digital (KRNT -1.19%) CEO Ronen Samuel joins the show to share how Kornit's print-on-demand technology is ushering in a new era of sustainable, on-demand, digital fashion

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This video was recorded on Nov. 11, 2021.

Nick Sciple: Welcome to Industry Focus. I'm Nick Sciple. This week, we're taking a look at the future of the fashion industry, sustainable on-demand, digital garment, and textile production. Here to help me do that is my special guest, Ronen Samuel, CEO of Kornit Digital, a market leader in the print-on-demand technologies is helping make that future a reality. Ronen, thank you for joining me.

Ronen Samuel: Hey, thank you very much. Exciting to be here with you.

Nick Sciple: I'm excited to talk with you about this today. In the intro said Kornit, market-leader and print-on-demand technology for folks who aren't familiar with Kornit and aren't familiar with new print-on-demand technology more broadly, what technology do you provide? What does your company do?

Ronen Samuel: The company was established at 2002. Today, we have more than 1,300 customers. Within our customers are some of the biggest companies of the world like Amazon. Amazon is the biggest customer using our technology. Adidas, and many more brands and marketplaces. What we're doing actually, we're selling technology, we're selling big machine that can print on garment, can print on fabric using our own technology, unique technology and using our own ink and services. We're selling those technologies, we have technology companies to fulfillers, the printing on garment to market places like Amazon, to brands like Adidas, and some other types of customers are using our technology. This is where we started. But there was a huge of a loosening in industries that taking us now to a different place and will be very excited to share with you more on that. As of today, we have close to 900 employees. We are global, we are traded in the Nasdaq, and we are a fast-growing company. We just ended our Q3 with a growth of more than 50 percent year-over-year with a record quarter in terms of revenue, in terms of forfeit. The opportunity in front of us is massive. Massive opportunity. We're going to talk about the one billion dollar revenue companies and much more.

Nick Sciple: You mentioned this history of providing services to these print service providers. You thinking about merch by Amazon or some of these emerging platforms like a Redbubble that folks can go on there, make their own designs, upload them to that platform, manufacture them using these services. You're increasingly moving toward providing services to fashion houses. These companies that traditionally were the manufacturers of garments. When it comes to offering services to these businesses, what advantages does Kornit's technology offer over traditional printing technologies?

Ronen Samuel: Massive change. You know this industry is one of the last industries that are going through digital evolution. We saw this digital evolution in almost any industry. One of the biggest industry of the world is textile industry, fashion industry, and is still working like ages ago. What does it mean? From design to products on the shelves, usually, traditionally is about 18 months, producing it offshore in China, Bangladesh in large quantities trying to focus or to hocus to sell what the consumer wants to have to buy. It is impossible in this generation. It's not relevant anymore. You cannot predict what consumer want to wear next week. Social media, e-commerce, changing the entire game, from brands, deciding what we're going to wear, consumer to the people today deciding what they would like to wear. They decide to the brand what they need to produce, so the brand needs to change the supply chain. Because if they continue to produce higher quantities like they're doing today, well, that generate huge amount of waste, actually, 30 percent of everything that's being produced never been sold. Thirty percent is equal to the math of 21 million tons of waste of textile. If you calculate how much water you consumed to produce this waste, it's like 28 trillion liter of water. What Kornit provide is enabling changing totally the supply chain and solving the sustainability issue, how? 

We actually saying to the brands and to the marketplaces, now you don't need to produce to order. You don't need to predict for the consumer, the opposite. If you have a e-commerce, today, everything is through the e-commerce, you can post on the digital e-commerce any type of design. You see what I'm wearing? This is a unique design. I wanted it. It was produced only after I decided to buy it. Now, we really changing the e-commerce to be relevant to you because you can find any type of design you want. You can even customize your own design and you even can personalize it. But you don't need to have it in inventory. If you are not buying it, nobody produce it. If you are buying it, it will be produced next to you. If I'm in New York like I'm now, it will be produced in New York, so no need to ship it across the world. You can deliver it within 24 hours. The nice thing, it's fully sustainable, not only in terms of the waste, doing it with Kornit technology, there's no water use. It's fully sustainable. We're using pigmenting, which is fully green. It's revolutionary to this industry and it's exactly solving the pain of the industry, and this is why we have such a huge goal and such a strong momentum in front of us.

Nick Sciple: If you look at it, it's really one of these win-win-win scenarios. For the customer, you win because you get something that's more responsive to your interest that you can get a t-shirt made on the meme that you saw on the Internet. Yesterday for the business, they have less waste, they're spending less money on inventory. They're not going to be able to spend. Then for the planet, we're wasting stuff, less emissions, less water, all those sorts things. You can really see the business case from the perspective of customers and from the businesses that you're serving.

Ronen Samuel: Correct. I must share with you, I'm coming after a week in LA. Last week, there was an incredible event. It was Kornit Fashion Week in LA. What we've done, we work with more than 22 decent designer, worldwide league designers that participate with us, to showcase a full collection of their design, leveraging our technology. We gave each one of them only three weeks to build the full collection, some of them with more than 20, 30 models in the collections. Each one of them wearing different types of dresses, different type of design, everything based on our technology. Now, we showed the on-demand, we showed the sustainability because now you don't need to order hundreds of meters of fabric in order to prepare one dress, you can really print only one dress and that's it and be ready. We show that unleashing the creativity because if you need only to prepare one design, every model can have different design. Enabling the designer to create anything they want in a very short time on top of the sustainability effect, what we show on the runway, that it was very inclusive and diverse. Everyone was walking on the runway. Even we had models of 80 plus years old. We had different sizes, different colors. Everything was on the catwalk and it was so emotional, and we saw for the first time, more than thousands of brands and designer that participated, they understood right there, that they have a solution for their dreams. It was incredible event.

Nick Sciple: When you talk about integrating with some of these designers, building your business, one of those areas you're investing in is KornitX. You talk about it being as the operating system for on-demand, sustainable fashion. How has this launching an extra growth for your business and I guess changing your go-to-market?

Ronen Samuel: We understood that we need to help the market to solve the issue. Not only building or creating, developing, printing engines, systems, ink, automation, and many physical element. We have to connect to the virtual world. We have to connect to the e-commerce of the brands. We have to connect to the marketplaces to enable them to do their own demand. What we created is KornitX. KornitX is a platform that connects to any e-commerce around the world and enable them on demand production everywhere around the world, leveraging our customers, our customer base that using our technology so we can control the quality of the product in the SLAs all around the world. If you're company, let's take an example, nike.com. If you go today to nike.com and would like to buy a t-shirt, most likely exactly, the t-shirt that you want to buy they will run out of inventory. Then we'll propose this different t-shirts. Doesn't make sense, that's for using the e-commerce as another vehicle like you're going to the shop. They're not really leveraging it. What we are enabling them to actually have endless type of products, they can go and even present a catalog of all the products ever been produced for Michael Jordan. You can choose anything from the catalog on any type of t-shirt in any shape, in any color. Once you order it and pay for it, only then is being produced. If you are in New York, it will be produced in New York as has been before. This is KornitX. The KornitX model is like thinking about the Uber model connecting people to taxi drivers. We are connecting the brands, the e-commerce of the world to our fulfill and network everywhere around the world. But we're also selling the taxes, which are the system, and we're also selling the gasoline which are the ink. As much as we connect more e-commerce to our customer, they will buy more ink and more systems and more services. This is the model and this is what we're driving.

Nick Sciple: I love that explanation. One of those things you talked earlier about maybe unlocking creativity. One of the other partnerships you've announced for KornitX this year is with Canva deepening integration. This one is particularly interesting to me because my wife, that's some point on-demand business where she makes designs on Canva and then we'll go sell on Redbubble and some of these other platforms. As you integrate with Canva, how might her workflow to making these print on-demand t-shirts change leveraging your technology?

Ronen Samuel: That's OK Canva is excellent example. They're great in creating content, in creating designs and enable you to create designs. But they don't want to be with fulfillment. We're solving the issues of fulfillment by connecting them to a network of fulfill all around the world, same-qualities, same SLA, and delivering the products next day to the consumer. You don't need to ship order from one continent to another continent. This is a great example. Today, we announced in our earnings call about collaboration with Google, one of the fastest-growing e-tailers in the UK, on top of ESOs that we already working. Hype as well is a big retailer in the UK that using our KornitX technology as well all around the world. They start to be a huge momentum. We see the adoption starting for more than digital worlds, not from the traditional brands, more than the new brands really did the digital brands that are coming, they're adopting it very fast. We believe that all the rest of the brands will have to do that because their supply chain is totally broken, doesn't fit today's consumer needs. On top of the sustainability, we have to change this world. We committed as Kornit in the ESG report that we released a month ago, that by 2026, actually, Kornit customer, going to produce something like 1.1 billion apparel, which is if you calculate, it's something like they're going to save only but the water consumption because using our technology does not use water, 4.3 trillion liter of water, you know how much is 4.3 trillion of water? It's equal to entire drinking water of all the population of the US for 11 years. This is what we're going to save by 2026, we have to change this industry.

Nick Sciple: You lay out this rapid growth and what it can do for the environment, let's talk about what it can do for your business. You mentioned earlier today, you reported record sales, record earnings. What's been really driving this acceleration of the business over the past year for you?

Ronen Samuel: On top of the technology and the great people that we have, we talked a lot about the market trends, your renewal and market is moving digital, is moving into the e-commerce. Supply chain is broken, so production is moving onshore versus offshore, even stepping above the near shore, really production onshore. This is driving. But we're bringing now more innovation. Really, we just released Atlas MAX that creating new types of capabilities and unbelievable applications that we've shown it last week in LA in the fashion week. We just released the Presto MAX, again, enabling to break-even white ink on dark fabrics, all things that are not handleable in this industry. We are about to release new systems that enable automation without human touch on the systems and many other solutions, we're bringing new system to print on polyester or dye polyester which is very complex. I will take you to each one of the segments, but intention is to digitalize every segment within the textile industry and within the fashion industry. When I'm saying fashion, it's not only seeing you wear, it's also home goods. People today decorating their home, you want your pillows, and you want your sofa bed to look unique. You don't want it to look the same thing as your neighbor. Everything is moving in more creativity, unleashing the creativity, enabling people. Think about it, there are so many professional designers around the world, but in each one of us, to open shop in Shopify takes you 10 minutes. The main limitation that you have is if you're getting an order, how can you produce it? How can you ship it? What we're unleashing, enabling anyone to open a shop in Shopify and to really selling. They don't need to deal with the fulfillment. They just need to connect to KornitX, and KornitX will do the fulfillment for them. Think about the book market. The book market 25 years ago was very limited. Amazon created digital book market. You could go to order from Amazon any books different from 200 years ago. It wasn't on the shelf they printed live. But the outcome of it, is that now everybody can become a writer. You want to write a book on your family, you write it, you publish it, It doesn't cost you anything, it just cost you when you need to print. When you need to print, then you sell it. That's it on demand.

Nick Sciple: Really unleashing creativity. Like I said, my wife is an example of that. Those folks creating into this market. When you lay out this opportunity, really anything that's printing on textile today is a piece of the market that could potentially be addressed by Kornit, really lays out a significant runway for growth. You said on the earnings call earlier today, you're targeting a billion dollars in revenue by 2026, that's about a triple over the current run rate. When you look out 2026 beyond, how big is the opportunity for you to continue capturing pieces of the market? What do you view as your current penetration?

Ronen Samuel: It's a great question. The one billion 2026 is just scratching the grown. This is the nice thing about Kornit. To be the one billion dollar, we calculated it on market share, on specific segment. The segment we calculate is t-shirt market. There are about two billion decorated t-shirt being printed on annual basis. Today, digital is less than one percent of this market. We calculated this about 2026, we will have three percent. By having three percent only from these market, we will become a one billion dollar. Think about the immense opportunity of printing jackets, and printing shoes and printing home decor stuff and less opportunity for Kornit, and this is just the beginning. KornitX is the platform that will enable acceleration above the one billion. In five years from now, the market will totally change. Supply chain will totally change. It will become like the book market of 25 years ago, thinking about after five years ago that everybody moved digital. This is what's happening, in 25 years from now, this market is fully digital. The potential for Kornit to become multi billion dollar after 2026 is huge and we're just getting to growing right now.

Nick Sciple: You mentioned this vision of fully digital in the future, I think another vision you've laid out is many fewer people being involved in the process. You said on the earnings, so we're aiming at one day will be a dark room with no people running these systems and operations. In addition to expanding the number of folks you're addressing, what opportunity do you see that really squeeze more efficiency out of the process and then remove some of the labor costs needed to make these pieces of apparel?

Ronen Samuel: There's so many areas of efficiency. On the production flow of costs you want to automate in that production flow. Actually, what we are aiming is to have a darkroom form getting the orders to managing the year, to managing the warehouse, to the printing process, drying process, shipping the products, all this forces needs to be really knowing the thing of people. But it's much more automation in the workflow like the KornitX and the world is changing. I'll show you other things that's happening in terms of the efficiency. Actually, today, you don't even need to have to design or to take a picture of pollack. What will happen, what is happening now, you don't need to go to the show. You can have your own avatar in the metaverse. We're all talking about the Metaverse, but is happening, you will walk to any shop you want, with your own avatar, you will wear anything you like. In the avatar, you will see, you will like it, then you push, and you order it. It's creating for you endless capability saving for your time. If you're talking about efficiency in this fashion world, it's a massive efficiency that you can have. Not only that you will walk, that actually all those brands will come and tell you for your avatar, this is what you need. We know better than you, we know what color you like, what sizes, we know what your friends are wearing. You want to be unique versus your friend, wear red, because they're all wearing blue. Anything, the world is moving to fully digital, and we are creating really the connectivity between the virtual world, to the physical world, and this is very strong, they're not many companies that can do disconnection.

Nick Sciple: We've spent 20 minutes or so here talking about what Kornit is playing into the future of fashion and on-demand garment production. What is your biggest question about that future? What's the thing that's most uncertain for you as you look out into the next decade of fashion technology?

Ronen Samuel: Well, I really questioning the big brands, how fast they will change their business model, how fast they will really act and be proactive in terms of sustainability. I'm questioning really how responsible they're versus what they're talking about. I see many newcomers, many digital players that really already there. They're newborn and they're born into the sustainability and on-demand. But I'm questioning the big brands. I'm telling you, in 10 years from now, those brands that will not change and will not become sustainable, will not change their supply chain to on-demand, will not fit to the demands of you, because you like, what is this, brown shirt? While it looks brown, probably it's different colors.

Nick Sciple: Crimson green.

Ronen Samuel: Yeah. Okay, very difficult. You like it and this is what you want to show. You don't want to buy black shirt or white shirt. You want this shirt. If they will not be able to fit to your need, they will be the past. We will talk to them like they were the Nokia of the past that didn't see the future.

Nick Sciple: All right. Customers want products that are customized to them that fit their particular needs and the brands that don't deliver that, in your view, will it be left behind?

Ronen Samuel: Absolutely.

Nick Sciple: Okay. Ronen, we've talked about your company Kornit, better part of a half-hour here. Last question I always to leave executives when I talk with them is, listen, if you're an individual investor who's listening to this conversation or is new to Kornit, if you want to leave them with, say, three bullet points to take away from this conversation, to go home and remember, what would those be for you?

Ronen Samuel: One, we're talking about a huge industry that didn't transform yet. Unbelievable opportunity than not many industries in such a size that are fully analog, old, really dirty. That needs to change. This is one thing. The opportunity is endless. I'm talking about all the market trends and what the consumer needs and the pain that the brands are having today and losing money today is massive and we need to find a solution to fit the eventual world and the new way of consuming products to the physical world of producing the products on demand. This is the second thing that Kornit is really bringing. Look at the business model. The business model of Kornit other than what we've discussed about KornitX, is today, 50 percent of our revenue is recurring revenue from the ink and services. It will be more because of KornitX coming into play. It's like a SaaS model. Being in this situation, the 50 percent and more is recurring and in such high pace of goals that not many companies you can compare Kornit into and really this is just the beginning of a huge cause.

Nick Sciple: I'm really excited to watch what would Kornit does going forward, both from my personal perspective as I said my wife is involved in this industry, but also the huge impacts you can have both on increasing selection for the end-user and also making these businesses more sustainable. I'm excited to see what you're able to accomplish going forward.

Ronen Samuel: Me too. I can tell you, there's so much innovation that we are working on. Some really exciting and I will be happy to share with you more early next year.

Nick Sciple: We're looking forward to it. Hopefully, we can stay in touch.

Ronen Samuel: Thank you very much. It was pleasure.

Nick Sciple: Thank you. As always, people on the program may own companies discussed on the show and The Motley Fool may have formal recommendations for or against the stocks discussed, so don't buy or sell anything based solely on what you hear. Thanks to Steve Broido for mixing the show. For Ronen Samuel, I am Nick Sciple. Thanks for listening and Fool on!