May 13, 2019
Operator
Good day, everyone, and welcome to the Kornit Digital Ltd., First Quarter 2019 Earnings Conference Call. As a reminder, today's conference call is being recorded.
After prepared remarks, we will provide instructions on how you will ask questions during today's question-and-answer session. At this time, I would like to turn the conference over to Tom Cook.
Please go ahead, sir.
Thomas Cook
Thank you, Dori. Good afternoon, everyone, and welcome to Kornit Digital's first quarter 2019 earnings conference call.
Before we begin, I would like to remind you that forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and other U.S. securities laws will be made on this call.
These forward-looking statements include, but are not limited to, statements relating to the Company's objectives, plans, strategies, statements of preliminary or projected results of operations or our financial condition and all statements that address activities, events or developments that the Company intends, expects, projects, believes or anticipates will or may occur in the future. Forward-looking statements are subject to known and unknown risks and uncertainties and are based potentially on inaccurate assumptions that could cause results to differ materially from those expected or implied by the forward-looking statements.
The Company's actual results could differ materially from those anticipated for many reasons, and I encourage you to review the Company's filings with the Securities and Exchange Commission, including the Company's Annual Report on Form 20-F filed March 26, 2019, which identifies specific risk factors that may cause actual results or events to differ materially. Any forward-looking statements are made as of this call hereof, and the Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.
Additionally, the Company will be making reference to certain non-GAAP financial measures on this call. The reconciliation of these non-GAAP measures to the most directly comparable GAAP measures can be found in the Company's earnings press release published today, which is posted on the Company's Investor Relations site.
On the call today, we have Ronen Samuel, Kornit's Chief Executive Officer; and Guy Avidan, Kornit's Chief Financial Officer. At this time, I would now like to turn the call over to Ronen.
Ronen?
Ronen Samuel
Thank you, Tom. Good evening and thank you for joining our first quarter 2019 earnings conference call.
I will start today by providing a brief overview of our first quarter performance, update you on our operational highlights, and share key business updates as we continue to execute on our short- and long-term goals. I will then hand the call over to Guy to cover our financials.
We are off to a strong start to 2019 with 22.6% year-over-year revenue goals fueled by the strongest ever quarterly revenues from systems sales. Our first quarter of 2019 ended with revenues of $38.2 million net of $1 million of warrants related to Amazon.
Our performance was driven by growth across our product portfolio and customer as our mix continued to shift towards industrial and mass production system. This achievement is even more notable given the technical element associated with internalizing our distribution in North America that resulted in the absence of a normal quarterly replenishment order.
The effect of this was approximately $2 million to our consumable quarterly revenues and is one-time in nature. Kornit continues to benefit from favorable mega trends that pull industry demand for innovative products and solution.
This was another strong quarter of system growth across our HD platform and adoption of our next-generation odorless fixation and Eco Rapid inks. We had remarkable new product introductions this quarter and we feel extremely encouraged with the level of interest and adoption.
Importantly, both new and existing customers were enthusiastic with the performance of our new products platforms. The newly launched Atlas, the best industrial DTG system on the market was off to a strong start.
This is evidenced by phenomenal feedback and a record breaking number of orders received from a double-digit number of customers. Our order pipeline for the Atlas into the rest of the year and beyond is very strong.
And I will add anecdotally that in my long history of product introduction, this is one of the most successful I have ever experienced. In early April, we launched the revolutionary Avalanche Poly Pro in a series of open houses events across the experience centers globally.
As we have discussed extensively, the Poly Pro solved an immense industry challenge and is a breakthrough achievement of our ongoing focus on the moving industry barriers. This technology expands our addressable market and increases our footprint in lucrative segments, such as sportswear and athleisure.
Through the first few weeks of availability, interest in the Poly Pro has been very strong. We have a growing pipeline of orders and we predict that the sales of this product will represent a material part of our revenues in the quarter to come.
Several leading brands and private labels are testing this product and initial feedback is very positive as they recognize the immense possibilities. In mid-April, we announced the Kornit Presto, our next-generation product servicing primarily the on-demand direct-to-fabric market.
The environmentally friendly Presto eliminates the need to pre- and post-treatment of fabric and in combination with our new set of pigment inks allows for high quality printing on a broad variety of fabric types. Initial feedbacks to the products are very encouraging and we have confidence in the pace of our pipeline build-up.
We will officially unveil the solution in June at the highly anticipated ITMA event in Barcelona. We expect this product to add significant contribution already to our second quarter revenues.
We remain laser focused on operational execution of our strategic business plans as well to scale our go-to-market. In North America, we successfully completed our transition to a direct business model.
This transition has been well received by customer and prospects. In the EMEA region, our business performance continues to be strong as we scale our organization and onboard industry talents.
On previous calls, I highlighted the last potential we see in Asia Pacific region. Starting in Q4 of last year and continuing to Q1, we have made many changes and investment in this operation, including onboarding new leadership and talents across customer-facing functions.
These actions led to another strong quarter, in the region, in Asia Pacific with more than double the regional sales volume compared to the prior year. We are very encouraged by the progress and expect to see material goals coming from this region in 2019.
Our continued investment in our customer service infrastructure and the implementation of our customer empowerment strategy is progressing on plan and we experienced another strong quarter in our service business with over 50% year-over-year growth. Additionally, in the first quarter, we executed on plan to build and scale our aftermarket regional organizations.
This important initiative is focused on improving the total customer experience and driving customer success. We anticipate that this will yield incremental recurring business in the quarter to come as it relates to up-sell and cross sell of consumable and value added services.
Looking ahead to the upcoming quarter, we are engaged in large number of marketing Roadshows Events across North America, supporting our new product introductions. This allows customers and prospects that could not physically attend our open houses, the ability to experience this great solutions at the closer proximity to their basis.
In Europe, we will be attending this week the important FESPA Print Expo show in Munich. Next week, we will be attending the high profile CITPE show in China, the most influential event in the textile industry of that region.
Lastly, and much anticipate ITMA show will take place in Barcelona this June. As referenced on previous call, ITMA is referred as the Summer Olympics of our industry and an opportunity to showcase innovation in the textile industry.
We are planning to have a significant presence at the show and have confidence that it will have material impact on our business towards the second half of the year and into 2020. I am pleased we continue to add talents to our team across all function.
The appointment of Steve Nigro as a Strategic Advisor to our Company and to the Board of Directors is an example of a strong vote of confidence in our strategic growth plan. We are very excited Steve has come on Board and he’s making his presence felt already.
We remain focus on executing on our short- and long-term business plan to achieve our strategic goals of being a $500 million revenue run rate company by the end of 2023. We are very well-positioned for the balance of 2019 as we work to scale up our business, drive adoption of our new system introduction and execute on our strategic initiatives.
Guy will detail our outlook for the second quarter in a moment. But we expect our pipeline of new business with our strategic customer and new prospects to remain strong as we build on the momentum we achieved throughout the balance of the year.
I want to thank all our customer and investor for the confidence and loyalty to Kornit and our global workforce for the dedication to our collective success. Now I’ll turn the call over to Guy for a closer look to the number and our guidance.
Guy Avidan
Thank you, Ronen, and good evening, everyone. Before beginning the financial overview, I would like to remind you that the following discussion will include GAAP financial measures as well as non-GAAP pro forma results.
Our first quarter non-GAAP pro forma results reflect adjustments for the following items: stock-based compensation expenses, which totaled $1.3 million; amortization expenses relating to the acquisition of intangible assets acquired in previous years in the amount of $108,000; taxes on income related to non-GAAP adjustment in the amount of $489,000; and non-cash deferred tax benefit in the amount of $165,000. Adjustment related to the acquisition of Hirsch’s assets were non-cash inventory adjustment of $1.6 million, amortization expenses related to the acquisition of intangible asset of $46,000, and acquisition and other cost of $85,000.
We expect additional $1.2 million inventory adjustment in the second quarter, quarterly $78,000 for amortization of intangible assets acquired for the next quarters of 2019, and an additional total amortization of $0.6 million in the following five years. As the company has significant operating lease liability in foreign currencies, the company incurred foreign exchange gains or losses from the reevaluation of these liabilities.
These gain and losses may vary from period-to-period and do not reflect the true financial performance of the company. This quarter foreign exchange losses associated with ASC 842 were $335,000.
A full reconciliation of our results on a GAAP and non-GAAP basis is available in the earnings press release issued earlier today and on the Investors Section of our website. First quarter revenue net of the $1 million warrant impact increased by 22.6% to $38.2 million versus $31.1 million in the prior year and increased 1% versus the prior quarter.
Importantly, given the absence of the U.S. distribution replenishment order in the first quarter resulted from the termination of the Hirsch agreement, underlying volume was stronger than we expected, which resulted from strong introduction of new products as Ronen noted.
These were very successful launches for the company and this was the most robust first quarter in the Company's history from system sales perspective. Services revenue from the first quarter were $6.2 million net of $0.4 million warrants impact, accounting for 16.1% of total revenues, an impressive increase of 41.1% from the prior year and 44.3% from the prior quarter.
The amount attributed to the non-cash impact of warrants in the first quarter was $1 million or 2.5% of revenues, $1.4 million or 3.7% of revenues in the previous quarter and $42,000 or 0.1% of revenues in the first quarter of 2018. The increase in warrants impact this quarter versus the previous year was mainly attributed to higher share price and higher revenues to Amazon.
You can see the warrants impact this quarter versus the prior quarter and the previous year on revenues and margins in Slide numbers 18 and 19. Additional information regarding the Amazon warrants agreement is available in Slide 20.
By geography, 56% of our sales were from the Americas; 29% from Europe, the Middle East and Africa; and 15% from the Asia Pacific region. As in previous quarters, the Americas remain our largest territory.
Our Asia Pacific revenue in the first quarter showed impressive improvement of 103% year-over-year and 15% from the previous quarter. As Ronen mentioned earlier in his remarks, the investment we made in the region started to pay back and we expect the momentum to continue throughout the year.
Moving to customer concentration. Our main U.S.
distributor in previous years contributed 0.2% to our overall revenues compared to 18.3% in the prior year, and major customer contributed 16.7% and a global customer contributed 6.7% of our overall revenues in the first quarter compared to 7.3% in the previous year. Our top 10 customers accounted for 52.9% of our overall revenue compared to 57.2% in the prior year.
This point to our continuous customer diversification as Kornit continues to grow at scale. Moving to profitability.
Non-GAAP gross margin in the quarter decreased to 44.9% from 50% in the prior year period and 48.8% in the fourth quarter of 2018. Lower margins this quarter versus the year-ago quarter were mainly the results of a non-typical system versus ink revenue mix and $1 million warrants impact.
The unique product mix this quarter was a result of terminating the Hirsch distribution agreement and asset purchased mid quarter that led us to the lower revenue from consumable in the U.S. Assuming similar product mix and warrants impact to what we observed in the first quarter of 2018, the non-GAAP gross margin would have been similar to that quarter.
We expect product mix to return to normal in the second quarter and as a result non-GAAP without warrants impact gross margin to exceed 50%. On a GAAP basis, gross margin were 40.1% versus 49.5% in the prior year period and 48% in the fourth quarter of 2018.
Again, as I just noted, this quarter’s gross margin was impacted by a number of non-recurring items and we expect our underlying gross margin to return to more normalized level excluding any impact for warrants in Q2 this year. Moving to our OpEx item.
I will discuss these items on a non-GAAP basis, which excludes non-operating charges previously mentioned and highlighted in our GAAP to non-GAAP reconciliation including in today’s press release. Adjusted research and development was 13.7% of sales or $5.2 million compared to 16.4% of sales or $5.1 million in the prior year.
Sales and marketing expenses in the quarter were $6.8 million or 17.8% of sales compared to $5.4 million or 17.3% in the prior year. Higher sales and marketing expenses were the results of extensive tradeshow and global launch event to our new products.
We expect our customer-facing and marketing headcount to continue to grow in the second quarter as well as additional extraordinary ITMA cost of approximately $1 million. We plan to moderate the increase in spending in that regard in the second half of the year.
General and administrative expenses in the first quarter were $3.5 million or 9.2% of sales compared to $3.4 million or 10.8% in 2018. Headcount as of March 31 was 462 employees, 18 employees more than the previous quarter.
Most of the growth is related to customer-facing functions. During the last three quarters, we have accelerated our personnel growth to adjust our workforce to the changes in our go-to-market.
As we have already mentioned, we expect to moderate personnel growth rate in the second half of the year. Non-GAAP net income for the first quarter was $1.2 million or $0.03 per diluted share net of $0.03 warrants impact, a decrease of $0.9 million versus the year ago quarter.
GAAP net loss was $1.6 million or minus $0.05 per share on a diluted basis compared with net income of $0.6 million or $0.02 earning per share for the year-ago quarter. Our non-GAAP financial income this quarter was $0.3 million as a result of accrued interest of our cash investment.
Our GAAP financial income this quarter was $0. Cash balances, including long-term marketable securities at quarter-end were $124.3 million compared to $98.2 million as of March 31, 2018.
The decrease in cash balances from $127.7 million in the previous quarter was mainly attributed to $4.7 million cash paid in connection with the acquisition of Hirsch assets. As discussed in previous quarter, to optimize the transition process to direct in U.S., we decided to advance the transition date and to buy Hirsch's relevant asset including customer data and relationship backlog and inventory in total gross amount of $4.7 million.
The impact of the acquisition on our financial this quarter was non-cash inventory adjustment of $1.6 million, amortization expenses related to the acquisition of intangible assets of $46,000, and acquisition and other cost of $85,000. We expect the impact on the second quarter financials to be $1.2 million inventory adjustment and $78,000 quarterly amortization of intangible asset during 2019, and additional accumulated amortization of $0.6 million in the following five years that will be adjusted in our non-GAAP pro forma results.
Actually, forward-looking, we expect that going direct will increase our revenues, gross margin and to a lesser account, the lesser extent, sales and marketing expenses from the Hirsch customers. Next I'll discuss our adjusted EBITDA.
For the first quarter 2019, adjusted EBITDA was $3.5 million compared to $2.5 million for the first quarter of 2018 and increasing the adjusted EBITDA of $1 million or 40.9%. Net cash provided from operating activities was $0.4 million this quarter compared to $15.7 billion net cash provided in the prior quarter and net cash provided from operating activities of $1.8 million in the year-ago quarter.
Turning to our guidance for the second quarter of 2019. We expect revenues to be in the range of $44 million to $48 million and non-GAAP operating income to be in the range of 8.5% of revenues to 12.5% of revenues.
As has been our practice is the past, these numbers assume no impact of the fair value of issued warrants in the second quarter of 2019. As a reminder, the calculation of warrants per value is based on the combined effect of estimation of future revenue for Amazon, future Kornit share price in an unknown date, future stock volatility as well as other variable that currently are not predictable and some of which have no correlation to our business.
Since as of today, we’re not able to predict these variables, we assume that warrant impact at zero value for guidance purposes only. I'll now transfer the call to Ronen.
Ronen Samuel
Thank you, Guy. With that, we are ready to open the call for questions.
Operator
Thank you. [Operator Instructions] And our first question comes from Jim Suva with Citibank.
Please go ahead.
James Suva
Thank you very much. I have a couple of questions, but I'll start with one.
The news talks a lot about the trade wars and tariffs and sourcing and production and shipping of product. Can you help me remember, I believe my memory might be correct.
A lot of your products are actually assembled through EMS and companies in your consumables through non-China suppliers. Can you confirm if that's the case?
And also do we need to look into also like sub-sub components or some of your chips coming from China or metal casing, housing or plastics or anything like that? And we're just trying to figure out the impact of tariffs on some of your procurement?
Thank you.
Ronen Samuel
Sure. Thanks Jim.
So we manufacture our printing system as well as ink in Israel. They were examined several times by the U.S.
customs. So they're Israeli and based on the U.S.
Israeli, its custom free. There is minor fraction of a percent made out of Israel, but it's still considered to be made in Israel and custom free.
Actually the trade war, we're not saying it's a good thing, but it will definitely simulate the reassuring, which is a big driver for printing in the U.S., U.S. is our main market.
James Suva
Great. And then as a follow-up maybe for your Chief Financial Officer, the cash flow, if I do my numbers correctly, it looks like the cash flow from operations declined year-over-year a fair amount?
Can you help us understand about the cash flow dynamics? Was last year boosted a little bit too much or this year was it pulled down, whether it be purchasing or integration of acquisitions or how should we think about the change in cash flow from operations year-over-year?
Guy Avidan
So first we generate cash from operations this quarter. Yes, less than we did last year.
We had some increase in AR due to the growth in the business we did towards the end of the quarter. From annual base perspective, we expect to generate cash this year, cash flow operation.
James Suva
Okay. Thank you very much for the details.
Ronen Samuel
Yes. Thanks Jim.
Operator
And our next question will come from Tavy Rosner with Barclays. Please go ahead.
Tavy Rosner
Hi, thanks for taking my question. I was wondering if you could talk a little bit about Amazon, you mentioned that sales were up.
But looking at the cost of warrants a year-ago compared to this year, so they increased significantly, but sales were not that high so I mean, in terms of growth. Is there a timing issue in terms of revenue recognition from Amazon?
Ronen Samuel
Well, actually if you try to do reverse based on the warrants impact. So Q1 versus Q1, if you compare the warrants impact in 2018, it was $42,000.
And if you do, we mentioned the percentage was more than $2 million versus more than $3 million this quarter, and the impact was $1 million. And basically the main or the main reason for the increase in impact is due to the increase in share price.
So it's not rev rec, it’s share price, which is a good thing.
Tavy Rosner
So what was the growth from Amazon? Is there like a way to [indiscernible]?
Ronen Samuel
Yes. You can look again at the script when we talk about customer concentration, so we mentioned a customer called global customer.
And we compare global customer in Q1 this year versus Q1 2018. This way you can extract the revenue from the specific customer you ask about.
And the impact of the warrants, we also mentioned this quarter was around 1 million versus 42,000 last year. And most of the increase in impact is due to the increase in share price year-over-year.
Tavy Rosner
Got it. And earlier this year, you mentioned the goal towards reaching $150 million in sales over the five years.
Where are you so far and are you still on track to reach that goal?
Guy Avidan
Yes. We are on track to reach the goal of $500 million run rate of business in 2023.
Yes, we are on track and we are confident that 2019 will be on track to reach this goal.
Tavy Rosner
Thank you. And maybe the last one, if I may, a quick one.
The product gross margin was down sequentially also down compared to year-ago, is that attributable to the one-time shift that you mentioned in your prepared remarks?
Guy Avidan
Yes, definitely. So we mentioned that due to the termination of the distribution agreement, we missed the replenishment order which is predominately consumables.
And we also mentioned strongly that second quarter we will back to normal rate and we expect gross margin without the impact of the warrants to be above 50%.
Tavy Rosner
Great. Thank you for the color.
I’ll get back to the queue.
Guy Avidan
Thanks Tavy.
Ronen Samuel
Thank you.
Operator
Our next question comes from Brian Drab with William Blair. Please go ahead.
Brian Drab
Hi, thanks for taking my questions. First on gross margin which I think you’re just touching on there, 45% non-GAAP in this quarter.
And just trying to quantify this a little bit more precisely, you have the impact of the $2 million in consumables, I'm calculating that's about a 400 basis point headwind or close to 400 basis points and you have the warrant headwind. So if you add all that back, you get 50.5%, getting close to 51%.
And then you have the Poly Pro, which I believe will be the highest margin printer that you'll – that you've ever had in the mix. So as we move through 2019, could we see gross margin on the, 51%, 52%, 53% range as you start to see the Poly Pro gained traction and we take these other one-time issues out of the picture?
Guy Avidan
So your analysis is pretty good. The warrants impact was 139 basis point, obviously everything that we're doing – we're actually aiming to increase gross margin going direct, the product that you mentioned, but we're not guiding for gross margin.
Brian Drab
Okay. And then on the operating expense, and it's confusing I think about the operating expense in terms of percentage of sales because of the warrant issue and how that affects the denominator in that calculation.
But if we just look at the non-GAAP operating expense in terms of dollars and specifically the selling and marketing at $6.8 million that was materially below what I was expecting. And then research and development was actually a little bit below what I was expecting is down sequentially.
So can you at least just comment on the trajectory of both of those line items in terms of non-GAAP dollars and of course, we understand you've got a step up due to ITMA?
Ronen Samuel
Right. So we mentioned that we will continue to grow our go-to-market, customer-facing, et cetera.
And as the result, sales and marketing expenses will continue to grow up in the second quarter with the additional about due to ITMA. In the second half of the year, we expect to moderate this growth.
We will see – when we talked about 2019, we talked about sub-leverage that we will see from R&D, SG&A and we're still on track.
Brian Drab
Guy, you can say it all if the second half of the year quarterly selling and marketing run rate would resemble what we just saw in the first quarter. Can you put a finer point on moderate?
Guy Avidan
Moderate means that the growth rate in terms of quarter-over-quarter will go down. In terms of dollars, the numbers will continue to grow in the third and fourth – well third quarter due to the – after ITMA quarter most probably will not go up.
But on an ongoing basis, our sales and marketing will continue to grow.
Brian Drab
Okay. Sorry, and just to be really clear on that.
After ITMA in the second quarter, you would expect it to step back down somewhat in terms of dollars in the third and fourth?
Guy Avidan
Right, the third quarter. Right.
Forward-looking longer-term, there is a lot of opportunities ahead of us and we're investing in sales and marketing to see these opportunities.
Brian Drab
Okay. And does R&D kind of stay up this run rate or where do you expect that to be in the second, third and fourth quarter relative to first quarter?
Guy Avidan
Yes. As usual we are not guiding for more than one quarter.
And as we said before, we expect R&D to grow slower than the growth of revenue and obviously slower than the growth of gross profit.
Brian Drab
Okay, thanks. That's really helpful.
Congrats on a great quarter.
Guy Avidan
Thanks, Brian.
Operator
Our next question comes from Jim Ricchiuti with Needham & Company.
James Ricchiuti
Good evening. And I know you're not giving guidance beyond on the quarter, Guy, but or Ronen if you could.
Is there any way to think about the second half? Last year as we looked at the way the year progressed, it was fairly linear.
This year, clearly you have new products contributing more meaningfully. So should we think about the second half showing a steeper ramp?
And again, I am not trying to pin you down, just trying to think about how the new products could begin to contribute in the second half?
Guy Avidan
Well, Jim, we are just going to guide for Q2. I think in previous call and this call we gave enough color regarding our expectation.
We're very optimistic about all the three products that we announced during the quarter, but we're not going to talk about numbers now.
James Ricchiuti
Wonder if we could dig a little more deeply into Atlas. I think in Q4 call, you mentioned that you had I believe 10 customers for Atlas.
This quarter, I think Q1, I think you're talking about double-digit. Can you say whether many of the customers that you took orders from in Q1 were multiple unit customers?
I'm trying to get a sense as to how dispersed, how well distributed the orders that you're seeing for Atlas are?
Ronen Samuel
So we'll see the order from Atlas coming from existing customers, but also from a net new customer, some of the existing customers we are talking about multiple units orders that’s coming in and of course, the existing customers, most of them starting with one unit and later on the intention is to go ahead and purchasing more units. But if you are asking, yes in Q1, there was one deal that it was multiple units in one big account.
James Ricchiuti
Thank you, Ronen. I know it's early, still very early for Poly Pro, but can you talk a little bit about the market reception to that?
And I'm also curious if you're seeing if you anticipate any cannibalization from the Avalanche product family from Poly Pro.
Ronen Samuel
Okay. So I’ll start with the second question.
The Poly Pro is totally a different product, is based on the Avalanche platform, but has totally different ink set, totally different process, totally different software, and it’s going for a different application. So the zero cannibalization between the Avalanche to the Poly Pro.
What we – going back to your first question, we’re getting fantastic feedback on the Poly Pro in terms of the quality, durability, functionality of the print. We see net new customers that we never been able to penetrate.
Going after the Poly Pro, we see brands, major brands, the top brands of the world testing it, evaluating it, and as soon we'll get into a real production, we see our biggest customers are starting to add into their own portfolio of Avalanche’s and Atlas’ also the Poly Pro. So it's really big, big success.
And as I mentioned, it will be a strong influence on our Q2 results and I believe moving forward for Kornit results overall.
James Ricchiuti
Thank you.
Operator
Our next question comes from Chris Moore with CJS Securities.
Christopher Moore
Hey. Thanks guys.
Yes, can you maybe just talk a little bit about the opportunity in Japan in terms of – I know there's limited presence at this stage, but kind of your thoughts on that market and the opportunity there?
Ronen Samuel
Yes. So I'll start with Asia Pacific.
I have a lot of experience working in Asia Pacific and I believe in this region. And in the last six months to eight months, we started to invest a lot.
We did major changes there in the organization. We invested in center of excellence, in the marketing activities, and we are starting to see great results.
This quarter specifically, we really grow100% year-over-year and we already saw in Q4 a nice increase. We have a good, very strong pipeline into Q2 and we believe that Q2 will be also a very strong quarter to Asia.
Within Asia, of course, there are a few markets that are very important for us and we are focusing on. Obviously China is the biggest market and the biggest opportunity for Kornit.
We are going after, we have our own team there, we have our channel partners that you're working very closely. Japan of course is the second biggest market for us in Asia Pacific.
We have two channel partners that we are working very, very closely. We have a small team within Japan supporting the channel partner and supporting our customers on a daily basis.
We see Japan is a potential growth engine for Asia Pacific and for overall Kornit and we are taking this market very seriously.
Christopher Moore
Got it. Thank you.
That's helpful. And maybe just with respect to the Presto, is the competitive landscape that you will see with that product, is that much different than Allegro?
Or is it just – the product itself is just that much more efficient and powerful than the prior…
Ronen Samuel
So first, the product itself – these are major differences between this product to the Allegro product. It’s 2.5x more productive.
The ink set is totally new ink set with – the durability of the ink is much stronger, the quality is better, and there's many more attributes to the overall solution. And the issue about competition and the market, so we are focusing with the Presto to go after the home décor.
We believe the home décor market will go through the same transition as the direct-to-garment market went through. We are starting to see a lot of customization, personalization and source are coming to the home décor.
And we believe we have the best pigment ink in the market and the home décor require pigment ink and therefore we believe that our solution is the best fit for this market segments, which is growing and we intend to capture a major market share within this market segment.
Christopher Moore
Got it. Very helpful.
I’ll jump back in line. Thanks guys.
Operator
And our next question comes from Patrick Ho with Stifel. Please go ahead.
Patrick Ho
Thank you very much. Ronen, maybe as a follow-up to the question on Japan, but Asia in general, are you seeing traction in Asia coming from one specific product or across your product portfolio?
Ronen Samuel
It’s a great question. You might think that in Asia customer will buy the entry level products, the lower end of our portfolio.
Actually what we are starting to see both in China and Japan, rest of Asia, customers are buying both the Atlas, we are getting orders also for the Poly Pro and of course, the Avalanche. So we see the trends moving more to the high end also in Asia.
Patrick Ho
Great. That's helpful.
And maybe as my follow-up question. Your services revenue had a really nice uptick both on a quarter-to-quarter and year-over-year basis, should we look at that as kind of the new run rate or will things kind of I guess normalize itself back into the $4 million plus range on a quarterly basis?
Guy Avidan
Generally speaking, it's still going to be lumpy before – it’s really going to be a big business. For the second quarter, we expect more or less same level of revenues from services.
Patrick Ho
Okay. And then maybe as a final just as a follow-up to that response.
In terms of services, I understand some of the lumpiness that comes on a quarterly basis, what are some of the key longer-term growth drivers that will continue to drive services higher? Is it just simply growing the installed base?
What other avenues are there that gets it to the $6 million or higher revenue level mark on a quarterly basis?
Ronen Samuel
So we are changing the entire way we are approaching our service, we call it a customer empowerment program, starting with making sure that the customer are in contract versus time and material. So we see a growing attach rate of contracts to every sales that we are doing.
We see conversion from customers that are on time and on material into contracts and by that you will see higher revenues coming to Kornit. Also, we are focusing on providing training, business development activities, and upgrades to our installed base, which will also – will flow the revenue into the service business.
Patrick Ho
Great. Thanks a lot guys.
Operator
[Operator Instructions] We will take our next question from Greg Palm with Craig-Hallum. Please go ahead.
Danny Eggerichs
Hi, guys. This is actually Danny Eggerichs on for Greg today.
I was just hoping you could – the new customer events you've been doing have seemed to be really good. I was just hoping you could kind of give us a feel on like new interest that you’ve seen from that or opportunities in the pipeline that you've seen resulting from those new events?
Ronen Samuel
Yes. So the open house is an opportunity for customer to have a first look into the technology, to touch the technology, to test it and to speak to the experts that are on the technology both on the application side, on the R&D side, and of course, we have all service and sales team there.
We see actually in the open houses that we had both in the U.S. and Europe and Asia mix between net new to existing customers.
I would say roughly 70% of the audience are net new account that are coming there and 30% our existing customers that are coming and looking on new technologies that they would like to add to the current solutions that they have.
Danny Eggerichs
Okay, great. That's really helpful.
And then just the last one here, any update on any changes in the competitive landscape in general in Q1 here?
Ronen Samuel
Not major updates, I would say again, but our main competitor is in the DTG, and the screen, the screen market 99% of the impression are still being printed on the screen market on the analog and this is what we need to go after. This is what we need to focus on.
How can we convert those impression into digital? Within the digital market and DTG, we are by far the market leader and with the latest technology, we will continue to lead this market.
Danny Eggerichs
Okay, great. Thanks guys.
Guy Avidan
Thanks.
Operator
And we will take a follow-up question from Jim Ricchiuti with Needham & Company. Please go ahead,
James Ricchiuti
Yes. I was just wondering – thank you.
I was just wondering if you can provide any early color on Atlas utilization or the consumable usage. I'm curious what you're seeing from the early customers that have been using the equipment.
Ronen Samuel
Well, it's a bit early to talk about it, but a good indication is the announcement about DTG to go, but we are better sized. We tested the system and later on decided to add another 10 units.
We can see few more customers that bought the first unit and really less than one-month later, two months later I decided to buy the second units. We just posted a video on Linkedin, you can see a testimonial of the customer from UK, T-Shirt & Sons is talking about the latest Atlas that he acquired both the first one, he was part of the beta and recently, they bought the second one.
I think the best to hear it from the customer just go Linkedin and look for it.
James Ricchiuti
Okay. Thanks a lot.
Congrats on the quarter.
Ronen Samuel
Thank you.
Operator
And we will take another follow-up question from Brian Drab with William Blair. Please go ahead, sir.
Brian Drab
Hi. Just wondering if you could just comment a little bit further on opportunity with some of the larger brands.
And do you have a sense for whether the Poly Pro or the Atlas might be your first foot in the door with one of the big brands?
Ronen Samuel
Yes. So thanks for that Brian.
So we have few brands, I would say the leading brands of the world that's currently are testing both the Poly Pro and the Atlas. We have great focus with few of them.
One of them was already in a pilot, live pilot in the market, the others are still in a different stage of testing and evaluation of the system. We are getting great feedback.
We are working with them very, very closely and it looks very promising.
Brian Drab
Thanks. And then Guy, this is just to clarify for everyone, when you report percentage of revenue and we think we know – if someone thinks they know which number applies to Amazon in terms of percentage of revenue in your slides.
Would that number be reported net of warrants, meaning that the warrant impact would be taken out of the numerator and denominator in that calculation?
Guy Avidan
Yes.
Brian Drab
The answer to that is yes, right. I just wanted to share with you.
Guy Avidan
The answer is yes.
Brian Drab
Okay. Because that's material if the number was 7% of revenue, you're going to get a single-digit level of revenue, but warrants or you add back a 1 million to that.
So it's a significant…
Guy Avidan
Exactly. If you would like to know what was the real number of business with Amazon this quarter, you actually have to take the global customer and from customer concentration.
You have a percentage. Do the percentage from revenue net of impact and then add a 1 million.
Brian Drab
Okay. Thanks for clarifying that.
Guy Avidan
Thanks Brian.
Operator
And it appears there are no further questions in queue at this time. Mr.
Samuel, I would like to turn the conference back to you for any additional or closing remarks.
Ronen Samuel
Well, thank you for joining today's call and we appreciate your continued interest in Kornit. We are pleased with our continued success as we look to drive long-term shareholders value.
I want to thank all of our employees for their hard work and dedication to this exciting time for Kornit. I look forward for speaking with all of you on our second quarter call.
Thank you very much.
Operator
This does conclude today's call. Thank you for your participation.
You may now disconnect.