Kornit Digital (KRNT) shares plummeted 5.03% in pre-market trading on Wednesday following the company's third-quarter earnings release and conference call. Despite beating Q3 estimates, investors appeared concerned about the company's outlook and ongoing business model transition.

The digital printing technology provider reported Q3 adjusted earnings per share of $0.09, surpassing the consensus estimate of $0.02. Revenue for the quarter came in at $53.13 million, also beating expectations of $52.44 million. However, the company's guidance for Q4 raised eyebrows, projecting revenue between $56 million and $60 million, which implies a potential year-over-year decline.

A key factor driving the stock's decline is Kornit's accelerated shift towards the All-Inclusive Click (AIC) recurring revenue model. While this transition is expected to enhance long-term profitability and predictability, it is negatively impacting short-term revenue recognition. CEO Ronen Samuel emphasized that this strategic move will create "a much stronger foundation of long-term growth profitability and visibility," but acknowledged it would result in lower near-term revenue as the company prioritizes AIC deals over traditional capital equipment sales.

Adding to investor concerns, Kornit expects negative free cash flow in the coming quarters due to AIC investments, although it aims to maintain positive operating cash flow. The company also faces gross margin headwinds from U.S. tariffs, which it plans to partially offset through targeted price increases. Looking ahead to 2026, Kornit anticipates only "low single-digit" revenue growth, further contributing to the market's tepid reaction.