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Kornit Digital Reports 2018 Third Quarter Results

Highlights

  • Third quarter 2018 revenues increased by 32.1% to $37.6 million, net of $1.7 million attributed to the non-cash impact of warrants, compared to $28.4 million, net of $0.1 million attributed to the non-cash impact of warrants in the prior year period.
  • Third quarter 2018 GAAP operating income of $3.1 million, or 8.2% of revenue; non-GAAP operating income of $4.9 million, or 13.0% of revenue, net of 367 basis points attributed to the non-cash impact of warrants.
  • Third quarter 2018 GAAP net income of $3.1 million, or $0.09 per diluted share; non-GAAP net income of $4.8 million, or $0.13 per diluted share.
  • Third quarter warrants impact on Non-GAAP Gross margin was 206 basis points, operating margin 367 basis points and Non-GAAP net margin 368 basis points.
  • Company continues to benefit from the market success of the HD with orders of more than 200 systems and upgrades to date.

ROSH-HA`AYIN, Israel, Nov. 12, 2018 (GLOBE NEWSWIRE) -- Kornit Digital Ltd. (KRNT), a leading provider of digital printing solutions for the global printed textile industry, today reported results for the third quarter ended September 30, 2018.

Beginning as of the fourth-quarter of 2017, non-GAAP figures are presented using a different methodology compared to previous periods as a result of comments received from the U.S. Securities and Exchange Commission. These changes also impact the Company's guidance methodology, the details of which can be found at the end of today's press release.

Kornit reported that third quarter 2018 revenue increased by 32.1% to $37.6 million, net of $1.7 million attributed to the non-cash impact of warrants, compared to the prior year period of $28.4 million, net of $0.1 million attributed to the non-cash impact of warrants. Higher revenue in the quarter was attributable to widespread growth across geographies and customers, and the delivery of systems on a large customer program.

GAAP operating income increased to $3.1 million, compared to the prior-year period operating loss of $0.2 million. Non-GAAP operating income increased by 208.4% to $4.9 million, or 13.0% of revenue, compared to the prior year period of $1.6 million, or 5.6% of revenue. Increased operating income was the result of increased revenue and higher operating leverage, partially offset by an unfavorable product mix, as more systems were sold during the period.

Ronen Samuel, Kornit Digital’s Chief Executive Officer, commented, “We are pleased to report strong third quarter results, with sales increasing by more than 30% compared to last year quarter as the market success of our leading industrial DTG systems continues to modernize the retail supply chain. Our sales are accelerating as our customers respond to dynamic challenges to reduce printed apparel run length and lead times while minimizing inventory risk. We firmly believe that Kornit is uniquely positioned to address these evolving priorities with the right technology that delivers superior print quality and hand-feel to end consumers.

“Our latest-generation HD products are receiving unprecedented market success, with more than 200 orders of systems and upgrades to date. The success of the HD leads another wave of Kornit innovation, as we are progressing well with customer beta testing of a new mass production system slated for broader availability in 2019, and the launch of our dark poly solution that was announced during our recent investor day. These technological enhancements add to our recent momentum and present a clear path to achieving our long-term goals.”

Third Quarter Results of Operations

Kornit reported third quarter revenues, net of the non-cash impact of warrants, of $37.6 million, compared with the prior-year period level of $28.4 million. The total non-cash impact of the warrants deducted from revenues was $1.7 million in the third quarter of 2018 and $0.1 million in the third quarter of 2017.

On a GAAP basis, third quarter gross profit was $18.9 million, compared with $14.6 million, in the prior-year period. Non-GAAP gross profit in the third quarter was $19.2 million, or 51.1% of revenue, compared with $14.8 million, or 52% of revenue in the third quarter of 2017. The lower gross margin was primarily due to the effect of warrants in the period.

On a GAAP basis, total operating expenses in the third quarter were $15.9 million, compared to $14.8 million in the corresponding prior-year period. Non-GAAP operating expenses in the third quarter increased to $14.3 million, or 38.1% of revenue, compared to $13.2 million, or 46.5% of revenues, in the corresponding prior-year period.

Third quarter GAAP research and development expenses were $5.1 million, compared to $5.8 million in the corresponding prior-year period of. Third quarter non-GAAP research and development expenses were $4.8 million, or 12.8% of revenues, compared to $5.6 million, or 19.6% of revenues in the prior-year period.

Third quarter GAAP selling and marketing expenses were $6.5 million, compared to $5.3 million in the corresponding prior-year period. Third quarter non-GAAP selling and marketing expenses were $5.9 million, or 15.7% of revenues, compared to $4.8 million, or 16.8% of revenues, in the equivalent prior-year period.

Third quarter GAAP general and administrative expenses were $4.2 million, compared to $3.4 million in the corresponding prior-year period. Third quarter non-GAAP general and administrative expenses were $3.6 million, or 9.6% of revenues, compared to $2.9 million, or 10.1% of revenues, in the corresponding prior-year period.

On a GAAP basis, third-quarter operating income was $3.1 million, compared to operating loss of $0.2 million during the corresponding prior-year period. Non-GAAP operating income in the third quarter increased to $4.9 million, compared to $1.6 million in the equivalent prior-year period. As a percent of revenues, non-GAAP operating margin for the third quarter was 13.0% of revenues, compared with 5.6% of revenues in the third quarter of 2017.

On a GAAP basis, the Company reported net income of $3.1 million, or $0.09 per diluted share, compared to net loss of $0.1 million in the third quarter of 2017. Non-GAAP net income for the third quarter of 2018 was $4.8 million, or $0.13 per diluted share, compared to net income of $1.5 million, or $0.04 per diluted share, in the corresponding prior year period.

Q3 Warrants impact:

  Three Months Ended
  September 30,
  2018   2017
  Net of Warrant
Impact
  Warrant Impact
increase (decrease)
  Net of Warrant
Impact
  Warrant Impact
increase (decrease)
               
Revenues $37.6M   $1.7M   $28.4M   $0.1M
               
Gross Margin 51.1%   206bps   52.0%   25bps
               
Operating Margin 13.0%   367bps   5.6%   49bps
               
Net Margin 12.9%   368bps   5.3%   50bps
               
EPS $0.13   $0.06   $0.04   $0.01
               

Balance Sheet and Cash Flow
At September 30, 2018, the Company had cash, deposits and marketable securities of $110.9 million, and no long-term debt. Cash flow provided by operations was $11 million during the third quarter of 2018, attributable mainly to higher net profit.

Fourth Quarter 2018 Guidance
The Company will discuss the details of its guidance live during its earnings conference call, which will be available for replay via webcast at ir.kornit.com.

Conference Call Information
The Company will host a conference call on Monday, November 12 at 5:00 p.m. ET, or 0:00 a.m. Israel time, to discuss the results, followed by a question and answer session for the investment community. A live webcast of the call can be accessed at ir.kornit.com. To access the call, participants may dial toll-free at 1-800-239-9838 or +1-323-794-2551. The toll-free Israeli number is 1 80 921 2883. The confirmation code is 8753465.

To listen to a telephonic replay of the conference call, dial toll-free 1-844-512-2921 or +1-412-317-6671 (international) and enter confirmation code 8753465. The telephonic replay will be available beginning at 8:00 p.m. ET on Monday, November 12, 2018, and will last through 11:59 p.m. ET on Monday, November 26, 2018. The call will also be available for replay via the webcast link on Kornit’s Investor Relations website.

Forward Looking Statements
Certain statements in this press release are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 and other U.S. securities laws. Forward-looking statements are characterized by the use of forward-looking terminology such as "will," "expects," "anticipates," "continue," "believes," "should," "intended," "guidance," "preliminary," "future," "planned," or other words. These forward-looking statements include, but are not limited to, statements relating to the Company's objectives, plans and strategies, statements of preliminary or projected results of operations or of 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 not guarantees of future performance and are subject to risks and uncertainties. The Company has based these forward-looking statements on assumptions and assessments made by its management in light of their experience and their perception of historical trends, current conditions, expected future developments and other factors they believe to be appropriate. Important factors that could cause actual results, developments and business decisions to differ materially from those anticipated in these forward-looking statements include, among other things: the degree of our success in developing, introducing and selling new or improved products and product enhancements, the extent of our ability to consummate sales to large accounts with multi-system delivery plans, the degree of our ability to fill orders for our systems, the extent of our ability to continue to increase sales of our systems and ink and consumables, the extent of our ability to leverage our global infrastructure build-out, the development of the market for digital textile printing, availability of alternative ink, competition, sales concentration, changes to our relationships with suppliers, the extent of our success in marketing, and those additional factors referred to under "Risk Factors" in the company's Annual Report on Form 20-F filed with the U.S. Securities and Exchange Commission on March 30, 2018. Any forward-looking statements in this press release are made as of the date 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.

Non-GAAP Discussion Disclosure
Non-GAAP financial measures consist of GAAP financial measures adjusted to exclude the impact of share-based compensation expenses, amortization of acquired intangible assets and restructuring expenses and their tax effect. The purpose of such adjustments is to provide an indication of our performance exclusive of non-cash charges and other items that are considered by management to be outside of our core operating results. These non-GAAP measures are among the primary factors management uses in planning for and forecasting future periods. Furthermore, the non-GAAP measures are regularly used internally to understand, manage and evaluate our business and make operating decisions, and we believe that they are useful to investors as a consistent and comparable measure of the ongoing performance of our business. However, our non-GAAP financial measures are not meant to be considered in isolation or as a substitute for comparable GAAP measures, and should be read only in conjunction with our consolidated financial statements prepared in accordance with GAAP. Additionally, these non-GAAP financial measures may differ materially from the non-GAAP financial measures used by other companies.

About Kornit                                                                                              
Kornit Digital (KRNT) develops, manufactures and markets industrial digital printing technologies for the garment, apparel and textile industries. Kornit delivers complete solutions, including digital printing systems, inks, consumables, software and after-sales support. Leading the digital direct-to-garment printing market with its exclusive eco-friendly NeoPigment printing process, Kornit caters directly to the changing needs of the textile printing value chain. Kornit’s technology enables innovative business models based on web-to-print, on-demand and mass customization concepts. With its immense experience in the direct-to-garment market, Kornit also offers a revolutionary approach to the roll-to-roll textile printing industry: digitally printing with a single ink set onto multiple types of fabric with no additional finishing processes. Founded in 2003, Kornit Digital is a global company, headquartered in Israel with offices in the USA, Europe and Asia Pacific, and serves customers in more than 100 countries worldwide.


KORNIT DIGITAL LTD.
AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(U.S. dollars in thousands, except share and per share data)
               
  Nine Months Ended   Three Months Ended
  September 30,   September 30,
  2018   2017   2018   2017
       
  (Unaudited)   (Unaudited)
               
Revenues              
Products $ 92,207   $ 75,734     $ 33,357   $ 25,328  
Services   12,380     8,404       4,234     3,119  
Total revenues   104,587     84,138       37,591     28,447  
               
Cost of revenues              
Products   39,274     34,646       14,042     10,571  
Services   13,571     9,836       4,624     3,280  
Total cost of revenues   52,845     44,482       18,666     13,851  
               
Gross profit   51,742     39,656       18,925     14,596  
               
Operating expenses:              
Research and development   15,681     15,187       5,092     5,845  
Selling and marketing   18,719     16,126       6,518     5,297  
General and administrative   12,257     9,545       4,203     3,407  
Restructuring expenses   321     339       55     246  
Total operating   46,978     41,197       15,868     14,795  
Operating income (loss)   4,764     (1,541 )     3,057     (199 )
Financial income, net   1,092     298       264     205  
Income (loss) before taxes on income   5,856     (1,243 )     3,321     6  
               
Taxes on income   404     403       208     130  
Net income (loss)   5,452     (1,646 )     3,113     (124 )
               
Basic net income (loss) per share $ 0.16   $ (0.05 )   $ 0.09   $ (0.00 )
               
Weighted average number of shares              
used in computing basic net              
income (loss)  per share   34,372,064     34,445,168       34,513,629     34,883,772  
               
               
Diluted net income (loss) per share $ 0.16   $ (0.05 )   $ 0.09   $ (0.00 )
               
Weighted average number of shares              
used in computing diluted              
net income (loss)  per share   35,151,714     34,445,168       35,673,298     34,883,772  
               

 

         
KORNIT DIGITAL LTD.
AND ITS SUBSIDIARIES
RECONCILATION OF GAAP TO NON-GAAP  CONSOLIDATED  STATEMENTS  OF  OPERATIONS
(U.S. dollars in thousands, except share and per share data)
                     
    Nine Months Ended       Three Months Ended
    September 30,       September 30,
      2018       2017           2018       2017  
             
    (Unaudited)       (Unaudited)
                     
                     
GAAP cost of revenues $ 52,845     $ 44,482         $ 18,666     $ 13,851  
Cost of product recorded for share-based compensation (1)   (340 )     (325 )         (151 )     (121 )
Cost of service recorded for share-based compensation (1)   (268 )     (147 )         (116 )     (64 )
Intangible assets amortization on cost of product (2)   (75 )     (75 )         (25 )     (25 )
Non-GAAP cost of revenues $ 52,162     $ 43,935         $ 18,374     $ 13,641  
                     
                     
GAAP gross profit $ 51,742     $ 39,656         $ 18,925     $ 14,596  
Gross profit adjustments   683       547           292       210  
Non-GAAP gross profit $ 52,425     $ 40,203         $ 19,217     $ 14,806  
                     
                     
GAAP operating expenses $ 46,978     $ 41,197         $ 15,868     $ 14,795  
Share-based compensation (1)   (3,276 )     (2,721 )         (1,237 )     (1,060 )
Intangible assets amortization (2)   (723 )     (943 )         (241 )     (266 )
Restructuring expenses   (321 )     (339 )         (55 )     (246 )
Non-GAAP operating expenses $ 42,658     $ 37,194         $ 14,335     $ 13,223  
                     
                     
GAAP Taxes on income $ 404     $ 403         $ 208     $ 130  
Tax effect on to the above non-GAAP adjustments   286       443           105       137  
Non-GAAP Taxes on income $ 690     $ 846         $ 313     $ 267  
                     
                     
GAAP net income (loss) $ 5,452     $ (1,646 )       $ 3,113     $ (124 )
Share-based compensation (1)   3,884       3,193           1,504       1,245  
Intangible assets amortization (2)   798       1,018           266       291  
Restructuring expenses   321       339           55       246  
Tax effect on to the above non-GAAP adjustments   (286 )     (443 )         (105 )     (137 )
Non-GAAP net income (*) $ 10,169     $ 2,461         $ 4,833     $ 1,521  
                     
GAAP diluted earning (loss) per share $ 0.16     $ (0.05 )       $ 0.09     $ (0.00 )
                     
Non-GAAP diluted earning per share $ 0.29     $ 0.07         $ 0.13     $ 0.04  
                     
Weighted average number of shares                  
                     
Shares used in computing GAAP diluted net earning (loss) per share   35,151,714       34,445,168           35,673,298       34,883,772  
                             
Shares used in computing Non-GAAP diluted net earning per share   35,423,185       34,877,281           35,905,930       35,242,293  
                         
                     
(1) Share-based compensation                  
  Cost of product revenues   340       325           151       121  
  Cost of service revenues   268       147           116       64  
  Research and development   695       569           293       272  
  Selling and marketing   842       688           366       258  
  General and administrative   1,739       1,464           578       530  
      3,884       3,193           1,504       1,245  
(2) Intangible assets amortization                  
  Cost of product revenues   75       75           25       25  
  Selling and marketing   723       943           241       266  
      798       1,018           266       291  
                     
(*) Non-GAAP net income has been updated from prior reports (a) to remove the adjustment for the non-cash impact of the warrants deducted from revenues, and (b) to reflect the tax effect of the non-GAAP adjustments.
                     

 

   
KORNIT DIGITAL LTD.  
AND ITS SUBSIDIARIES  
CONSOLIDATED  BALANCE  SHEETS  
(U.S. dollars in thousands)  
    September 30,   December 31,  
    2018   2017  
    (Unaudited)      
ASSETS          
CURRENT ASSETS:          
Cash and cash equivalents   $   14,099   $   18,629  
Short-term bank deposit     9,500     4,500  
Marketable securities     22,048     5,537  
Trade receivables, net     30,620     23,245  
Inventory     25,212     34,855  
Other accounts receivable and prepaid expenses     4,750     2,661  
Total current assets     106,229     89,427  
           
LONG-TERM ASSETS:          
Marketable securities     65,278     68,835  
Deposits and prepaid expenses     712     627  
Severance pay fund     377     523  
Deferred tax asset     622     564  
Property and equipment, net     14,023     11,230  
Intangible assets, net     1,277     2,076  
Goodwill     5,092     5,092  
Total long-term assets     87,381     88,947  
           
Total assets   $   193,610   $   178,374  
           
LIABILITIES AND SHAREHOLDERS' EQUITY          
CURRENT LIABILITIES:          
Trade payables   $   12,311   $   12,439  
Employees and payroll accruals     6,844     6,338  
Deferred revenues and advances from customers     1,960     1,697  
Other payables and accrued expenses     5,283     5,046  
Total current liabilities     26,398     25,520  
           
LONG-TERM LIABILITIES:          
Accrued severance pay     1,284     1,232  
Payment obligation related to acquisition     -     334  
Other long-term liabilities     744     589  
Total long-term liabilities     2,028     2,155  
           
SHAREHOLDERS' EQUITY     165,184     150,699  
           
Total liabilities and shareholders' equity   $   193,610   $   178,374  
           

 

 
KORNIT DIGITAL LTD.
AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS 
(U.S. dollars in thousands)
       
  Nine Months Ended   Three Months Ended
  September 30,   September 30,
    2018       2017       2018       2017  
       
  (Unaudited)   (Unaudited)
               
Cash flows from operating activities:              
               
Net Income (loss) $   5,452     $   (1,646 )   $   3,113     $   (124 )
Adjustments to reconcile net income (loss) to net cash provided by (used by) operating activities:              
Depreciation and amortization   3,603       3,631       1,236       1,204  
Fair value of warrants deducted from revenues   3,190       2,502       1,657       149  
Share-based compensation   3,884       3,193       1,504       1,245  
Amortization of premium on marketable securities    339       404       98       127  
Realized gain on sale of marketable securities    -       (29 )     -       -  
Decrease (increase)  in trade receivables   (7,584 )     (730 )     2,557       (3,624 )
Increase in other receivables and prepaid expenses   (2,109 )     (396 )     (1,587 )     (1,143 )
Decrease (increase) in inventory   8,919       (11,631 )     (125 )     (2,979 )
Increase (decrease) in deferred taxes, net   (25 )     (641 )     194       (458 )
Decrease (increase) in other long term assets    (88 )     (15 )     9       (209 )
Increase (decrease) in trade payables   (233 )     (1,538 )     1,959       522  
Increase (decrease) in employees and payroll accruals   521       (194 )     (238 )     639  
Increase (decrease) in deferred revenues and advances from customers   289       217       (123 )     909  
Increase in other payables and accrued expenses   791       754       588       632  
Increase in accrued severance pay, net   198       242       89       214  
Increase (decrease) in other long term liabilities    155       501       (20 )     132  
Loss from sale of property and Equipment   -       228       -       199  
Foreign currency translation income (loss) on inter company balances with foreign subsidiaries   340       (798 )     47       (203 )
               
Net cash  provided by (used in) operating activities     17,642         (5,946 )       10,958        (2,768 )
               
Cash flows from investing activities:              
               
Purchase of property and equipment   (4,906 )     (4,500 )     (3,662 )     (1,069 )
Proceeds from sale of property and equipment   -       6       -       6  
Investment in bank deposits   (5,000 )     -       (2,000 )     -  
Proceeds from sale of marketable securities   -       38,312       -       -  
Proceeds from maturity of marketable securities   3,354       6,740       1,204       -  
Purchase of marketable securities   (16,680 )     (79,255 )     (10,550 )     (8,607 )
Net cash used in investing activities     (23,232 )       (38,697 )       (15,008 )      (9,670 )
               
               
Cash flows from financing activities:              
               
Proceeds from secondary offering, net   -       35,077       -       -  
Exercise of employee stock options    1,997       2,343       930       996  
Payment of contingent consideration   (900 )     (1,400 )     -       -  
Net cash provided by financing activities     1,097         36,020         930         996  
               
               
               
Foreign currency translation adjustments on cash and cash equivalents   (37 )     124       (4 )     25  
Decrease in cash and cash equivalents   (4,493 )     (8,623 )     (3,120 )     (11,442 )
Cash and cash equivalents at the beginning of the period   18,629       22,789       17,223       25,707  
Cash and cash equivalents at the end of the period   14,099       14,290       14,099       14,290  
               
               

Non-cash investing and financing activities:
             
               
Purchase of property and equipment on credit   539       142       539       142  
Inventory transferred to be used as property and equipment   591       293       -       126  

Investor Contact:
Michael Callahan, ICR
(203) 682-8311
Michael.Callahan@icrinc.com