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Kornit Digital Reports First Quarter 2019 Results

Highlights

  • Strong first quarter revenue of $38.2 million, up 22.6% net of $1.0 million attributed to the non-cash impact of warrants, compared to $31.1 million net of $42 thousand attributed to the non-cash impact of warrants in the prior year period.
  • First quarter 2019 GAAP net operating loss of $1.5 million; Non-GAAP operating profit of $1.6 million net of $1.0 million attributed to the non-cash impact of warrants, or 4.2% net of 242 basis points attributed to the non-cash impact of warrants.
  • First quarter 2019 GAAP net loss of $0.05 per diluted share; Non-GAAP net income of $0.03 per diluted share, net of $0.03 per diluted share attributed to the non-cash impact of warrants.
  • Record quarterly revenue from sale of systems.
  • Strong Atlas orders and Poly Pro pipeline following successful product launches; momentum continues with HD platforms and Eco Rapid consumables.
  • Solid geographic momentum with successful transition to direct model in North America, ongoing strength in EMEA, and a continued sharp improvement in APAC.

ROSH-HA'AYIN, Israel, May 13, 2019 (GLOBE NEWSWIRE) -- Kornit Digital Ltd. (KRNT), a leading provider of digital printing solutions for the global printed textile industry, today reported results for the first quarter ended March 31, 2019.

First quarter 2019 revenue increased 22.6% to $38.2 million, net of $1.0 million attributed to the non-cash impact of warrants, compared to $31.1 million, net of $42 thousand attributed to the non-cash impact of warrants, in the prior year period. Increased revenues in the quarter were attributable to widespread growth of system sales across geographies, particularly in the Asia Pacific region.

On a GAAP basis, first quarter operating loss was $1.5 million, compared to the prior-year period operating profit of $0.1 million. Non-GAAP operating income was $1.6 million net of $1.0 million attributed to the non-cash impact of warrants, or 4.2% of revenue, net of 242 basis points attributed to the non-cash impact of warrants, compared to $1.7 million, or 5.5% of revenue, in the prior year period. Lower operating margin was the result of a higher impact from warrants during the period and the shift in revenue mix derived by record quarterly revenues from system and service and the one-time impact of approximately $2 million distribution replenishment ink revenues due to completion timing of the transition to a direct business model in North America.

Ronen Samuel, Kornit Digital’s Chief Executive Officer, commented, “We kicked off 2019 with an excellent start. We delivered a record quarter of revenues from the sale of systems and service and an overall 22.6% revenue growth despite a one-time effect of approximately $2 million on our ink revenues derived from the timing of our transition to a fully direct business model in North America, and a greater impact from the warrants resulting from a higher share price.

"This quarter, we experienced continued business momentum with our HD platforms and the roll-out of our odorless Eco Rapid consumables. We had an exceptionally strong start with our new product introductions with a double-digit number of customers placing orders for our newly launched Atlas and a strong and growing pipeline as it relates to the Poly Pro and Presto. We expect that these new products will have a material contribution to our revenues as early as Q2-2019.”

Samuel added, “We continue to make good progress with our business plan as it relates to expanding our Go-To-Market and services. This quarter, we successfully completed the business model transition in North America, continued our strong business momentum in EMEA and executed on another strong quarter in Asia Pacific with record quarterly revenues, following our focus in scaling and improving our performance in that region. I am very satisfied with the solid execution our global teams continue to deliver as we scale up our go-to-market. We are on track with our internal growth plans and excited to continue driving the business forward. I would like to thank all our devoted employees globally on their hard work, commitment and their ongoing focus on our customers success.”

First Quarter 2019 Results of Operations
Kornit reported first quarter revenue of $38.2 million net of the non-cash impact of warrants of $1.0 million, compared with the prior-year period level of $31.1 million net of the non-cash impact of warrants of $42 thousand.

On a GAAP basis, first quarter gross profit was $15.3 million, compared to $15.4 million in the prior-year period. Non-GAAP gross profit in the first quarter was $17.1 million, or 44.9% of revenue, compared with $15.6 million, or 50.0% of revenue in the first quarter of 2018. The lower gross margin was primarily due to the one-time shift in product mix which was favorable in System & Service revenues and 139 basis points attributed to the non-cash impact of warrants.

On a GAAP basis, total operating expenses in the first quarter were $16.8 million, compared to $15.3 million in the prior-year period. Non-GAAP operating expenses in the first quarter increased to $15.5 million, or 40.7% of revenue, compared to $13.9 million, or 44.5% of revenue, in the prior-year period.

First quarter GAAP research and development expenses were $5.5 million, compared to $5.3 million in the prior-year period. First quarter Non-GAAP research and development expenses were $5.2 million, or 13.7% of revenue, compared to $5.1 million, or 16.4% of revenue in the prior-year period.

First quarter GAAP selling and marketing expenses were $7.3 million, compared to $5.8 million in the prior-year period. First quarter Non-GAAP selling and marketing expenses were $6.8 million, or 17.8% of revenue, compared to $5.4 million, or 17.3% of revenue, in the equivalent prior-year period.

First quarter GAAP general and administrative expenses were $4.0 million, compared to $4.0 million in the prior-year period. First quarter non-GAAP general and administrative expenses were $3.5 million, or 9.2% of revenue, compared to $3.4 million, or 10.8% of revenue, in the prior-year period.

On a GAAP basis, first-quarter operating loss was $1.5 million, compared to operating profit of $0.1 million during the prior-year period. Non-GAAP operating income in the first quarter was $1.6 million, compared to $1.7 million in the prior-year period. As a percent of revenue, Non-GAAP operating margin for the first quarter was 4.2% of revenue, compared with 5.5% of revenue in the first quarter of 2018.

In the first quarter, the Company recorded an additional $0.2 million tax income that increased the deferred tax asset initially formed last quarter that affected GAAP net income.

On a GAAP basis, the Company reported a net loss of $1.6 million, or $0.05 per diluted share, compared to net income of $0.6 million in the first quarter of 2018. Non-GAAP net income for the first quarter of 2019 was $1.2 million, or $0.03 per diluted share, net of $0.03 per diluted share attributed to the non-cash impact of warrants, compared to net income of $2.1 million, or $0.06 per diluted share, net of $0.0 per diluted share attributed to the non-cash impact of warrants in the prior year period.

First Quarter 2019 Warrants Impact

  Three Months Ended
  March 31,
  Q1 2019   Q1 2018
  Net of
Warrants
Impact
  Warrants
Impact
increase
(decrease)
  Net of
Warrants
Impact
  Warrants
Impact
increase
(decrease)
               
Revenues $38.2M   $1.0M   $31.1M   $42K
Non-GAAP Gross Margin 44.9%   139bps   50.0%   7bps
Non-GAAP Operating Margin 4.2%   242bps   5.5%   13bps
Non-GAAP Net Margin 3.1%   245bps   6.7%   13bps
Non-GAAP Diluted Earnings Per Share $0.03   $0.03   $0.06   $0.0

Balance Sheet and Cash Flow
At December 31, 2019, the Company had cash, deposits and marketable securities of $124.3 million, and no long-term debt. Cash flow provided by operations was $0.4 million during the first quarter of 2019.

Second Quarter 2019 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 today 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 1-888-394-8218 or +1-323-701-0225. The toll-free Israeli number is 1 80 921 2883. The confirmation code is 8403533.

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 8403533. The telephonic replay will be available beginning at 8:00 p.m. ET on Monday, May 13, 2019, and will last through 11:59 p.m. ET on Monday, May 27, 2019. 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 including specifically our Poly Pro and Presto products 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, 2019. 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, acquisition related expenses, excess cost of acquired inventory, foreign exchange differences associated with ASC 842, amortization of acquired intangible assets, deferred tax benefits 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)
         
  Three Months Ended  
  March 31,  
    2019     2018  
     
  (Unaudited)  
         
Revenues        
Products $ 32,007   $ 26,758  
Services   6,154     4,362  
Total revenues   38,161     31,120  
         
Cost of revenues        
Products   16,422     11,039  
Services   6,441     4,692  
Total cost of revenues   22,863     15,731  
         
Gross profit   15,298     15,389  
         
Operating expenses:        
Research and development   5,467     5,272  
Selling and marketing   7,268     5,849  
General and administrative   4,043     4,028  
Restructuring expenses   -     148  
Total operating   16,778     15,297  
Operating income (loss)   (1,480)     92  
Financial income (expenses), net   (4)     533  
Income (loss) before taxes on income   (1,484)     625  
         
Taxes on income   105     60  
Net income (loss)   (1,589)     565  
         
Basic net income (loss) per share $ (0.05)   $ 0.02  
         
Weighted average number of shares        
used in computing basic net        
income (loss)  per share   35,127,377     34,269,217  
         
         
Diluted net income (loss) per share $   (0.05)   $   0.02  
         
Weighted average number of shares        
used in computing diluted        
net income (loss)  per share 35,127,377
    34,729,450  
         


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)
         
    Three Months Ended
    March 31,
  `   2019       2018  
     
    (Unaudited)
         
 GAAP cost of revenues $   22,863     $   15,731  
Cost of product recorded for share-based compensation (1)   (108)       (85)  
Cost of service recorded for share-based compensation (1)   (114)       (63)  
Intangible assets amortization on cost of product (3)   (25)       (25)  
Excess cost of product on acquired inventory   (1,554)       -  
Acquisition related expenses (2)   (28)       -  
 Non-GAAP cost of revenues $   21,034     $   15,558  
         
GAAP gross profit $   15,298     $   15,389  
Gross profit adjustments   1,829       173  
Non-GAAP gross profit $   17,127     $   15,562  
         
 GAAP operating expenses $   16,778     $   15,297  
Share-based compensation (1)   (1,078)       (1,057)  
Acquisition related expenses (2)   (57)       -  
Intangible assets amortization (3)   (129)       (241)  
Restructuring expenses   -       (148)  
 Non-GAAP operating expenses $   15,514     $   13,851  
         
 GAAP Financial income (expenses) $   (4)     $   533  
Foreign exchange losses associated with ASC 842    335       -  
 Non-GAAP Financial income (expenses) $   331     $   533  
         
GAAP Taxes on income (tax benefit) $   105     $   60  
Tax effect on to the above non-GAAP adjustments   489       88  
Tax benefit (c)     165       -  
Non-GAAP Taxes on income (tax benefit)  $   759     $   148  
         
 GAAP net income (loss) $   (1,589)     $   565  
Share-based compensation (1)   1,300         1,205  
Acquisition related expenses (2)   85         -   
Intangible assets amortization (3)   154         266  
Excess cost of product on acquired inventory (a)   1,554         -   
Restructuring expenses   -         148  
Foreign exchange losses associated with ASC 842    335         -   
Tax effect on to the above non-GAAP adjustments   (489)       (88)  
Deferred tax benefit based on an Israeli statutory tax rate (b)   (165)       -  
 Non-GAAP net income (loss) $   1,185     $   2,096  
         
 GAAP diluted earning (loss) per share  $   (0.05)     $   0.02  
         
 Non-GAAP diluted earning per share  $   0.03     $   0.06  
         
Weighted average number of shares      
         
Shares used in computing GAAP diluted net earning (loss) per share 35,127,377       34,729,450  
         
Shares used in computing Non-GAAP diluted net earning per share 36,431,015       35,005,677  
         
(1) Share-based compensation      
  Cost of product revenues   108         85  
  Cost of service revenues   114         63  
  Research and development   255         174  
  Selling and marketing   315         228  
  General and administrative   508         655  
      1,300       1,205  
(2) Acquisition related expenses      
  Cost of product revenues   28         -   
  Selling and marketing     14         -   
  General and administrative     43         -   
      85       -  
(3) Intangible assets amortization      
  Cost of product revenues   25         25  
  Selling and marketing   129         241  
      154       266  
         
(a) Consists of charges to  cost of revenues  for the difference between the higher  carrying cost of the acquired  inventory from a  distributor  purchased  on  February  8,  2019  which  was recorded  at  fair  value  and  the  standard  cost  of  the Company's inventory, which adversely impacts the Company's gross profit.
(b) Non cash impact related to the recognition of deferred taxes with respect to carryforward losses in Israel
         


KORNIT DIGITAL LTD.
AND ITS SUBSIDIARIES
CONSOLIDATED  BALANCE  SHEETS
(U.S. dollars in thousands)
    March 31,   December 31,
    2019   2018
     
    (Unaudited)
ASSETS        
CURRENT ASSETS:        
Cash and cash equivalents   $ 17,559   $ 74,132
Short-term bank deposit     14,000     5,000
Marketable securities     17,257     3,981
Trade receivables, net     25,988     21,953
Inventory     34,881     30,030
Other accounts receivable and prepaid expenses     4,480     5,660
Total current assets     114,165     140,756
         
LONG-TERM ASSETS:        
Marketable securities     75,450     44,603
Deposits and prepaid expenses     532     744
Severance pay fund     319     351
Deferred taxes     7,404     7,272
Property and equipment, net     14,770     14,994
Operating lease right-of-use assets     14,552     -
Intangible assets, net     1,747     1,011
Goodwill     5,564     5,092
Total long-term assets     120,338     74,067
         
Total assets   $ 234,503   $ 214,823
         
LIABILITIES AND SHAREHOLDERS' EQUITY        
CURRENT LIABILITIES:        
Trade payables   $ 19,330   $ 16,614
Employees and payroll accruals     9,047     7,932
Deferred revenues and advances from customers     2,296     3,633
Operating lease liabilities     3,104     -
Other payables and accrued expenses     5,021     4,993
Total current liabilities     38,798     33,172
         
LONG-TERM LIABILITIES:        
Accrued severance pay     990     1,059
Operating lease liabilities     11,807     -
Other long-term liabilities     1,258     1,456
Total long-term liabilities     14,055     2,515
         
SHAREHOLDERS' EQUITY     181,650     179,136
         
Total liabilities and shareholders' equity   $ 234,503   $ 214,823
         


KORNIT DIGITAL LTD.
AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(U.S. dollars in thousands)
 
  Three Months Ended
  March 31,
    2019       2018  
   
  (Unaudited)
       
Cash flows from operating activities:      
       
Net income (loss) $ (1,589)     $ 565  
Adjustments to reconcile net income (loss) to net cash  provided by operating activities:      
Depreciation and amortization   1,081       1,167  
Fair value of warrants deducted from revenues   989       42  
Share-based compensation   1,300       1,205  
Amortization of premium (discount) on marketable securities   (34)       117  
Increase in trade receivables   (4,141)       (2,270)  
Decrease in other receivables and prepaid expenses   1,282       417  
Decrease (increase) in inventory   (1,603)       4,915  
Decrease in operating leases right-of-use assets   24       -  
Increase in deferred taxes, net   (186)       (309)  
Decrease (increase) in other long term assets   210       (45)  
Increase (decrease) in trade payables   2,668       (5,146)  
Increase in operating lease liabilities   335       -  
Increase in employees and payroll accruals   1,126       342  
Increase (decrease) in deferred revenues and advances from customers   (1,321)       304  
Increase in other payables and accrued expenses   347       887  
Decrease in accrued severance pay, net   (37)       (80)  
Increase (decrease) in other long term liabilities   (198)       34  
Foreign currency translation income (loss) on inter company balances with foreign subsidiaries   193       (339)  
       
Net cash  provided by operating activities   446       1,806  
       
Cash flows from investing activities:      
       
Purchase of property and equipment   (654)       (482)  
Cash paid in connection with acquisition   (4,715)       -  
Increase in bank deposits   (9,000)       (3,000)  
Proceeds from sale of marketable securities   638       -  
Proceeds from maturity of marketable securities   500       500  
Purchase of marketable securities   (44,599)       (2,349)  
       
Net cash used in investing activities   (57,830)       (5,331)  
       
       
Cash flows from financing activities:      
       
Exercise of employee stock options   1,144       531  
Payment of contingent consideration   (303)       (900)  
       
Net cash provided by (used in) financing activities   841       (369)  
       
       
       
Foreign currency translation adjustments on cash and cash equivalents   (30)       47  
Decrease in cash and cash equivalents   (56,543)       (3,894)  
Cash and cash equivalents at the beginning of the period   74,132       18,629  
Cash and cash equivalents at the end of the period   17,559       14,782  
       
       
       

Non-cash investing and financing activities:
     
       
Purchase of property and equipment on credit   277       400  
Inventory transferred to be used as property and equipment   -       591  
       

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