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Kornit Digital Reports Third Quarter 2020 Results

Kornit Digital Ltd
·18 min read

Acceleration of Digital Textile Transformation Fuels Outperformance

  • Third quarter revenue of $57.4 million, net of non-cash warrants impact of $2.2 million

  • Third quarter GAAP operating profit of $2.7 million; Non-GAAP operating profit of $6.5 million, net of $2.2 million attributed to the non-cash impact of warrants

  • Revenue growth and overall business performance exceed previous expectations

  • Milestone in sustainable services profitability achieved a quarter ahead of plan

  • Strong operating leverage, inclusive of investments in innovation and scaling go-to-market

  • Excellent momentum with Custom Gateway introduction and integration

ROSH-HA'AYIN, Israel, Nov. 10, 2020 (GLOBE NEWSWIRE) -- Kornit Digital Ltd. (NASDAQ: KRNT), a company that develops, manufactures and markets industrial digital printing technologies for the garment, apparel and textile industries, today reported results for the third quarter ended September 30, 2020.

“We delivered a very strong third quarter, exceeding our expectations on revenue growth and profitability, as we continue to engage in exciting projects with leading global brands and fulfillers across geographies. Our industry is accelerating the transition to digital sustainable on-demand manufacturing and we have never been better positioned to meet the market opportunities ahead of us,” said Ronen Samuel, Kornit Digital’s CEO. “Looking forward, we see huge momentum in the business, and we are entering 2021 with a very strong pipeline.”

2019 GAAP and Non-GAAP figures in today’s press release are presented using a different valuation basis for the warrants impact compared to previous years as a result of the recently issued accounting standards update (ASU 2019-08).

The following table compares the adverse, non-cash impact that our outstanding warrants had on our results of operations during the third quarter of 2020 and 2019, respectively:

Third Quarter Warrants Impact

Three Months Ended

September 30,

2020

2019

Net of
Warrants
Impact

Warrants
Impact

Net of
Warrants
Impact

Warrants
Impact

Revenue

$57.4M

$2.2M

$47.3M

$2.4M

Non-GAAP Gross Margin

48.1%

188bps

47.7%

255bps

Non-GAAP Operating Margin

11.3%

322bps

13.0%

425bps

Non-GAAP Net Margin

13.5%

314bps

13.9%

420bps

Non-GAAP Diluted Earnings Per Share

$0.18

$0.05

$0.16

$0.05

“We are very pleased with our business acceleration as third quarter revenue of $57.4 million, net of $2.2 million attributed to the non-cash impact of warrants reflects an increase of 21.4 percent year-over-year. Customers and partners are ramping production not only to meet the upcoming holiday season but also the unprecedented and sustained demand in e-commerce,” said Guy Avidan, Kornit Digital’s Chief Financial Officer. “Given third quarter outperformance and the strength of our pipeline we are raising our previously provided second-half 2020 revenue outlook from low double-digit to 25 percent year-over-year growth.”

Third Quarter 2020 Results of Operations

  • Total revenue for the third quarter of 2020 was $57.4 million, net of $2.2 million attributed to the non-cash impact of warrants, compared to $47.3 million, net of $2.4 million attributed to the non-cash impact of warrants in the prior year period.

  • GAAP net income for the third quarter of 2020 was $3.9 million, or $0.09 per diluted share, compared to net income of $4.7 million, or $0.11 per diluted share, for the third quarter of 2019.

  • Non-GAAP net income for the third quarter of 2020 was $7.7 million, or $0.18 per diluted share, including $0.05 per diluted share attributed to the non-cash impact of warrants, compared to non-GAAP net income of $6.6 million, or $0.16 per diluted share, net of $0.05 per diluted share attributed to the non-cash impact of warrants, for the third quarter of 2019.

Fourth Quarter 2020 Guidance

The Company will discuss its expectations for the fourth quarter of 2020 live during its earnings conference call, which will be available for replay via webcast at ir.kornit.com, as referenced below.

Third Quarter Earnings Conference Call Information

The Company will host a conference call today at 5:00 p.m. ET, or 12:00 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 1-877-407-0792 or +1-201-689-8263. The toll-free Israeli number is 1 809 406 247. The confirmation code is 13711406.

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 13711406. The telephonic replay will be available beginning at 8:00 p.m. ET on Tuesday, November 10, 2020, until 11:59 p.m. ET on Tuesday, November 24, 2020. 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 duration of the global COVID-19 pandemic, which, if extending for further significant periods of time, may continue to impact, in a material adverse manner, our operations, financial position and cash flows, and those of our customers and suppliers; 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, ink and consumables, the extent of our ability to leverage our global infrastructure build-out, the development of the market for digital textile printing, the 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 Item 3.D of the Company's Annual Report on Form 20-F for the year ended December 31, 2019, filed with the U.S. Securities and Exchange Commission on March 23, 2020. 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 impact and the one-time impact of COVID-19, and the tax effect of the foregoing. 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 Ltd. (NASDAQ: 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 2002, 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 BALANCE SHEETS

(U.S. dollars in thousands)

September 30,

December 31,

2020

2019

(Unaudited)

ASSETS

CURRENT ASSETS:

Cash and cash equivalents

$

283,680

$

40,743

Short-term bank deposit

51,808

95,000

Marketable securities

10,723

32,567

Trade receivables, net

49,685

40,510

Inventory

46,268

37,477

Other accounts receivable and prepaid expenses

8,495

6,985

Total current assets

450,659

253,282

LONG-TERM ASSETS:

Marketable securities

59,057

95,393

Deposits and prepaid expenses

406

356

Severance pay fund

297

301

Deferred taxes

7,067

7,781

Property, plant and equipment, net

25,844

17,489

Operating lease right-of-use assets

21,837

22,806

Intangible assets, net

11,474

2,494

Goodwill

13,629

5,564

Total long-term assets

139,611

152,184

Total assets

$

590,270

$

405,466

LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES:

Trade payables

$

24,812

$

23,449

Employees and payroll accruals

13,434

9,165

Deferred revenues and advances from customers

10,373

2,688

Operating lease liabilities

3,893

3,902

Other payables and accrued expenses

9,421

6,373

Total current liabilities

61,933

45,577

LONG-TERM LIABILITIES:

Accrued severance pay

1,112

1,035

Operating lease liabilities

18,271

19,231

Other long-term liabilities

1,368

1,320

Total long-term liabilities

20,751

21,586

SHAREHOLDERS' EQUITY

507,586

338,303

Total liabilities and shareholders' equity

$

590,270

$

405,466



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,

2020

2019

2020

2019

(Unaudited)

(Unaudited)

Revenues

Products

$

103,536

$

114,347

$

49,290

$

43,317

Services

17,504

16,869

8,102

3,976

Total revenues

121,040

131,216

57,392

47,293

Cost of revenues

Products

50,117

53,311

23,031

19,102

Services

20,066

19,863

7,330

5,972

Total cost of revenues

70,183

73,174

30,361

25,074

Gross profit

50,857

58,042

27,031

22,219

Operating expenses:

Research and development

22,213

16,386

8,689

5,610

Selling and marketing

25,375

24,322

8,587

7,849

General and administrative

18,957

13,044

7,093

4,688

Total operating expenses

66,545

53,752

24,369

18,147

Operating income (loss)

(15,688

)

4,290

2,662

4,072

Financial income, net

4,427

1,127

1,630

582

Income (loss) before taxes on income

(11,261

)

5,417

4,292

4,654

Taxes on income (Tax benefit)

(577

)

6

350

(14

)

Net income (loss)

(10,684

)

5,411

3,942

4,668

Basic earnings (losses) per share

$

(0.26

)

$

0.15

$

0.09

$

0.12

Weighted average number of shares

used in computing basic earnings (losses)

per share

41,059,090

37,208,558

41,536,835

40,471,832

Diluted earnings (losses) per share

$

(0.26

)

$

0.14

$

0.09

$

0.11

Weighted average number of shares

used in computing diluted earnings (losses)

per share

41,059,090

38,584,788

42,692,989

42,159,655



KORNIT DIGITAL LTD.

AND ITS SUBSIDIARIES

RECONCILIATION 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,

2020

2019

2020

2019

(Unaudited)

(Unaudited)

GAAP cost of revenues

$

70,183

$

73,174

$

30,361

$

25,074

Cost of product recorded for share-based compensation (1)

(772

)

(419

)

(281

)

(182

)

Cost of service recorded for share-based compensation (1)

(568

)

(374

)

(208

)

(144

)

Intangible assets amortization on cost of product (3)

(75

)

(75

)

(25

)

(25

)

Excess cost of product on acquired inventory (a)

-

(2,790

)

-

-

Acquisition related expenses (2)

-

(28

)

-

-

COVID-19 one time impact (4)

(520

)

-

(74

)

-

Non-GAAP cost of revenues

$

68,248

$

69,488

$

29,773

$

24,723

GAAP gross profit

$

50,857

$

58,042

$

27,031

$

22,219

Gross profit adjustments

1,935

3,686

588

351

Non-GAAP gross profit

$

52,792

$

61,728

$

27,619

$

22,570

GAAP operating expenses

$

66,545

$

53,752

$

24,369

$

18,147

Share-based compensation (1)

(5,970

)

(3,791

)

(2,191

)

(1,515

)

Acquisition related expenses (2)

(648

)

(57

)

(648

)

-

Intangible assets amortization (3)

(622

)

(532

)

(371

)

(224

)

COVID-19 one time impact (4)

69

-

-

-

Non-GAAP operating expenses

$

59,374

$

49,372

$

21,159

$

16,408

GAAP Financial income

$

4,427

$

1,127

$

1,630

$

582

Foreign exchange losses associated with ASC 842

28

780

110

242

Non-GAAP Financial income

$

4,455

$

1,907

$

1,740

$

824

GAAP Taxes on income (Tax benefit)

$

(577

)

$

6

$

350

$

(14

)

Tax effect on to the above non-GAAP adjustments

346

933

526

62

Taxes on income (Tax benefit) (b)

610

807

(405

)

347

Non-GAAP Taxes on income (Tax benefit)

$

379

$

1,746

$

471

$

395

GAAP net income (loss)

$

(10,684

)

$

5,411

$

3,942

$

4,668

Share-based compensation (1)

7,310

4,584

2,680

1,841

Acquisition related expenses (2)

648

85

648

-

Intangible assets amortization (3)

697

607

396

249

COVID-19 one time impact (4)

451

-

74

-

Excess cost of product on acquired inventory (a)

-

2,790

-

-

Foreign exchange losses associated with ASC 842

28

780

110

242

Tax effect on to the above non-GAAP adjustments

(346

)

(933

)

(526

)

(62

)

Deferred taxes on income (Tax benefit) (b)

(610

)

(807

)

405

(347

)

Non-GAAP net income (loss)

$

(2,506

)

$

12,517

$

7,729

$

6,591

GAAP diluted earnings (losses) per share

$

(0.26

)

$

0.14

$

0.09

$

0.11

Non-GAAP diluted earnings (losses) per share

$

(0.06

)

$

0.32

$

0.18

$

0.16

Weighted average number of shares

Shares used in computing GAAP diluted net earnings (losses) per share

41,059,090

38,584,788

42,692,989

42,159,655

Shares used in computing Non-GAAP diluted net earnings (losses) per share

41,059,090

38,753,127

42,972,182

42,247,859

(1) Share-based compensation

Cost of product revenues

772

419

281

182

Cost of service revenues

568

374

208

144

Research and development

1,243

934

463

334

Selling and marketing

2,150

1,132

769

496

General and administrative

2,635

1,725

1,017

685

7,368

4,584

2,738

1,841

(2) Acquisition related expenses

Cost of product revenues

-

28

-

-

Research and development

-

-

-

-

Selling and marketing

-

14

-

-

General and administrative

648

43

648

-

648

85

648

-

(3) Intangible assets amortization

Cost of product revenues

75

75

25

25

Research and development

315

-

315

-

Selling and marketing

307

532

56

224

697

607

396

249

(4) COVID-19 one time impact

Cost of product revenues

527

-

74

-

Cost of service revenues

(7

)

-

-

-

Research and development

(57

)

-

-

-

Selling and marketing

(1

)

-

-

-

General and administrative

(11

)

-

-

-

451

-

74

-

(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 STATEMENTS OF CASH FLOWS

(U.S. dollars in thousands)

Nine Months Ended

Three Months Ended

September 30,

September 30,

2020

2019

2020

2019

(Unaudited)

(Unaudited)

Cash flows from operating activities:

Net income (loss)

$

(10,684

)

$

5,411

$

3,942

$

4,668

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization

3,411

3,359

1,215

1,137

Fair value of warrants deducted from revenues

3,564

3,964

2,158

2,430

Share-based compensation

7,310

4,584

2,680

1,841

Amortization of discount on marketable securities

248

(119

)

83

(35

)

Realized gain on sale of marketable securities

(503

)

(271

)

(401

)

-

Increase in trade receivables

(7,933

)

(23,344

)

(8,549

)

(11,181

)

Decrease (increase) in other receivables and prepaid expenses

(1,615

)

405

(771

)

(345

)

Decrease (increase) in inventory

(9,529

)

(1,107

)

(4,324

)

418

Decrease (increase) in operating leases right-of-use assets

(29

)

52

(62

)

18

Decrease (increase) in deferred taxes, net

(823

)

(632

)

561

14

Decrease in other long term assets

38

204

120

-

Increase (decrease) in trade payables

571

447

10,462

(3,335

)

Increase in operating lease liabilities

29

780

111

242

Increase in employees and payroll accruals

4,318

1,184

3,983

1,967

Increase (decrease) in deferred revenues and advances from customers

7,663

(1,123

)

7,770

651

Increase in other payables and accrued expenses

2,120

1,654

1,688

702

Increase in accrued severance pay, net

81

46

18

39

Increase (decrease) in other long term liabilities

48

(123

)

191

87

Loss from sale and disposal of property and Equipment

75

1

-

1

Foreign currency translation income (loss) on inter company balances with foreign subsidiaries

(294

)

684

(477

)

673

Net cash provided by (used in) operating activities

(1,934

)

(3,944

)

20,398

(8

)

Cash flows from investing activities:

Purchase of property and equipment

(10,758

)

(4,065

)

(2,247

)

(2,101

)

Acquisition of intangible assets and capitalization of software development costs

(121

)

(799

)

-

(149

)

Proceeds from sale of property and equipment

4

3

-

3

Cash paid in connection with acquisition

(15,059

)

(4,715

)

(15,059

)

-

Decrease (increase) in bank deposits

43,192

(89,000

)

27,996

(12,000

)

Proceeds from sale of marketable securities

58,532

31,445

37,730

1,000

Proceeds from maturity of marketable securities

20,006

1,500

2,561

1,000

Purchase of marketable securities

(18,542

)

(44,599

)

-

-

Net cash provided by (used in) investing activities

77,254

(110,230

)

50,981

(12,247

)

Cash flows from financing activities:

Proceeds from secondary offering, net

162,720

129,710

162,720

(669

)

Exercise of employee stock options

4,942

5,400

2,138

3,131

Payments related to shares withheld for taxes

(82

)

-

(18

)

-

Payment of contingent consideration

-

(303

)

-

-

Net cash provided by financing activities

167,580

134,807

164,840

2,462

Foreign currency translation adjustments on cash and cash equivalents

37

(95

)

13

(87

)

Increase (decrease) in cash and cash equivalents

242,937

20,538

236,232

(9,880

)

Cash and cash equivalents at the beginning of the period

40,743

74,132

47,448

104,550

Cash and cash equivalents at the end of the period

283,680

94,670

283,680

94,670

Non-cash investing and financing activities:

Purchase of property and equipment on credit

382

359

382

359

Inventory transferred to be used as property and equipment

823

167

312

167

Property and equipment transferred to be used as inventory

51

-

-

-

Issuance expenses on credit

739

-

739

-

Acquisition costs on credit

204

-

204

-

Lease liabilities arising from obtaining right-of-use assets

2,769

1,333

849

531

Capitalization of software development costs

-

151

-

151


Investor Contact:
Kelsey Turcotte
The Blueshirt Group
(917) 842-0334
Kelsey@blueshirtgroup.com