Kornit Digital Reports Second Quarter 2019 Results

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Kornit Digital Reports Second Quarter 2019 Results

Highlights

  • Strong second quarter revenue of $43.9 million, up 22.3% net of $2.4 million attributed to the non-cash impact of warrants, compared to $35.9 million net of $1.5 million attributed to the non-cash impact of warrants in the prior year period.
  • Second quarter 2019 GAAP operating loss of $0.2 million; Non-GAAP operating income of $2.7 million net of $2.4 million attributed to the non-cash impact of warrants, constituting 6.2% of revenue, net of 490 basis points attributed to the non-cash impact of warrants. Second quarter 2019 GAAP net income of $0.01 per diluted share; Non-GAAP net income of $0.08 per diluted share, net of $0.06 per diluted share attributed to the non-cash impact of warrants.
  • On June 18, 2019 the Company completed a successful follow-on offering of 4,991,000 shares, raising net proceeds of $130.4 million.
  • Continued momentum with the introductions of the Kornit Avalanche Poly Pro, Atlas and Presto, which have seen strong adoption
  • Key collaboration with Adidas and continued engagements with global brands.
  • Unveiling of Kornit Konnect, an industry-leading cloud software analytics platform.
  • Successful investment in ITMA Barcelona drove strong demand and pipeline.
  • North America transition towards direct distribution model executed successfully as evidenced by strong performance.
  • Continued investment in APAC yields another quarter of strong growth

ROSH-HA`AYIN, Israel, Aug. 06, 2019 (GLOBE NEWSWIRE) -- Kornit Digital Ltd. (NASDAQ: KRNT), a leading provider of digital printing solutions for the global printed textile industry, today reported results for the second quarter, ended June 30, 2019.

Second quarter 2019 revenue increased by 22.3% to $43.9 million, net of $2.4 million attributed to the non-cash impact of warrants, compared to $35.9 million, net of $1.5 million attributed to the non-cash impact of warrants, in the prior year period. Increased revenue in the quarter was attributable to widespread growth of systems, services and consumables sales across geographies, particularly in the North American and Asia Pacific regions.

On a GAAP basis, second quarter operating loss was $(0.2) million, compared to the prior-year period operating income of $1.6 million. Non-GAAP operating income in the second quarter was $2.7 million net of $2.4 million attributed to the non-cash impact of warrants, constituting 6.2% of revenue, net of 490 basis points attributed to the non-cash impact of warrants, compared to $3.2 million, or 8.8% of revenue, in the prior year period. The decrease in operating income was the result of the more significant impact of warrants during the period, increased sales and marketing expenses driven by marketing events in the quarter, and a less favorable product mix.

Ronen Samuel, Kornit Digital’s Chief Executive Officer commented “Our second quarter performance demonstrates our laser-focused commitment to execution. The momentum we continue building through the introduction of innovative new solutions and the continued investment in scaling our go-to-market allowed us to deliver another quarter of record quarterly sales.”

Samuel added: “We are excited and encouraged by the continued demand for our HD platforms and the outstanding new product introduction of the Atlas, Poly Pro, and Presto. We are entering the second half of the year with good momentum. I am encouraged with the number of ongoing engagements we have with some of the world’s leading brands and our relationship with our strategic customers is as strong as ever. We remain focused on executing on our strategic initiatives and continue to progress toward our long-term goal of becoming a $500 million run-rate sales business by the end of 2023.”

Second Quarter 2019 Results of Operations

Kornit reported second quarter revenue, net of the non-cash impact of warrants, of $43.9 million, compared with the prior-year period level of $35.9 million. The total non-cash impact of the warrants deducted from revenue was $2.4 million in the second quarter of 2019 and $1.5 million in the second quarter of 2018.

On a GAAP basis, second quarter gross profit was $18.7 million, compared to $17.4 million in the prior-year period. Non-GAAP gross profit in the second quarter was $20.2 million, or 45.9% of revenue, compared with $17.6 million, or 49.2% of revenue in the second quarter of 2018. The decrease in gross margin was primarily driven by impact of warrants, product mix and new product introduction.

On a GAAP basis, total operating expenses in the second quarter were $18.8 million, compared to $15.8 million in the prior-year period. Non-GAAP operating expenses in the second quarter increased to $17.5 million, or 39.8% of revenue, compared to $14.5 million, or 40.3% of revenue, in the prior-year period.

Second quarter GAAP research and development expenses were $5.3 million, unchanged from the prior-year period. Second quarter Non-GAAP research and development expenses were $5.0 million, or 11.3% of revenue, compared to $5.1 million, or 14.2% of revenue in the prior-year period.

Second quarter GAAP selling and marketing expenses were $9.2 million, compared to $6.4 million in the prior-year period. Second quarter Non-GAAP selling and marketing expenses were $8.7 million, or 19.8% of revenue, compared to $5.9 million, or 16.3% of revenue, in the equivalent prior-year period.

Second quarter GAAP general and administrative expenses were $4.3 million, compared to $4.0 million in the prior-year period. Second quarter non-GAAP general and administrative expenses were $3.8 million, or 8.6% of revenue, compared to $3.5 million, or 9.8% of revenue, in the prior-year period.

On a GAAP basis, second-quarter operating loss was $(0.2) million, compared to operating income of $1.6 million during the prior-year period. Non-GAAP operating income in the second quarter was $2.7 million, compared to $3.2 million in the prior-year period. As a percentage of revenue, Non-GAAP operating margin for the second quarter was 6.2% of revenue, compared with 8.8% of revenue in the second quarter of 2018.

On a GAAP basis, the Company reported net income of $0.5 million, or $0.01 per diluted share, compared to net income of $1.8 million in the second quarter of 2018. Non-GAAP net income for the second quarter of 2019 was $2.9 million, or $0.08 per diluted share, net of $0.06 per diluted share attributed to the non-cash impact of warrants, compared to net income of $3.2 million, or $0.09 per diluted share, net of $0.04 per diluted share attributed to the non-cash impact of warrants in the prior year period.

Second Quarter 2019 Warrants Impact

 Three Months Ended
 June 30,
 Q2 2019 Q2 2018
 Net of
Warrants
Impact
 Warrants
Impact
increase
(decrease)
 Net of
Warrants
Impact
 Warrants
Impact
increase
(decrease)
        
Revenues$43.9M $2.4M $35.9M $1.5M
Non-GAAP Gross Margin45.9% 282bps 49.2% 203bps
Non-GAAP Operating Margin6.2% 490bps 8.8% 364bps
Non-GAAP Net Margin6.5% 488bps 9.0% 363bps
Non-GAAP Diluted Earnings Per Share$0.08 $0.06 $0.09 $0.04

Balance Sheet and Cash Flow

As of June 30, 2019, the Company had cash, deposits and marketable securities of $250.1 million, which reflects growth of $130.4 million due to net proceeds from the Company’s follow-on offering completed in June 2019, and no long-term debt. Cash used in operations was $(4.4) million during the second quarter of 2019, reflecting an increase in DSO.

Third-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, as referenced below.

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 its second-quarter 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, 1-866-548-4713 or +1-323-794-2093. The toll-free Israeli number is 1 80 921 2883. The confirmation code is 1428116.

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 1428116. The telephonic replay will be available beginning at 8:00 p.m. ET on Tuesday, August 6, 2019, and until 11:59 p.m. ET on Tuesday, August 20, 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, 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 the Company's Annual Report on Form 20-F for the year ended December 31, 2018, filed with the U.S. Securities and Exchange Commission on March 26, 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 (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 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)
        
 Six Months Ended Three Months Ended
 June 30 June 30
 2019
 2018 2019
 2018
    
 (Unaudited) (Unaudited)
        
Revenues       
Products$69,866  $58,850 $37,859  $32,092
Services 12,185   8,146  6,031   3,784
Total revenues 82,051   66,996  43,890   35,876
        
Cost of revenues       
Products 34,209   25,232  17,787   14,193
Services 13,891   8,947  7,450   4,255
Total cost of revenues 48,100   34,179  25,237   18,448
        
Gross profit 33,951   32,817  18,653   17,428
        
Operating expenses:       
Research and development 10,776   10,589  5,309   5,317
Selling and marketing 16,473   12,201  9,205   6,352
General and administrative 8,356   8,054  4,313   4,026
Restructuring expenses -   266  -   118
Total operating 35,605   31,110  18,827   15,813
Operating income (loss) (1,654)  1,707  (174)  1,615
Financial income, net 545   828  549   295
Income (loss) before taxes on income (1,109)  2,535  375   1,910
        
Taxes on income (benefit) 20   196  (85)  136
Net income (loss) (1,129)  2,339  460   1,774
        
Basic net income (loss) per share$(0.03) $0.07 $0.01  $0.05
        
Weighted average number of shares used in computing basic net income (loss) per share 35,547,223  34,295,752  35,962,455  34,321,995
        
Diluted net income (loss) per share$(0.03) $0.07 $0.01  $0.05
        
Weighted average number of shares used in computing diluted net income (loss) per share 35,547,223  34,885,393  37,287,748  35,047,817
        

 

    
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)
          
  Six Months Ended  Three Months Ended
  June 30  June 30
  2019 2018  2019 2018
      
  (Unaudited)  (Unaudited)
          
GAAP cost of revenues$48,100  $34,179   $25,237  $18,448 
Cost of product recorded for share-based compensation (1) (237)  (189)   (129)  (104)
Cost of service recorded for share-based compensation (1) (230)  (152)   (116)  (89)
Intangible assets amortization on cost of product (3) (50)  (50)   (25)  (25)
Excess cost of product on acquired inventory (a) (2,790)  -    (1,236)  - 
Acquisition related expenses (2) (28)  -    -   - 
Non-GAAP cost of revenues$44,765  $33,788   $23,731  $18,230 
          
GAAP gross profit$33,951  $32,817   $18,653  $17,428 
Gross profit adjustments 3,335   391    1,506   218 
Non-GAAP gross profit$37,286  $33,208   $20,159  $17,646 
          
GAAP operating expenses$35,605  $31,110   $18,827  $15,813 
Share-based compensation (1) (2,276)  (2,039)   (1,198)  (982)
Acquisition related expenses (2) (57)  -    -   - 
Intangible assets amortization (3) (308)  (482)   (179)  (241)
Restructuring expenses -   (266)   -   (118)
Non-GAAP operating expenses$32,964  $28,323   $17,450  $14,472 
          
GAAP Financial income$545  $828   $549  $295 
Foreign exchange losses associated with ASC 842 538   -    203   - 
Non-GAAP Financial income$1,083  $828   $752  $295 
          
GAAP Taxes on income (tax benefit)$20  $196   $(85) $136 
Tax effect on the above non-GAAP adjustments 871   181    382   93 
Tax benefit (b) 460   -    295   - 
Non-GAAP Taxes on income$1,351  $377   $592  $229 
          
GAAP net income (loss)$(1,129) $2,339   $460  $1,774 
Share-based compensation (1) 2,743   2,380    1,443   1,175 
Acquisition related expenses (2) 85   -    -   - 
Intangible assets amortization (3) 358   532    204   266 
Excess cost of product on acquired inventory (a) 2,790   -    1,236   - 
Restructuring expenses -   266    -   118 
Foreign exchange losses associated with ASC 842 538   -    203   - 
Tax effect on the above non-GAAP adjustments (871)  (181)   (382)  (93)
Deferred tax benefit based on an Israeli statutory tax rate (b) (460)  -    (295)  - 
Non-GAAP net income$4,054  $5,336   $2,869  $3,240 
          
GAAP diluted earning (loss) per share$(0.03) $0.07   $0.01  $0.05 
          
Non-GAAP diluted earning per share$0.11  $0.15   $0.08  $0.09 
          
Weighted average number of shares        
          
Shares used in computing GAAP diluted net earning (loss) per share35,547,223  34,885,393    37,287,748  35,047,817
          
Shares used in computing Non-GAAP diluted net earning per share36,976,062  35,176,284    37,532,617  35,346,599
          
(1) Share-based compensation        
 Cost of product revenues 237   189    129   104 
 Cost of service revenues 230   152    116   89 
 Research and development 600   402    345   228 
 Selling and marketing 636   476    321   248 
 General and administrative 1,040   1,161    532   506 
   2,743   2,380    1,443   1,175 
(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 50   50    25   25 
 Selling and marketing 308   482    179   241 
   358   532    204   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)
  June 30, December 31,
  2019 2018
  (Unaudited)  
ASSETS    
CURRENT ASSETS:    
Cash and cash equivalents $104,550 $74,132
Short-term bank deposits  82,000  5,000
Marketable securities  24,615  3,981
Trade receivables, net  34,137  21,953
Inventory  34,900  30,030
Other accounts receivable and prepaid expenses  5,030  5,660
Total current assets  285,232  140,756
     
LONG-TERM ASSETS:    
Marketable securities  38,917  44,603
Deposits and prepaid expenses  539  744
Severance pay fund  325  351
Deferred taxes  7,839  7,272
Property, plant and equipment, net  15,529  14,994
Operating lease right-of-use assets  14,265  -
Intangible assets, net  2,282  1,011
Goodwill  5,564  5,092
Total long-term assets  85,260  74,067
     
Total assets $370,492 $214,823
     
LIABILITIES AND SHAREHOLDERS' EQUITY    
CURRENT LIABILITIES:    
Trade payables $20,915 $16,614
Employees and payroll accruals  7,144  7,932
Deferred revenues and advances from customers  1,847  3,633
Operating lease liabilities  3,254  -
Other payables and accrued expenses  6,286  4,993
Total current liabilities  39,446  33,172
     
LONG-TERM LIABILITIES:    
Accrued severance pay  1,040  1,059
Operating lease liabilities  11,583  -
Other long-term liabilities  1,246  1,456
Total long-term liabilities  13,869  2,515
     
SHAREHOLDERS' EQUITY  317,177  179,136
     
Total liabilities and shareholders' equity $370,492 $214,823
     

 

 
KORNIT DIGITAL LTD.
AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS 
(U.S. dollars in thousands)
     
 Six Months Ended  Three Months Ended
 June 30  June 30
 2019 2018  2019 2018
     
 (Unaudited)  (Unaudited)
         
Cash flows from operating activities:        
         
Net income (loss)$(1,129) $2,339   $460  $1,774 
Adjustments to reconcile net income (loss) to net cash provided by operating activities:        
Depreciation and amortization 2,222   2,367    1,141   1,200 
Fair value of warrants deducted from revenues 3,406   1,533    2,417   1,491 
Share-based compensation 2,743   2,380    1,443   1,175 
Amortization of premium (discount) on marketable securities (84)  241    (50)  124 
Realized gain on sale of marketable securities (271)  -    (271)  - 
Increase in trade receivables (12,163)  (10,141)   (8,022)  (7,871)
Decrease (increase) in other receivables and prepaid expenses 750   (522)   (532)  (939)
Decrease (increase) in inventory (1,525)  9,044    78   4,129 
Decrease in operating leases right-of-use assets 34   -    10   - 
Decrease (increase) in deferred taxes, net (646)  (219)   (460)  90 
Decrease (increase) in other long-term assets 204   (97)   (6)  (52)
Increase (decrease) in trade payables 3,782   (2,192)   1,114   2,954 
Increase in operating lease liabilities 538   -    203   - 
Increase (decrease) in employees and payroll accruals (783)  759    (1,909)  417 
Increase (decrease) in deferred revenues and advances from customers (1,774)  412    (453)  108 
Increase (decrease) in other payables and accrued expenses 952   203    605   (684)
Increase in accrued severance pay, net 7   109    44   189 
Increase (decrease) in other long-term liabilities (210)  175    (12)  141 
Foreign currency translation income (loss) on inter company balances with foreign subsidiaries 11   293    (182)  632 
         
Net cash provided by (used in) operating activities (3,936)  6,684    (4,382)  4,878 
         
Cash flows from investing activities:        
         
Purchase of property and equipment (1,964)  (1,244)   (1,310)  (762)
Acquisition of intangible assets and capitalization of software development costs (650)  -    (650)  - 
Cash paid in connection with acquisition (4,715)  -    -   - 
Increase in bank deposits (77,000)  (3,000)   (68,000)  - 
Proceeds from sale of marketable securities 30,445   -    29,807   - 
Proceeds from maturity of marketable securities 500   2,150    -   1,650 
Purchase of marketable securities (44,599)  (6,130)   -   (3,781)
         
Net cash used in investing activities (97,983)  (8,224)   (40,153)  (2,893)
         
Cash flows from financing activities:        
         
Proceeds from secondary offering, net 130,379   -    130,379   - 
Exercise of employee stock options 2,269   1,067    1,125   536 
Payment of contingent consideration (303)  (900)   -   - 
         
Net cash provided by financing activities 132,345   167    131,504   536 
         
Foreign currency translation adjustments on cash and cash equivalents (8)  (33)   22   (80)
Increase (decrease) in cash and cash equivalents 30,426   (1,373)   86,969   2,521 
Cash and cash equivalents at the beginning of the period 74,132   18,629    17,559   14,782 
Cash and cash equivalents at the end of the period 104,550   17,223    104,550   17,223 
         
Non-cash investing and financing activities:        
         
Purchase of property and equipment on credit 658   200    658   200 
Inventory transferred to be used as property and equipment -   591    -   - 
Issuance expenses on credit 648   -    648   - 
Receipt on account of shares 811   20    811   20 
Capitalization of software development costs 87   -    87   - 
         


Investor Contact:

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