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Kornit Digital Reports 2018 First Quarter Results

Highlights 

  • First quarter 2018 revenues of $31.1 million net of $42 thousand attributed to the non-cash impact of warrants, compared to $27.1 million net of $938 thousand attributed to the non-cash impact of warrants in the prior year period.
  • First quarter GAAP operating income of $0.09 million, or 0.3% of revenues; non-GAAP operating income of $1.7 million, or 5.5% of revenues.
  • First quarter GAAP net income of $565 thousand, or $0.02 per diluted share; non-GAAP net income of $2.1 million, or $0.06 per diluted share.
  • Newly introduced Avalanche HD system and upgrade sales ahead of expectations; received significant orders from existing and new customers.

ROSH-HA`AYIN, Israel, May 08, 2018 (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 first quarter ended March 31, 2018.

Non-GAAP figures in today’s press release are presented using a different methodology compared to previous periods as a result of comments from the US Securities and Exchange Commission. These changes also impact the Company's guidance methodology.

Revenues for the first quarter of 2018 were $31.1 million, which represents a 14.8% increase compared to the prior year period of $27.1 million. The non-cash impact of the warrants deducted from the revenues was $42 thousand in the first quarter of 2018 compared to $938 thousand in the first quarter of 2017. Higher revenue in the quarter was attributable to growth in both Products and Services.

GAAP net income in the first quarter of 2018 was $565 thousand, or $0.02 per diluted share, compared to GAAP net loss of $(1.7) million, or $(0.05) per diluted share in the first quarter of 2017. On a non-GAAP basis net income was $2.1 million, or $0.06 per diluted share, compared to prior-year non-GAAP net loss of $(547) thousand, or $(0.02) per diluted share.

Gabi Seligsohn, Kornit Digital’s Chief Executive Officer commented, “We are pleased to report an exceptionally strong start to the year, with sales and operating margins both ahead of our expected guidance range. Growth in the quarter was broad based and included a diversity of customers and product categories, led by faster-than-expected customer adoption of Avalanche HD systems and upgrades, which exceeded $5 million in orders in the first quarter. We are also very pleased to report that to date in the second quarter, we have received orders for an additional $10 million of Avalanche HD systems and upgrades. As we look to the balance of the year, we are poised for our momentum to continue, supported by the launch of the Storm HD6 and a large-scale customer program, which is resuming deliveries in the second quarter.”

First Quarter Results of Operations 

Kornit reported first quarter revenues, net of the non-cash impact of warrants, of $31.1 million, compared with the prior-year period level of $27.1 million. The total non-cash impact of the warrants deducted from revenues was $42 thousand in the first quarter of 2018 and $938 thousand in the first quarter of 2017. Higher revenue in the quarter was attributable to growth in both Products and Services, in particular, strong adoption of the Avalanche HD6 and upgrades.

On a GAAP basis, first quarter gross profit was $15.4 million, compared with $11.9 million, in the prior-year period. Non-GAAP gross profit in the first quarter was $15.6 million, or 50.0% of revenues compared with $12.1 million, or 44.5% gross margin in the first quarter of 2017. Higher gross margins primarily reflected a favorable product mix compares to first Quarter of 2017 and an increase in system's upgrade revenues.

On a GAAP basis, total operating expenses in the first quarter were $15.3 million, compared to $13.2 million in the prior year period. Non-GAAP operating expenses in the first quarter increased to $13.9 million, or 44.5% of revenues, compared to $12.0 million, or 44.2% of revenues in the prior year period. The increase in total operating expenses was consistent with the previously stated growth strategy, as the Company continues to execute to its global infrastructure build out and was specifically impacted by costs associated with increased headcount expenses.

First quarter GAAP research and development expenses were $5.3 million, compared to the prior-year period of $4.8 million. First quarter non-GAAP research and development expenses were $5.1 million, or 16.4% of revenues, compared to $4.7 million, or 17.2% of revenues in the prior-year period.

First quarter GAAP selling and marketing expenses were $5.8 million, compared to the prior-year period of $5.6 million. First quarter non-GAAP selling and marketing expenses were $5.4 million, or 17.3% of revenues, compared to $4.9 million, or 18.2% of revenues in the prior-year period.

First quarter GAAP general and administrative expenses were $4.0 million, compared to the prior-year period of $2.8 million. First quarter non-GAAP general and administrative expenses were $3.4 million, or 10.8% of revenues, compared to $2.4 million, or 8.8% of revenues in the prior-year period.

On a GAAP basis, first quarter operating income was $92 thousand, compared to the prior year period operating loss of $(1.3) million. Non-GAAP operating income in the first quarter increased to $1.7 million, compared to $94 thousand in the prior year period. As a percent of revenues, adjusted operating margin for the first quarter was 5.5% of revenues, compared with 0.3% of revenues in the first quarter of 2017.

On a GAAP basis, the Company reported net income of $565 thousand, or $0.02 per diluted share, compared to a net loss of $(1.7) million, in the first quarter of 2017. Non-GAAP net income for the first quarter of 2018 was $2.1 million, or $0.06 per diluted share, compared to a net loss of $(547) thousand, or $(0.02) per diluted share in the prior year period.

Balance Sheet and Cash Flow
At March 31, 2018, the Company had cash, cash equivalent, short term deposits and marketable securities of $98.2 million. Cash flow from operating activity for the first quarter 2018 was $1.8 million.

Second 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
Gabi Seligsohn, the Company’s Chief Executive Officer, and Guy Avidan, the Company’s Chief Financial Officer, 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 1-800-239-9838 or +1-323-794-2551. The toll-free Israeli number is 1 80 921 2883. The confirmation code is 9100005.

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 9100005. The telephonic replay will be available beginning at 8:00 p.m. ET on Tuesday, May 8, 2018, and will last through 11:59 p.m. ET on Tuesday, May 22, 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: our success in developing, introducing and selling new or improved products and product enhancements, our ability to consummate sales to large accounts with multi-system delivery plans, our ability to fill orders for our systems, our ability to continue to increase sales of our systems and ink and consumables, 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, our success in marketing, and those factors referred to under "Risk Factors" in the company's final prospectus filed with the U.S. Securities and Exchange Commission on January 26, 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, share-based compensation expenses, acquisition related costs, restructuring expenses and amortization of acquired intangible assets. The purpose of such adjustments is to give 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)
       
  Three Months Ended
  March 31,
   2018    2017 
  (Unaudited)
       
Revenues      
Products $   26,758   $   24,630  
Services   4,362     2,472  
Total revenues   31,120     27,102  
       
Cost of revenues      
Products   11,039     12,083  
Services   4,692     3,124  
Total cost of revenues   15,731     15,207  
       
Gross profit    15,389     11,895  
       
Operating expenses:      
Research and development    5,272     4,780  
Selling and marketing   5,849     5,558  
General and administrative   4,028     2,837  
Restructuring expenses   148     -  
Total operating expenses   15,297     13,175  
Operating income (loss)   92     (1,280 )
Financial income (expenses), net   533     (296 )
Income (loss) before taxes on income   625     (1,576 )
       
Taxes on income   60     161  
Net income (loss)   565     (1,737 )
       
Basic net income (loss) per share $   0.02   $   (0.05 )
       
Weighted average number of shares      
used in computing basic net       
income (loss)  per share   34,269,217     32,658,344  
       
       
Diluted net income (loss) per share $   0.02   $   (0.05 )
             
Weighted average number of shares            
used in computing diluted            
net income (loss)  per share   34,729,450     32,658,344  


 
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,
   2018    2017 
  (Unaudited)
       
       
GAAP cost of revenues  $   15,731     $   15,207  
Share-based compensation (1)   (148 )     (144 )
Intangible assets amortization (2)   (25 )     (25 )
Non-GAAP cost of revenues  $   15,558     $   15,038  
       
GAAP gross profit $   15,389     $   11,895  
Gross profit adjustments   173       169  
Non-GAAP gross profit $   15,562     $   12,064  
       
       
GAAP operating expenses  $   15,297     $   13,175  
Share-based compensation (1)   (1,057 )     (794 )
Intangible assets amortization (2)   (241 )     (411 )
Restructuring expenses   (148 )     -  
Non-GAAP operating expenses  $   13,851     $   11,970  
       
       
GAAP Taxes on income $   60     $   161  
Tax effect on to the above non-GAAP adjustments    88       184  
Non-GAAP Taxes on income $   148     $   345  
       
       
GAAP net income (loss)  $   565     $   (1,737 )
Share-based compensation (1)   1,205         938  
Intangible assets amortization (2)   266         436  
Restructuring expenses   148         -   
Tax effect on to the above non-GAAP adjustments    (88 )     (184 )
Non-GAAP net income (loss) (*)  $   2,096     $   (547 )
       
GAAP diluted earning (loss) per share  $   0.02     $   (0.05 )
       
Non-GAAP diluted earning (loss) per share  $   0.06     $   (0.02 )
       
Weighted average number of shares      
       
Weighted average number of shares used in computing diluted              
GAAP net earning (loss) per share   34,729,450       32,658,344  
               
Weighted average number of shares used in computing diluted              
non GAAP net earning per share   35,005,677       34,159,770  
               
               
(1) Share-based compensation              
Cost of product   85         103  
Cost of service   63         41  
Research and development   174         117  
Selling and marketing   228         220  
General and administrative   655         457  
    1,205       938  
(2) Intangible assets amortization       
Cost of product   25         25  
Selling and marketing   241         411  
    266       436  


       
  (*)   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 efect of the non-GAAP adjustments.


 
KORNIT DIGITAL LTD.
AND ITS SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(U.S. dollars in thousands)
 
  March 31,   December 31,
   2018    2017
  (Unaudited)    
ASSETS      
CURRENT ASSETS:      
Cash and cash equivalents $   14,782   $   18,629
Short-term bank deposit   7,500     4,500
Marketable securities   9,890     5,537
Trade receivables, net   25,651     23,245
Inventory   29,471     34,855
Other accounts receivable and prepaid expenses   2,239     2,661
Total current assets   89,533     89,427
       
LONG-TERM ASSETS:      
Marketable securities   66,060     68,835
Deposits and prepaid expenses   674     627
Severance pay fund   530     523
Deferred tax asset   884     564
Property and equipment, net   11,387     11,230
Intangible assets, net   1,809     2,076
Goodwill   5,092     5,092
Total long-term assets   86,436     88,947
       
Total assets $   175,969   $   178,374
       
LIABILITIES AND SHAREHOLDERS' EQUITY      
CURRENT LIABILITIES:      
Trade payables $   7,272   $   12,439
Employees and payroll accruals   6,695     6,338
Deferred revenues and advances from customers   2,020     1,697
Other payables and accrued expenses   5,436     5,046
Total current liabilities   21,423     25,520
       
LONG-TERM LIABILITIES:      
Accrued severance pay   1,159     1,232
Payment obligation related to acquisition   -     334
Other long-term liabilities   623     589
Total long-term liabilities   1,782     2,155
       
SHAREHOLDERS' EQUITY   152,764     150,699
       
Total liabilities and shareholders' equity $   175,969   $   178,374


 
KORNIT DIGITAL LTD.
AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(U.S. dollars in thousands)
 
  Three Months Ended
  March 31,
  2018   2017
  (Unaudited)
       
Cash flows from operating activities:      
       
Net Income (loss) $ 565     $ (1,737 )
Adjustments to reconcile net income (loss) to net cash  provided by operating activities:              
Depreciation and amortization   1,167       1,273  
Fair value of warrants deducted from revenues   42       938  
Share-based compensation   1,205       938  
Amortization of premium on marketable securities    117       132  
Decrease (increase)  in trade receivables   (2,270 )     7,226  
Decrease (increase) in other receivables and prepaid expenses   417       (269 )
Decrease (increase) in inventory   4,915       (5,936 )
Increase in deferred taxes, net   (309 )     (164 )
Decrease (increase) in other long term assets    (45 )     149  
Decrease in trade payables   (5,146 )     (209 )
Increase in employees and payroll accruals   342       254  
Increase (decrease) in deferred revenues and advances from customers   304       (1,082 )
Increase in other payables and accrued expenses   887       877  
Increase (decrease) in accrued severance pay, net   (80 )     32  
Increase in other long term liabilities    34       236  
Foreign currency translation loss on inter company balances with foreign subsidiaries   (339 )     (113 )
         
Net cash  provided by operating activities     1,806         2,545  
         
Cash flows from investing activities:        
         
Purchase of property and equipment   (482 )     (895 )
Investment in bank deposits   (3,000 )     -  
Proceeds from maturity of marketable securities   500       4,740  
Purchase of marketable securities   (2,349 )     (48,128 )
Net cash used in investing activities   (5,331 )     (44,283 )
         
Cash flows from financing activities:        
         
Proceeds from follow on offering, net   -       35,630  
Exercise of employee stock options    531       475  
Payment of contingent consideration   (900 )     (1,400 )
Net cash provided by (used in) financing activities   (369 )     34,705  
         
Foreign currency translation adjustments on cash and cash equivalents   47       14  
Decrease in cash and cash equivalents   (3,894 )     (7,033 )
Cash and cash equivalents at the beginning of the period   18,629       22,789  
Cash and cash equivalents at the end of the period   14,782       15,770  
         
Non-cash investing and financing activities:        
         
Purchase of property and equipment on credit   400       678  
Inventory transferred to be used as property and equipment   591       322  
Issuance expenses on credit   -       560  
               

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

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