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Kornit Digital Reports 2018 Second Quarter Results

Highlights

  • Second quarter 2018 revenues increased 25.5% to $35.9 million, net of $1.5 million attributed to the non-cash impact of warrants, compared to $28.6 million, net of $1.4 million attributed to the non-cash impact of warrants in the prior year period.
  • Second quarter 2018 GAAP operating income of $1.6 million, or 4.5% of revenues; non-GAAP operating income of $3.2 million, or 8.8% of revenue.
  • Second quarter 2018 GAAP net income of $1.8 million, or $0.05 per diluted share; non-GAAP net income of $3.2 million, or $0.09 per diluted share.
  • Second quarter warrants impact on Gross margin was 203 BPS, Operating margin 364 BPS and 363 BPS on the Net margin.
  • Previously announced management transition completed as Ronen Samuel assumes role of Chief Executive Officer.

ROSH-HA`AYIN, Israel, Aug. 06, 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 second quarter ended June 30, 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. Details of which can be found at the end of today's press release.

Kornit reported second quarter 2018 revenue increased 25.5% to $35.9 million, net of $1.5 million attributed to the non-cash impact of warrants, compared to the prior year period of $28.6 million, net of $1.4 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 $1.6 million, compared to the prior year period operating loss of $62 thousand. Non-GAAP operating income increased 138.3% to $3.2 million, or 8.8% of revenues, compared to the prior year period of $1.3 million or 4.7% of sales. Increased operating income was the result of increased sales, gross margin expansion, and higher operating leverage as a result of higher sales.

Ronen Samuel, Kornit Digital’s Chief Executive Officer, commented, “I am very pleased with our results for the quarter which included a robust top line growth rate of 25.5% with revenues and operating margins coming in at above the high end of our guidance. These achievements were driven by strong demand for our market leading technology. The recent introduction of the Avalanche HD 6 System with its significant reduction in cost per print, improved hand-feel and improved print quality combined with the continued shift towards print on demand have created excellent business momentum. The retail shift towards shorter run production and the benefits offered by the HD6 are driving migration of more screen printers to our digital solution. To that end, we are well positioned to capture increased growth opportunities as our addressable market expands. Having spent the last 7 weeks on the road meeting customers and employees in all our regions, I was pleased to see the strong business momentum enjoyed by existing and new customers as well as the level of trust and depth of relations our employees have built over the years.”

Second Quarter Results of Operations
Kornit reported second quarter revenues, net of the non-cash impact of warrants, of $35.9 million, compared with the prior-year period level of $28.6 million. The total non-cash impact of the warrants deducted from revenues was $1.5 million in the second quarter of 2018 and $1.4 million in the second quarter of 2017.

On a GAAP basis, second quarter gross profit was $17.4 million, compared with $13.2 million, in the prior-year period. Non-GAAP gross profit in the second quarter was $17.6 million, or 49.2% gross margin compared with $13.3 million, or 46.6% gross margin in the second quarter of 2017. Higher gross margins primarily reflected a favorable product mix compared to the prior year period.

On a GAAP basis, total operating expenses in the second quarter were $15.8 million, compared to $13.2 million in the prior year period. Non-GAAP operating expenses in the second quarter increased to $14.5 million, or 40.3% of revenues, compared to $12.0 million, or 42% of revenues in the prior year period.

Second quarter GAAP research and development expenses were $5.3 million, compared to the prior-year period of $4.6 million. Second quarter non-GAAP research and development expenses were $5.1 million, or 14.2% of revenues, compared to $4.4 million, or 15.3% of revenues in the prior-year period.

Second quarter GAAP selling and marketing expenses were $6.4 million, compared to the prior-year period of $5.3 million. Second quarter non-GAAP selling and marketing expenses were $5.9 million, or 16.3% of revenues, compared to $4.8 million, or 16.8% of revenues in the prior-year period.

Second quarter GAAP general and administrative expenses were $4.0 million, compared to the prior-year period of $3.3 million. Second quarter non-GAAP general and administrative expenses were $3.5 million, or 9.8% of revenues, compared to $2.8 million, or 9.9% of revenues in the prior-year period.

On a GAAP basis, second quarter operating income was $1.6 million, compared to the prior year period operating loss of $62 thousand. Non-GAAP operating income in the second quarter increased to $3.2 million, compared to $1.3 million in the prior year period. As a percent of revenues, Non-GAAP operating margin for the second quarter was 8.8% of revenues, compared with 4.7% of revenues in the second quarter of 2017.

On a GAAP basis, the Company reported net income of $1.8 million, or $0.05 per diluted share, compared to a net income of $0.2 million, in the second quarter of 2017. Non-GAAP net income for the second quarter of 2018 was $3.2 million, or $0.09 per diluted share, compared to net income of $1.5 million, or $0.04 per diluted share in the prior year period.

Balance Sheet and Cash Flow
At June 30, 2018, the Company had cash and marketable securities of $102.7 million, and no long-term debt. Cash flow used in operations for the second quarter of 2018 was $4.9 million, attributable to operation and reduction of inventory.

Third 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 the 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 1-866-548-4713 or +1-323-794-2093. The toll-free Israeli number is 1 80 921 2883. The confirmation code is 8206507.

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 8206507. The telephonic replay will be available beginning at 8:00 p.m. ET on Monday, August 6, 2018, and will last through 11:59 p.m. ET on Monday, August 20, 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 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 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)
               
  Six Months Ended   Three Months Ended
  June 30,   June 30,
  2018   2017   2018   2017
  (Unaudited)   (Unaudited)
               
Revenues              
Products $ 58,850   $ 50,406     $ 32,092   $ 25,776  
Services   8,146     5,285       3,784     2,813  
Total revenues   66,996     55,691       35,876     28,589  
               
Cost of revenues              
Products   25,232     24,075       14,193     11,992  
Services   8,947     6,556       4,255     3,432  
Total cost of revenues   34,179     30,631       18,448     15,424  
               
Gross profit   32,817     25,060       17,428     13,165  
               
Operating expenses:              
Research and development   10,589     9,342       5,317     4,562  
Selling and marketing   12,201     10,829       6,352     5,271  
General and administrative   8,054     6,138       4,026     3,301  
Restructuring expenses   266     93       118     93  
Total operating expenses   31,110     26,402       15,813     13,227  
Operating income (loss)   1,707     (1,342 )     1,615     (62 )
Financial income, net   828     93       295     389  
Income (loss) before taxes on income   2,535     (1,249 )     1,910     327  
               
Taxes on income   196     273       136     112  
Net income (loss)   2,339     (1,522 )     1,774     215  
               
Basic net income (loss) per share $ 0.07   $ (0.05 )   $ 0.05   $ 0.01  
               
Weighted average number of shares              
used in computing basic net              
income (loss) per share   34,295,752     33,151,633     34,321,995   33,658,867
               
               
Diluted net income (loss) per share $ 0.07   $ (0.05 )   $ 0.05   $ 0.01  
               
Weighted average number of shares              
used in computing diluted              
net income (loss) per share   34,885,393     33,151,633     35,047,817   34,719,784
               


         
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,
  ` 2018   2017       2018   2017
    (Unaudited)       (Unaudited)
                     
                     
GAAP cost of revenues $ 34,179     $ 30,631         $ 18,448     $ 15,424  
Share-based compensation (1)   (341 )     (287 )         (193 )     (143 )
Intangible assets amortization (2)   (50 )     (50 )         (25 )     (25 )
Non-GAAP cost of revenues $ 33,788     $ 30,294         $ 18,230     $ 15,256  
                     
GAAP gross profit $ 32,817     $ 25,060         $ 17,428     $ 13,165  
Gross profit adjustments   391       337           218       168  
Non-GAAP gross profit $ 33,208     $ 25,397         $ 17,646     $ 13,333  
                     
                     
GAAP operating expenses $ 31,110     $ 26,402         $ 15,813     $ 13,227  
Share-based compensation (1)   (2,039 )     (1,661 )         (982 )     (867 )
Intangible assets amortization (2)   (482 )     (677 )         (241 )     (266 )
Restructuring expenses   (266 )     (93 )         (118 )     (93 )
Non-GAAP operating expenses $ 28,323     $ 23,971         $ 14,472     $ 12,001  
                     
                     
GAAP Taxes on income $ 196     $ 273         $ 136     $ 112  
Tax effect on to the above non-GAAP adjustments   181       306           93       122  
Non-GAAP Taxes on income $ 377     $ 579         $ 229     $ 234  
                     
                     
GAAP net income (loss) $ 2,339     $ (1,522 )       $ 1,774     $ 215  
Share-based compensation (1)   2,380       1,948           1,175       1,010  
Intangible assets amortization (2)   532       727           266       291  
Restructuring expenses   266       93           118       93  
Tax effect on to the above non-GAAP adjustments   (181 )     (306 )         (93 )     (122 )
Non-GAAP net income (*) $ 5,336     $ 940         $ 3,240     $ 1,487  
                     
GAAP diluted earning (loss) per share $ 0.07     $ (0.05 )       $ 0.05     $ 0.01  
                     
Non-GAAP diluted earning per share $ 0.15     $ 0.03         $ 0.09     $ 0.04  
                     
Weighted average number of shares                  
                     
Weighted average number of shares used in computing diluted                  
GAAP net earning (loss) per share   34,885,393       33,151,633           35,047,817       34,719,784  
                     
Weighted average number of shares used in computing diluted                  
non GAAP net earning per share   35,176,284       34,702,588           35,346,599       35,235,330  
                     
                     
(1) Share-based compensation                  
  Cost of product   189       204           104       101  
  Cost of service   152       83           89       42  
  Research and development   402       297           228       180  
  Selling and marketing   476       430           248       210  
  General and administrative   1,161       934           506       477  
      2,380       1,948           1,175       1,010  
(2) Intangible assets amortization                  
  Cost of product   50       50           25       25  
  Selling and marketing   482       677           241       266  
      532       727           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)
    June 30,   December 31,
    2018   2017
    (Unaudited)    
ASSETS        
CURRENT ASSETS:        
Cash and cash equivalents   $ 17,223   $ 18,629
Short-term bank deposit     7,500     4,500
Marketable securities     10,657     5,537
Trade receivables, net     33,162     23,245
Inventory     25,123     34,855
Other accounts receivable and prepaid expenses     3,153     2,661
Total current assets     96,818     89,427
         
LONG-TERM ASSETS:        
Marketable securities     67,341     68,835
Deposits and other long-term assets     722     627
Severance pay fund     537     523
Deferred tax asset     805     564
Property and equipment, net     10,994     11,230
Intangible assets, net     1,543     2,076
Goodwill     5,092     5,092
Total long-term assets     87,034     88,947
         
Total assets   $ 183,852   $ 178,374
         
LIABILITIES AND SHAREHOLDERS' EQUITY        
CURRENT LIABILITIES:        
Trade payables   $ 10,014   $ 12,439
Employees and payroll accruals     7,081     6,338
Deferred revenues and advances from customers     2,096     1,697
Other payables and accrued expenses     4,740     5,046
Total current liabilities     23,931     25,520
         
LONG-TERM LIABILITIES:        
Accrued severance pay     1,355     1,232
Payment obligation related to acquisition     -     334
Other long-term liabilities     764     589
Total long-term liabilities     2,119     2,155
         
SHAREHOLDERS' EQUITY     157,802     150,699
         
Total liabilities and shareholders' equity   $ 183,852   $ 178,374
         


 
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,
  2018   2017   2018   2017
  (Unaudited)   (Unaudited)
               
Cash flows from operating activities:              
               
Net Income (loss) $ 2,339     $ (1,522 )   $ 1,774     $ 215  
Adjustments to reconcile net income (loss) to net cash provided by operating activities:              
Depreciation and amortization   2,367       2,427       1,200       1,154  
Fair value of warrants deducted from revenues   1,533       2,353       1,491       1,415  
Share-based compensation   2,380       1,948       1,175       1,010  
Amortization of premium on marketable securities   241       277       124       145  
Realized gain on sale of marketable securities   -       (29 )     -       (29 )
Decrease (increase) in trade receivables   (10,141 )     2,894       (7,871 )     (4,332 )
Decrease (increase) in other receivables and prepaid expenses   (522 )     747       (939 )     1,016  
Decrease (increase) in inventory   9,044       (8,652 )     4,129       (2,716 )
Decrease (increase) in deferred taxes, net   (219 )     (183 )     90       (19 )
Decrease (increase) in other long term assets   (97 )     194       (52 )     45  
Increase (decrease) in trade payables   (2,192 )     (2,060 )     2,954       (1,851 )
Increase (decrease) in employees and payroll accruals   759       (833 )     417       (1,087 )
Increase (decrease) in deferred revenues and advances from customers   412       (692 )     108       390  
Increase (decrease) in other payables and accrued expenses   203       122       (684 )     (755 )
Increase (decrease) in accrued severance pay, net   109       28       189       (4 )
Increase in other long term liabilities   175       369       141       133  
Loss from sale of property and Equipment   -       29       -       29  
Foreign currency translation loss on inter company balances with foreign subsidiaries   293       (595 )     632       (482 )
               
Net cash provided by (used in) operating activities   6,684       (3,178 )     4,878       (5,723 )
               
Cash flows from investing activities:              
               
Purchase of property and equipment   (1,244 )     (3,431 )     (762 )     (2,536 )
Investment in bank deposits   (3,000 )     -       -       -  
Proceeds from sale of marketable securities   -       38,312       -       38,312  
Proceeds from maturity of marketable securities   2,150       6,740       1,650       2,000  
Purchase of marketable securities   (6,130 )     (70,648 )     (3,781 )     (22,520 )
Net cash provided by (used in) investing activities   (8,224 )     (29,027 )     (2,893 )     15,256  
               
Cash flows from financing activities:              
               
Proceeds from follow on offering   -       36,058       -       428  
Exercise of employee stock options   1,067       1,347       536       872  
Payment of deferred issuance cost   -       (981 )     -       (981 )
Payment of contingent consideration   (900 )     (1,400 )     -       -  
Net cash provided by financing activities   167       35,024       536       319  
               
Foreign currency translation adjustments on cash and cash equivalents   (33 )     99       (80 )     85  
Increase (decrease) in cash and cash equivalents   (1,373 )     2,819       2,521       9,852  
Cash and cash equivalents at the beginning of the period   18,629       22,789       14,782       15,770  
Cash and cash equivalents at the end of the period   17,223       25,707       17,223       25,707  
               

Non-cash investing and financing activities:
             
               
Purchase of property and equipment on credit   200       863       200       863  
Inventory transferred to be used as property and equipment   591       167       -       167  
Receipt on account of shares   20       -       20       -  
               

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

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Web cast

  • Third Quarter 2018 Earnings Conference Call

    Monday, November 12, 2018 5:00 p.m. ET

    Description

    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.

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    Download Event Supporting Material Kornit Q3 2018 Investor Presentation

  • Kornit 2018 Investor Day

    Thursday, October 4, 2018 9:30 a.m. ET

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    Supporting Materials

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