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    Kornit Digital Reports Second Quarter 2020 Results

    August 11, 2020

    Announces Acquisition of Custom Gateway, a leading global provider of cloud software workflow solutions enabling on-demand apparel and home décor production

    • Second quarter revenue of $37.4 million, net of non-cash warrants impact of $0.8 million
    • Second quarter GAAP operating loss of $5.3 million; Non-GAAP operating loss of $2.5 million, including $0.8 million attributed to the non-cash impact of warrants
    • Inflection in online channels, acceleration of digital transformation in textile industry drives strong performance in North America
    • Robust pipeline and strong momentum
    • Combination of Custom Gateway’s software workflow portfolio with Kornit’s existing technologies will bring to the market a unique, end-to-end solution for on-demand textile production.

    ROSH-HA`AYIN, Israel, Aug. 11, 2020 (GLOBE NEWSWIRE) -- Kornit Digital Ltd. (NASDAQ: KRNT), a leading provider of digital printing solutions for the global textile industry, today reported results for the second quarter ended June 30, 2020.

    “We are very pleased to see strong momentum in the business as customers reopened sites in April and reengaged in big projects in response to significant demand, particularly in online channels. Looking ahead, we believe that we are at one of the most exciting times in our Company’s history, as the mega trends in our industry have accelerated the transition to digital textile production where we are in a unique position to benefit,” said Ronen Samuel, Kornit Digital’s CEO. “For Kornit, we believe this inflection point will drive a V-shaped recovery in the business as we help brands and strategic partners quickly adopt agile, digital, and sustainable on-demand textile manufacturing.”

    Samuel continued, “We are also very excited to announce the acquisition of Custom Gateway, a leading provider of cloud software workflow solutions. This highly strategic acquisition accelerates our organic development effort and, when combined with Kornit’s technologies, will bring to the market a unique offering for end-to-end management of sustainable on-demand textile production. This combination further extends our market leadership.”

    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 second quarter of 2020 and 2019, respectively:

     Second Quarter Warrants Impact
     Three Months Ended
     June 30,
     2020 2019
     Net of
    Warrants
    Impact
     Warrants
    Impact
     Net of
    Warrants
    Impact
     Warrants
    Impact
            
    Revenue$37.4M $0.8M $45.3M $1.0M
    Non-GAAP Gross Margin44.1% 123bps 47.7% 110bps
    Non-GAAP Operating Margin(6.8%) 235bps 9.2% 191bps
    Non-GAAP Net Margin(3.6%) 228bps 9.5% 190bps
    Non-GAAP Diluted Earnings (Loss) Per Share($0.03) $0.02 $0.11 $0.03

    “We are very excited by the huge opportunity we see in the market that has resulted in an unprecedented pipeline and very good visibility. The team is highly engaged with new customers as well as strategic partners’ system implementations that will not only drive system revenue over the coming quarters but will also create long-term demand for ink and services,” said Guy Avidan, Kornit Digital’s Chief Financial Officer. “As we head into the back of 2020, we are focused on a strong finish to the year and committed to profitability for fiscal 2020.”

    Second Quarter 2020 Results of Operations

    • Total revenue for the second quarter of 2020 was $37.4 million, net of $0.8 million attributed to the non-cash impact of warrants, compared to $45.3 million, net of $1.0 million attributed to the non-cash impact of warrants in the prior year period.
    • GAAP net loss for the second quarter of 2020 was $4.6 million, or $0.11 per diluted share, compared to net income of $1.9 million, or $0.05 per diluted share, for the second quarter of 2019.
    • Non-GAAP net loss for the second quarter 2020 was $1.3 million, or $0.03 per diluted share, including $0.02 per diluted share attributed to the non-cash impact of warrants, compared to non-GAAP net income of $4.3 million, or $0.11 per diluted share, net of $0.03 per diluted share attributed to the non-cash impact of warrants, for the second quarter of 2019.

    Third Quarter 2020 Guidance

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

    Second 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 13707102.

    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 13707102. The telephonic replay will be available beginning at 8:00 p.m. ET on Tuesday, August 11, 2020, until 11:59 p.m. ET on Tuesday, August 25, 2020. The call will also be available for replay via the webcast link on Kornit’s Investor Relations website.

    Upcoming Fireside Chat to Discuss Custom Gateway Acquisition

    The Company will host a virtual fireside chat for investors on Tuesday, August 18, 2020 at 10:30 a.m. ET to discuss the acquisition of Custom Gateway and the related market opportunity. Dial-in details and webcast information will be available on the investor relations section of Kornit’s 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 extensive, 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 (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.

    About Custom Gateway

    For more information on Custom Gateway, please visit Custom Gateway’s website.

    KORNIT DIGITAL LTD. 
    AND ITS SUBSIDIARIES 
    CONSOLIDATED  BALANCE  SHEETS 
    (U.S. dollars in thousands) 
      June 30, December 31, 
       2020  2019 
      (Unaudited)   
    ASSETS     
    CURRENT ASSETS:     
    Cash and cash equivalents $47,448 $40,743 
    Short-term bank deposit  79,804  95,000 
    Marketable securities  36,453  32,567 
    Trade receivables, net  39,803  40,510 
    Inventory  42,126  37,477 
    Other accounts receivable and prepaid expenses  7,910  6,985 
    Total current assets  253,544  253,282 
          
    LONG-TERM ASSETS:     
    Marketable securities  73,687  95,393 
    Deposits and prepaid expenses  438  356 
    Severance pay fund  295  301 
    Deferred taxes  9,025  7,781 
    Property,plant and equipment, net  24,182  17,489 
    Operating lease right-of-use assets  22,859  22,806 
    Intangible assets, net  2,132  2,494 
    Goodwill  5,564  5,564 
    Total long-term assets  138,182  152,184 
          
    Total assets $391,726 $405,466 
          
    LIABILITIES AND SHAREHOLDERS' EQUITY     
    CURRENT LIABILITIES:     
    Trade payables $13,021 $23,449 
    Employees and payroll accruals  9,435  9,165 
    Deferred revenues and advances from customers  2,579  2,688 
    Operating lease liabilities  4,061  3,902 
    Other payables and accrued expenses  6,796  6,373 
    Total current liabilities  35,892  45,577 
          
    LONG-TERM LIABILITIES:     
    Accrued severance pay  1,092  1,035 
    Operating lease liabilities  19,076  19,231 
    Other long-term liabilities  1,177  1,320 
    Total long-term liabilities  21,345  21,586 
          
    SHAREHOLDERS' EQUITY  334,489  338,303 
          
    Total liabilities and shareholders' equity $391,726 $405,466 
          


    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, 
      2020   2019  2020   2019  
         
     (Unaudited) (Unaudited) 
             
    Revenues        
    Products$54,246  $71,030 $31,859  $38,786  
    Services 9,402   12,893  5,577   6,547  
    Total revenues 63,648   83,923  37,436   45,333  
             
    Cost of revenues        
    Products 27,086   34,209  14,930   17,787  
    Services 12,736   13,891  6,708   7,450  
    Total cost of revenues 39,822   48,100  21,638   25,237  
             
    Gross profit 23,826   35,823  15,798   20,096  
             
    Operating expenses:        
    Research and development 13,524   10,776  7,041   5,309  
    Selling and marketing 16,788   16,473  8,291   9,205  
    General and administrative 11,864   8,356  5,794   4,313  
    Total operating expenses 42,176   35,605  21,126   18,827  
    Operating income (loss) (18,350)  218  (5,328)  1,269  
    Financial income, net 2,797   545  592   549  
    Income (loss) before taxes on income (15,553)  763  (4,736)  1,818  
             
    Taxes on income (Tax benefit) (927)  20  (164)  (85) 
    Net income (loss) (14,626)  743  (4,572)  1,903  
             
    Basic earnings (losses) per share$(0.36) $0.02 $(0.11) $0.05  
             
    Weighted average number of shares        
    used in computing basic earnings (losses)       
    per share 40,817,593   35,547,223  40,872,497   35,962,455  
             
             
    Diluted earnings (losses) per share$(0.36) $0.02 $(0.11) $0.05  
             
    Weighted average number of shares        
    used in computing diluted earnings (losses)        
    per share 40,817,593   36,767,656  40,872,497   37,287,748  
             


    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, 
       2020   2019   2020   2019  
          
      (Unaudited) (Unaudited) 
              
    GAAP cost of revenues$39,822  $48,100  $21,638  $25,237  
    Cost of product recorded for share-based compensation (1) (491)  (237)  (277)  (129) 
    Cost of service recorded for share-based compensation (1) (360)  (230)  (210)  (116) 
    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)  -   -  
    COVID-19 one time impact (4)  (446)  -   (202)  -  
    Non-GAAP cost of revenues$38,475  $44,765  $20,924  $23,731  
              
    GAAP gross profit $23,826  $35,823  $15,798  $20,096  
    Gross profit adjustments 1,347   3,335   714   1,506  
    Non-GAAP gross profit $25,173  $39,158  $16,512  $21,602  
              
    GAAP operating expenses$42,176  $35,605  $21,126  $18,827  
    Share-based compensation (1) (3,779)  (2,276)  (2,035)  (1,198) 
    Acquisition related expenses (2) -   (57)  -   -  
    Intangible assets amortization (3) (251)  (308)  (116)  (179) 
    COVID-19 one time impact (4) 69   -   80   -  
    Non-GAAP operating expenses$38,215  $32,964  $19,055  $17,450  
              
    GAAP Financial income$2,797  $545  $592  $549  
    Foreign exchange losses associated with ASC 842  (82)  538   528   203  
    Non-GAAP Financial income$2,715  $1,083  $1,120  $752  
              
    GAAP Taxes on income (Tax benefit) $(927) $20  $(164) $(85) 
    Tax effect on to the above non-GAAP adjustments (180)  871   (98)  382  
    Tax benefit (b) 1,015   460   169   295  
    Non-GAAP Taxes on income (Tax benefit) $(92) $1,351  $(93) $592  
              
    GAAP net income (loss)$(14,626) $743  $(4,572) $1,903  
    Share-based compensation (1) 4,630   2,743   2,522   1,443  
    Acquisition related expenses (2) -   85   -   -  
    Intangible assets amortization (3) 301   358   141   204  
    COVID-19 one time impact (4) 377   -   122   -  
    Excess cost of product on acquired inventory (a) -   2,790   -   1,236  
    Foreign exchange losses associated with ASC 842  (82)  538   528   203  
    Tax effect on to the above non-GAAP adjustments 180   (871)  98   (382) 
    Deferred taxes on income (Tax benefit) (b)  (1,015)  (460)  (169)  (295) 
    Non-GAAP net income (loss)$(10,235) $5,926  $(1,330) $4,312  
              
    GAAP diluted earnings (losses) per share $(0.36) $0.02  $(0.11) $0.05  
              
    Non-GAAP diluted earnings (losses) per share $(0.25) $0.16  $(0.03) $0.11  
              
    Weighted average number of shares        
              
    Shares used in computing GAAP diluted net earnings (losses) per share 40,817,593   36,767,656   40,872,497   37,287,748  
              
    Shares used in computing Non-GAAP diluted net earnings (losses) per share 40,817,593   36,976,062   40,872,497   37,532,617  
              
    (1) Share-based compensation        
    Cost of product revenues 491   237   277   129  
    Cost of service revenues 360   230   210   116  
    Research and development 780   600   436   345  
    Selling and marketing 1,381   636   740   321  
    General and administrative 1,618   1,040   859   532  
       4,630   2,743   2,522   1,443  
    (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 251   308   116   179  
       301   358   141   204  
              
    (4) COVID-19 one time impact        
    Cost of product revenues 453   -   209   -  
    Cost of service revenues (7)  -   (7)  -  
    Research and development (57)  -   (57)  -  
    Selling and marketing (1)  -   (12)  -  
    General and administrative (11)  -   (11)  -  
       377   -   122   -  
              
    (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) 
          
      Six Months Ended Three Months Ended 
      June 30, June 30, 
       2020   2019   2020   2019  
          
      (Unaudited) (Unaudited) 
              
     Cash flows from operating activities:        
              
     Net income (loss)$(14,626) $743  $(4,572) $1,903  
     Adjustments to reconcile net income to net cash  provided by operating activities:        
     Depreciation and amortization 2,196   2,222   1,095   1,141  
     Fair value of warrants deducted from revenues 1,406   1,534   841   974  
     Share-based compensation 4,630   2,743   2,522   1,443  
     Amortization of discount on marketable securities 165   (84)  76   (50) 
     Realized gain on sale of marketable securities (102)  (271)  -   (271) 
     Decrease (increase) in trade receivables 616   (12,163)  (6,769)  (8,022) 
     Decrease (increase) in other receivables and prepaid expenses (844)  750   135   (532) 
     Decrease (increase) in inventory (5,205)  (1,525)  4,298   78  
     Decrease (increase) in operating leases right-of-use assets 33   34   (30)  10  
     Decrease (increase) in deferred taxes, net (1,384)  (646)  (278)  (460) 
     Decrease (increase) in other long term assets (82)  204   (87)  (6) 
     Increase (decrease) in trade payables (9,891)  3,782   (8,387)  1,114  
     Increase (decrease) in operating lease liabilities (82)  538   527   203  
     Increase (decrease) in employees and payroll accruals 335   (783)  688   (1,909) 
     Decrease in deferred revenues and advances from customers (107)  (1,774)  (12)  (453) 
     Increase in other payables and accrued expenses 432   952   792   605  
     Increase in accrued severance pay, net 63   7   92   44  
     Decrease in other long term liabilities (143)  (210)  (13)  (12) 
     Loss from sale and disposal of property and Equipment 75   -   -   -  
     Foreign currency translation income (loss) on inter company balances with foreign subsidiaries 183   11   (127)  (182) 
              
     Net cash used in operating activities (22,332)  (3,936)  (9,209)  (4,382) 
              
     Cash flows from investing activities:        
              
     Purchase of property and equipment (8,511)  (1,964)  (4,936)  (1,310) 
     Acquisition of intangible assets and capitalization of software development costs (121)  (650)  (40)  (650) 
     Proceeds from sale of property and equipment 4   -   -   -  
     Cash paid in connection with acquisition -   (4,715)  -   -  
     Decrease (increase) in bank deposits 15,196   (77,000)  1,346   (68,000) 
     Proceeds from sale of marketable securities 20,802   30,445   -   29,807  
     Proceeds from maturity of marketable securities 17,445   500   5,343   -  
     Purchase of marketable securities (18,542)  (44,599)  (9,801)  -  
              
     Net cash provided by (used in) investing activities 26,273   (97,983)  (8,088)  (40,153) 
              
              
     Cash flows from financing activities:        
              
     Proceeds from secondary offering, net -   130,379   -   130,379  
     Exercise of employee stock options 2,804   2,269   1,236   1,125  
     Payments related to shares withheld for taxes (64)  -   (11)  -  
     Payment of contingent consideration -   (303)  -   -  
              
     Net cash provided by financing activities 2,740   132,345   1,225   131,504  
              
              
              
     Foreign currency translation adjustments on cash and cash equivalents 24   (8)  43   22  
     Increase (decrease) in cash and cash equivalents 6,705   30,418   (16,029)  86,991  
     Cash and cash equivalents at the beginning of the period 40,743   74,132   63,477   17,559  
     Cash and cash equivalents at the end of the period 47,448   104,550   47,448   104,550  
              
              
              
     
    Non-cash investing and financing activities:
            
              
     Purchase of property and equipment on credit 384   658   384   658  
     Inventory transferred to be used as property and equipment 511   -   214   -  
     Property and equipment transferred to be used as inventory  51   -   -   -  
     Issuance expenses on credit  -   648   -   648  
     Receipt on account of shares 13   811   13   811  
     Lease liabilities arising from obtaining right-of-use assets 2,187   -   267   -  
     Capitalization of software development costs -   87   -   87  
              

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

    Contact Investor Relations

    Kelsey Turcotte
    The Blueshirt Group
    Phone: 917.842.0334
    E-mail: kelsey@blueshirtgroup.com