KRNT - Kornit Digital Reports Second Quarter 2020 Results

August, 11 2020 04:05 PM Kornit Digital Ltd.

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 Margin

44.1%

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

Company Name:	Kornit Digital Ltd.
Stock Symbol:	KRNT
Market:	NASDAQ
Website:	kornit.com

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