GlobeNewswire Inc | Aug 11, 2020 04:05PM EDT

August 11, 2020

Announces Acquisition of Custom Gateway, a leading global provider of cloud software workflow solutions enabling on-demand apparel and home dcor 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 Gateways software workflow portfolio with Kornits 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 Companys 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 Digitals 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 Kornits 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 todays 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 Net of Warrants Warrants Impact Warrants Impact Impact Impact Revenue $37.4M $0.8M $45.3M $1.0MNon-GAAP Gross Margin 44.1% 123bps 47.7% 110bpsNon-GAAP Operating Margin (6.8%) 235bps 9.2% 191bpsNon-GAAP Net Margin (3.6%) 228bps 9.5% 190bpsNon-GAAP Diluted Earnings (Loss) ($0.03) $0.02 $0.11 $0.03Per Share

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 Digitals 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 Kornits 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 Kornits 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. Kornits 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 Gateways 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 7,910 6,985 expensesTotal 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 revenuesProducts 27,086 34,209 14,930 17,787 Services 12,736 13,891 6,708 7,450 Total cost of 39,822 48,100 21,638 25,237 revenues Gross profit 23,826 35,823 15,798 20,096 Operating expenses:Research and 13,524 10,776 7,041 5,309 developmentSelling and 16,788 16,473 8,291 9,205 marketingGeneral and 11,864 8,356 5,794 4,313 administrativeTotaloperating 42,176 35,605 21,126 18,827 expensesOperating (18,350 ) 218 (5,328 ) 1,269 income (loss)Financial 2,797 545 592 549 income, netIncome (loss)before taxes (15,553 ) 763 (4,736 ) 1,818 on income Taxes onincome (Tax (927 ) 20 (164 ) (85 ) benefit)Net income (14,626 ) 743 (4,572 ) 1,903 (loss) Basic earnings(losses) per $ (0.36 ) $ 0.02 $ (0.11 ) $ 0.05 share Weightedaverage number of sharesused in computing basic earnings (losses)per share 40,817,593 35,547,223 40,872,497 35,962,455 Dilutedearnings $ (0.36 ) $ 0.02 $ (0.11 ) $ 0.05 (losses) pershare Weightedaverage number of sharesused incomputingdiluted 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 $ 39,822 $ 48,100 $ 21,638 $ 25,237 revenuesCost ofproductrecorded for (491 ) (237 ) (277 ) (129 ) share-basedcompensation(1)Cost ofservicerecorded for (360 ) (230 ) (210 ) (116 ) share-basedcompensation(1)Intangibleassetsamortization (50 ) (50 ) (25 ) (25 ) on cost ofproduct (3)Excess cost ofproduct on - (2,790 ) - (1,236 ) acquiredinventory (a)Acquisitionrelated - (28 ) - - expenses (2)COVID-19one time (446 ) - (202 ) - impact (4)Non-GAAP cost $ 38,475 $ 44,765 $ 20,924 $ 23,731 of revenues GAAP gross $ 23,826 $ 35,823 $ 15,798 $ 20,096 profitGross profit 1,347 3,335 714 1,506 adjustmentsNon-GAAPgross $ 25,173 $ 39,158 $ 16,512 $ 21,602 profit GAAP operating $ 42,176 $ 35,605 $ 21,126 $ 18,827 expensesShare-basedcompensation (3,779 ) (2,276 ) (2,035 ) (1,198 ) (1)Acquisitionrelated - (57 ) - - expenses (2)Intangibleassets (251 ) (308 ) (116 ) (179 ) amortization(3)COVID-19 onetime impact 69 - 80 - (4)Non-GAAPoperating $ 38,215 $ 32,964 $ 19,055 $ 17,450 expenses GAAP Financial $ 2,797 $ 545 $ 592 $ 549 incomeForeignexchangelosses (82 ) 538 528 203 associatedwith ASC842Non-GAAPFinancial $ 2,715 $ 1,083 $ 1,120 $ 752 income GAAP Taxeson income $ (927 ) $ 20 $ (164 ) $ (85 ) (Taxbenefit)Tax effect onto the above (180 ) 871 (98 ) 382 non-GAAPadjustmentsTax benefit 1,015 460 169 295 (b)Non-GAAPTaxes on $ (92 ) $ 1,351 $ (93 ) $ 592 income (Taxbenefit) GAAP net $ (14,626 ) $ 743 $ (4,572 ) $ 1,903 income (loss)Share-basedcompensation 4,630 2,743 2,522 1,443 (1)Acquisitionrelated - 85 - - expenses (2)Intangibleassets 301 358 141 204 amortization(3)COVID-19 onetime impact 377 - 122 - (4)Excess cost ofproduct on - 2,790 - 1,236 acquiredinventory (a)Foreignexchangelosses (82 ) 538 528 203 associatedwith ASC842Tax effect onto the above 180 (871 ) 98 (382 ) non-GAAPadjustmentsDeferredtaxes onincome (Tax (1,015 ) (460 ) (169 ) (295 ) benefit)(b)Non-GAAP net $ (10,235 ) $ 5,926 $ (1,330 ) $ 4,312 income (loss) GAAPdilutedearnings $ (0.36 ) $ 0.02 $ (0.11 ) $ 0.05 (losses)per share Non-GAAPdilutedearnings $ (0.25 ) $ 0.16 $ (0.03 ) $ 0.11 (losses)per share Weightedaverage number of shares Shares used incomputing GAAPdiluted net 40,817,593 36,767,656 40,872,497 37,287,748 earnings(losses) pershare Shares used incomputingNon-GAAPdiluted net 40,817,593 36,976,062 40,872,497 37,532,617 earnings(losses) pershare (1)Share-based compensationCost ofproduct 491 237 277 129 revenuesCost ofservice 360 230 210 116 revenuesResearch and 780 600 436 345 developmentSelling and 1,381 636 740 321 marketingGeneral and 1,618 1,040 859 532 administrative 4,630 2,743 2,522 1,443 (2)Acquisition relatedexpensesCost ofproduct - 28 - - revenuesSelling and - 14 - - marketingGeneral and - 43 - - administrative - 85 - - (3) Intangibleassets amortizationCost ofproduct 50 50 25 25 revenuesSelling and 251 308 116 179 marketing 301 358 141 204 (4) COVID-19one time impactCost ofproduct 453 - 209 - revenuesCost ofservice (7 ) - (7 ) - revenuesResearch and (57 ) - (57 ) - developmentSelling and (1 ) - (12 ) - marketingGeneral and (11 ) - (11 ) - administrative 377 - 122 - (a) Consists of charges to cost of revenues for the difference between thehigher carrying cost of the acquired inventory from a distributor purchasedon February 8, 2019 which was recorded at fair value and the standard cost of the Company's inventory, which adversely impacts theCompany'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 $ (14,626 ) $ 743 $ (4,572 ) $ 1,903 (loss) Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and 2,196 2,222 1,095 1,141 amortization Fair value of warrants 1,406 1,534 841 974 deducted from revenues Share-based 4,630 2,743 2,522 1,443 compensation Amortization of discount on 165 (84 ) 76 (50 ) marketable securities Realized gain on sale of (102 ) (271 ) - (271 ) marketable securities Decrease (increase) in 616 (12,163 ) (6,769 ) (8,022 ) trade receivables Decrease (increase) in other (844 ) 750 135 (532 ) receivables and prepaid expenses Decrease (increase) in (5,205 ) (1,525 ) 4,298 78 inventory Decrease (increase) in operating 33 34 (30 ) 10 leases right-of-use assets Decrease (increase) in (1,384 ) (646 ) (278 ) (460 ) deferred taxes, net Decrease (increase) in (82 ) 204 (87 ) (6 ) other long term assets Increase (decrease) in (9,891 ) 3,782 (8,387 ) 1,114 trade payables Increase (decrease) in operating (82 ) 538 527 203 lease liabilities Increase (decrease) in employees and 335 (783 ) 688 (1,909 ) payroll accruals Decrease in deferred revenues and (107 ) (1,774 ) (12 ) (453 ) advances from customers Increase in other payables 432 952 792 605 and accrued expenses Increase in accrued 63 7 92 44 severance pay, net Decrease in other long (143 ) (210 ) (13 ) (12 ) term liabilities Loss from sale and disposal 75 - - - of property and Equipment Foreign currency translation income (loss) on inter 183 11 (127 ) (182 ) company balances with foreign subsidiaries Net cash used in operating (22,332 ) (3,936 ) (9,209 ) (4,382 ) activities Cash flows from investing activities: Purchase of property and (8,511 ) (1,964 ) (4,936 ) (1,310 ) equipment Acquisition of intangible assets and capitalization (121 ) (650 ) (40 ) (650 ) of software development costs Proceeds from sale of 4 - - - property and equipment Cash paid in connection - (4,715 ) - - with acquisition Decrease (increase) in 15,196 (77,000 ) 1,346 (68,000 ) bank deposits Proceeds from sale of 20,802 30,445 - 29,807 marketable securities Proceeds from maturity of 17,445 500 5,343 - marketable securities Purchase of marketable (18,542 ) (44,599 ) (9,801 ) - securities Net cash provided by (used in) 26,273 (97,983 ) (8,088 ) (40,153 ) investing activities Cash flows from financing activities: Proceeds from secondary - 130,379 - 130,379 offering, net Exercise of employee stock 2,804 2,269 1,236 1,125 options Payments related to shares (64 ) - (11 ) - withheld for taxes Payment of contingent - (303 ) - - consideration Net cash provided by 2,740 132,345 1,225 131,504 financing activities Foreign currency translation 24 (8 ) 43 22 adjustments on cash and cash equivalents Increase (decrease) in 6,705 30,418 (16,029 ) 86,991 cash and cash equivalents Cash and cash equivalents at 40,743 74,132 63,477 17,559 the beginning of the period Cash and cash equivalents at 47,448 104,550 47,448 104,550 the end of the period

Non-cash investing and financing activities: Purchase of property and 384 658 384 658 equipment on credit Inventory transferred to be used as 511 - 214 - property and equipment Property and equipment transferred to 51 - - - be used as inventory Issuance expenses on - 648 - 648 credit Receipt on account of 13 811 13 811 shares Lease liabilities arising from 2,187 - 267 - obtaining right-of-use assets Capitalization of software - 87 - 87 development costs

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