AP NEWS

Kornit Digital Reports 2018 Third Quarter Results

November 12, 2018

Highlights

-- Third quarter 2018 revenues increased by 32.1% to $37.6 million, net of $1.7 million attributed to the non-cash impact of warrants, compared to $28.4 million, net of $0.1 million attributed to the non-cash impact of warrants in the prior year period. -- Third quarter 2018 GAAP operating income of $3.1 million, or 8.2% of revenue; non-GAAP operating income of $4.9 million, or 13.0% of revenue, net of 367 basis points attributed to the non-cash impact of warrants. -- Third quarter 2018 GAAP net income of $3.1 million, or $0.09 per diluted share; non-GAAP net income of $4.8 million, or $0.13 per diluted share. -- Third quarter warrants impact on Non-GAAP Gross margin was 206 basis points, operating margin 367 basis points and Non-GAAP net margin 368 basis points. -- Company continues to benefit from the market success of the HD with orders of more than 200 systems and upgrades to date.

ROSH-HA`AYIN, Israel, Nov. 12, 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 third quarter ended September 30, 2018.

Beginning as of the fourth-quarter of 2017, non-GAAP figures are presented using a different methodology compared to previous periods as a result of comments received from the U.S. Securities and Exchange Commission. These changes also impact the Company’s guidance methodology, the details of which can be found at the end of today’s press release.

Kornit reported that third quarter 2018 revenue increased by 32.1% to $37.6 million, net of $1.7 million attributed to the non-cash impact of warrants, compared to the prior year period of $28.4 million, net of $0.1 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 $3.1 million, compared to the prior-year period operating loss of $0.2 million. Non-GAAP operating income increased by 208.4% to $4.9 million, or 13.0% of revenue, compared to the prior year period of $1.6 million, or 5.6% of revenue. Increased operating income was the result of increased revenue and higher operating leverage, partially offset by an unfavorable product mix, as more systems were sold during the period.

Ronen Samuel, Kornit Digital’s Chief Executive Officer, commented, “We are pleased to report strong third quarter results, with sales increasing by more than 30% compared to last year quarter as the market success of our leading industrial DTG systems continues to modernize the retail supply chain. Our sales are accelerating as our customers respond to dynamic challenges to reduce printed apparel run length and lead times while minimizing inventory risk. We firmly believe that Kornit is uniquely positioned to address these evolving priorities with the right technology that delivers superior print quality and hand-feel to end consumers.

“Our latest-generation HD products are receiving unprecedented market success, with more than 200 orders of systems and upgrades to date. The success of the HD leads another wave of Kornit innovation, as we are progressing well with customer beta testing of a new mass production system slated for broader availability in 2019, and the launch of our dark poly solution that was announced during our recent investor day. These technological enhancements add to our recent momentum and present a clear path to achieving our long-term goals.”

Third Quarter Results of Operations

Kornit reported third quarter revenues, net of the non-cash impact of warrants, of $37.6 million, compared with the prior-year period level of $28.4 million. The total non-cash impact of the warrants deducted from revenues was $1.7 million in the third quarter of 2018 and $0.1 million in the third quarter of 2017.

On a GAAP basis, third quarter gross profit was $18.9 million, compared with $14.6 million, in the prior-year period. Non-GAAP gross profit in the third quarter was $19.2 million, or 51.1% of revenue, compared with $14.8 million, or 52% of revenue in the third quarter of 2017. The lower gross margin was primarily due to the effect of warrants in the period.

On a GAAP basis, total operating expenses in the third quarter were $15.9 million, compared to $14.8 million in the corresponding prior-year period. Non-GAAP operating expenses in the third quarter increased to $14.3 million, or 38.1% of revenue, compared to $13.2 million, or 46.5% of revenues, in the corresponding prior-year period.

Third quarter GAAP research and development expenses were $5.1 million, compared to $5.8 million in the corresponding prior-year period of. Third quarter non-GAAP research and development expenses were $4.8 million, or 12.8% of revenues, compared to $5.6 million, or 19.6% of revenues in the prior-year period.

Third quarter GAAP selling and marketing expenses were $6.5 million, compared to $5.3 million in the corresponding prior-year period. Third quarter non-GAAP selling and marketing expenses were $5.9 million, or 15.7% of revenues, compared to $4.8 million, or 16.8% of revenues, in the equivalent prior-year period.

Third quarter GAAP general and administrative expenses were $4.2 million, compared to $3.4 million in the corresponding prior-year period. Third quarter non-GAAP general and administrative expenses were $3.6 million, or 9.6% of revenues, compared to $2.9 million, or 10.1% of revenues, in the corresponding prior-year period.

On a GAAP basis, third-quarter operating income was $3.1 million, compared to operating loss of $0.2 million during the corresponding prior-year period. Non-GAAP operating income in the third quarter increased to $4.9 million, compared to $1.6 million in the equivalent prior-year period. As a percent of revenues, non-GAAP operating margin for the third quarter was 13.0% of revenues, compared with 5.6% of revenues in the third quarter of 2017.

On a GAAP basis, the Company reported net income of $3.1 million, or $0.09 per diluted share, compared to net loss of $0.1 million in the third quarter of 2017. Non-GAAP net income for the third quarter of 2018 was $4.8 million, or $0.13 per diluted share, compared to net income of $1.5 million, or $0.04 per diluted share, in the corresponding prior year period.

Q3 Warrants impact:

Three Months Ended September 30, ------------------------------------------------------------------------ 2018 2017 ----------------------------------- ----------------------------------- Net of Warrant Warrant Impact Net of Warrant Warrant Impact Impact increase (decrease) Impact increase (decrease) -------------- ------------------- -------------- ------------------- Revenues $37.6M $1.7M $28.4M $0.1M Gross Margin 51.1% 206bps 52.0% 25bps Operating Margin 13.0% 367bps 5.6% 49bps Net Margin 12.9% 368bps 5.3% 50bps EPS $0.13 $0.06 $0.04 $0.01

Balance Sheet and Cash FlowAt September 30, 2018, the Company had cash, deposits and marketable securities of $110.9 million, and no long-term debt. Cash flow provided by operations was $11 million during the third quarter of 2018, attributable mainly to higher net profit.

Fourth 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 InformationThe Company will host a conference call on Monday, November 12 at 5:00 p.m. ET, or 0:00 a.m. Israel time, to discuss the results, followed by a question and answer session for the investment community. A live webcast of the call can be accessed at ir.kornit.com. To access the call, participants may dial toll-free at 1-800-239-9838 or +1-323-794-2551. The toll-free Israeli number is 1 80 921 2883. The confirmation code is 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.

Forward Looking StatementsCertain 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 degree of our success in developing, introducing and selling new or improved products and product enhancements, 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 and ink and consumables, the extent of 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, the extent of our success in marketing, and those additional 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 DisclosureNon-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 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 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) Nine Months Ended Three Months Ended September 30, September 30, ---------------------------- ---------------------------- 2018 2017 2018 2017 ------------ -------------- ------------ -------------- (Unaudited) (Unaudited) ---------------------------- ---------------------------- Revenues Products $ 92,207 $ 75,734 $ 33,357 $ 25,328 Services 12,380 8,404 4,234 3,119 Total revenues 104,587 84,138 37,591 28,447 Cost of revenues Products 39,274 34,646 14,042 10,571 Services 13,571 9,836 4,624 3,280 - ---------- - ---------- - - ---------- - ---------- - Total cost of revenues 52,845 44,482 18,666 13,851 Gross profit 51,742 39,656 18,925 14,596 - ---------- - ---------- - - ---------- - ---------- - Operating expenses: Research and development 15,681 15,187 5,092 5,845 Selling and marketing 18,719 16,126 6,518 5,297 General and administrative 12,257 9,545 4,203 3,407 Restructuring expenses 321 339 55 246 - ---------- - ---------- - - ---------- - ---------- - Total operating 46,978 41,197 15,868 14,795 Operating income (loss) 4,764 (1,541 ) 3,057 (199 ) Financial income, net 1,092 298 264 205 - ---------- - ---------- - - ---------- - ---------- - Income (loss) before taxes on income 5,856 (1,243 ) 3,321 6 Taxes on income 404 403 208 130 - ---------- - ---------- - - ---------- - ---------- - Net income (loss) 5,452 (1,646 ) 3,113 (124 ) - ---------- - ---------- - - ---------- - ---------- - Basic net income (loss) per share $ 0.16 $ (0.05 ) $ 0.09 $ (0.00 ) - ---------- - ---------- - - ---------- - ---------- - Weighted average number of shares used in computing basic net income (loss) per share 34,372,064 34,445,168 34,513,629 34,883,772 - ---------- - ---------- - - ---------- - ---------- - Diluted net income (loss) per share $ 0.16 $ (0.05 ) $ 0.09 $ (0.00 ) - ---------- - ---------- - - ---------- - ---------- - Weighted average number of shares used in computing diluted net income (loss) per share 35,151,714 34,445,168 35,673,298 34,883,772 - ---------- - ---------- - - ---------- - ---------- -

KORNIT DIGITAL LTD. AND ITS SUBSIDIARIES RECONCILATION OF GAAP TO NON-GAAPCONSOLIDATEDSTATEMENTSOFOPERATIONS (U.S. dollars in thousands, except share and per share data) Nine Months Ended Three Months Ended September 30, September 30, ------------------------------ ------------------------------ 2018 2017 2018 2017 - ---------- - - ---------- - - ---------- - - ---------- - (Unaudited) (Unaudited) ------------------------------ ------------------------------ GAAP cost of revenues $ 52,845 $ 44,482 $ 18,666 $ 13,851 Cost of product recorded for (340 ) (325 ) (151 ) (121 ) share-based compensation (1) Cost of service recorded for (268 ) (147 ) (116 ) (64 ) share-based compensation (1) Intangible assets amortization (75 ) (75 ) (25 ) (25 ) on cost of product (2) Non-GAAP cost of revenues $ 52,162 $ 43,935 $ 18,374 $ 13,641 - ---------- - - ---------- - - ---------- - - ---------- - GAAP gross profit $ 51,742 $ 39,656 $ 18,925 $ 14,596 Gross profit adjustments 683 547 292 210 Non-GAAP gross profit $ 52,425 $ 40,203 $ 19,217 $ 14,806 - ---------- - - ---------- - - ---------- - - ---------- - GAAP operating expenses $ 46,978 $ 41,197 $ 15,868 $ 14,795 Share-based compensation (1) (3,276 ) (2,721 ) (1,237 ) (1,060 ) Intangible assets amortization (723 ) (943 ) (241 ) (266 ) (2) Restructuring expenses (321 ) (339 ) (55 ) (246 ) Non-GAAP operating expenses $ 42,658 $ 37,194 $ 14,335 $ 13,223 - ---------- - - ---------- - - ---------- - - ---------- - GAAP Taxes on income $ 404 $ 403 $ 208 $ 130 Tax effect on to the above 286 443 105 137 non-GAAP adjustments Non-GAAP Taxes on income $ 690 $ 846 $ 313 $ 267 - ---------- - - ---------- - - ---------- - - ---------- - GAAP net income (loss) $ 5,452 $ (1,646 ) $ 3,113 $ (124 ) Share-based compensation (1) 3,884 3,193 1,504 1,245 Intangible assets amortization 798 1,018 266 291 (2) Restructuring expenses 321 339 55 246 Tax effect on to the above (286 ) (443 ) (105 ) (137 ) non-GAAP adjustments Non-GAAP net income (*) $ 10,169 $ 2,461 $ 4,833 $ 1,521 - ---------- - - ---------- - - ---------- - - ---------- - GAAP diluted earning (loss) $ 0.16 $ (0.05 ) $ 0.09 $ (0.00 ) per share - ---------- - - ---------- - - ---------- - - ---------- - Non-GAAP diluted earning per $ 0.29 $ 0.07 $ 0.13 $ 0.04 share - ---------- - - ---------- - - ---------- - - ---------- - Weighted average number of shares Shares used in computing GAAP diluted net earning (loss) per 35,151,714 34,445,168 35,673,298 34,883,772 share - ---------- - - ---------- - - ---------- - - ---------- - Shares used in computing Non-GAAP diluted net earning 35,423,185 34,877,281 35,905,930 35,242,293 per share - ---------- - - ---------- - - ---------- - - ---------- - (1) Share-based compensation Cost of product revenues 340 325 151 121 Cost of service revenues 268 147 116 64 Research and development 695 569 293 272 Selling and marketing 842 688 366 258 General and administrative 1,739 1,464 578 530 3,884 3,193 1,504 1,245 - ---------- - - ---------- - - ---------- - - ---------- - (2) Intangible assets amortization Cost of product revenues 75 75 25 25 Selling and marketing 723 943 241 266 798 1,018 266 291 - ---------- - - ---------- - - ---------- - - ---------- - 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 CONSOLIDATEDBALANCESHEETS (U.S. dollars in thousands) September December 30, 31, 2018 2017 --------- --------- (Unaudited ) --------- ASSETS CURRENT ASSETS: Cash and cash equivalents $ 14,099 $ 18,629 Short-term bank deposit 9,500 4,500 Marketable securities 22,048 5,537 Trade receivables, net 30,620 23,245 Inventory 25,212 34,855 Other accounts receivable and prepaid expenses 4,750 2,661 Total current assets 106,229 89,427 - ------- - ------- LONG-TERM ASSETS: Marketable securities 65,278 68,835 Deposits and prepaid expenses 712 627 Severance pay fund 377 523 Deferred tax asset 622 564 Property and equipment, net 14,023 11,230 Intangible assets, net 1,277 2,076 Goodwill 5,092 5,092 - ------- - ------- Total long-term assets 87,381 88,947 - ------- - ------- Total assets $ 193,610 $ 178,374 - ------- - ------- LIABILITIES AND SHAREHOLDERS’ EQUITY CURRENT LIABILITIES: Trade payables $ 12,311 $ 12,439 Employees and payroll accruals 6,844 6,338 Deferred revenues and advances from customers 1,960 1,697 Other payables and accrued expenses 5,283 5,046 Total current liabilities 26,398 25,520 - ------- - ------- LONG-TERM LIABILITIES: Accrued severance pay 1,284 1,232 Payment obligation related to acquisition - 334 Other long-term liabilities 744 589 Total long-term liabilities 2,028 2,155 - ------- - ------- SHAREHOLDERS’ EQUITY 165,184 150,699 - ------- - ------- Total liabilities and shareholders’ equity $ 193,610 $ 178,374 - ------- - -------

KORNIT DIGITAL LTD. AND ITS SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (U.S. dollars in thousands) Nine Months Ended Three Months Ended September 30, September 30, ------------------------ ------------------------ 2018 2017 2018 2017 - ------- - - ------- - - ------- - - ------- - (Unaudited) (Unaudited) ------------------------ ------------------------ Cash flows from operating activities: Net Income (loss) $ 5,452 $ (1,646 ) $ 3,113 $ (124 ) Adjustments to reconcile net income (loss) to net cash provided by (used by) operating activities: Depreciation and amortization 3,603 3,631 1,236 1,204 Fair value of warrants deducted from revenues 3,190 2,502 1,657 149 Share-based compensation 3,884 3,193 1,504 1,245 Amortization of premium on marketable securities 339 404 98 127 Realized gain on sale of marketable securities - (29 ) - - Decrease (increase) in trade receivables (7,584 ) (730 ) 2,557 (3,624 ) Increase in other receivables and prepaid expenses (2,109 ) (396 ) (1,587 ) (1,143 ) Decrease (increase) in inventory 8,919 (11,631 ) (125 ) (2,979 ) Increase (decrease) in deferred taxes, net (25 ) (641 ) 194 (458 ) Decrease (increase) in other long term assets (88 ) (15 ) 9 (209 ) Increase (decrease) in trade payables (233 ) (1,538 ) 1,959 522 Increase (decrease) in employees and payroll accruals 521 (194 ) (238 ) 639 Increase (decrease) in deferred revenues and advances from 289 217 (123 ) 909 customers Increase in other payables and accrued expenses 791 754 588 632 Increase in accrued severance pay, net 198 242 89 214 Increase (decrease) in other long term liabilities 155 501 (20 ) 132 Loss from sale of property and Equipment - 228 - 199 Foreign currency translation income (loss) on inter company 340 (798 ) 47 (203 ) balances with foreign subsidiaries Net cash provided by (used in) operating activities 17,642 (5,946 ) 10,958 (2,768 ) - ------- - - ------- - - ------- - - ------- - Cash flows from investing activities: Purchase of property and equipment (4,906 ) (4,500 ) (3,662 ) (1,069 ) Proceeds from sale of property and equipment - 6 - 6 Investment in bank deposits (5,000 ) - (2,000 ) - Proceeds from sale of marketable securities - 38,312 - - Proceeds from maturity of marketable securities 3,354 6,740 1,204 - Purchase of marketable securities (16,680 ) (79,255 ) (10,550 ) (8,607 ) Net cash used in investing activities (23,232 ) (38,697 ) (15,008 ) (9,670 ) - ------- - - ------- - - ------- - - ------- - Cash flows from financing activities: Proceeds from secondary offering, net - 35,077 - - Exercise of employee stock options 1,997 2,343 930 996 Payment of contingent consideration (900 ) (1,400 ) - - Net cash provided by financing activities 1,097 36,020 930 996 - ------- - - ------- - - ------- - - ------- - Foreign currency translation adjustments on cash and cash (37 ) 124 (4 ) 25 equivalents Decrease in cash and cash equivalents (4,493 ) (8,623 ) (3,120 ) (11,442 ) Cash and cash equivalents at the beginning of the period 18,629 22,789 17,223 25,707 Cash and cash equivalents at the end of the period 14,099 14,290 14,099 14,290 - ------- - - ------- - - ------- - - ------- - Non-cash investing and financing activities: Purchase of property and equipment on credit 539 142 539 142 Inventory transferred to be used as property and equipment 591 293 - 126

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

AP RADIO
Update hourly