Kornit Digital Ltd. — FY2019 Form 20-F Summary
Reporting period: Fiscal year ended December 31, 2019. This is an annual report, not a quarterly filing; the supplied filing text does not provide clear standalone Q4 2019 financial results. Figures below are annual and in U.S. dollars unless otherwise noted.
Business context
Kornit develops and sells digital textile-printing systems, inks and consumables, software, and services for direct-to-garment (DTG) and direct-to-fabric (DTF) printing. It reported more than 1,000 customers and 547 employees at year-end. Revenue is generated globally, with 2019 revenue led by the U.S. (55.9%), followed by EMEA (27.1%) and Asia Pacific (12.3%).
Key financial metrics
| Metric | FY2019 | FY2018 |
|---|---|---|
| Revenue | $179.9 million | $142.4 million |
| Gross profit / margin | $82.1 million / 45.6% | $69.9 million / 49.1% |
| Operating income / margin | $7.6 million / 4.2% | $5.6 million / 3.9% |
| Net income / diluted EPS | $10.2 million / $0.26 | $12.4 million / $0.35 |
| Cash from operating activities | $11.0 million | $33.4 million |
| Capital expenditures | $5.4 million | $7.3 million |
At December 31, 2019, the company had $40.7 million in cash and equivalents, $95.0 million in short-term bank deposits, and $128.0 million in marketable securities, totaling approximately $263.7 million. Working capital was $205.8 million and total assets were $405.5 million. The company reported no borrowed debt outstanding; it had $3 million of available, undrawn bank credit lines. Operating lease liabilities were $23.1 million, with undiscounted lease payments of $26.3 million.
Revenue comprised $91.4 million from systems, $65.2 million from ink and consumables, and $23.3 million from services. Service revenue exceeded 10% of total revenue for the first time in 2017 and continued growing in 2019.
Material changes versus FY2018
- Revenue grew 26.3%, driven by systems revenue growth of 38.8% and service revenue growth of 39.8%; ink and consumables revenue rose 8.9%.
- Gross margin declined 3.5 percentage points to 45.6%. Management cited less favorable product mix, $3.0 million of additional acquisition-related cost of revenues, and a $1.0 million year-over-year increase in inventory write-offs.
- Operating expenses rose 15.9% to $74.5 million, led by a 31.2% increase in sales and marketing costs; operating income nevertheless increased to $7.6 million.
- Net income fell to $10.2 million from $12.4 million. FY2018 included a $5.5 million release of valuation allowances on deferred tax assets, contributing to that year’s tax benefit; FY2019 recorded $0.7 million of income tax expense.
- Operating cash flow fell to $11.0 million, primarily reflecting an $18.6 million increase in receivables and higher inventory. Days sales outstanding rose to 82 from 56.
- The June 2019 follow-on offering generated $129.7 million net proceeds. Shares outstanding increased to 40.7 million at year-end from 35.1 million.
Outlook, risks, and unusual items
- Management said existing cash and operating cash flows should fund anticipated requirements for at least 12 months without drawing credit lines or using significant offering proceeds. The filing gives no numerical revenue or earnings guidance.
- Management expected continued investment in R&D, sales and marketing, and service capabilities, and anticipated operating expenses would increase in absolute terms near term, but at a slower pace than in prior years. It expected gross margins to benefit over time from scale and service improvements.
- The new Kiryat Gat manufacturing facility was estimated to cost approximately NIS 62 million (about $17.5 million) and was expected to be completed around August 2020. The company warned of possible coronavirus-related delays and construction cost or timing risks.
- The filing described coronavirus as an emerging risk to customer demand, supply availability, manufacturing continuity, revenues, cash flows, and profitability; its duration and financial impact could not be reasonably estimated.
- Revenue concentration remains material: the ten largest customers represented approximately 45% of FY2019 revenue. Amazon represented 12%, down from 17% in FY2018. Amazon’s agreement includes rebates, service requirements, delivery provisions, and warrants; $5.1 million was recognized as a revenue reduction for warrant fair value in 2019.
- Other significant exposures include dependence on limited or sole-source suppliers, seasonal and quarterly revenue variability, foreign-exchange movements, Israeli tax assessments, and political or operational risks in Israel. The company reported $26.4 million of purchase commitments and $3.0 million of uncertain tax positions at year-end.
- The FY2019 audit opinion on the financial statements was unqualified. Management and the independent auditor concluded internal control over financial reporting was effective as of December 31, 2019.
Most important facts for investors to verify
- Review the audited financial statements and notes for full cash-flow, working-capital, tax, and lease detail; the filing text does not give standalone Q4 results.
- Assess whether systems growth can translate into improved gross margins, given the 2019 decline and increased inventory write-offs.
- Track receivables collection and DSO after the increase to 82 days, and check whether operating cash flow recovers.
- Monitor Amazon’s share of sales, order variability, rebates, warrant-related revenue reductions, and the terms and timing of the agreement.
- Verify progress, final cost, and any coronavirus-related delays at the Kiryat Gat facility, and assess continuity plans for sole-source components.
- Follow the Israeli tax audit and applicable investment tax benefits, including any resulting changes to tax expense or cash obligations.