Kornit Digital Ltd. Earnings Analysis: 2015 By the Numbers

Kornit Digital Ltd. reports financial results for the year ended December 31, 2015.

Highlights

  • Gross margins widened from 43.97% to 46.97% compared to the same period last year, operating (EBITDA) margins now 8.74% from 7.79%.
  • Change in operating cash flow of -539.76% compared to same period last year is about the same as change in earnings, likely no significant movement in accruals or reserves.
  • Earnings growth from operating margin improvements as well as one-time items.

The table below shows the preliminary results and recent trends for key metrics such as revenues and net income growth:

N/A 2012 2013 2014 2015
Relevant Numbers (Annual)
Revenues N/A 39.17 49.4 66.36 86.41
Revenue Growth (YOY) N/A N/A N/A N/A N/A
Earnings N/A 2.31 1.13 3.02 4.73
Earnings Growth (YOY) N/A N/A -50.99 166.58 56.3
Net Margin N/A 5.91 2.3 4.56 5.47
EPS N/A 0.08 0.04 0.1 0.18
Return on Equity N/A 16.17 7.58 17.29 7.9
Return on Assets N/A 9.48 4.05 9.11 5.98

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Earnings Growth Analysis

The company’s earnings growth was influenced by year-on-year improvement in gross margins from 43.97% to 46.97% as well as better cost controls. As a result, operating margins (EBITDA margins) rose from 7.79% to 8.74% compared to the same period last year. For comparison, gross margins were 43.97% and EBITDA margins were 7.79% in the last reporting period.

Gross Margin Trend

Companies sometimes sacrifice improvements in revenues and margins in order to extend friendlier terms to customers and vendors. Capital Cube probes for such activity by comparing the changes in gross margins with any changes in working capital. If the gross margins improved without a worsening of working capital, it is possible that the company’s performance is a result of truly delivering in the marketplace and not simply an accounting prop-up using the balance sheet.

KRNT-US‘s gross margin improvement has not produced any big difference in its working capital. Working capital days are currently 171.03, compared to last year’s level of 77.18 days. This leads Capital Cube to conclude that the improvements in gross margins are likely from operating decisions and not trade-offs with the balance sheet.

Cash Versus Earnings – Sustainable Performance?

KRNT-US‘s year-on-year change in operating cash flow of -539.76% is around its change in earnings. This suggests that there are likely no significant movement in accruals or reserves for managing earnings this period.

Margins

The company’s earnings growth has also been influenced by the following factors: (1) Improvements in operating (EBIT) margins from 5.76% to 6.68% and (2) one-time items. The company’s pretax margins are now 6.29% compared to 5.73% for the same period last year.

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Company Profile

Kornit Digital Ltd. engages in the development, manufacture, and marketing of industrial and commercial printing solutions for the garment, apparel, and textile industries. It offers printing solutions for apparel, polyester, sportswear, beachwear, accessories, paradigm shirt, textiles, curtains, cushions, and couches. The company was founded by Ofer Ben-Zur in 2002 and is headquartered in Rosh HaAyin, Israel.

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