Kornit Digital Ltd. :KRNT-US: Earnings Analysis: Q1, 2016 By the Numbers

Kornit Digital Ltd. reports financial results for the quarter ended March 31, 2016.

Highlights

  • Summary numbers: Revenues of USD 21.84 million, Net Earnings of USD -0.23 million.
  • Gross margins widened from 45.08% to 47.95% compared to the same period last year, operating (EBITDA) margins now 1.67% from 7.24%.
  • Change in operating cash flow of -321.64% compared to same period last year is about the same as change in earnings, likely no significant movement in accruals or reserves.
  • Narrowing of operating margins contributed to decline in earnings.

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

2015-03-31 2015-06-30 2015-09-30 2015-12-31 2016-03-31
Relevant Numbers (Quarterly)
Revenues (mil) 17.61 21.27 22.2 25.5 21.84
Revenue Growth (%YOY) N/A N/A N/A 35.13 23.99
Earnings (mil) -0.2 0.72 2.14 2.07 -0.23
Earnings Growth (%YOY) N/A N/A N/A 72.95 -12.44
Net Margin (%) -1.14 3.38 9.65 8.1 -1.04
EPS -0.02 0.02 0.07 0.07 -0.01
Return on Equity (%) -4.13 5.03 8.94 8.37 -0.9
Return on Assets (%) -2.19 3.74 7.42 6.89 -0.74

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Market Share Versus Profits

Revenues History
Earnings History

Compared to the same period last year, KRNT-US‘s change in revenue was close to the amount of its change in earnings. It remains to be seen how the rest of its peer group’s results will turn out and if KRNT-US‘s performance is a sign of any major shift in the composition of market share in this sector. Also, for comparison purposes, revenues changed by -14.37% and earnings by -110.94% compared to the previous period.

Earnings Growth Analysis

The company’s earnings declined year-on-year largely because of the increases in operating costs. Its operating margins (EBITDA margins) went from 7.24% to 1.67%. This decline in earnings would have been worse except for the fact that the company showed improvement in gross margins, from 45.08% to 47.95%. For comparison, gross margins were 47.28% and EBITDA margins 10.60% in the immediate last 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.

Gross Margin History
Working Capital Days History

KRNT-US‘s gross margin improvement has not produced any big difference in its working capital. Working capital days are currently 277.53, compared to last year’s level of 71.72 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 -321.64% 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 decline in earnings has been influenced by the following factors: (1) Decline in operating margins (EBIT margins) from 4.98% to -0.73% and (2) one-time items that contributed to a decrease in pretax margins from 0.11% to -0.21%

EBIT Margin History
PreTax Margin History

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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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