Kornit Digital Ltd 20-F for FY2020

Kornit Digital Ltd. (KRNT)

20-F 2021-03-25 For: 2020-12-31

Added on April 07, 2026

About this 20-F

Kornit Digital Ltd filed this 20-F on March 25, 2021, covering the fiscal year ended December 31, 2020 (FY2020).

Headline figures

Fiscal year ended December 31, 2020, as reported in this filing, compared with the same period a year earlier where the filing states it.

Revenue: $193.33M; up 7.5% from $179.87M a year earlier
Net loss: $4.78M; compared with net income of $10.17M a year earlier
Diluted EPS: -$0.11; compared with $0.26 a year earlier

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Title of each class		Trading Symbol(s)		Name of each exchange on which registered
Ordinary shares, par value NIS 0.01 per share		KRNT		The Nasdaq Stock Market LLC

	Large accelerated filer: ☒	Accelerated filer: ☐	Non-accelerated filer: ☐
			Emerging growth company: ☐

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS	ii
USE OF TRADE NAMES	iii
CERTAIN ADDITIONAL TERMS AND CONVENTIONS	iii

PART I

ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS	1
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE	1
ITEM 3. KEY INFORMATION	1
ITEM 4. INFORMATION ON THE COMPANY	25
ITEM 4A. UNRESOLVED STAFF COMMENTS	48
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS	48
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES	64
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS	82
ITEM 8. FINANCIAL INFORMATION	86
ITEM 9. THE OFFER AND LISTING	87
ITEM 10. ADDITIONAL INFORMATION	87
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	98
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES	99

PART II

ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES	100
ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS	100
ITEM 15. CONTROLS AND PROCEDURES	100
ITEM 16. [RESERVED]
ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT	101
ITEM 16B. CODE OF ETHICS	101
ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES	101
ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES	102
ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS	102
ITEM 16F. CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT	102
ITEM 16G. CORPORATE GOVERNANCE	102
ITEM 16H. MINE SAFETY DISCLOSURE	102

PART III

ITEM 17. FINANCIAL STATEMENTS	103
ITEM 18. FINANCIAL STATEMENTS	103
ITEM 19. EXHIBITS	103

SIGNATURES	105

INDEX TO FINANCIAL STATEMENTS	F-1

	●	our expectations regarding the further duration of the global COVID-19 pandemic and its impact on our operations, financial position and cash flows, and those of our customers and suppliers;

	●	our plans to develop, introduce and sell new or improved products and product enhancements, including specifically our Poly Pro and Presto products;

	●	our expectations regarding the expansion of our serviceable addressable market;

	●	our objective to increase sales to large accounts with multi-system delivery plans;

	●	our expectations regarding our future gross margins and operating expenses;

	●	our expectations regarding our growth and overall profitability;

	●	our expectations regarding the impacts of variability on our future revenues;

	●	our expectations regarding drivers of our future growth, including anticipated sales growth, penetration of new markets, and expansion of our customer base;

	●	our plans to continue our expansion into new product markets;

	●	our plans to continue to invest in research and development to introduce new systems and improved solutions;

	●	our plans regarding our distribution strategy for our products;

	●	our expectations concerning the timing for completion of the development of our new, modern manufacturing facility in Kiryat Gat, Israel;

	●	our expectations regarding the success of our new products and systems;

	●	the expected impact of new accounting pronouncements on our results of operations;

	●	the impact of government laws and regulations;

	●	our expectations regarding our anticipated cash requirements for the next 12 months;

	●	our plans to expand our international operations;

	●	our plans to file and procure additional patents relating to our intellectual property rights and the adequate protection of these rights; and

	●	our plans to pursue strategic acquisitions or invest in complementary companies, products or technologies.

	●	references to “Kornit Digital,” “our company,” “the Company,” “the registrant,” “we,” “us,” and “our” refer to Kornit Digital Ltd.;

	●	references to “ordinary shares”, “our shares” and similar expressions refer to the Company’s Ordinary Shares, par value NIS 0.01 per share;

	●	references to “dollars”, “U.S. dollars”, “U.S. $” and “$” are to United States Dollars;

	●	references to “shekels” and “NIS” are to New Israeli Shekels, the Israeli currency;

	●	references to “GAAP” are to U.S. Generally Accepted Accounting Principles;

	●	references to our “articles” are to our Articles of Association, as amended;

	●	references to the “Companies Law” are to the Israeli Companies Law, 5759-1999, as amended;

	●	references to the “Securities Act” are to the U.S. Securities Act of 1933, as amended;

	●	references to the “Exchange Act” are to the U.S. Securities Exchange Act of 1934, as amended;

	●	references to “NASDAQ” are to the NASDAQ Stock Market; and

	●	references to the “SEC” are to the United States Securities and Exchange Commission.

	Year Ended December 31,
	2016		2017			2018			2019		2020
	(in thousands, except share and per share data)
Consolidated Statements of Income:
Revenues	$	108,694	$	114,088		$	142,373		$	179,886	$	193,331
Cost of revenues⁽¹⁾		59,284		59,977			72,504			97,790		105,530
Gross profit		49,410		54,111			69,869			82,076		87,801
Operating expenses:
Research and development, net⁽¹⁾		17,383		20,834			21,912			22,407		31,464
Sales and marketing⁽¹⁾		18,338		21,279			25,596			33,573		36,405
General and administrative⁽¹⁾		12,259		13,578			16,436			18,498		26,661
Restructuring expenses		-		503			321			-		-
Total operating expenses		47,980		56,194			64,265			74,478		94,530
Operating income (loss)		1,430		(2,083	)		5,604			7,598		(6,729	)
Finance income (expenses), net		46		452			1,433			3,313		3,498
Income (loss) before taxes on income (tax benefit)		1,476		(1,631	)		7,037			10,911		(3,231	)
Taxes on income (tax benefit)		648		384			(5,392	)		744		1,552
Net income (loss)		828	$	(2,015	)	$	12,429		$	10,167	$	(4,783	)
Net earnings (loss) per ordinary share⁽²⁾
Basic	$	0.03	$	(0.06	)	$	0.36		$	0.27	$	(0.11	)
Diluted	$	0.03	$	(0.06	)	$	0.35		$	0.26	$	(0.11	)
Weighted average number of ordinary shares used in computing income per ordinary share⁽²⁾
Basic		30,562,255		33,574,147			34,521,352			38,079,394		42,286,275
Diluted		31,732,532		33,574,147			35,363,704			39,294,115		42,286,275

	As of December 31,
	2016		2017		2018		2019		2020
	(in thousands)
Consolidated balance sheet data:
Cash and cash equivalents	$	22,789	$	18,629	$	74,132	$	40,473	$	125,777
Working capital		68,651		63,907		107,584		205,825		387,903
Total assets		140,046		178,374		214,823		405,466		628,989
Total long term liabilities		2,725		2,155		2,515		21,586		20,345
Total shareholders’ equity		107,188		150,699		179,136		338,303		519,017

	●	Our revenues are presented net of the relative value of the warrants in each particular period related to the revenues recognized. The warrants are reported as a reduction of revenue in the Company’s income statement when related revenues are recognized. Up until December 31, 2018, the value of the warrants was determined as the fair value at the time revenues were recognized, and that value was remeasured on each financial reporting date until total revenues of $5 million were recognized. Following our adoption of ASU 2018-07 on January 1, 2019 and our early adoption of ASU 2019-08 on the same date, effectively, from January 1, 2019 (the adoption date), the value of the current warrants is determined as their fair value as of the adoption date and for the new warrants – their fair value as at the grant date of September 14, 2020.

	●	We have agreed to provide a rebate to Amazon based on the number of systems and amount of ink and other consumables Amazon orders in a given 12-month period. The timing and scale of any such rebate may be difficult to predict and may cause fluctuations in our quarterly and annual revenues, gross profit and operating profit.

	●	We are required to notify Amazon 12 months in advance if we intend to stop supporting one of the products or services that we supply to Amazon and to continue to manufacture the product or provide such service during such 12-month period. Subject to certain exceptions, we are required to continue to supply ink in such quantities as Amazon requires for at least 36 months after the earlier of (1) the end of the term of the master purchase agreement or (2) 18 months following the purchase of the last product sold pursuant to the agreement.

	●	We are required to deliver our products and services to Amazon and to comply with a service level agreement. If we fail to meet the requirements under such service level agreement Amazon will receive credits against its cost for those delayed products or services.

	●	The print heads for our systems are supplied by a sole supplier, FujiFilm Dimatix, Inc., or FDMX. We entered into an agreement with FDMX in 2015, pursuant to which FDMX sells us certain off-the-shelf print heads and additional products, all of which FDMX regularly sells to providers of inkjet systems. Our current agreement terminates in December 2022, at the conclusion of an initial three-year renewal period, and provides for further one-year renewal periods thereafter. The agreement provides that beginning with the start of the first one-year renewal period, FDMX may increase the prices of the products that we purchase from it upon 90-days’ prior notice, subject to certain conditions. During the successive one-year periods, FDMX or we can terminate the agreement upon 90 days’ notice prior to the end of the then-current term. Our agreement further provides that FDMX may, at its option, discontinue products supplied under the agreement, provided that we are given one-year notice of the planned discontinuance and are provided with an end-of-life purchase program.

	●	Dispersing agents used in some of our inks are supplied by BASF SE. We currently purchase these dispersing agents from the Israeli representative of BASF on a purchase order basis. We maintain safety stock of these chemicals in an amount which will allow us to continue our manufacturing for several months in case of discontinuation.

	●	Several raw materials and pigments used in some of our inks are supplied by Clariant AG, or Clariant. We currently purchase these raw materials and pigments on a purchase order basis. We maintain safety stock of these raw materials and pigments in an amount which will allow us to continue our manufacturing for several months in case of discontinuation.

	●	Certain parts of the control system of our systems are supplied by a sole supplier, Yaskawa Europe Technology Ltd., or Yaskawa. Our turnkey suppliers (Flextronics Sanmina and Hameshavev), which assemble the control system on our behalf, purchase those control system parts from Yaskawa. We also purchase additional, spare control system parts from Yaskawa for our service department on a purchase order basis. Yaskawa maintains additional inventory of these control system parts as safety stock for our benefit, based on our requirements.

	●	One of our printing systems contains a dryer that we purchase from Adelco Screen Process, or Adelco, which serves as a sole supplier of that part. The dryer is supplied under an April 2019 agreement that we entered into with Adelco.

	●	if we experience an increase in demand for our solutions, our suppliers may be unable to provide us with the components that we need in order to meet that increased demand in a timely manner;

	●	our suppliers may encounter financial hardships unrelated to our demand for components, which could inhibit their ability to fulfill our orders and meet our requirements;

	●	we may experience production delays related to the evaluation and testing of products from alternative suppliers;

	Year Ended December 31,
	2016		2017		2018		2019		2020
	(in thousands)
Share-based compensation expense:
Cost of revenues	$	482	$	629	$	892	$	1,152	$	1,827
Research and development		217		775		1,022		1,294		1,712
Sales and marketing		654		920		1,240		1,689		2,893
General and administrative		1,640		2,087		2,392		2,479		3,604
Total share-based compensation expense	$	2,993	$	4,411	$	5,546	$	6,614	$	10,036

	●	we may be subject to price fluctuations due to a lack of long-term supply arrangements for key components;

	●	we or our suppliers may lose access to critical services and components, resulting in an interruption in the manufacture, assembly and shipment of our systems or inks and other consumables; and

	●	unscheduled delays in the delivery of ordered materials and equipment;

	●	greater difficulty in enforcing contracts and accounts receivable collection, as well as longer collection periods;

	●	increased expenses incurred in establishing and maintaining office space and equipment for our international operations;

	●	fluctuations in exchange rates between the U.S. dollar and foreign currencies in markets where we do business;

	●	greater difficulty in recruiting local experienced personnel, and the costs and expenses associated with such activities;

	●	general economic and political conditions in these foreign markets;

	●	economic uncertainty around the world, including in respect of how our operations and sales in the European Union and the United Kingdom may potentially be impacted by Brexit;

	●	management communication and integration problems resulting from cultural and geographic dispersion;

	●	potential disruption to the supply of certain of our raw materials for our products that are sourced in countries impacted by the coronavirus outbreak, due to the slowdown in activity there (although our products are manufactured in Israel only);

	●	potential adverse impact to our revenues worldwide, due to the spread of the coronavirus throughout the world, which has reduced economic activity in markets into which we sell our products;

	●	risks associated with trade restrictions and foreign legal requirements, including the importation, certification, and localization of our solutions required in foreign countries, such as high import taxes in Brazil and other Latin American markets where we sell our products;

	●	greater risk of unexpected changes in regulatory practices, tariffs, and tax laws and treaties;

	●	the uncertainty of protection for intellectual property rights in some countries;

	●	greater risk of a failure of employees to comply with both U.S. and foreign laws, including antitrust regulations, the U.S. Foreign Corrupt Practices Act, or FCPA, the European Union General Data Protection Regulation, or GDPR (which broadened the scope of personal privacy laws to protect the rights of European Union citizens and requires organizations to report on data breaches promptly and obtain the consent of individuals on how their data can be used), the California Consumer Privacy Act, or CCPA (which imposes enhanced disclosure requirements for us vis-à-vis our interactions with customers that are residents of California), and any trade regulations ensuring fair trade practices; and

	●	require us to redesign our technology or force us to enter into costly settlement or license agreements on terms that are unfavorable to us;

	●	prevent us from manufacturing, importing, using, or selling some or all of our solutions;

	●	disrupt our operations or the markets in which we compete;

	●	require us to indemnify our distributors and customers; and

	●	actual or anticipated variations in our and/or our competitors’ results of operations and financial condition;

	●	variance in our financial performance from the expectations of market analysts;

	●	announcements by us or our competitors of significant business developments, changes in service provider relationships, acquisitions, strategic relationships or expansion plans;

	●	our sale of ordinary shares or other securities in the future;