“The business is on fire – fashion companies are moving online and to textile printing on demand,” says Ronen Samuel, CEO of Kornit Digital. He was speaking as the Israeli company conducted its fourth share offering in the past two and a half years and signed an expanded agreement with Amazon that will triple its sales to the online retail giant.
The funding round comes as shares of Kornit, which manufacturers digital printers used in the garment, apparel and textile industries, have soared 83% this year. Its digital printers can rapidly produce short runs of complex images and designs directly on finished garments and fabrics, enabling clothing makers to produce products as needed, rather than prestocking inventory at the start of each season, and/or create custom products.
Kornit is issuing two million new shares worth $124 million while a unit of Amazon, which owns 4.75% of Kornit, is selling 1.6 million of its shares for another $100 million.
The sale, which increased the supply of the stock on the market, pushed Kornit’s Nasdaq-traded shares 4.3% lower to $60.04 mid-afternoon Tuesday, New York time.
Samuel said the proceeds from the Kornit portion of the share sale would give the company the cash it needs to leverage the sales growth it’s enjoyed due to the coronavirus pandemic, to make acquisitions and to enter new market segments.
Under the agreement signed with Amazon – an expanded version of one it already has with the company – Kornit will issue warrants entitling Amazon to 3.1 million shares, or 8% of its issued share capital fully diluted. The warrants will be exercisable for the stock at a price of $59.26 each, compared with a closing price of $62.74 on the Nasdaq Stock Market Monday.
To get the warrants, Amazon committed to buying products and services from Kornit totaling $400 million over the next five years. The commitment is divided into two – $250 million in existing products (digital printers, inks and services) in exchange for warrants covertible into 1.9 million shares, and $150 million in future products in exchange for warrants for 1.5 million shares. The warrants will be allocated in tranches each time Amazon hits a $5 million milestone for purchases.
Until now, Amazon has used Kornit products only for its Merch by Amazon service, which enables independent designers to sell products like personalized T-shirts, with Amazon handling production, shipping and collection. The company now wants to expand its digital-printed offerings to housewares and sports equipment, and will use new Kornit’s Presto printer, that can be used to print upholstery and bedspreads.
“The agreement marks a turning point for us – we will be a huge company. Our sales target of $500 million in 2023 will be achieved only through organic growth,” he said.
Under Kornit’s original agreement with Amazon, the U.S. company committed to buying Kornit’s printers and other products over a five-year period beginning in May 2016 at prearranged prices, explained Kornit Chief Financial Officer Guy Avidan. In exchange, Amazon received warrants entitling to buy up to 2.9 million Kornit shares, or 7% of the company fully diluted, for $13 each, which was the market price at the time.
Kornit counts as customers for its digital printers five of the top 10 brands in apparel and fashion. Hundreds of others do business with them. The biggest of them all is Amazon, which accounted for 8.5% of sales in the second quarter of this year, down from 17% in the same period in 2018.
With the surge in e-commerce, Samuel estimated that the number of garments produced worldwide with digital printing will grow from 16 billion in 2018 to 25 billion in 2023, even without the effect of the coronavirus pandemic on customers’ shopping habits.