Last month, Kornit signed a deal with Amazon to triple sales of its direct-to-garment printers to the eCommerce and technology giant. At the same time, Kornit conducted its fourth share offering in the past two and a half years.
Kornit issued two million new shares worth US$ 124 million while a unit of Amazon, which owns 4.75% of Kornit, sold 1.6 million of its shares for another US$ 100 million in the share offering. Amazon acquired its shares in Kornit from 2017 onwards for US$ 13.33 a share, in a vesting agreement tied to payments made by Amazon for the purchase of goods and services from Kornit Digital since May 2016.
Amazon has signed a new agreement, an expanded version of the one it has had with Kornit since January 2017 – Kornit will issue warrants entitling Amazon to 3.1 million shares or 8% of its issued share capital diluted. The warrants will be exercisable at US$ 59.26 per share compared with the closing price of US$ 62.74 on the Nasdaq on 14 September 2020.
Amazon has committed to buying products and services from Kornit totaling US$ 400 million over the next five years – US$ 250 million in existing products such as digital printers, inks, and services in exchange for warrants convertible into 1.9 million shares, and US$ 150 million in future products in exchange for warrants for 1.5 million shares. The warrants will be allocated in tranches each time Amazon buys products or services worth US$ 5 million.
Amazon has used Kornit products for providing its Merch by Amazon service, enabling designers to sell customized garments and personalized T-shirts. Amazon handles production, shipping, and collection. Now Amazon wants to expand its digital printing to other home furnishings, upholstery, bedspreads, and sports equipment for which it plans to use the new Kornit’s Presto printer.
Ronen Samuel, the CEO of Kornit Digital, indicated that the agreement marks a turning point for Kornit making it a huge company. And that the sales target of US$ 500 million in 2023 will be achieved only through organic growth. Kornit’s digital printers are utilized to print for the top ten brands in apparel and fashion.
Kornit customer, investor, shareholder
The biggest user of its printers is Amazon, which accounted for 8.5% of sales in the second quarter of this year. Digital printing experts say that Amazon only executes those businesses in-house that are profitable while outsourcing the lower margin products and services to third party suppliers. The exploding demand for personalized fabrics and garments bodes well for the digital textile and direct-to-garment printers.
The new deal with Kornit in which Amazon is an investor is also an impressive financial and business arrangement. When Amazon buys Kornit printers and inks, it gets warrants that can be turned into shares at a fixed price. While Kornit can periodically leverage cash from issuing new shares as it grows, simultaneously, Amazon can also sell some of its shares profitably to finance its expansion.