Bragar Eagel & Squire, P.C., a nationally recognized stockholder rights law firm, reminds investors that a class action lawsuit has been filed against Kornit Digital Ltd. (“Kornit” or the “Company”) (NASDAQ: KRNT) in the United States District Court for the District of New Jersey on behalf of all persons and entities who purchased or otherwise acquired Kornit securities between February 17, 2021 and July 5, 2022, both dates inclusive (the “Class Period”). Investors can apply to the Court until April 17, 2023 for appointment as the lead plaintiff in the case.
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This securities class action is brought on behalf of all persons or entities that purchased or otherwise acquired Kornit ordinary shares between February 17, 2021 and July 5, 2022, inclusive (the “Class Period”). The claims asserted herein are alleged against Kornit and certain of the Company’s current and former senior executives (collectively, “Defendants”), and arise under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (the “Exchange Act”) and Rule 10b-5, promulgated thereunder.
Kornit is a company that designs and manufactures industrial printing technologies for the textile, apparel and garment industries. The Company’s digital inkjet printers enable end-users to print both direct-to-garment (“DTG”) and direct-to-fabric (“DTF”). In DTG, images and designs are printed directly on finished textiles like clothing and apparel. In DTF printing, large rolls of fabric pass through wide inkjet printers that print images and designs directly onto swaths of fabric that are then cut and sewn into a product, and can be used in the fashion and home décor industries. Kornit produces and sells textile dyes, inks, and other consumables that are used in digital printers. Kornit provides equipment and customer services such as technical assistance, maintenance, and repairs through its customer support contract.
During this period, the Company began offering its customers software services. This included a set of end-toend production and fulfillment solutions called KornitX. The Company offers, among others, automated production and workflow systems as well as inventory management.
The Company’s largest customer is multinational e-commerce company, Amazon.com, Inc. (“Amazon”). Among the largest of Kornit’s other customers during the Class Period were Delta Apparel, Inc. (“Delta Apparel”), a leading provider of activewear and lifestyle apparel products, and Fanatics, Inc. (“Fanatics”), a global digital sports platform and leading provider of licensed sports merchandise. Kornit derives more than 60% its revenue from its top ten customers. Accordingly, it was critically important for Kornit to maintain those major customers as well as continue to grow its customer base in order to achieve the Company’s ambitious goal of “becoming a $1 billion revenue company in 2026.”
Throughout the Class Period, Kornit repeatedly touted the purported competitive advantages provided by its technology and assured investors that it faced virtually no meaningful competition in the “direct-to-garment” printing market. The Company claimed that its digital printing system, textile inks and consumables were highly demanded. It also offered services to customers for the maintenance and management of its digital printers and managing customer workflow. Kornit further assured investors that the purportedly strong demand for the Company’s products and services would enable it to maintain its existing customer base and attract new customers that would limit the risks associated with a substantial portion of its revenues being concentrated among a small number of large customers.
All of these statements and others made during the class period were false. In truth, Kornit and its senior executives knew, or at a minimum, recklessly disregarded, that the Company’s digital printing business was plagued by severe quality control problems and customer service deficiencies. Those problems and deficiencies caused Kornit to cede market share to competitors, which, in turn, led to a decrease in the Company’s revenue as customers went elsewhere for their digital printing needs. Due to these false representations, Kornit ordinary share prices were artificially inflated throughout the Class period.
Investors began to learn the truth on March 28, 2022, when Delta Apparel and Fanatics—two of Kornit’s major customers—announced that for months they had collaborated with one of Kornit’s principal competitors to develop a new digital printing technology that directly competed with products and services Kornit offered. Delta Apparel announced that the new technology had been installed in four of their existing digital print shops and plans to expand. The utilization of this new, competing technology by Delta Apparel and Fanatics reflected the widespread dissatisfaction of Kornit’s major customers with the Company’s product quality and customer service, and meant that Kornit would likely lose revenue from two of its most important customers.
Kornit announced a net loss for the first quarter 2022 on May 11, 2022. This was despite exceeding expectations in terms of revenue. The Company also issued revenue guidance for the second quarter of 2022 that was significantly below analysts’ expectations. Kornit attributed its disappointing guidance to a slowdown in orders from the Company’s customers in the e-commerce segment. The Company also admitted that it knew for at least two previous quarters that one of its biggest customers, Delta Apparel had purchased digital printing systems from Kornit’s competitor. These disclosures caused the price of Kornit’s ordinary shares to drop by $18.78 or 33.3%.
Kornit then announced on July 5th, 2022 after the close of the stock market, that the company would have a substantial revenue shortfall for the second half of 2022. Kornit’s revenue for the second half of 2022 was expected to fall between $56.4 million and $59.4 millions, a far cry from the $85 million to $95 million revenue guidance that the Company had provided in May of 2022, less than two months prior. Kornit attributed the substantial revenue miss to “a significantly slower pace of direct-to-garment (DTG) systems orders in the second quarter as compared to our prior expectations.” As a result of these disclosures, the price of Kornit ordinary shares declined by an additional $8.10 per share, or 25.7%.
As a result of Defendants’ wrongful acts and omissions, and the precipitous decline in the market value of the Company’s shares, Plaintiff and other Class members have suffered significant losses and damages.
Please contact Brandon Walker or Melissa Fortunato via email if you have questions or concerns about this announcement, your rights, or any of these matters. [email protected], telephone at (212) 355-4648, or by filling+out+this+contact+form. You are under no obligation or cost.
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