Kornit Digital Ltd. (KRNT) Misrepresented its Business Prospects to Investors
A shareholder filed a class action on behalf of all persons or entities that purchased or otherwise acquired Kornit Digital Ltd. (NASDAQ: KRNT) ordinary shares between February 17, 2021 and July 5, 2022, for violations of the Securities Exchange Act of 1934. Kornit designs and manufactures industrial digital printing technologies for the garment, apparel, and textile industries.
According to the complaint, during the class period, defendants 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 also represented that there was strong demand for its digital printing systems and consumable products, as well as the services Kornit provided customers to maintain and manage its digital printers, and to manage customer workflow.
In truth, Kornit and its senior executives knew or, at a minimum, recklessly disregarded, that the Company’s digital printing business was beset by significant quality control problems and deficient customer service. As a result, Kornit was more vulnerable to pressure from competitors than it had represented and lacked the competitive advantages it touted to investors. Those problems and deficiencies caused Kornit to lose market share to competitors, which led to a decline in the Company’s revenues, as Kornit’s dissatisfied customers sought out alternative options for their digital printing needs. In addition, to the extent that the Company purported to warn of risks regarding quality and customer service issues as well as increased competition, Kornit failed to disclose that such risks had already materialized.
On May 11, 2022, Kornit reported its financial results for the first quarter of 2022, reporting a net loss of $5.2 million, compared to a profit of $5.1 million for the first quarter of 2021. Kornit also told investors the second quarter of 2022 would see lower than expected revenue and profitability. This and other disclosures caused the price of Kornit ordinary shares to decline by $18.78 per share, or 33%, to close at $37.63 per share on May 11, 2022.
Then, on July 5, 2022, Kornit announced its preliminary financial results for the second quarter of 2022. The Company disclosed a significant revenue shortfall in the quarter. Specifically, Kornit expected revenue for the second quarter to be in the range of $56.4 million to $59.4 million, representing a reduction of more than 35% at the midpoint of Kornit’s previous revenue guidance of between $85 million and $95 million that the Company provided less than two months earlier. On this news, the price of Kornit ordinary shares declined by an additional $8.10 per share, or 25.7%, to close at $23.46 per share on July 6, 2022.
What Now: Similarly situated shareholders may be eligible to participate in the class action against Kornit. Shareholders who want to act as lead plaintiff for the class must file their papers by April 17, 2023. A lead plaintiff is a representative party acting on behalf of other class members in directing the litigation. You do not have to participate in the case to be eligible for a recovery.
All representation is on a contingency fee basis. Shareholders pay no fees or expenses.