Aug 7, 2018
Executives
Tom Cook - IR, ICR Ronen Samuel - CEO Guy Avidan - CFO
Analysts
Joseph Wolf - Barclays Jim Yun - Citi James Ricchiuti - Needham & Company Brian Drab - William Blair & Company Patrick Ho - Stifel Nicolaus & Company Greg Palm - Craig-Hallum Capital Group Chris Moore - CJS Securities
Operator
Good day everyone and welcome to Kornit Digital Second Quarter 2018 Earnings Conference Call. As a reminder, today's conference call is being recorded.
After prepared remarks, we will provide instructions to conduct the question-and-answer. At this time, I'd like to turn the conference over to Tom Cook.
Please go ahead, sir.
Tom Cook
Thank you, James. Good afternoon everyone and welcome to Kornit Digital's second quarter 2018 earnings conference call.
Before we begin, I would like to remind you that forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and other U.S. securities laws will be made on this call.
These forward-looking statements include, but are not limited to, statements relating to the Company's objectives, plans, strategies, statements of preliminary or projected results of operations or our financial condition, and all statements that address activities, events, or developments that the Company intends, expects, projects, believes, or anticipates will or may occur in the future. Forward-looking statements are subject to known and unknown risks and uncertainties and are based potentially on inaccurate assumptions that could cause results to differ materially from those expected or implied by the forward-looking statements.
The Company's actual results could differ materially from those anticipated for many reasons, and I encourage you to review the Company's filings with the Securities and Exchange Commission, including the Company's annual report on Form 20-F filed March 20, 2018, which identifies specific risk factors that may cause actual results or events to differ materially. Any forward-looking statements are made as of this call hereof and the Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise, except as required by law.
Additionally, the Company will be making reference to certain non-GAAP financial measures on this call. The reconciliation of these non-GAAP measures to the most directly comparable GAAP measures can be found in the Company's earnings press release published today, which is posted on the Company's Investor Relations site.
On the call today, we have Ronen Samuel, Kornit's Chief Executive Officer, and Guy Avidan, Kornit's Chief Financial Officer. At this time, I would now like to turn the call over to Ronen.
Ronen?
Ronen Samuel
Thank you, Tom. Good evening and thank you for joining our second quarter of 2018 earnings conference call.
I would like to begin today with a brief overview of our second quarter followed by key observation of my first two months at Kornit. I am pleased to report a very strong second quarter, which is above the high end of our guidance for both sales and operating income.
Our top line was up 25.5% year-over-year as a result of a strong demand for our products in the marketplace and the acceleration of the shift to digital in textile. Another highlight of the quarter was our gross margin, which expanded 260 basis points in the quarter.
The gross margin story for Kornit is ongoing and we expect that longer-term driver will continue to improve our margin profile over time. The recent improvement is related to a favorable mix of high-volume of industrial systems and increase in ink sales.
We also reported a notable uptick in operating leverage. The improved profitability is an outcome of higher revenue, gross margin expansion, and a lower OpEx as a percentage of sales.
For the balance of 2018, we expect OpEx to remain within the range that we have previously disclosed, of $15 million per quarter, plus or minus $0.5 million. As we look to the balance of the year, we are very well positioned to continue our growth trajectory with a strong second half.
This includes growth across geographies and customers, along with continued execution on the large customer project that was delayed at the end of 2017. Based on conversation we had with customers, we expect strong system demand to continue in the second half and produce a fairly even split of sales between the final two quarters as opposed to our typical seasonal uptick at year-end.
Next, I'd like to provide an update on a few initial impressions since joining Kornit. Over the last few weeks, I had an opportunity to meet with many of our stakeholders to gain better understanding of the opportunities and challenges in front of us.
As part of the handover from Gabi, we travelled together around the world to meet with our key customers, channel partners, and our employees, while also conducting business reviews with our global management team. I was amazed by the extent of opportunities in front of us and believe we are at a very positive inflection point in the evolution of our Company.
Having spent most of my professional career in the digital printing space and having observed similar lifecycle of digital printing technology, I believe we have an opportunity to rapidly accelerate our progress over the next few years. While it is a little early to offer strategic details about how to maximize our goals, there are several fundamentals that support this view.
These include the market environment, our existing and future technology, our global team and infrastructure, and our ability to service and support our customer and help them grow the business. I will touch on each of these [aspects] [ph] individually, beginning with the market environment.
Currently, we are enjoying very strong momentum as changes in consumer behavior are creating new customer priorities in favor of digital printing. I had opportunity to meet with many of our key accounts and it was clear from this conversation that the supply-chain is recognizing a need for shorter cycle time to market and ability to produce short-run, at close proximity, with quick turnaround times, to end customer, and new and innovative ways to grow the online business.
All of these trends play right into the core of Kornit's value proposition. It was also notable that these trends were broad-based, with smaller accounts delivering similar feedback and requirement as our larger core strategic accounts.
This suggests to me that we have a vast customer base to pull from and we are well-positioned to capture the broader adoption of digital technology. The evolution of our technology is also enabling growth in customer interest.
Our latest generation system featuring HD and higher throughput has now reached a critical point with large multiple national customers, online retailers, brand owners, and contract printers. One of the most important factors towards broader adoption rate is our ability to capture longer job run length with favorable economics to those offered by screen printing.
With our latest generation system now producing 200 units run at a cost which is lower than screen printing even with only two colors, and 450 to 500 units run for six to eight color job, we are effectively expanding our addressable market quite rapidly. To oversimplify this converging trend, our cost-effective and highly productive solutions are increasing our addressable market just as the market is reducing its quantity per run into the range of our system capability.
As an example, Delta Apparel, one of the leading apparel companies in the U.S., and through its wholly-owned subsidiary, DTG2Go, one of the pioneer of digital DTG printing, continues to expand around the U.S., securing 2-day delivery to its customers throughout most of the U.S. Proximity manufacturing in multiple locations is at the heart of their strategy and we have been partnering in this journey with Delta for many years.
I am pleased to report that this partnership continues to grow and additional Kornit systems will be added to support the growth strategy in both existing and new facilities across the U.S. Turning to service and support, I was happy with the feedback I received and the progress we made for our comprehensive service platform which is supported by robust global infrastructure.
As I've seen constantly during my career, this can be a strong differentiator to attract large-scale global customer and create a substantial competitive edge. Our ability to provide maintenance, troubleshoot, and quick-fix, and address customer issues, is critical to grow with large strategic accounts.
As we continue to introduce highly sophisticated industrial solutions, 24/7 production, an increased uptime become essential to meet the customer expectation. As such, the continued growth of service capability will be an important key to our success.
And finally, I had the pleasure to meet with our senior team and hundreds of our employees and was very encouraged by the immense talent and passion they bring. There is a collective energy and excitement across our operating and sale locations with a shared mission to expand the use of digital technology in textiles.
This passion is rooted by corporate culture to enable our customer success and also by our underlying corporate mission of sustainability in textile printing that our system helps to facilitate. Furthermore, this summer has been especially active with large customer visit to our headquarters and feedbacks across the board as being that our development team and technology and infrastructure are at the leading edge, providing customer with comfort they need to order in order to invest in our solution.
Before turning the call over to Guy, I would like to share a brief summary of our tradeshows activities during the last quarter, which in total included more than 10 shows. FESPA in Berlin was our major event of the quarter where we showcased our HD technology that generated tremendous buzz around the market.
In addition, together with a partner we showcased our Lego at Texprocess where we demonstrated our modern micro factory can address the need for a mass customization in an efficient, cost-effective, and socially mindful way. In the second half of 2018, we will be attending SGIA in Las Vegas, which has traditionally been one of our largest events of the year.
In addition, in October we will be hosting a grand opening at our New Jersey showroom with analysts and investors, which will give us an opportunity to share details of our strategic plan and introduce investors and analysts to the senior leadership of Kornit. We will be sending out details and 'Save the date' for this event in the next couple of weeks and we look forward to seeing you there.
Now, I would like to turn the call over to Guy for a closer look at the numbers and our guidance.
Guy Avidan
Thanks, Ronen, and good evening everyone. Before beginning the financial overview, I would like to remind you that the following discussion will include GAAP financial measures as well as non-GAAP pro forma results.
Our second quarter non-GAAP pro forma results reflect adjustments for the following items; stock-based compensation expenses which totaled 1.2 million; amortization expenses related to the acquisition of intangible assets in previous years in the amount of 266,000; taxes on income related to non-GAAP adjustment in the amount of minus 93,000; and 118,000 for restructuring expenses in the U.S. A full reconciliation of our results on a GAAP and non-GAAP basis is available in the earnings press release issued earlier today and on the Investors section of our Web-site.
Second quarter non-GAAP revenue, net of the 1.5 million warrants impact, increased by 25.5% to $35.9 million versus $28.6 million in the prior year and increased 15.3% versus the prior quarter. Revenues grew to record level this quarter, thanks to successful launch of the Avalanche HD in the U.S.
and Europe as well as fruitful continuation of systems deployment with one of our major global customers. Services revenues for the second quarter were $3.8 million, accounting for 10.5% of total revenue, an increase of 34.5% from the prior year and a decrease of 13.3% from the prior quarter.
The amount attributed to the non-cash impact of warrants in the second quarter was $1.5 million or 4% of revenues versus $42,000 in the previous quarter and $1.4 million or 4.7% of revenues in the second quarter of 2017. You can see the warrant impact this quarter versus the prior quarter and the previous year on revenues and margins in Slide 14.
By geography, 50% of our sales were from the Americas; 39% from Europe, the Middle East and Africa; and 11% from the Asia Pacific region. Moving to customer concentration, our main U.S.
distributor contributed 9.9% to our overall revenue compared to 14.1% in the prior year period, and a major customer contributed 23.9% of our overall revenues of global business this quarter compared to 23.1% in the previous year. Our top 10 customers accounted for 55.2% of our overall revenue compared to 63.6% in the prior year.
Moving to profitability, non-GAAP gross margin in the quarter increased to 49.2% from 46.6% in the prior year period and 6% in the previous quarter. Higher margin this quarter versus the year ago quarter were the result of a more favorable revenue mix as well as improved margin from services.
On a GAAP basis, gross margins were 48.6% versus 46% in the prior year period and 49.5% in the previous quarter. Warrants impact on non-GAAP gross margin were 203 basis points this quarter versus 251 basis points in the prior year period and 7 basis points in the previous quarter.
Moving to our OpEx items, I will discuss these items on a non-GAAP basis, which exclude non-operating charges previously mentioned and highlighted in our GAAP to non-GAAP reconciliation included in today’s press release. Adjusted research and development was 14.2% of sales or $5.1 million compared to 15.3% of sales or $4.4 million in the prior year.
The increase in R&D expenses primarily reflect an increase in material for development. Sales and marketing expenses in the quarter were $5.9 million or 16.3% of sales compared to $4.8 million or 16.8% in the prior year.
Higher sales and marketing expenses versus the prior year were the results of the expanded sales and marketing group in the United States. General and administrative expenses in the [first] [ph] quarter were $3.5 million or 9.8% of sales compared to $2.8 million or 9.9% in 2017.
Higher G&A in the quarter resulted predominantly from headcount additions and expenses related to the CEO transition. Headcount as of June 30 was 412 employees, two employees more than the previous quarter.
During the last few quarters, we have moderated our personnel growth, and as we have mentioned on previous calls, we expect the pace of OpEx growth to be less than the pace of revenue growth in 2018. We expect this to provide some operating leverage compared to the prior year.
However, we are planning to continue building our customer-facing infrastructure in order to take advantage of the expanded market opportunity we see evolving. Non-GAAP operating income for the second quarter was $3.2 million, an increase of $1.9 million versus the year ago quarter.
Warrants impact on non-GAAP operating margin were 364 basis points this quarter versus 449 basis points in the prior year and 13 basis points in the previous quarter. Non-GAAP net income for the second quarter was $3.2 million or $0.09 per diluted share, an increase of $1.7 million versus the year ago quarter.
GAAP net income was $1.8 million or $0.05 per share on a diluted basis compared with net $215,000 or $0.01 per share for the year ago quarter. Warrants impact on non-GAAP net margin were 363 basis points this quarter versus 447 basis points in the prior year and 13 basis points in the previous quarter.
Our financial income this quarter was $295,000, predominantly as a result of accrued interest of our cash investments. Cash balances including long-term marketable securities at quarter end were $102.7 million compared to $89.3 million as of June 30, 2017.
Net cash provided from operating activities was $4.9 million this quarter, compared to $1.8 million net cash provided in the prior quarter and cash used in operating activities of $5.7 million in the year ago quarter. Cash provided from operations was mainly a result of profit net of depreciation and amortization, decrease in inventory offset by increase in trade receivable.
As mentioned in previous call, we are planning to build a new ink plan and complete our new demo center and offices in New Jersey. For these purposes, we expect to use $4 million in investment activities till year-end.
Turning to our guidance for the third quarter of 2018, we expect revenues to be in the range of $36 million to $39 million and non-GAAP operating income to be in the range of 10% of revenues to 14% of revenues. These numbers assume no impact of the fair value of issued warrants in the third quarter of 2018.
As a reminder, the calculation of warrants' fair value is based on the combined effect of estimation of future revenues from Amazon, future [indiscernible] price in unknown dates, future stock volatility, as well as other variables that currently are not predictable and some of which has no correlation to our business. Since as of today, we are not able to predict these variables.
We assume the warrants impact at zero value for guidance purposes only. I'll now transfer the call to Ronen.
Ronen Samuel
Thank you, Guy. And with that, operator, we'd be happy to take any questions.
Operator
[Operator Instructions] Our first question today will come from Joseph Wolf with Barclays.
Joseph Wolf
Welcome, Ronen. I guess I had a question on the geographic mix where it looks like Europe is ticking up specifically as a percentage of sales and as revenues.
Can you talk about customer numbers and is your largest customer, is Amazon taking product in Europe right now?
Ronen Samuel
As you know, we cannot disclose customer names and talk about specifically of any customer. But yes, we see overall growth across the regions.
Europe specifically had a very, very strong Q2, and we focused also Q3 to be strong for Europe.
Joseph Wolf
Okay. And then I guess you mentioned this briefly, but last quarter towards the end of the quarter there were new product launches and you gave a specific number on the impact of those products into the revenue stream.
Even if you are not willing or think you don't want to do that on a quarterly basis, can we just get a sense on the pull-through and how much of the growth is coming from either the actual sales of the new products or the expectation or the capabilities of the new product right now – product set, not specifically product?
Ronen Samuel
So, I cannot get to the numbers for how many units we sold from each model. The only thing that I can refer into is that we see a really strong demand for the HD.
We are getting fantastic feedback from our customers and the product mix is turning more and more into the Avalanche HD.
Joseph Wolf
Okay. And then just finally, I think Guy, you mentioned operating leverage, but if we take the commentary about the fourth quarter being sort of in line with the third quarter, is there still room for operating leverage on similar revenues?
Guy Avidan
Yes, and you can take this quarter and compare it to the second quarter in 2017, you can see some leverage. We mentioned it's going to be some leverage, and at the same time we still plan to increase our investment, especially when it comes to go-to-market, customer facing, et cetera.
But you will see leverage.
Joseph Wolf
Okay, perfect. Thank you.
Operator
Next we'll hear from Jim Suva with Citi.
Jim Yun
This is Jim Yun calling on behalf of Jim Suva. Just a quick follow-up on the customer, the largest customer, I know that you probably won't talk details, but can you maybe just share with us about your progress in terms of their, the second manufacturing side, is it in contract or is it ahead of schedule or is it a little bit behind schedule, as you expected it compared to last quarter?
Ronen Samuel
Again, I cannot relate unfortunately for any specific customer and their internal plan. The only thing I can say is that the relationship with all the strategic customers is extremely good and we see a growth across our strategic customer worldwide.
Jim Yun
Got you. And then, a follow-up question on service revenue, I think it grew 35% year-over-year last quarter but declined sequentially.
So, I think you mentioned there was a system upgrade revenue during Q1. How should we think about service revenue for the full year and its profitability?
Guy Avidan
So, we mentioned before that we had a few buckets for the service revenue. One of them is upgrade, and the upgrade is lumpy.
The year-over-year, we're still seeing very good growth top line and margin for services. We still expect 2018 that revenues from services will grow and we will see more revenues from upgrades this year.
Jim Yun
Do you see that service revenue to be breakeven for the full year 2018?
Guy Avidan
So, we said that before that because of the lumpiness we will have some quarters that are profitable and some not, and we expect to be profitable for the whole year only next year.
Jim Yun
Got you. Thank you.
Operator
Next we'll hear from Jim Ricchiuti with Needham & Company.
James Ricchiuti
Just want to go back to the European business, I know you can't talk about specific customers, but can you give us a sense as to the makeup of that revenues? Were they concentrated among a few customers or were they fairly diversified among the customer base?
Ronen Samuel
So we see growth across our strategic account and small and medium-sized accounts. That is very similar growth.
And what's unique I would say which this quarter is that we see the mix of product changing from the Storm into the Avalanche HD which of course bring in also higher revenues and gross margin.
James Ricchiuti
That's helpful, Ronen. Can you comment on some of your other product line?
Can you talk a little bit about where you are with roll-to-roll machine, the Allegro?
Ronen Samuel
Yes. For us, Allegro and the roll-to-roll market is very, very important.
We see it very strategic. We are continuing to invest in this market with the current Allegro and future products that we are working on.
At this stage we are putting more effort in the go-to-market and expanding our sales coverage across the different regions and expect to see the revenue coming from the Allegro family increasing in the coming quarters.
James Ricchiuti
How would you characterize it in this quarter? And again, I'm not looking for specifics but just relative to other quarters, how are the Allegro revenues?
Ronen Samuel
On track.
James Ricchiuti
Last question for me is, I'm wondering if you can give any kind of an early read on the ink revenues for the new HD products. I guess I'm asking, are you seeing a higher utilization for the machines to offset the overall improvement in ink consumption that you are providing customers?
Ronen Samuel
What we are hearing from our customers, they see the benefit of the HD both in terms of the quality and of course the cost. What we've seen that the customers are by buying, by purchasing the HD, enable to get into longer runs and taking job out of screen.
By that, they are increasing the throughput or the capacity and the utilization of the machine and adding additional presses also in the short-term and longer-term.
James Ricchiuti
Okay, thank you.
Operator
We'll move on to Brian Drab with William Blair.
Brian Drab
So, I think arguably the most important focus on here in your results is the revenue number, and it's convoluted unfortunately by this Amazon warrant situation. On Slide 10 in your deck, you say quarterly non-GAAP revenues of $35.9 million were up from $28.6 million last year.
I don't think that that's right. Maybe I'm just the one that's wrong here, but last year non-GAAP revenue was $30 million with $1.4 million of warrants, right?
And I'm trying to discern whether $35.9 million is the GAAP number with $37.4 million in the third quarter of this year actually being the correct non-GAAP number?
Guy Avidan
We amended the numbers. We actually got the comments from the SEC later, meaning after the second quarter 2017.
So we amended it after that. So if we're going back to the second quarter of 2017, so you can take the $28.5 million, that's net of the $1.4 million impact, if you connect the two numbers together, you get $30 million.
That's the number that you note. So it's sort of adjusting the number of the second quarter to the SEC requirement that came later.
Brian, I'll say this in a different way. If you want to look at the businesses and if you want to compare the business Q2 over Q2 without the impact, then you should use the $30 million for the second quarter of 2017 and take the GAAP number that we mentioned this quarter and add $1.5 million.
Brian Drab
Meaning, add $1.5 million to $35.9 million?
Guy Avidan
Exactly.
Brian Drab
Okay. That's what I thought.
I just wanted to be really clear because I don't think it's perfectly clear on Slide 10, or at least maybe it's clear and it's confusing to me. But I think that revenue [indiscernible]
Guy Avidan
You are certainly right. Brian, I mean if we confused you, we probably confused everybody.
So there is another slide, you can go drill down to Slide 14. Because of all the [reasons] [ph] we mentioned, we added one more slide, that's Slide 14, that will help you see the picture.
Brian Drab
Yes, and I had not caught that, so I think that's perfect. Okay, all right, great.
I think it's still helpful to get it cleared. And can I just ask two?
Then the third quarter, so the third quarter and fourth quarter revenue would be about similar, should we still expect in the fourth quarter consumables to account for a larger proportion of sales given the holiday season and that mix to be kind of similar to the past?
Ronen Samuel
Yes. So, Q4 usually is the peak for our supply business.
And what we have seen in marketplace is that Q2 and Q3, our big accounts are strategically investing in systems and less investing it in Q4.
Brian Drab
Okay. And then one last question kind of to tie this all together, if the revenue adjusting for the warrants was about $37.5 million this quarter, the guidance midpoint is for $37.5 million in the third quarter.
The fourth quarter is to be about similar to the third quarter, kind of 37.5 for the balance of the year. I don't know if you'd like second quarter, third quarter, fourth quarter, without any sequential growth, but could you comment as to why that would be?
Guy Avidan
Your message is pretty much in line. I mean if you are looking at the mid of the guidance, you are right.
Brian Drab
Okay. So, it's [indiscernible] now with guidance but is there any specific lumpiness or order timing that would result in that or is it just potentially conservative guidance?
Guy Avidan
That's the guidance.
Brian Drab
Okay, thank you.
Operator
Next we'll hear from Patrick Ho with Stifel.
Patrick Ho
Good luck, Ronen, on the new position. Maybe as my first question into the HD customer mix, you talked about the strong interest and order flow and obviously the revenues you generated this past quarter.
Can you give a little color whether they are coming more from new customers for HD or existing customers who are upgrading to the HD products?
Ronen Samuel
So, it's a mix, and I would say even mix. We can see strategic accounts that are moving to the HD and upgrading the system to the HD, and we can see totally newcomers, small, medium and key accounts entering directly into the HD technology.
Patrick Ho
Great, that's helpful. Maybe as a follow-up question on the product front, I think you introduced the Storm HD I think late last quarter or early this quarter.
Given that you talked about on the call that some small and medium-sized business went straight to the Avalanche HD, is the Storm HD still targeting the small and medium-sized businesses that you originally talked about last quarter?
Ronen Samuel
Yes, we still have a vast amount of potential customer from the low end of the market and midsize of the market, but they cannot afford investing in the Avalanche and they will go for the Storm HD, and this is exactly the target of this machine.
Patrick Ho
Great. And a final question for me, maybe for Guy, in terms of OpEx, you said you are going to maintain OpEx around that $15 million level for the rest of the year.
How do you balance I guess some of the comments you made about I guess building out your services and infrastructure, ramping some of that up, and maintaining those strict OpEx levels?
Guy Avidan
So we mentioned, and Ronen said it before, that the target is still $15 million, plus or minus $0.5 million. Currently we are under $15 million.
So, we still have the margin not to cross the $15.5 million.
Patrick Ho
Great. Thank you very much.
Operator
Next we'll hear from Greg Palm with Craig-Hallum Capital Group.
Greg Palm
Ronen, welcome aboard officially I guess. Just about a week ago, your large customer publicly announced the launch of its on-demand print service over in Europe.
So, I guess just wanted to confirm or – I mean, should we assume that you have at least participated in the buildout over there, and given the launch today, should we assume the buildout is done for the time being or is there more to come here in Q3?
Ronen Samuel
As I mentioned before, I cannot relate to specific customer news at this stage. Whatever is public is public but I cannot relate to our relationship on that.
Greg Palm
Okay. Can you give us some sort of sense in terms of quarterly revenue run rate for your large customer or maybe your large customers in general?
Should we assume that Q2 should be kind of the high mark for the year or should we expect something kind of similar in Q3 and Q4? I think you said something like you expect system sales to be spread out over Q3 and Q4 equally, but any more color you can give on how that compares to the rate here in Q2?
Ronen Samuel
I can say that our strategic accounts overall, which can see a peak in Q2 and Q3, they are preparing themselves for the peak season, and Q4 will be more focused on the mid-sized customers rather than strategic accounts, and of course the ink.
Greg Palm
Perfect. That's helpful.
As it relates to some of the new products, I know you have alluded to in the past, can you give us any more details on sort of timeline, kind of launch dates? I guess I'm really curious whether some of the new products are more focused on or intended on lowering the cost of print, something like the upgrade and the HD or maybe expanding the addressable market opportunity and the specific type of print applications that are out there?
Ronen Samuel
I cannot give any specific dates right now for new product introduction. I can say that we are working on new products introduction both on the DTG market and the roll-to-roll market, and we are working on expanding the market coverage by entering new applications and new capabilities.
Greg Palm
Okay, sounds great. I'll leave it there.
Thanks.
Operator
We'll now hear from Chris Moore with CJS Securities.
Chris Moore
Maybe just talk a little bit potentially on the M&A side, is that an area that's kind of filling the pipeline? You are spending much time there and kind of what types of opportunities might you be looking at down the line?
Ronen Samuel
First of all, I always talk about the organic growth because I see a huge potential of organic growth within Kornit, if it's across different territories, is it with our current product, the HD, the roll-to-roll, the Vulcan, is it with new application that we are planning to go to the market. So, organic growth is still our main focus.
I am a new CEO coming to the Company. I cannot now relate to inorganic direction.
Personally, I strongly believe in inorganic growth as well. We are looking and exploring different direction of inorganic, but I cannot relate to it specifically and I need a bit more time for that.
Chris Moore
Got it. So, on the organic side, can you maybe just talk a little bit further about the kind of the timing of the new facility in New Jersey, the new ink plant?
And I think you said it was $4 million in CapEx. Just talk about that a little bit further.
Ronen Samuel
So, we are entering the new demo facility and offices in New Jersey mid of September and we are going to open – actually end of August we are entering there and we are going to help the grand opening early October, and we are going to have the analyst investor event in this site. It's going to be exciting.
It's a big facility. We are going to demonstrate all our solutions and it would be a great place to bring customers and investors.
As for the ink plant, we are still in the planning mode and the project is currently planned for three years, and we are planning to start the project on the ground in December 2018.
Guy Avidan
Just to add, Chris, cash flow-wise, we expect to pay for the rest of the leasehold improvement in New Jersey in the third quarter, and it's about a quarter of the number we mentioned in the script. And investment in the ink plant, more towards the end of the fourth quarter.
Chris Moore
Got it. Appreciate it, guys.
Operator
That will conclude today's question-and-answer session. I'll now turn the conference over to Mr.
Ronen Samuel for any additional or closing remarks.
Ronen Samuel
Okay. I just would like to thank everyone on the call.
Thank you for your questions. I must say that I am very excited to take Kornit to the next level.
I see huge opportunity and thank you for your warm support. Hope to see you soon in New Jersey in our Investor Day.
Thank you.
Operator
That does conclude today's conference call. Thank you for your participation.
You may now disconnect.