Nov 12, 2018
Executives
Tom Cook - ICR, IR Ronen Samuel - Chief Executive Officer Guy Avidan - Chief Financial Officer
Analysts
Jim Suva - Citi Jim Ricchiuti - Needham & Company Brian Drab - William Blair Patrick Ho - Stifel Greg Palm - Craig-Hallum Capital Group Chris Moore - CJS Securities
Operator
Please standby. Good day, everyone.
And welcome to Kornit Digital Ltd. Third 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 third 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 third quarter 2018 earnings conference call. I would like to begin today with providing a brief overview of our third quarter results, followed by an update on our go-to market activities, business development and incremental progress towards our strategic goals.
I would then pass the call to Guy to cover our financials. I am pleased to report a strong results in the third quarter, highlighted by 32.1% increase in sales to $37.6 million net of $1.7 millions of warrants related to Amazon.
High growth in the field reflects higher demand across our product categories of industrial system, ink and services. We continue to enjoy strong demand for our HD line of products, which feature higher print quality at the lower cost per print and to-date we have secured order for more than 200 systems and upgrades for this important product.
Our gross margin was another highlight of the quarter, which came at 51.1%. This was an excellent result after consideration of the 206 basis points drag on margin from warrants in the current period.
After consideration of the effect of the warrant, I’m pleased to report that our underlying gross margin is a quarterly record for Kornit. Turning to our operating possibility, our non-GAAP operating profit more than tripled to $4.9 million from $1.6 million in the previous year.
Higher profitability came from combination of revenue growth, strong gross margin performance and leverage on operating expenses from higher sales. OpEx of $14.3 million in the quarter was within the range, we have previously disclosed of $50 million plus or minus $1 million per quarter and we continue to expect this range in the fourth quarter.
It was also been a very active period for trade shows, which in total included more than 12 shows across the DTG and roll-to-roll market in all of our key geographies of North America, Europe, and Asia. Additionally, just after the close of the quarter, we participated in one of our key events of the year, SGIA in Las Vegas.
Our HD technology generates a lot of buzz around the event, leading to a substantial pipeline of new leads and LOIs for at least 25 new machines. In early October we hosted Kornit Investor Day along with the grand opening of our North America headquarter in New Jersey.
During the event, we unveiled the goal of our strategic plan, which include becoming a $500 million run rate company at the end of five years with expanding gross margin, while maintaining sustained profitable growth. As we noted during the event, we have identified four catalysts that will drive our business expansion effort that includes removing market barriers for new customers, maximizing system utilization for existing customers, expanding our services and support business, and developing key adjacent market.
The strengths of our year-to-date performance in 2018 and business momentum headed into year-end position us well to make continued progress towards this goal. The market environment is supportive of our growth plan and we continue to observe the shift in the retail supply chain from long run screen prints to shorter run, quick turnaround times and tighter inventory control, which is exactly where Kornit is able to provide value.
We believe Kornit is the right company to provide technology solutions to facilitate the demand driven changes in the retail supply chain. As part of this strategy, we are working towards headcount in customer facing function to seize the market opportunity across geographies with refined go-to market by region.
In North America, we are seeing accelerating demand for our product, which we attribute to the strategic changes we have made to improve our sales efforts, align incentive compensation with our business goals and develop a stronger regional presence with the recent open North American headquarter and showroom in New Jersey. In EMEA, we are currently experiencing a solid demand driven by higher adoption rates of high-end industrial systems.
This is an important regional development as we mass business has traditionally been in our lower throughput system and is now transitioned to higher throughput system as we have seen in North America. In Asia-Pacific, we view this region as an important future growth area for us and we are sharpening our focus to increase resources and enhance go-to market strategy.
We have also been very busy with new product development and during the quarter we began beta testing one the new mass production system with customers. And the feedback has been very positive.
We expect beta testing to conclude by the end of the calendar year with generally availability in early 2019. This new platform combined with a solution for dark poly that was introduced at our Investor Day with expected availability in the mid of 2019 are both important development in the year ahead.
To conclude, three quarters of the way through 2018, things are shaping up for record year for Kornit. Our revenue growth is accelerating and the market is responding to the value proposition of Kornit solutions.
In the fourth quarter, and as Guy, will detail in our guidance, we expect a strong finish to the year that looks similar to our third quarter performance, but with a notable shift in mix to ink and consumable as our customer execute to their holiday plans. Now I would -- will -- I would like to turn the call over to Guy for a closer look at the number 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 third quarter non-GAAP pro forma results reflect adjustments for the following items, stock-based compensation expenses which totaled $1.5 million, amortization expenses relating to 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 $105,000 and $55,000 for restructuring cost. 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 website.
Third quarter non-GAAP revenue, net of the $1.7 million warrants impact increased by 32.1% to $37.6 million versus $28.4 million in the prior year and increased 4.8% versus the prior quarter. Revenues grew to record level this quarter.
Thanks to successful launch of the HD product in the U.S. and in Europe, as well as fruitful continuation of systems deployment with one of our major global customers.
Services revenues for the third quarter were $4.2 million, accounting for 11.3% of total revenues, an increase of 35.7% from the prior year and increase of 11.9% from the prior quarter. The amount attributed to the non-cash impact of warrants in the third quarter was $1.7 million or 4.2% of revenues versus $1.5 million in the previous quarter and $0.1 million or 0.5% of revenues in the third quarter of 2017.
The increase in warrant impact this quarter versus the previous year was attributed to higher revenues to Amazon, as well as higher share price this quarter. You can see the warrants impact this quarter versus the prior quarter and the previous year on revenues and margins in slide number 14.
By geography, 59% of our sales were from the Americas, 32% from Europe, the Middle East and Africa, and 9% from the Asia Pacific region. Moving to customer concentration, our main U.S.
distributor contributed 17.7% of our overall revenues, compared to 29.4% in the prior year period and a major customer contributed 19.8% of our overall revenues of global business this quarter, compared to 8.8% in the previous year. Our top 10 customers accounted for 60.2% of our overall revenue, compared to 67.1% in the previous year.
Moving to profitability, non-GAAP gross margin in the quarter decreased to 51.1% from 52% in the prior year period and increased from 49.2% in the previous quarter. Lower margin this quarter versus the year ago quarter were the result of 181 basis point net increase in the impact of the non-cash warrants.
On a GAAP basis, gross margins were 50.3% versus 51.3% in the prior year period and 48.6% in the previous quarter. Warrants impact on non-GAAP gross margin were 206 basis point this quarter versus 25 basis points in the prior year period and 203 basis point in the previous quarter.
Moving to our OpEx items, I will discuss these items on a non-GAAP basis, which excludes 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 12.8% of sales or $4.8 million, compared to 19.6% of sales or $5.6 million in the prior year.
The decrease in R&D expenses primarily reflects a temporary decrease in headcount and materials for development. Sales and marketing expenses in the quarter were $5.9 million or 15.7% 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 U.S. General and administrative expenses in the third quarter were $3.6 million or 9.6% of sales, compared to $2.9 million or 10.1% in 2017.
Higher G&A in the quarter resulted predominantly from headcount additions and expenses related to the CEO transition. Headcount as of September 30th was 432 employees, 20 employees more than the previous quarter.
The increase in headcount is mainly attributed to customer support, and sales and marketing in Europe and in North America. As we have mentioned on previous calls and on the Investor Day early October, we are accelerating our investment in go-to-market and in customer-facing analysis.
Forward looking we are planning to continue building our go-to-market infrastructure in order to take advantage of the expanded market opportunity we see evolving. In the fourth quarter, we expect similar growth in headcount.
Non-GAAP operating income for the third quarter was $4.9 million, an increase of $3.3 million versus the year ago quarter. Warrants impact on non-GAAP operating margin were 367 basis points this quarter versus 49 basis points in the prior year and 364 basis points in the previous quarter.
Non-GAAP net income for the third quarter was $4.8 million or $0.13 per diluted share, an increase of $3.3 million versus the year ago quarter. GAAP net income was $3.1 million or $0.09 per share on a diluted basis, compared with net loss of $124,000 or $0.00 per share for a year ago quarter.
Warrants impact on non-GAAP net margin were 368 basis points this quarter versus 50 basis points in the prior year and 363 basis points in the previous quarter. Our financial income this quarter was $264,000, predominantly as a result of accrued interest of our cash investment.
Cash balances including deposit and long-term marketable securities at quarter end were $110.9 million, compared to $86.5 million as of September 30, 2017. Net cash provided from operating activities was $11 million this quarter, compared to $4.9 million net cash provided in the prior quarter and cash used in operating activities of $2.8 million in a year ago quarter.
Cash provided from operations was mainly a result of profit net of depreciation and amortization, and decrease in trade receivable. As mentioned in previous call, we are planning to build a new ink plant, for this purpose we expect to use 3 million in investment activities till year-end.
Turning to our guidance for the fourth quarter of 2018, we expect revenues to be in the range of $37 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 fourth quarter of 2018.
As a reminder, the calculation of warrants’ fair value is based on the combination of -- the combined effect of, estimation of future revenues from Amazon, future Kornit share price in unknown dates, future stock volatility, as well as other variable that currently are not predictable and some of which have 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
Thank you. [Operator Instructions] We will take our first question today from Jim Suva with Citi.
Jim Suva
Thank you very much. On your guidance for the December quarter, can you talk a little bit about when you exclude the warrants it kind of implies that actually your guidance is going to be slightly down in the December quarter and so how should we think about that versus the quarter that you just printed?
Ronen Samuel
Just to remind you Jim, last quarter we said that we expect the second half, we expect the two quarters, the third and the first to be more or less the same. So we guided for third quarter 36 to 39, we’re little bit higher if you look at the mid range of the guidance right now and that’s the way we would like you guys to look at the guidance.
Jim Suva
Okay. And then my follow-up I think you mentioned you’re building a new ink factory, how should we think about how to model CapEx going forward and the timing of that ink factory?
And when it comes on does it burden margins a little bit or does it help margins or take a couple quarters to get dialed in for the configurations of the ink?
Guy Avidan
So we mentioned that we already started to invest and we expect to see $3 million in terms of investment till the end of 2018. We mentioned before that we expect the total investment to vary between $17 million to $18 million.
We’re going to open this facility second half of 2020. So the majority of the investment will actually happen in 2019 and in the next call we’ll discuss that in more details.
On the long run, this site should take us 20 years ahead, and obviously, we’re reduced our cost of goods sold for the ink. But obviously 2020 it might be lumpy in a quarter too, so we might see a few 10s of basis point related to ink in terms of growth.
We’re actually shifting from least expensive to depreciation expense in that term.
Jim Suva
Thank you so much for the clarification. That’s great.
I appreciated it.
Ronen Samuel
You’re welcome.
Operator
Next we’ll hear from Peter Odepski [ph] with Barclays.
Unidentified Analyst
Hi. Thanks for taking my question.
On the -- at the Investor Day last month, you had mentioned that you were working on a few projects with major brands targeting the branded and private label markets. Are you able talking anymore about traction there and any update on that?
Ronen Samuel
Yeah. So there’s a good progress in one of the biggest brand.
We just installed our mass production system there for valuation and evaluation will take few months, and hopefully, it will be successful. It looks great at this stage and we hope to scale the business during 2019.
Unidentified Analyst
And so the new mass production technology, that’s directly related to that new opportunity or at least the part of it?
Ronen Samuel
Correct. It’s relate to that as well.
Unidentified Analyst
Thank you.
Operator
We’ll now hear from Jim Ricchiuti with Needham & Company.
Jim Ricchiuti
Hi. Thank you.
You gave some color on the revenue mix for Q4. I was just wondering if you have any visibility looking out into the early part of 2019 on the systems demand side from some of your largest customers?
Guy Avidan
Jim, usually we discuss only the coming quarter. We feel very good about the fourth quarter, we have very solid pipeline and very good demand as Ronen mentioned in the call.
We have orders for more than 200 HD systems and upgrades, and it gives a lot of confidence forward -looking even for next year. But as mentioned we’re not discussing 2019 right now.
Jim Ricchiuti
Okay. And on your R&D line, it looks like it was -- I apologize I don’t have the data right in front of me, down quarter-on-quarter or year-on-year, is that right?
Guy Avidan
Right. Correct.
And we said, I mean…
Jim Ricchiuti
We have fire graph…
Guy Avidan
Yeah. It is partly due to and we always have some kind of seasonality in R&D when we’re starting beta test.
So we’re actually shifting R&D systems to inventory beta, so we have less raw material -- we have less material in R&D. Specifically in this quarter we had some reduction in force that we expect to bounce back into fourth quarter.
So these two reasons actually caused R&D in Q3 to be lower than R&D cost in the second quarter.
Jim Ricchiuti
And I expected to pick up again in Q4, okay.
Guy Avidan
Yes. Yeah.
Yeah.
Jim Ricchiuti
And then tradeshow activity is fairly modest in December quarter, is that right?
Ronen Samuel
We have our biggest show, next year we have two big show. One in January and the other one in May next year, in January, we are planning to unveil a new mass production system and it’s a very important show for us.
Jim Ricchiuti
And last question from me and I’ll jump back in the queue. Just given the new product pipeline, can you anticipate any push back from customers who may decide to hold off on purchasing equipment until they see some of the newer products?
Ronen Samuel
No. For the strategic customer, the big customer, we have very, very close relationship and they aware of what is coming.
This system is targeted for specific customers the big ones and mid-sized customer, the Avalanche platform is the right fit for them.
Jim Ricchiuti
Got it. Thanks very much.
Ronen Samuel
Thanks, James.
Operator
Brian Drab with William Blair has our next question.
Brian Drab
Hi. Thanks for taking my questions and congratulations.
I just want to clarify given, I think, it’s worth a little more clarity. Again, I ask the same question on the second quarter call.
I think that the data aggregators are picking up. I think EPS estimate -- EPS results and revenue results that aren’t really directly comparable to what the consensus estimates were.
So, Guy, would you consider the revenue figure that’s most comparable to your $36 million to $39 million guidance in most comparable to the consensus estimate to be the $39.3 warrant adjusted figure?
Guy Avidan
Yes.
Brian Drab
Yeah. And would you consider the EPS..
Guy Avidan
And so…
Brian Drab
… most comparable to the $0.11 consensus estimate to be the $0.19 warrant adjusted figure?
Guy Avidan
Yeah. Just for [inaudible], I mean, just for everybody to understand what you did you actually took the revenue net of warrants impact at $37.6 you added the $1.7 and this way you go the $39.3 and you added $0.06 to $0.13 and that way you got the $0.19 EPS.
Brian Drab
Okay. Thanks for clarifying that.
And then excluding the warrants, it looks like operating margin was 16%, 17%, you have 17% on the slide, I guess, 16.7% is what I’m calculating and…
Guy Avidan
Right.
Brian Drab
And as you look at the fourth quarter, thanks. But the fourth quarter versus the third quarter looks like your forecasting 10% to 14%, which would be below that.
I’m just thinking about that given you had all the tradeshows in the third quarter and typically get the strong consumables in the fourth quarter. I know in an earlier answer in this Q&A session you said that R&D would be up slightly but it still seems like a pretty significant down tick in operating income or operating margin in the fourth quarter and could you talk about that?
Guy Avidan
Yeah. We discussed -- in previous calls we discussed product mix and by now you know that we expect more ink and consumable in the fourth quarter.
Therefore we expect a little or slightly higher gross margin and if you do the same math you did with the EPS and operating profit, you’ll see that this quarter on a gross number it’s above 53%. So we expect a little bit better.
That said we mentioned before that we had additional 20 employees in the third quarter and we said that we expect to continue hire more employees in the fourth quarter more or less the same numbers. So, large portion of the 20 employees actually started at the backend of the quarter so you don’t really see the expenses.
So we at year end let’s say versus midyear we expect around 40 employees more, which is just shy of 10%, but that’s the reason we expect higher OpEx. So we expect the higher OpEx to offset the growth in gross margin and bring us to the range of 10% to 14%.
Brian Drab
Okay. Thanks.
That helps. And those 40 people that are being added, I guess, those are primarily in selling and marketing?
Guy Avidan
Right. The customer facing selling, marketing and customer support.
Brian Drab
Okay. Got it.
And then I don’t know if Ronen and you could give any more of an update just on progress you are having with both large brands and at the Analyst Day you had some exciting comments around hopefully some announcements mid-year, next year how is that progressing and maybe you could talk about some of the gating items and in getting to those announcements?
Ronen Samuel
So in general there is a lot of interest from different brands, they are all looking for solution to connect to the consumer and this year Kornit has great partners to work with. We are working in parallel with few brands and as I mentioned before we started a big project pilot with one of the biggest brand.
We installed a better system of a new mass production press and this project will run for few months and if it will be successful and hopefully it will be successful it will scale to a big size.
Brian Drab
Okay. Thanks very much.
Congrats again.
Ronen Samuel
Thanks, Brian..
Guy Avidan
Thank you.
Operator
Next we’ll hear from Patrick Ho with Stifel.
Patrick Ho
Thank you very much and congrats on a nice quarter. Ronen could give a little more color on the traction to-date with HD.
You mentioned 200 orders which is a great of validation of the product. Two part question first are they right now coming primarily from upgrades and existing customers who are moving to HD or you also seeing a bunch of new customers.
And the second question is with those 200 orders that you’ve mentioned what kind of the roadmap in terms of revenue recognition, I guess, visibility you have is it over the next six months that those 200 orders gets placed or is this something more into 2019?
Ronen Samuel
Okay. So we’re getting great feedback from customer using the HD.
We see major value in terms print quality, the handle field and of course the overall cost per print. We -- the 200 system and upgrades of course mix of system and upgrade, and we are not disclosing what is the percentage between the system and upgrades.
But there is -- I can say there is a big demand for new system and installed base see the value to upgrade the system to the HD. And in terms of -- what was the last question, the final one could you repeat it.
Patrick Ho
Yeah. The visibility or the roadmap of these orders turning into revenues is this kind of a six-month thing or is well into 2019 where you got a bit of run rate?
Ronen Samuel
So the 200 orders, some of them we already recognize doing the Q3 and even the Q2 when we release the product, some of them will be recognized in Q4 and in Q1.
Patrick Ho
Great. And I guess, my final question for Guy in terms of the operating model, there is a lot of moving pieces right now, gross margins going up because of the change in the product mix.
We’re adding on more headcount? As we look at 2019, is it fair to look at gross margin continuing to rise at 2019 progresses and may be more on a qualitative basis, whereas headcount adjustments could keep OpEx also elevated offsetting some of the gross margin there?
Guy Avidan
So generally speaking and again were talking about 2019 specifically, but we’re aiming to improve our gross margin introducing higher throughput machines more machine critical machine that obviously will carry higher gross margin. And obviously introducing new type of inks that will generate higher gross margin as well so, the plan is to continue to grow our gross margin.
At same time we also mentioned that we accelerate go-to-market investments. So, all-in-all, and again, not talking about 2019, we’re still and I’ll repeat what Ronen said before we’re still very much on the plan for five years 500 million and growing gross margin and operating at the same time.
Patrick Ho
Great. Thank you very much.
Ronen Samuel
Thanks Patrick.
Guy Avidan
Thank you.
Operator
[Operator Instructions] We’ll hear from Greg Palm with Craig-Hallum Capital Group.
Greg Palm
Yeah. Thanks.
Really nice quarter. Congrats on the progress here.
Ronen Samuel
Congrats to you, Greg.
Greg Palm
I guess, I’m curious, we’re talking a lot about new products here, so how material can they be to revenue next year I’m not asking you necessarily to quantify things, but can you just help us characterize a little bit from a timing standpoint if you could?
Ronen Samuel
Yeah. It’s very much material for 2019 the new mass production system will be released in the Q1 we expect to get revenue already in Q1 of multiple system and we expect it to accelerate during 2019.
On top we discussed during the investor events about the dark poly solution that we are bringing to the market and this solution as we discussed will be ready during the second quarter of 2019, which mean, we will start recognize units in second quarter and accelerate in the second half of 2019.
Guy Avidan
Greg, just to add you sign to me 2018 we launched the HD and ISS, and we expect similar success with mass production system, and regarding dark poly it’s going to be longer a little bit longer but huge addressable market for us.
Greg Palm
Yeah. And I guess that’s what I was getting at is I think the HD was made a little bit different sales cycle than some of the past introductions in terms of how quick that was a contributor it sounds like you’re also expecting at least similar type of sales cycles at least initially for some of the new product lines in terms of being major contributors next year, if I’m understanding you correctly?
Guy Avidan
Correct. And this is on top of cost of the HD that will continue grow during 2019.
Greg Palm
Got it. And as it relates to the HD can you help us characterize what and in we are and at least in the upgrade opportunity for the Avalanche and how are you viewing that to more opportunities for the storm?
Ronen Samuel
Opportunity in terms of, can you repeat the question, can you clarify it again?
Greg Palm
Yeah. So I’m just trying to figure out in terms of the upgrade opportunity where are we in terms of, I use the baseball analogy want any in, but percent of may be available customers that have you have already recognized revenue on the upgrade, I’m just trying to get a sense for how much is left hear as we go into 2019?
Ronen Samuel
So we can actually split to product so we’re in the game when it comes to Avalanche when it comes to storms upgrade, we’re in first inning. So there’s a lot of -- still lot of opportunities for upgrade and storm HD.
Greg Palm
Okay. Fair enough.
Last one from me, Asia was sort of a weak spot it sort of been like that the year is it macro, is it competition maybe you can kind of give us an update on some of your near-term initiatives over there?
Ronen Samuel
No. I think that in the last one year we put a lot of focus on our North America organization, sorry, North America organization and also in EMEA organization.
And we saw the growth coming from there. It’s about time now to put more focus on Asia-Pacific.
Specifically I lived in Asia for eight years, I know the potential, there’s a huge potential there. Now is the time for us to accelerate in Asia.
As I mentioned, we are hiring additional sales people and service people in Asia, and we anticipate major growth in Asia-Pacific during 2019.
Greg Palm
So, would you attribute the, I guess, the weakness in that region this year more to do with the lack of the company’s focus rather than whether it’s competitive reasons or macro or overall market weakness, is that fair to say?
Ronen Samuel
I would say that this is the company priorities we put priorities first of all in North America and EMEA and now it’s about time to expand also to Asia.
Greg Palm
Okay. Great.
I will leave it there. Good luck.
Thanks.
Ronen Samuel
Thank you.
Guy Avidan
Thank you.
Operator
Our next question comes from Chris Moore with CJS Securities.
Chris Moore
Hey. Good afternoon.
Thanks, guys. Just a quick question on the…
Ronen Samuel
Hi, Chris.
Chris Moore
… services side. So in terms of kind of the ability to turn the corner to profitability there.
Is it a mix issue or is there kind of a certain level that you need to get to from revenues to make that happen and maybe just talk a little bit?
Guy Avidan
Again, we decided to invest more in improving SME, improving level of services, and therefore, we will grow and you saw very nice growth in terms of revenues from services, so we will continue to grow revenues, but the profitability will not come in the coming quarters. And for us it’s a matter adding more people and building more infrastructure to be able to provide better support better SME.
In terms of years, probably, going to come at the end of 2019, 2020.
Chris Moore
Got it. I appreciate.
Thanks, guys.
Operator
That will conclude today’s question-and-answer session. I will now turn the conference over to Ronen Samuel for any additional closing remarks.
Ronen Samuel
So, thank you for everyone for joining today’s call and we appreciate your continued interest and commit. I want to thank all of our employees for their hard work and dedication through this exciting time at Kornit.
I look forward to speaking with all of you on our fourth call -- fourth quarter call. Thank you very much.
Operator
That does conclude today’s conference call. Thank you for your participation.
You may now disconnect.