Document


 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
  ______________________________________________________________
FORM 8-K
  ______________________________________________________________
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported): July 30, 2018

______________________________________________________________
Electronics For Imaging, Inc.
(Exact name of Registrant as Specified in its Charter)

 ______________________________________________________________
 
Delaware
 
000-18805
 
94-3086355
(State or other jurisdiction
of incorporation)
 
(Commission
File Number)
 
(I.R.S. Employer
Identification No.)

6750 Dumbarton Circle
Fremont, California 94555
(Address of Principal Executive Offices)
(650) 357-3500
(Registrant’s telephone number, including area code)
Not Applicable
(Former name or former address, if changed since last report)
 ______________________________________________________________
 
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (17 CFR §230.405) or Rule 12b-2 of the Securities Exchange Act of 1934 (17 CFR §240.12b-2). Emerging growth company [   ]

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [   ]
 






Item 2.02.
Results of Operations and Financial Condition.
 
On July 30, 2018 Electronics For Imaging, Inc. announced preliminary financial results for the three months and six months ended June 30, 2018. A copy of the press release relating to the foregoing is attached hereto as Exhibit 99.1.

Item 5.02.
Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers.

On July 30, 2018, the Company announced that Guy Gecht informed the Company’s board of directors that he intends to step down as the Company’s chief executive officer effective upon the appointment of a successor chief executive officer. Mr. Gecht’s decision to step down as the Company’s chief executive officer is not the result of any disagreement with the Company or the Company’s board of directors on any matters relating to the Company’s operations, policies or practices. Upon leaving his operating role, Mr. Gecht will remain a member of the Company’s board of directors.

A leading global executive search firm has been retained to conduct the search, which includes both internal and external candidates.
Item 7.01.
Regulation FD Disclosure

On July 30, 2018, the Company announced that Guy Gecht informed the Company’s board of directors that he intends to step down as the Company’s chief executive officer effective upon the appointment of a successor chief executive officer. Mr. Gecht’s decision to step down as the Company’s chief executive officer is not the result of any disagreement with the Company or the Company’s board of directors on any matters relating to the Company’s operations, policies or practices. Upon leaving his operating role, Mr. Gecht will remain a member of the Company’s board of directors. A copy of the press release relating to the foregoing is attached as Exhibit 99.2 to this Current Report on Form 8-K.

The information provided pursuant to Item 2.02 above, including Exhibit 99.1, Exhibit 99.2, and in this Item 7.01 is being furnished and shall not be deemed "filed" for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the "Exchange Act") or otherwise subject to the liabilities under that Section and shall not be deemed to be incorporated by reference into any filing of the Company under the Securities Act of 1933, as amended (the “Securities Act”), or the Exchange Act. 

Item 9.01.
Financial Statements and Exhibits.
(d) Exhibits
 
Exhibit
No.
 
Description
 
 
99.1

99.2
 
Press Release Dated July 30, 2018 – EFI Reports Record Second Quarter Revenue For Q2 2018

Press Release Dated July 30, 2018 – EFI CEO Informed Board He Intends To Step Down

The information included in Exhibit 99.1 and Exhibit 99.2 is intended to be furnished and shall not be deemed “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act, or the Exchange Act, except as expressly set forth by specific reference in such filing.






SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned, hereunto duly authorized.
Date:
July 30, 2018
 
ELECTRONICS FOR IMAGING, INC.
 
 
 
By:
/s/Marc Olin
 
 
 
Name:
Marc Olin
 
 
 
Title:
Chief Financial Officer

        
            





INDEX TO EXHIBITS FILED WITH
THE CURRENT REPORT ON FORM 8-K DATED JULY 30, 2018
Exhibit
No.
 
Description
 
 
99.1
 
99.2
 



Exhibit

For more information:

Marc Olin
Chief Financial Officer
EFI
650-357-3500
 
Investor Relations:

JoAnn Horne
Market Street Partners
415-445-3235
EFI Reports Record Second Quarter Revenue For Q2 2018
Industrial Inkjet up 10%; Productivity Software Grows by 7%
CEO Gecht Informed Board He Intends To Step Down Once His Successor is Named

Fremont, Calif. - July 30, 2018 - Electronics For Imaging, Inc. (Nasdaq: EFII), a world leader in customer-focused digital printing innovation, today announced its results for the second quarter of 2018.

For the quarter ended June 30, 2018, the Company reported record second quarter revenue of $261.1 million, up 6% compared to second quarter 2017 revenue of $247.0 million. GAAP net income was $3.8 million compared to GAAP net income of $2.8 million for the same period in 2017 or $0.08 per diluted share compared to $0.06 per diluted share for the same period in 2017. Non-GAAP net income was $22.6 million, down 11% compared to non-GAAP net income of $25.5 million for the same period in 2017 or $0.50 per diluted share, down 7% compared to $0.54 per diluted share for the same period in 2017. Cash flow from operating activities was $30.9 million compared to $24.1 million during the same period in 2017.

For the six months ended June 30, 2018, the Company reported revenue of $500.9 million, up 5% year-over-year compared to $475.7 million for the same period in 2017. GAAP net income was $0.2 million or $0.00 per diluted share, compared to $7.5 million or $0.16 per diluted share for the same period in 2017. Non-GAAP net income was $39.8 million or $0.88 per diluted share, compared to non-GAAP net income of $51.3 million or $1.09 per diluted share for the same period in 2017. Cash flow from operating activities for the six months ended June 30, 2018, was $37.2 million compared to $39.0 million during the same period in 2017. 

“2018 continues to track well for EFI, with the team delivering record Q2 revenues and solid cash generation despite the significant impact of currency volatility during the quarter,” said Guy Gecht, CEO of EFI. “I’m especially pleased with the continued progress and increased sales pipeline for our Nozomi platform, validating EFI’s leadership role in the digital transformation of industries such as packaging and fashion, where colorful images truly matter.”

CEO Transition
In a separate press release, the Company announced today that Guy Gecht, EFI’s longtime CEO, informed the Board that he intends to step down once his successor is named. Spencer Stuart, a leading global executive search firm, has been retained to conduct the search, which includes both internal and external candidates. Upon leaving his operating role, Gecht will remain a member of the Board of Directors of EFI.

Conference Call
EFI will discuss the Company’s financial results by conference call at 5:00 pm ET/2:00 pm PT today. Instructions for listening to the conference call over the Web are available on the Investor Relations portion of EFI’s website at www.efi.com.

About EFI
EFI™ is a global technology company, based in Silicon Valley, and is leading the worldwide transformation from analog to digital imaging. We are passionate about fueling customer success with products that increase competitiveness and boost productivity. To do that, we develop breakthrough technologies for the manufacturing of signage, packaging, textiles, ceramic tiles, and personalized documents, with a wide range of printers, inks, digital front ends, and a comprehensive business and production workflow suite that transforms and streamlines the entire production process. (www.efi.com)

1


Safe Harbor for Forward Looking Statements
Certain statements in this press release are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Statements other than statements of historical fact including words such as “accelerate”. “address”, “ahead”, “anticipate”, “believe”, “consider”, “continue”, “develop”, “estimate”, “expect”, “further”, "intend", “look”, “plan”, “progress” and "will" and statements in the future tense are forward looking statements. The statements in this press release that could be deemed forward-looking statements include statements regarding EFI’s strategy, plans, expectations regarding its revenue growth, introduction of new products, product portfolio, productivity, future opportunities for EFI and its customers, demand for products, the CEO transition, and any statements or assumptions underlying any of the foregoing.
Forward-looking statements are subject to certain risks and uncertainties that could cause our actual future results to differ materially, or cause a material adverse impact on our results. Potential risks and uncertainties include, but are not necessarily limited to, intense competition in each of our businesses, including competition from products developed by EFI’s customers; our ability to remediate the material weaknesses identified in EFI’s internal control over financial reporting; the uncertainty of the outcome of the pending securities lawsuits against EFI; unforeseen expenses; fluctuations in currency exchange rates; the difficulty of aligning expense levels with revenue; management’s ability to forecast revenues, expenses and earnings; our ability to successfully integrate acquired businesses; changes in the mix of products sold; the uncertainty of market acceptance of new product introductions; challenge of managing asset levels, including inventory and variations in inventory levels; the uncertainty of continued success in technological advances; the challenges of obtaining timely, efficient and quality product manufacturing and supply of components; any world-wide financial and economic difficulties and downturns; adverse tax-related matters such as tax audits, changes in our effective tax rate or new tax legislative proposals; the unpredictability of development schedules and commercialization of products by the leading printer manufacturers and declines or delays in demand for our related products; the impact of changing consumer preferences on demand for our textile products; litigation involving intellectual property rights or other related matters; the uncertainty regarding the amount and timing of future share repurchases by EFI and the origin of funds used for such repurchases; the market prices of EFI's common stock prior to, during and after the share repurchases; any potential impact from our CEO stepping down and a future CEO transition; and any other risk factors that may be included from time to time in the Company’s SEC reports.
The statements in this press release are made as of the date of this press release and are subject to revision until the Company will have filed its Quarterly Report on Form 10-Q for the period ended June 30, 2018. EFI undertakes no obligation to update information contained in this press release. Amounts are subject to rounding.
For further information regarding risks and uncertainties associated with EFI’s businesses, please refer to the section entitled “Risk Factors” in the Company’s SEC filings, including, but not limited to, its annual report on Form 10-K and its quarterly reports on Form 10-Q, copies of which may be obtained by contacting EFI’s Investor Relations Department by phone at 650-357-3828 or by email at investor.relations@efi.com or EFI’s Investor Relations website at www.efi.com.
Impact of the Tax Cuts and Jobs Act of 2017
On December 22, 2017, the Tax Cuts and Jobs Act, which will have wide-ranging impacts on EFI including, but not limited to, a Deemed Repatriation Transition Tax and the revaluation of current U.S. deferred tax assets and liabilities, was enacted. We have recorded a $27.3 million charge in the fourth quarter of 2017 as a provisional estimate related to the aforementioned items. In the first quarter of 2018, we also recorded an additional $1.2 million charge related to the state tax impact associated with the Deemed Repatriation Transition Tax. The SEC staff issued Staff Accounting Bulletin (“SAB”) 118, which allows companies to record a provisional estimate of the income tax effects in the quarter in which it can make reasonable estimates of the effects of the new law. While we have calculated a reasonable estimate of the impact of the U.S. tax rate reduction and the amount of the Deemed Repatriation Transition Tax, we are still gathering additional information to refine and finalize our calculation of the impacts of the new tax law on our U.S. deferred tax assets and liabilities, the Deemed Repatriation Transition Tax, and other provisions associated with the Tax Cuts and Jobs Act. As we obtain additional information, we may record material adjustments in current or subsequent quarters, and will finalize the income tax effects in the fourth quarter of 2018, or in an earlier quarter if our analysis is complete.
Use of Non-GAAP Financial Information
To supplement our condensed consolidated financial results prepared under generally accepted accounting principles, or GAAP, we use non-GAAP measures of net income, operating income, and earnings per diluted share that are GAAP net income, GAAP operating income, and GAAP earnings per diluted share adjusted to exclude certain costs, expenses, and gains. A reconciliation of the adjustments to GAAP results for the three and six months ended June 30, 2018 and 2017 is provided below. In addition, an explanation of how management uses non-GAAP financial information to evaluate its business, the substance behind management's decision to use this non-GAAP financial information, the material limitations associated with the use of non-GAAP financial information, the manner in which management compensates for those limitations, and the substantive reasons management believes that this non-GAAP financial information provides useful information to investors is included under "About our Non-GAAP Net Income and Adjustments" after the tables below.

Our non-GAAP measures, including ex-currency are not in accordance with or an alternative to GAAP and may be materially different from other non-GAAP measures, including similarly titled non-GAAP measures, used by other companies. The presentation of this additional information should not be considered in isolation from, as a substitute for, or superior to, revenue, gross profit, operating expenses, net income or earnings per diluted share prepared in accordance with GAAP. Non-GAAP financial measures have limitations in that they do not reflect certain items that may have a material impact upon our reported financial results. We expect to continue to incur expenses of a nature similar to the non-GAAP adjustments described above, and exclusion of these items from our non-GAAP net income and non-GAAP earnings per diluted share should not be construed as an inference that these costs are unusual, infrequent, or non-recurring.

2


Electronics For Imaging, Inc.
Condensed Consolidated Statement of Operations
(in thousands, except per share data)
(unaudited)
 
Three months ended
June 30,
 
Six months ended
June 30,
 
2018
 
2017
 
2018
 
2017
Revenue
$
261,072

 
$
247,047

 
$
500,938

 
$
475,738

Cost of revenue
132,484

 
119,795

 
253,243

 
224,956

Gross profit
128,588

 
127,252

 
247,695

 
250,782

Operating expenses:
 
 
 
 
 
 
 
Research and development
41,081

 
38,989

 
79,360

 
78,616

Sales and marketing
46,107

 
43,714

 
92,787

 
86,749

General and administrative
13,206

 
21,135

 
32,627

 
42,164

Amortization of identified intangibles
3,024

 
3,671

 
7,678

 
4,589

Restructuring and other
11,526

 
11,752

 
23,664

 
22,530

Total operating expenses
114,944

 
119,261

 
236,116

 
234,648

Income from operations
13,644

 
7,991

 
11,579

 
16,134

Interest expense
(4,989
)
 
(4,966
)
 
(9,943
)
 
(9,626
)
Interest income and other income (expense), net
(356
)
 
755

 
933

 
1,042

Income before income taxes
8,299

 
3,780

 
2,569

 
7,550

Provision for income taxes
(4,531
)
 
(1,021
)
 
(2,396
)
 
(4
)
Net income
$
3,768

 
$
2,759

 
$
173

 
$
7,546

 
 
 
 
 
 
 
 
Diluted EPS calculation
 
 
 
 
 
 
 
Net income (loss) per diluted common share
$
0.08

 
$
0.06

 
$

 
$
0.16

Shares used in diluted per share calculation
45,439

 
47,150

 
45,461

 
47,199


3


Electronics For Imaging, Inc.
Reconciliation of GAAP Net Income to Non-GAAP Net Income
(in thousands, except per share data)
(unaudited)

 
Three months ended June 30,
 
Six months ended June 30,
 
2018
 
2017
 
Ex-Currency
 
2018
 
2017
 
Ex-Currency
Net income
$
3,768

 
$
2,759

 
$
3,768

 
$
173

 
$
7,546

 
$
173

Cost of revenue adjustment — FFPS inventory valuation
24

 
159

 
24

 
24

 
1,183

 
24

Ex-currency adjustment

 

 
1,609

 

 

 
(612
)
Stock-based compensation
11,785

 
7,613

 
11,785

 
18,555

 
17,893

 
18,555

Amortization of intangibles assets
11,526

 
11,752

 
11,526

 
23,664

 
22,530

 
23,664

Restructuring and other
3,024

 
3,671

 
3,024

 
7,678

 
4,589

 
7,678

General and administrative:
 
 
 
 
 
 
 
 
 
 
 
Acquisition-related transaction costs
88

 
454

 
88

 
767

 
1,183

 
767

Changes in fair value of contingent consideration
(11,444
)
 
494

 
(11,444
)
 
(12,672
)
 
1,777

 
(12,672
)
Revenue recognition and accounting review costs
1,148

 

 
1,148

 
1,759

 

 
1,759

Interest income and other income (expenses):
 
 
 
 
 
 
 
 
 
 
 
     Non-cash interest expense related to our convertible notes
3,429

 
3,249

 
3,429

 
6,812

 
6,420

 
6,812

     Foreign exchange fluctuation related to contingent consideration

 
19

 

 

 
(86
)
 

     Balance sheet currency remeasurement impact

 

 
(1,280
)
 

 

 
(973
)
Tax effect of non-GAAP adjustments
(765
)
 
(4,954
)
 
(827
)
 
(6,943
)
 
(12,026
)
 
(6,641
)
Non-GAAP net income
$
22,583

 
$
25,475

 
$
22,850

 
$
39,817

 
$
51,287

 
$
38,534

 
 
 
 
 
 
 
 
 
 
 
 
Non-GAAP net income per diluted share
$
0.50

 
$
0.54

 
$
0.49

 
$
0.88

 
$
1.09

 
$
0.84

Shares used in diluted non-GAAP net income per share calculation
45,439

 
47,150

 
45,439

 
45,461

 
47,199

 
45,540



4


Electronics For Imaging, Inc.
Condensed Consolidated Balance Sheets
(in thousands)
(unaudited)
(in thousands)
June 30, 2018
 
December 31, 2017
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
179,507

 
$
170,345

Short-term investments
134,006

 
148,697

Accounts receivable
243,400

 
244,416

Inventories
118,115

 
125,813

Other current assets
70,966

 
50,564

Total current assets
745,994

 
739,835

Property and equipment, net
95,981

 
98,762

Restricted cash equivalents
39,809

 
32,531

Goodwill
395,421

 
403,278

Intangible assets, net
97,536

 
123,008

Other assets
74,269

 
60,587

Total assets
$
1,449,010

 
$
1,458,001

Liabilities and Stockholders’ Equity
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
128,039

 
$
123,935

Accrued and other liabilities
157,607

 
153,923

Income taxes payable
6,501

 
5,309

Total current liabilities
292,147

 
283,167

Convertible senior notes, net
326,512

 
318,957

Imputed financing obligation related to build-to-suit lease
13,880

 
13,944

Noncurrent contingent and other liabilities
20,185

 
28,801

Deferred tax liabilities
8,220

 
11,652

Noncurrent income taxes payable
20,710

 
20,169

Total liabilities
681,654

 
676,690

Total stockholders’ equity
767,356

 
781,311

Total liabilities and stockholders’ equity
$
1,449,010

 
$
1,458,001


5


Electronics For Imaging, Inc.
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
 
Six months ended
June 30,
 
2018
 
2017
Cash flows from operating activities:
 
 
 
Net income
$
173

 
$
7,546

Adjustments to reconcile net income (loss) to net cash provided by operating activities:
 
 
 
Depreciation and amortization
33,830

 
30,911

Deferred taxes
(3,209
)
 
(1,571
)
Provisions and releases for bad debt and sales-related allowances
703

 
6,401

Provision for inventory obsolescence
2,928

 
1,465

Stock-based compensation
18,555

 
17,893

Non-cash accretion of interest expense on convertible notes and imputed financing obligation
7,677

 
7,459

Change in fair value of contingent consideration
 
 
 
Net change in derivative assets and liabilities
 
 
 
Other non-cash charges and credits
256

 
979

Changes in operating assets and liabilities, net of effect of acquired businesses
(3,807
)
 
(33,984
)
Net cash provided by operating activities
37,231

 
39,010

Cash flows from investing activities:
 
 
 
Purchases of short-term investments

 
(62,431
)
Proceeds from sales and maturities of short-term investments
14,042

 
85,306

Purchases of restricted investments

 
(14,191
)
Purchases, net of proceeds from sales, of property and equipment
(6,435
)
 
(5,711
)
Businesses purchased, net of cash acquired
(252
)
 
(13,512
)
Net cash provided by (used for) investing activities
7,355

 
(10,539
)
Cash flows from financing activities:
 
 
 
Proceeds from issuance of common stock
5,010

 
6,643

Purchases of treasury stock and net share settlements
(29,028
)
 
(41,326
)
Repayment of imputed financing obligation related to build-to-suit lease
(1,618
)
 
(1,489
)
Contingent consideration payments related to businesses acquired
(698
)
 
(1,294
)
Net cash used for financing activities
(26,334
)
 
(37,466
)
Effect of foreign exchange rate changes on cash, cash equivalents and restricted cash equivalents
(1,812
)
 
3,259

Decreases in cash, cash equivalents, and restricted cash equivalents
16,440

 
(5,736
)
Cash, cash equivalents, and restricted cash equivalents at beginning of period
202,876

 
164,313

Cash, cash equivalents, and restricted cash equivalents at end of period
$
219,316

 
$
158,577


Restricted Cash. ASU 2016-18, Statement of Cash Flows: Restricted Cash, which we adopted in Q1 2018, requires that the statement of cash flows explain the change in cash, cash equivalents, and restricted cash equivalents. Therefore, restricted cash equivalents are included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown above. This presentation is required to be presented retrospectively to prior periods.

6


Electronics For Imaging, Inc.
Revenue by Operating Segment and Geographic Area
(in thousands)
(unaudited)
 
Three months ended June 30,
 
Six months ended June 30,
 
2018
 
2017
 
2018
 
2017
Revenue by Operating Segment
 
 
 
 
 
 
 
Industrial Inkjet
$
122,294

 
$
141,693

 
$
298,643

 
$
264,956

Productivity Software
94,010

 
39,063

 
85,387

 
74,121

Fiery
44,768

 
66,291

 
116,908

 
136,661

Total
$
261,072

 
$
247,047

 
$
500,938

 
$
475,738

 
 
 
 
 
 
 
 
Revenue by Geographic Area
 
 
 
 
 
 
 
Americas
$
122,294

 
$
114,014

 
$
239,679

 
$
223,909

EMEA
94,010

 
101,513

 
182,185

 
189,546

APAC
44,768

 
31,520

 
79,074

 
62,283

Total
$
261,072

 
$
247,047

 
$
500,938

 
$
475,738

 
 
 
 
 
 
 
 
Revenue Ex-Currency Adjustment
$
(6,145
)
 
$
2,527

 
$
(16,767
)
 
$
5,274

Total
$
254,927

 
$
249,574

 
$
239,866

 
$
481,012



7


About our Non-GAAP Net Income and Adjustments
Use of Non-GAAP Financial Information
To supplement our condensed consolidated financial results prepared in accordance with GAAP, we use non-GAAP measures of net income and earnings per diluted share that are GAAP net income and GAAP earnings per diluted share adjusted to exclude certain costs, expenses, and gains.
We believe that the presentation of non-GAAP net income, non-GAAP operating income, and non-GAAP earnings per diluted share provides important supplemental information regarding certain costs, expenses, gains, and significant items that we believe are important to understanding financial and business trends relating to our financial condition and results of operations. Non-GAAP net income, non-GAAP operating income, and non-GAAP earnings per diluted share are among the primary indicators used by management as a basis for planning and forecasting future periods and by management and our Board of Directors to determine whether our operating performance has met specified targets and thresholds. Management uses non-GAAP net income, non-GAAP operating income, and non-GAAP earnings per diluted share when evaluating operating performance because it believes the exclusion of the items described below, for which the amounts and/or timing may vary significantly depending on our activities and other factors, facilitates comparability of our operating performance from period to period. We have chosen to provide this information to investors so they can analyze our operating results in the same way that management does and use this information in their assessment of our business and the valuation of our Company.
Use and Economic Substance of Non-GAAP Financial Measures
We compute non-GAAP net income, non-GAAP operating income, and non-GAAP earnings per diluted share by adjusting GAAP net income, non-GAAP operating income, and GAAP earnings per diluted share to remove the impact of amortization of intangible assets, stock-based compensation expense, restructuring and other expenses, acquisition-related transaction costs, costs to integrate such acquisitions into our business, incremental cost of revenue due to the fair value adjustment to inventories acquired in business acquisitions, changes in the fair value of contingent consideration including the related foreign exchange fluctuation impact, revenue recognition and accounting review costs, litigation settlements and non-cash interest expense related to our 0.75% convertible senior notes (“Notes”). We use a constant non-GAAP tax rate of 19%, which we believe reflects the long-term average tax rate based on our international structure and geographic distribution of revenue and profit.

Ex-Currency. To better understand trends in our business, we believe it is helpful to adjust our statement of operations to exclude the impact of year-over-year changes in the translation of foreign currencies into U.S. dollars. This is a non-GAAP measure that is calculated by adjusting revenue, gross profit, and operating expenses by using historical exchange rates in effect during the comparable prior year period and removing the balance sheet currency re-measurement impact from interest income and other income, net of expenses, including removal of any hedging gains and losses. We refer to these adjustments as “ex-currency”. Management believes the ex-currency measures provide investors with an additional perspective on year-over-year financial trends and enables investors to analyze our operating results in the same way management does. The year-over-year currency impact can be determined as the difference between year-over-year actual growth rates and year-over-year ex-currency growth rates.
These excluded items are described below:
Cost of revenue related to fair value adjustment of the Free Flow Print Server business (“FFPS”). Inventory acquired in an acquisition must be recorded at fair value rather than historical cost in accordance with ASC 805, Business Combinations. The fair value of FFPS inventory reflects the manufacturing cost plus a portion of the expected gross profit. In 2017, we adjusted our cost of revenue to reflect the expected gross profit that was included in the inventory valuation under ASC 805. We believe this adjustment is useful to investors to understand the gross profit trends of our ongoing business.
Amortization of intangible assets. Intangible assets acquired to date are being amortized on a straight-line basis.
Stock-based compensation expense recognized in accordance with ASC 718, Stock Compensation.

8


Restructuring and other consists of:
Restructuring charges incurred as we consolidate the number and size of our facilities and, in addition, reduce the size of our workforce.
Integration-related expenses were $1.1 and $2.3 million for the three and six months ended June 30, 2018, respectively, and $0.4 and $0.8 million for the three and six months ended June 30, 2017, respectively. We have acquired 18 businesses in the last 5 years, which have required significant information technology investment to integrate them into our business.
Acquisition-related transaction costs associated with businesses acquired during the periods reported and anticipated transactions of $0.1 and $0.8 million for the three and six months ended June 30, 2018, respectively, and $0.5 and $1.2 million for the three and six months ended June 30, 2017, respectively.
Changes in fair value of contingent consideration. Our management determined that we should analyze the total return provided by the investment when evaluating operating results of an acquired entity. The total return consists of operating profit generated from the acquired entity compared to the purchase price paid, including the final amounts paid for contingent consideration without considering any post-acquisition adjustments related to changes in the fair value of the contingent consideration. Because our management believes the final purchase price paid for the acquisition reflects the accounting value assigned to both contingent consideration and to the intangible assets, we exclude the GAAP impact of any adjustments to the fair value of acquisition-related contingent consideration from the operating results of an acquisition in subsequent periods, including the related foreign exchange fluctuation impact. We believe this approach is useful in understanding the long-term return provided by our acquisitions and that investors benefit from a supplemental non-GAAP financial measure that excludes the impact of this adjustment.
Non-cash interest expense on our Notes. Our Notes may be settled in cash on conversion. We are required to separately account for the liability (debt) and equity (conversion option) components of the Notes in a manner that reflects our non-convertible debt borrowing rate. Accordingly, for GAAP purposes, we are required to amortize a debt discount equal to the fair value of the conversion option as interest expense on our $345 million of 0.75% convertible senior notes that were issued in a private placement in September 2014 over the term of the Notes.
Revenue Recognition and Accounting Review Costs. As described in “Item 9A, Controls and Procedures” of our annual report on Form 10-K, for the year ended December 31, 2017, as amended, our management concluded that we had material weaknesses in our internal control over financial reporting as of December 31, 2017 related to revenue recognition practices and the valuation of certain textile digital inkjet printer inventories. Therefore, we did not maintain effective internal control over financial reporting or effective disclosure controls and procedures, both of which are requirements of the Securities Exchange Act of 1934, as of that date. The review of our revenue recognition practices has required that we expend significant management time and incur significant accounting, legal, and other expenses of $1.1 and $1.8 million during the three and six months ended June 30, 2018, respectively. We expect to incur additional costs in the future periods.

Litigation settlements. We settled or accrued reserves related several litigation claims of $0.3 during the three and six months ended June 30, 2017.
Tax effect of non-GAAP adjustments. We use a constant non-GAAP tax rate of 19%, which we believe reflects the long-term average tax rate based on our international structure and geographic distribution of revenue and profit. The long-term average tax rate is calculated in accordance with the principles of ASC 740, Income Taxes, to estimate the non-GAAP income tax provision in each jurisdiction in which we operate after excluding the tax effect of the non-GAAP items described above, and $1.2 and $27.5 million of tax charges recognized in Q1 18 and Q4 17, respectively, as a result of the 2017 Tax Act, which was enacted on December 22, 2017.


9
Exhibit


For more information:

Marc Olin
Chief Financial Officer
EFI
650-357-3500
 
Investor Relations:

JoAnn Horne
Market Street Partners
415-445-3235

EFI CEO INFORMED BOARD HE INTENDS TO STEP DOWN
Gecht to Remain CEO Until Successor is Identified;
Search Process Underway

FREMONT, Calif., -- Electronics For Imaging, Inc. (Nasdaq:EFII), a world leader in customer-focused digital printing innovation, announced today that its longtime CEO, Guy Gecht, has informed the Company’s Board of Directors that he intends to step down from his operating role at the Company when his successor is named. The Board retained Spencer Stuart, a leading global executive search firm, to assist in a thorough search process that includes both internal and external candidates.
Mr. Gecht will continue to serve as CEO until his replacement is named, and has committed to working closely with the new CEO to ensure a successful transition. Gecht will remain as a member of the Board of Directors following the CEO change.
“Stepping down as the leader of a great company is never an easy decision. With vast market opportunities, loyal customers and a robust product roadmap, reinforced by the unprecedented interest in Nozomi, EFI has never been better positioned for continued growth and success,” said Guy Gecht, CEO of EFI. “I think this makes it the right time, after 19 years as CEO of this unique company, for me to hand the reins to the next leader. I will stay fully focused on leading the outstanding EFI team during the search period, and will assist in ensuring a smooth transition once the new CEO is in place. As a shareholder, Board member and a lifelong fan, nothing will be more gratifying for me than to see my successor leading EFI to achieve its full potential.”
“We are grateful for Guy’s 19 years as CEO of EFI,” said Gill Cogan, Chairman of EFI’s Board. “Together with his team, Guy transformed EFI from a single product line and OEM business model to a diverse, worldwide leader driving the transition from analog to on-demand digital imaging in industries that touch our lives every day. He led the expansion into Productivity Software and Industrial Inkjet, which drove EFI’s rapid growth to over $1 billion in annual revenues.  Guy is only EFI’s third CEO in its 30-year history, which has brought a unique stability that the Board truly appreciates. As a global company with industry-leading technology and products, there is an unmatched opportunity for a new CEO to lead the charge in the years ahead.”

About EFI
EFI™ is a global technology company, based in Silicon Valley, and is leading the worldwide transformation from analog to digital imaging. We are passionate about fueling customer success with products that increase competitiveness and boost productivity. To do that, we develop breakthrough technologies for the manufacturing of signage, packaging, textiles, ceramic tiles, and personalized documents, with a wide range of printers, inks, digital front ends, and a comprehensive business and production workflow suite that transforms and streamlines the entire production process. (www.efi.com

Follow EFI Online:
Follow us on Twitter: @EFI_Print_Tech
Find us on Facebook: www.facebook.com/EFIPrint/
View us on YouTube: www.youtube.com/EFIDigitalPrintTech
The Electronics For Imaging, Inc. logo is available at http://www.globenewswire.com/newsroom/prs/?pkgid=15847