October 18, 2012

EFI Reports Third Quarter 2012 Results

Revenue of $154M, Up 5%, Led by 33% Industrial Inkjet Growth

FOSTER CITY, Calif., Oct. 18, 2012 (GLOBE NEWSWIRE) -- Electronics For Imaging, Inc. (Nasdaq:EFII), a world leader in customer-focused digital printing innovation, today announced its results for the third quarter of 2012.

For the quarter ended September 30, 2012, the Company reported revenue of $154.1 million, up 5% compared to third quarter 2011 revenue of $147.3 million. Third quarter 2012 non-GAAP net income was $13.3 million or $0.28 per diluted share compared to non-GAAP net income of $11.6 million or $0.25 per diluted share for the same period in 2011. GAAP net income was $13.4 million or $0.28 per diluted share, compared to $6.1 million or $0.13 per diluted share for the same period in 2011.

For the nine months ended September 30, 2012, the Company reported revenue of $478.0 million, up 12% year-over-year compared to $428.5 million for the same period in 2011. Non-GAAP net income was $41.7 million or $0.87 per diluted share, compared to non-GAAP net income of $36.4 million or $0.76 per diluted share for the same period in 2011. GAAP net income was $26.7 million or $0.56 per diluted share, compared to GAAP net income of $16.0 million or $0.34 per diluted share for the same period in 2011.

"Another very strong quarter by our Industrial Inkjet business coupled with continued double-digit growth in our Productivity Software business led to solid results for Q3 despite the softness in Europe. For the first time, Industrial Inkjet represented over 50% of total EFI revenues, while at the same time the continued high growth of ink volume shows that our customers are also enjoying a similar business expansion," said Guy Gecht, Chief Executive Officer of EFI. "As we begin a major new product cycle across our entire product portfolio, EFI's innovation continues to help customers drive growth and efficiency in their business, which is crucial to our industry, especially in today's environment."

EFI will discuss the Company's financial results by conference call at 2:00 p.m. PDT 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™ (www.efi.com) is a worldwide provider of products, technology, and services leading the transformation of analog to digital imaging. Based in Silicon Valley with offices around the globe, the company's powerful integrated product portfolio includes digital front-end servers; superwide, wide-format, label, and ceramic inkjet presses and inks; production workflow, web-to-print, and business automation software; and office, enterprise, and mobile cloud solutions. These products allow users to produce, communicate and share information in an easy and effective way, and enable businesses to increase their profits, productivity, and efficiency.

The Electronics For Imaging, Inc. logo is available at http://www.globenewswire.com/newsroom/prs/?pkgid=7332

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 "anticipate", "believe", "estimate", "expect", "consider" and "plan" 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, innovation and product cycle continuation, 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, unforeseen expenses; the difficulty of aligning expense levels with revenue; management's ability to forecast revenues, expenses and earnings; 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; changes in the mix of products sold; the uncertainty of market acceptance of new product introductions; intense competition in each of our businesses, including competition from products developed by EFI's customers; 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; litigation involving intellectual property rights or other related matters; our ability to successfully integrate acquired businesses; 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; 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. EFI undertakes no obligation to update information contained in this press release. 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.

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 (loss), as the case may be, and earnings per diluted share that are GAAP net income (loss), as the case may be, and GAAP earnings per diluted share adjusted to exclude certain recurring and non-recurring costs, expenses and gains. A reconciliation of the adjustments to GAAP results for the three and nine months ended September 30, 2012 and 2011 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.

These non-GAAP measures 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, net income (loss), as the case may be, or earnings per diluted share prepared in accordance with GAAP.

Electronics For Imaging, Inc.
Condensed Consolidated Statements of Operations
(in thousands, except per share data)
(unaudited)
         
  Three Months Ended Nine Months Ended
  September 30, September 30,
         
  2012 2011 2012 2011
         
Revenue  $ 154,074  $ 147,284  $ 478,031  $ 428,498
Cost of revenue  70,997  64,506  217,495  188,432
Gross profit  83,077  82,778  260,536  240,066
Operating expenses:        
Research and development  29,068  29,473  90,194  85,850
Sales and marketing  30,329  30,137  93,480  88,036
General and administrative  12,775  14,095  36,831  40,550
Amortization of identified intangibles  4,619  2,311  13,434  8,720
Restructuring and other  2,280  604  4,530  2,316
Total operating expenses  79,071  76,620  238,469  225,472
Income from operations  4,006  6,158  22,067  14,594
Interest and other income, net  1,555  1,363  800  4,571
Income before income taxes  5,561  7,521  22,867  19,165
Benefit from (provision for) income taxes  7,850  (1,397)  3,783  (3,177)
Net income  $ 13,411  $ 6,124  $ 26,650  $ 15,988
         
Fully Diluted EPS calculation        
Net income  $ 13,411  $ 6,124  $ 26,650  $ 15,988
Net income per diluted common share  $ 0.28  $ 0.13  $ 0.56  $ 0.34
Shares used in diluted per share calculation  48,009  47,307  47,670  47,701
 
Electronics For Imaging, Inc.
Reconciliation of GAAP Net Income to Non-GAAP Net Income
(in thousands, except per share data)
(unaudited)
         
  Three Months Ended Nine Months Ended
  September 30, September 30,
         
  2012 2011 2012 2011
         
Net income  $ 13,411  $ 6,124  $ 26,650  $ 15,988
Amortization of identified intangibles  4,619  2,311 13,434 8,720
Stock based compensation – Cost of revenue  293  657 826 1,334
Stock based compensation – Research and development  1,365  1,245 4,189 4,013
Stock based compensation – Sales and marketing  790  1,027 2,404 3,086
Stock based compensation – General and administrative  2,457  2,358 6,919 9,130
Acquisition-related transaction costs  384  673 1,208 1,540
Change in fair value of contingent consideration —   1,476 (1,404) 1,476
Restructuring and other  2,280  604 4,530 2,316
Litigation settlements  506 —  255 — 
Gain on sale of minority investment in a privately-held company —   (2,866) —  (2,866)
Tax effect of non-GAAP adjustments  (12,797)  (2,005) (17,355) (8,302)
Non-GAAP net income  $ 13,308  $ 11,604  $ 41,656  $ 36,435
         
Non-GAAP net income per diluted common share  $ 0.28  $ 0.25  $ 0.87  $ 0.76
Shares used in per share calculation  48,009  47,307  47,670  47,701
         
Note: all items included within general and administrative expense unless otherwise indicated by the caption.
 
Electronics For Imaging, Inc.
Condensed Consolidated Balance Sheets
(in thousands)
(unaudited)
     
  September 30, December 31,
  2012 2011
     
Assets    
Cash and cash equivalents  $ 110,870  $ 120,058
Short-term investments  81,624  99,100
Accounts receivable, net  122,910  91,923
Inventories  63,653  44,788
Assets held for sale  62,144 — 
Other current assets  39,288  20,792
Total current assets  480,489  376,661
Property and equipment, net  25,804  30,096
Restricted investments —   56,850
Goodwill  202,203  164,323
Intangible assets, net  72,779  55,992
Other assets  49,640  55,812
Total assets  $ 830,915  $ 739,734
     
Liabilities & Stockholders' equity    
Accounts payable  $ 62,707  $ 46,965
Accrued and other liabilities  99,515  82,289
Income taxes payable  6,069  2,583
Total current liabilities  168,291  131,837
Contingent and other liabilities  12,785  3,427
Deferred tax liabilities  13,446  4,090
Long term taxes payable  30,359  35,597
Total liabilities  224,881  174,951
Total stockholders' equity  606,034  564,783
Total liabilities and stockholders' equity  $ 830,915  $ 739,734
 
Electronics For Imaging, Inc.
Condensed Consolidated Statements of Cash Flows
(in thousands)    
(unaudited)    
     
  Nine Months Ended
  September 30,
  2012 2011
     
Cash flows from operating activities:    
Net income   $ 26,650  $ 15,988
Adjustments to reconcile net income to net cash provided by operating activities:  
Depreciation and amortization 19,558 14,413
Deferred taxes 1,317 (247)
Excess tax benefit from stock-based compensation (1,186) (1,872)
Stock-based compensation 14,338 17,563
Provision for inventory obsolescence 2,574 6,055
Gain on sale of minority investment in a privately-held company —  (2,866)
Other non-cash charges and adjustments 3,867 3,805
Changes in operating assets and liabilities (41,508) (9,994)
Net cash provided by operating activities 25,610 42,845
     
Cash flows from investing activities:    
Purchases of short-term investments (34,611) (75,178)
Proceeds from sales and maturities of short-term investments 50,851 71,896
Purchases, net of proceeds from sales, of property and equipment (5,319) (7,687)
Businesses purchased, net of cash acquired (45,133) (28,966)
Proceeds from sale of minority investment in a privately-held company —  2,866
Proceeds from collection of notes receivable of acquired business 5,216 713
Net cash used for investing activities (28,996) (36,356)
     
Cash flows from financing activities:    
Proceeds from issuance of common stock 18,557 8,088
Purchases of treasury stock and net settlement of restricted stock (18,392) (45,055)
Repayment of acquired business debt (6,817) (210)
Contingent consideration related to businesses acquired (382) — 
Excess tax benefit from stock-based compensation 1,186 1,872
Net cash used for financing activities (5,848) (35,305)
     
Effect of foreign exchange rate changes on cash and cash equivalents 46 (23)
Decrease in cash and cash equivalents (9,188) (28,839)
Cash and cash equivalents at beginning of year 120,058 126,363
Cash and cash equivalents at end of period  $110,870  $ 97,524
 
Electronics For Imaging, Inc.
Revenue by Operating Segment and Geographic Area
(in thousands)
(unaudited)
         
  Three Months Ended Nine Months Ended
  September 30, September 30,
         
Revenue by Operating Segment 2012 2011 2012 2011
Industrial Inkjet  $ 79,096  $ 59,411  $ 234,008  $ 167,689
Productivity Software (1)  24,252  21,520  74,043  57,506
Fiery  50,726  66,353  169,980  203,303
Total  $ 154,074  $ 147,284  $ 478,031  $ 428,498
         
Revenue by Geographic Area        
Americas  $ 86,445  $ 84,935  $ 251,351  $ 241,980
EMEA  41,137  46,589  147,823  133,770
APAC  26,492  15,760  78,857  52,748
Japan  7,471  7,267  22,290  28,587
ROW   19,021  8,493  56,567  24,161
Total  $ 154,074  $ 147,284  $ 478,031  $ 428,498
         
         
(1) Previously referred to as APPS. In Q1 2012, we re-named our APPS operating segment as the "Productivity Software operating segment."

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 recurring and non-recurring costs, expenses, and gains.

We believe that the presentation of non-GAAP net income and non-GAAP earnings per diluted share provides important supplemental information regarding non-cash expenses, significant recurring and non-recurring items that we believe are important to understanding our financial and business trends relating to our financial condition and results of operations. Non-GAAP net 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 and non-GAAP earnings per diluted share when evaluating operating performance because it believes that the exclusion of the items described below, for which the amounts and/or timing may vary significantly depending upon the Company's activities and other factors, facilitates comparability of the Company's 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 and non-GAAP earnings per diluted share by adjusting GAAP net income and GAAP earnings per diluted share to remove the impact of recurring amortization of acquisition-related intangibles and stock-based compensation expense, as well as restructuring-related and non-recurring charges and gains and the tax effect of these adjustments. Such non-recurring charges and gains include acquisition-related transaction costs and the costs to integrate such acquisitions into our business, sale of a non-strategic minority investment in a privately held company, and changes in fair value of contingent consideration.

These excluded items are described below:

  • Recurring charges and gains, include:
  • Amortization of acquisition-related intangibles. Intangible assets acquired to date are being amortized on a straight-line basis. Post-acquisition non-competition agreements are amortized over their term.
  • Stock-based compensation expense recognized in accordance with Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC"), Topic 718, Stock Compensation.
  • Non-recurring charges and gains consist of:
  • Restructuring and other charges. 

-- Restructuring charges incurred as we reduced the number and size of our facilities and the size of our workforce.

-- Acquisition-related executive deferred compensation costs, which are dependent on the continuing employment of a former shareholder, which are being amortized on a straight-line basis.

-- Expenses incurred to integrate businesses acquired during the periods reported.

  • Acquisition-related transaction costs associated with businesses acquired during the periods reported and anticipated transactions.
  • Change 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 the change in the fair value of the contingent consideration. Because 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. We believe this approach is useful in understanding the long-term return provided by an acquisition and that investors benefit from a supplemental non-GAAP financial measure that excludes the impact of this adjustment.
  • Gain on sale of minority investment in a privately held company. Other investments, included within other assets, consist of equity and debt investments in privately-held companies that develop products, markets, and services that are considered to be strategic to us. Each of these investments had been fully impaired in prior years. On September 1, 2011, we sold one of these investments for $2.9 million because it was no longer considered to be strategic.
  • During the third quarter of 2012, we incurred a $0.5 million charge in settlement of a dispute with the lessor of a facility in the U.K. which was partially offset by the receipt, during the second quarter of 2012, of an additional $0.3 million in insurance proceeds, net of legal fees and costs, related to our previously disclosed settlement of the shareholder derivative litigation concerning our historical stock option granting practices.
  • Tax effect of non-GAAP adjustments.
  • After excluding the items described above, we apply the principles of ASC Topic 740, Income Taxes, to estimate the non-GAAP income tax provision in each jurisdiction in which we operate. The expected annual non-GAAP income tax rate includes achieving certain operational efficiencies related to our foreign operations that will be implemented prior to December 31, 2012.
  • We have excluded interest accrued on prior year tax reserves of $0.1 and $0.3 million for the three and nine months ended September 30, 2012, respectively, and $0.1 and $0.4 million for the three and nine months ended September 30, 2011, respectively, as well as other tax benefits of $0.4 million for the three and nine months ended September 30, 2011.
  • We have excluded the recognition of previously unrecognized tax benefits of $9.7 million from our non-GAAP net income for the three and nine months ended September 30, 2012 to facilitate comparability of our operating performance between the periods. These tax benefits primarily resulted from the release of previously unrecognized tax benefits resulting from the expiration of U.S. federal statutes of limitations.

Usefulness of Non-GAAP Financial Information to Investors

These non-GAAP measures 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, net income or earnings per diluted share prepared in accordance with GAAP. Non-GAAP financial measures have limitations as 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.

Vincent Pilette
Chief Financial Officer
EFI
650-357-3500

Investor Relations:
JoAnn Horne
Market Street Partners
415-445-3235


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