January 28, 2014

EFI Reports Record Fourth Quarter and Full Year 2013 Results

  • Q4 2013 Revenue Increases 13% to a Record $197 Million
  • Q4 2013 Non-GAAP Net Income Increases 20%
  • Q4 2013 Double-Digit Growth in All Business Segments & Regions
  • FY 2013 Revenue Increases 12% to a Record $728 Million
  • FY 2013 Non-GAAP Net Income Increases 25%

FREMONT, Calif., Jan. 28, 2014 (GLOBE NEWSWIRE) -- Electronics For Imaging, Inc. (Nasdaq:EFII), a world leader in customer-focused digital printing innovation, today announced its results for the fourth quarter and full year of 2013.

For the quarter ended December 31, 2013, the Company reported record revenue of $197.2 million, up 13% compared to fourth quarter 2012 revenue of $174.1 million. Fourth quarter 2013 non-GAAP net income was $23.8 million or $0.49 per diluted share, up 20% and 17%, respectively, compared to non-GAAP net income of $19.8 million or $0.42 per diluted share for the same period in 2012. GAAP net income was $75.2 million or $1.54 per diluted share, up 33% and 29%, respectively, compared to $56.6 million or $1.19 per diluted share for the same period in 2012.

For the twelve months ended December 31, 2013, the Company reported record revenue of $727.7 million, up 12% year-over-year compared to $652.1 million for the same period in 2012. Non-GAAP net income was $76.6 million or $1.58 per diluted share, up 25% and 22%, respectively, compared to non-GAAP net income of $61.5 million or $1.29 per diluted share for the same period in 2012. GAAP net income was $109.1 million or $2.26 per diluted share, up 31% and 30%, respectively, compared to GAAP net income of $83.3 million or $1.74 per diluted share for the same period in 2012.

"The EFI team delivered a record fourth quarter with strong execution, driving double-digit growth across all segments and regions and capping a terrific 2013," said Guy Gecht, Chief Executive Officer of EFI. "Looking ahead, we are excited about our opportunities from the ongoing migration of analog to digital printing, and continue to be very focused on helping customers become more productive and competitive." 

EFI will discuss the Company's financial results by conference call at 2:00 p.m. PST 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.

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," "consider," "continue," "estimate," "expect," 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, product portfolio, productivity, future opportunities for EFI and its customers, demand for products, 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; any disruptions in our operations, the difficulty to retain employees, and additional expenses that we may incur as a result of our relocation to the Fremont campus; the compliance with the new requirements regarding the "conflict minerals," if they are found to be used in our products, 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 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. A reconciliation of the adjustments to GAAP results for the three months and year ended December 31, 2013 and 2012 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 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 EndedYears Ended
 December 31,December 31,
         
 2013201220132012
         
Revenue  $ 197,213  $ 174,105  $ 727,693  $ 652,137
Cost of revenue  91,103  79,820  332,527  297,316
Gross profit  106,110  94,285  395,166  354,821
 Operating expenses (gains):        
 Research and development  32,944  30,103  128,124  120,298
 Sales and marketing  35,450  32,035  137,583  125,513
 General and administrative  10,246  13,893  47,755  50,727
 Amortization of identified intangibles  4,798  5,160  19,438  18,594
 Restructuring and other  737  1,273  4,834  5,803
 Gain on sale of building and land  (117,562) —   (117,216) — 
 Total operating expenses (gains)  (33,387)  82,464  220,518  320,935
Income from operations  139,497  11,821  174,648  33,886
Interest and other income (expense), net  608  336  (1,510)  1,137
Income before income taxes  140,105  12,157  173,138  35,023
Benefit from (provision for) income taxes  (64,924)  44,462  (64,031)  48,246
 Net income  $ 75,181  $ 56,619  $ 109,107  $ 83,269
         
Fully Diluted EPS calculation        
Net income  $ 75,181  $ 56,619  $ 109,107  $ 83,269
 Net income per diluted common share  $ 1.54  $ 1.19  $ 2.26  $ 1.74
Shares used in diluted per share calculation  48,774  47,566  48,359  47,734
 
Electronics For Imaging, Inc.
Reconciliation of GAAP Net Income to Non-GAAP Net Income
(in thousands, except per share data)
(unaudited)
         
 Three Months EndedYears Ended
 December 31,December 31,
         
 2013201220132012
         
Net income  $ 75,181  $ 56,619  $ 109,107  $ 83,269
Amortization of identified intangibles  4,798  5,160 19,438 18,594
Stock based compensation - Cost of revenue  482  367 1,817 1,193
Stock based compensation - Research and development  2,044  1,532 7,568 5,719
Stock based compensation - Sales and marketing  1,362  915 4,500 3,320
Stock based compensation - General and administrative  3,174  2,572 11,886 9,490
Restructuring and other  737  1,273 4,834 5,803
Gain on sale of building and land  (117,562)  —    (117,216) — 
General and administrative:        
 Acquisition-related transaction costs  597  993 1,433 2,200
 Change in fair value of contingent consideration  (5,340)  44 (5,743) (1,360)
 Litigation settlements 202 —  (3,075) 256
 Sublease income related to our deferred property sale (341) (480) (3,080) (480)
 Depreciation expense related to our deferred property sale 137 273 1,367 273
Interest and other income (expense), net:        
 Interest expense related to our deferred property sale 52 584 1,851 584
 Gain on sale of minority investment in a privately-held company (75) —  (75) — 
Tax effect of non-GAAP adjustments  58,395  (50,022) 42,016 (67,375)
Non-GAAP net income  $ 23,843  $ 19,830  $ 76,628  $ 61,486
         
Non-GAAP net income per diluted common share  $ 0.49  $ 0.42  $ 1.58  $ 1.29
Shares used in per share calculation  48,774  47,566  48,359  47,734
 
Electronics For Imaging, Inc.
Condensed Consolidated Balance Sheets
(in thousands)
(unaudited)
     
 December 31,December 31,
 20132012
     
Assets    
Cash and cash equivalents  $ 177,084  $ 283,996
Short-term investments  177,957  80,966
Accounts receivable, net  130,717  135,110
Inventories  68,345  58,343
Other current assets  46,471  74,877
 Total current assets  600,574  633,292
Property and equipment, net  84,829  86,582
Goodwill  233,203  219,456
Intangible assets, net  68,722  80,244
Other assets  39,320  55,397
 Total assets  $ 1,026,648  $ 1,074,971
     
Liabilities & Stockholders' equity    
Accounts payable  $ 75,132  $ 63,446
Deferred proceeds from property transaction —   180,216
Accrued and other liabilities  121,084  119,247
Income taxes payable  4,917  7,562
 Total current liabilities  201,133  370,471
Imputed financing obligation  11,500 — 
Contingent and other liabilities  6,815  17,742
Deferred tax liabilities  6,738  6,210
Long term taxes payable  33,012  29,755
 Total liabilities  259,198  424,178
Total stockholders' equity  767,450  650,793
 Total liabilities and stockholders' equity  $ 1,026,648  $ 1,074,971
     
     
Note: In accordance with ASC 805, we revised previously issued financial information to reflect adjustments to the accounting for business acquisitions as if they occurred on the acquisition date. Accordingly, we have increased goodwill and accrued and other liabilities by $1.2 million at December 31, 2012 to reflect opening balance sheet adjustments related to our acquisitions of Cretaprint, OPS, and Technique.
 
Electronics For Imaging, Inc.
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
     
 Years Ended
 December 31,
 20132012
     
Cash flows from operating activities:    
Net income   $ 109,107  $ 83,269
Adjustments to reconcile net income to net cash provided by operating activities:    
Depreciation and amortization 28,830 27,032
Deferred taxes 53,397 (52,821)
Tax benefit from employee stock plans 6,868 417
Excess tax benefit from stock-based compensation (7,024) (1,360)
Stock-based compensation 25,770 19,721
Provisions for inventory obsolescence  4,508 3,231
Provisions for bad debts and sales-related allowances 9,595 3,250
Contingent consideration payments related to businesses acquired (1,563) — 
Gain on sale of building and land, net of relocation costs paid (118,492) — 
Other non-cash charges and adjustments, net of effect of acquired companies (4,085) 2,777
Changes in operating assets and liabilities (17,572) (32,162)
Net cash provided by operating activities 89,339 53,354
     
Cash flows from investing activities:    
Purchases of short-term investments (145,088) (64,528)
Proceeds from sales and maturities of short-term investments 47,375 80,992
Purchases, net of proceeds from sales, of property and equipment (49,815) (6,147)
Proceeds from sale of building and land, net of direct transaction costs 91 179,173
Businesses purchased, net of cash acquired (14,688) (61,591)
Proceeds from sale of minority investment in a privately held company 75 — 
Proceeds from notes receivable of acquired businesses 188 5,216
Net cash provided by (used for) investing activities (161,862) 133,115
     
Cash flows from financing activities:    
Proceeds from issuance of common stock 12,303 18,958
Purchases of treasury stock and net share settlements (35,735) (35,176)
Repayment of debt assumed through business acquisitions (1,860) (6,914)
Contingent consideration payments related to businesses acquired (15,122) (969)
Excess tax benefit from stock-based compensation 7,024 1,360
Net cash used for financing activities (33,390) (22,741)
     
Effect of foreign exchange rate changes on cash and cash equivalents (999) 210
Increase (decrease) in cash and cash equivalents (106,912) 163,938
Cash and cash equivalents at beginning of year 283,996 120,058
Cash and cash equivalents at end of year  $ 177,084  $ 283,996
 
Electronics For Imaging, Inc.
Revenue by Operating Segment and Geographic Area
(in thousands)
(unaudited)
         
 Three Months EndedYears Ended
 December 31,December 31,
         
Revenue by Operating Segment2013201220132012
 Industrial Inkjet  $ 99,191  $ 86,219  $ 354,614  $ 320,228
 Productivity Software  33,639  29,423  118,409  103,466
 Fiery  64,383  58,463  254,670  228,443
 Total  $ 197,213  $ 174,105  $ 727,693  $ 652,137
         
Revenue by Geographic Area        
 Americas  $ 115,321  $ 102,762  $ 412,127  $ 354,114
 EMEA  55,446  47,574  207,665  195,397
 APAC  26,446  23,769  107,901  102,626
 Japan 4,594  5,580  21,977  27,870
 APAC, ex Japan  21,852  18,189  85,924  74,756
 Total  $ 197,213  $ 174,105  $ 727,693  $ 652,137

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 and significant recurring and non-recurring 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 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 the exclusion of the items described below, for which the amounts and/or timing may vary significantly depending on 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 expenses and the costs to integrate such acquisitions into our business, changes in the fair value of contingent consideration, litigation settlement charges and credits, gain on sale of our corporate headquarters building and related land, and imputed interest expense and depreciation, net of accrued sublease income and capitalized interest, related to the sale of our corporate headquarters facility and related land.

These excluded items are described below:

  • Recurring charges and gains, including:
  • 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 ASC 718, Stock-based Compensation.
  • Non-recurring charges and gains, including:
  • Restructuring and other consists of:

          -- Restructuring charges incurred as we consolidate the number and size of our facilities and, as a result, reduce the size of our workforce.

                    -- Acquisition-related executive deferred compensation costs, which are dependent on the continuing employment of a former shareholder of an
                       acquired company, 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.
  • 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 each 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 our acquisitions and that investors benefit from a supplemental non-GAAP financial measure that excludes the impact of this adjustment.
  • Imputed net expenses related to sale of building and land. On November 1, 2012, we sold the 294,000 square foot building located at 303 Velocity Way in Foster City, California, which at that time served as our corporate headquarters, along with approximately four acres of land and certain other assets related to the property, to Gilead Sciences, Inc. for $179.7 million. We used the facility until October 31, 2013, for which period rent was not required to be paid. This constituted a form of continuing involvement that prevented gain recognition. Until we vacated the building, the proceeds from the sale were recognized as deferred proceeds from property transaction on our condensed consolidated balance sheet, which were $183.2 million, including imputed interest costs, at October 31, 2013. Imputed interest expense and depreciation, net of accrued sublease income, of $1.6 million had been accrued at October 31, 2013, related to the deferred property transaction, partially offset by capitalized interest of $1.1 million related to the Fremont facility.
  • On November 1, 2012, we sold the aforementioned building and land to Gilead for $179.7 million. We used the facility until October 31, 2013, while searching for a new facility, building it out, and relocating our corporate headquarters, for which period rent was not required to be paid. Because we vacated the facility on October 31, 2013, we have no continuing involvement with the property and have accounted for the transaction as a property sale during the fourth quarter of 2013, thereby recognizing a gain of approximately $117 million on the sale of the property.
  • 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 considered to be strategic to us. We sold one of these investments in 2013 for $0.1 million, which had been fully reserved in prior years, because it was no longer considered to be strategic.
  • In conjunction with our acquisition of Cretaprint, which closed on January 10, 2012, we assumed a contingent liability related to the alleged infringement of certain patents owned by Jose Vicente Tomas Claramonte, the President of Kerajet. Because the former owners of Cretaprint agreed to indemnify EFI against any potential liability in the event that Mr. Claramonte were to prevail in his action against Cretaprint, we accrued a contingent liability based on a reasonable estimate of the legal obligation that was probable as of the acquisition date and we accrued a contingent asset based on the portion of any liability for which the former Cretaprint owners would indemnify EFI. The net obligation accrued in the opening balance sheet on the acquisition date was EU 2.5 million (or approximately $3.3 million). The Spanish Court of Appeal reached a final determination on July 15, 2013, which resulted in EFI having no liability related to any potential infringement of the Claramonte patent. Because this matter is no longer subject to appeal, we have reversed this liability in 2013 by recognizing a credit against general and administrative expense.
  • 2013, we settled pre-acquisition litigation-related indemnification claims of $0.2 million. In 2012, we settled a dispute with the lessor of a facility in the U.K. for $0.5 million, which was partially offset by the receipt of an additional $0.2 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 740, Income Taxes, to estimate the non-GAAP income tax benefit (provision) in each jurisdiction in which we operate.
  • To facilitate comparability of our operating performance between 2013 and 2012, we have excluded the following from our non-GAAP net income:

                     --Tax benefit of $43.6 million during the year ended December 31, 2012 resulting from a capital loss related to the liquidation of a wholly-owned
                         subsidiary.

                     -- Tax benefit of $6.5 million during the year ended December 31, 2012 resulting from the increase in value of acquired intangibles for tax purposes due
                         to an operational restructuring in Spain.

                    -- Tax charge of $19.8 million during the year ended December 31, 2013 resulting from the establishment of a valuation allowance related to the
                         realization of tax benefits from existing California deferred tax assets.

                    -- Tax benefit of $6.0 and $11.8 million for the years ended December 31, 2013 and 2012, respectively, resulting from the release of previously
                        unrecognized tax benefits resulting from the expiration of U.S. federal and state statutes of limitations.

                    -- Tax benefit of $3.2 and $0.2 million for the year ended December 31, 2013, resulting from the retroactive renewal of both the 2012 U.S. federal
                         research and development tax credit and certain international tax provisions, respectively, on January 2, 2013. The tax benefit for these items had
                         been previously recognized in our non-GAAP net income for the year ended December 31, 2012. Interest expense accrued (released) on prior year
                         tax reserves of $(0.1) and $0.3 million for the years ended December 31, 2013 and 2012, respectively.

  • Please note that starting in Q1 2014 and continuing for the balance of the year, we will be using a constant Non-GAAP tax rate of 19%, which we believe reflects the long term average tax rate based on our tax structure and geographic distribution of revenue and profits.

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.

CONTACT: David Reeder

         Chief Financial Officer

         EFI

         650-357-3500

         

         Investor Relations:

         JoAnn Horne

         Market Street Partners

         415-445-3235


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