October 24, 2016

EFI Reports Record Third Quarter Revenue of $246M, Up 7%

FREMONT, Calif., Oct. 24, 2016 (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 2016. 

For the quarter ended September 30, 2016, the Company reported record third quarter revenue of $245.6 million, up 7% compared to third quarter 2015 revenue of $228.7 million. GAAP net income was $17.7 million or $0.37 per diluted share, up 76%, compared to $10.3 million or $0.21 per diluted share for the same period in 2015.    Non-GAAP net income was $27.6 million or $0.58 per diluted share, up 16%, compared to non-GAAP net income of $24.1 million or $0.50 per diluted share for the same period in 2015.

For the nine months ended September 30, 2016, the Company reported revenue of $725.4 million, up 16% year-over-year compared to $626.0 million for the same period in 2015. GAAP net income was $25.0 million or $0.52 per diluted share, up 8%, compared to $23.2 million or $0.48 per diluted share for the same period in 2015.  Non-GAAP net income was $80.5 million or $1.68 per diluted share, up 18%, compared to non-GAAP net income of $68.5 million or $1.42 per diluted share for the same period in 2015.

"Our balanced business model was again the story in the third quarter.  We are delighted with the strong organic growth in our Industrial Inkjet and Productivity Software segments, coupled with a rebound in cash from operations," said Guy Gecht, CEO of EFI.  "We are entering the home stretch of 2016 with a robust pipeline of opportunities to partner with customers around the world in transforming and growing their businesses."

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™ 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)

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", "develop", "estimate", "expect", "look", 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, intense competition in each of our businesses, including competition from products developed by EFI's customers;  unforeseen expenses; 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; 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 costs, expenses, and gains. A reconciliation of the adjustments to GAAP results for the three and nine months ended September 30, 2016 and 2015 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.  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.

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, 
          
   2016   2015   2016   2015  
          
Revenue $245,575  $228,694  $725,358  $625,969  
                  
Cost of revenue  120,381   112,409   356,720   295,841  
Gross profit  125,194   116,285   368,638   330,128  
Operating expenses:         
Research and development  36,933   36,125   111,731   103,913  
Sales and marketing  43,060   39,814   127,360   114,117  
General and administrative  24,088   18,223   66,366   54,210  
Amortization of identified intangibles  10,395   8,759   29,360   18,120  
Restructuring and other  1,308   584   5,733   2,544  
                  
Total operating expenses  115,784   103,505   340,550   292,904  
Income from operations  9,410   12,780   28,088   37,224  
                  
Interest expense  (4,510)  (4,634)  (13,243)  (12,870) 
Interest income and other (income) expense, net  915   (645)  1,114   (1,046) 
Income before income taxes  5,815   7,501   15,959   23,308  
Benefit from (provision for) income taxes  11,847   2,756   9,041   (97) 
Net income $17,662  $10,257  $25,000  $23,211  
          
Diluted EPS calculation         
Net income $17,662  $10,257  $25,000  $23,211  
Net income per diluted common share $0.37  $0.21  $0.52  $0.48  
Shares used in diluted per share calculation  47,621   48,501   47,791   48,161  
          
Stock Based Compensation. As permitted by ASU 2016-09, Stock Compensation — Improvements to Employee Share Based Payment Accounting, which we have adopted in Q2 2016, we have elected to account for forfeitures when they occur instead of estimating the expected forfeiture rate.  Adoption of this provision during the second quarter of 2016 resulted in a retroactive net income adjustment of $0.2 million in the first quarter of 2016.
 
                  


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,
      Ex-Currency     Ex-Currency
   2016   2015   2016   2016   2015   2016 
             
Net income $17,662  $10,257  $17,662  $25,000  $23,211  $25,000 
Amortization of identified intangibles  10,395   8,759   10,395   29,360   18,120   29,360 
Ex-currency adjustment        960         435 
Stock based compensation — Cost of revenue  643   785   643   2,187   2,470   2,187 
Stock based compensation — Research and development  2,061   2,397   2,061   8,631   8,253   8,631 
Stock based compensation — Sales and marketing  2,284   1,891   2,284   6,669   6,785   6,669 
Stock based compensation — General and administrative  3,590   4,455   3,590   12,214   11,932   12,214 
Restructuring and other  1,308   584   1,308   5,733   2,544   5,733 
General and administrative:            
Acquisition-related transaction costs  434   1,563   434   1,700   4,236   1,700 
Changes in fair value of contingent consideration  4,252   (1,129)  4,252   6,310   (2,430)  6,310 
Litigation settlements  71   19   71   912   569   912 
Interest income and other (income) expense, net            
Non-cash interest expense related to our convertible notes  3,155   2,989   3,155   9,237   8,784   9,237 
Foreign exchange fluctuation related to contingent consideration  5      5   461      461 
Balance sheet currency remeasurement impact        200         1,738 
Tax effect of non-GAAP adjustments  (18,309)  (8,420)  (18,530)  (27,922)  (15,970)  (28,335)
Non-GAAP net income $27,551  $24,150  $28,490  $80,492  $68,504  $82,252 
             
Non-GAAP net income per diluted common share $0.58  $0.50  $0.60  $1.68  $1.42  $1.72 
Shares used in diluted per share calculation  47,621   48,501   47,621   47,791   48,161   47,791 
             
Stock Based Compensation. As permitted by ASU 2016-09, which we have adopted in Q2 2016, we have elected to account for forfeitures when they occur instead of estimating the expected forfeiture rate.  Adoption of this provision during the second quarter of 2016 resulted in a retroactive net income adjustment of $0.2 million in the first quarter of 2016.
                   


Electronics For Imaging, Inc.    
Condensed Consolidated Balance Sheets    
(in thousands)    
(unaudited)    
     
 September 30, December 31, 
   2016   2015  
     
Assets    
Cash and cash equivalents$143,003  $164,091  
Short-term investments 306,144   333,276  
Accounts receivable, net 222,127   193,121  
Inventories 106,929   106,378  
Other current assets 38,441   30,148  
Total current assets 816,644   827,014  
Property and equipment, net 102,243   97,779  
Goodwill 368,997   338,793  
Intangible assets, net 132,477   135,552  
Other assets 69,069   51,013  
Total assets$1,489,430  $1,450,151  
     
Liabilities & Stockholders' equity    
Accounts payable$102,383  $113,541  
Accrued and other liabilities 148,037   123,192  
Income taxes payable 5,923   3,594  
Total current liabilities 256,343   240,327  
Convertible senior notes, net 300,977   290,734  
Imputed financing obligation related to build-to-suit lease 14,060   13,480  
Noncurrent contingent and other liabilities 56,106   51,101  
Deferred tax liabilities 19,106   19,003  
Noncurrent income taxes payable 12,265   11,312  
Total liabilities 658,857   625,957  
Total stockholders' equity 830,573   824,194  
Total liabilities and stockholders' equity$1,489,430  $1,450,151  
     
Debt Issuance Costs. ASU 2015-03, Simplifying the Presentation of Debt Issuance Costs, requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt, which is consistent with the presentation of debt discounts and premiums. Retrospective application is required, which resulted in the reclassification of $5.8 million of debt issuance costs from other current assets and other assets to be a direct reduction of convertible senior notes, net, in our Condensed Consolidated Balance Sheet as of December 31, 2015.
     


Electronics For Imaging, Inc.    
Condensed Consolidated Statements of Cash Flows    
(in thousands)    
(unaudited)    
      
   Nine Months Ended
   September 30,
      
    2016   2015 
Cash flows from operating activities:    
Net income $25,000  $23,211 
Adjustments to reconcile net income to net cash provided by operating activities:    
 Depreciation and amortization  40,734   27,902 
 Deferred taxes  (22,127)  (7,933)
 Stock-based compensation, net of cash settlements  26,743   27,777 
 Provision for inventory obsolescence  4,492   3,627 
 Provision for bad debts and sales-related allowances  7,558   3,724 
 Non-cash accretion of interest expense on convertible notes and imputed financing obligation  9,991   9,692 
 Other non-cash charges and gains  5,920   3,040 
Changes in operating assets and liabilities, net of effect of acquired businesses  (42,487)  (49,753)
Net cash provided by operating activities  55,824   41,287 
      
Cash flows from investing activities:    
 Purchases of short-term investments  (195,904)  (243,065)
 Proceeds from sales and maturities of short-term investments  223,206   247,821 
 Purchases of restricted investments  (3,745) 
 Purchases, net of proceeds from sales, of property and equipment  (17,611)  (13,146)
 Businesses purchased, net of cash acquired  (19,614)  (65,480)
Net cash used for investing activities  (13,668)  (73,870)
      
Cash flows from financing activities:    
 Proceeds from issuance of common stock  10,359   11,352 
 Purchases of treasury stock and net share settlements  (65,354)  (50,892)
 Repayment of debt assumed through business acquisitions and debt issuance costs  (8,539)  (22,589)
 Contingent consideration payments related to businesses acquired  (1,868)  (3,034)
Net cash used for financing activities  (65,402)  (65,163)
      
 Effect of foreign exchange rate changes on cash and cash equivalents  2,158   (1,435)
 Decrease in cash and cash equivalents  (21,088)  (99,181)
 Cash and cash equivalents at beginning of period  164,091   298,133 
Cash and cash equivalents at end of period $143,003  $198,952 
      
 Stock Based Compensation. ASU 2016-09, Stock Compensation — Improvements to Employee Share Based Payment Accounting, eliminated the requirement to reclassify gross excess tax benefits related to stock-based compensation from operating to financing activities in the statement of cash flows. The retrospective application to prior periods resulted in a $0.3 million increase in cash flows provided by operating activities during the nine months ended September 30, 2015, and a corresponding decrease in cash flows provided by financing activities.
 
      


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  2016   2015   2016   2015  
Industrial Inkjet $143,004  $122,566  $408,926  $305,815  
Productivity Software  39,663   31,706   108,554   96,497  
Fiery  62,908   74,422   207,878   223,657  
Total $245,575  $228,694  $725,358  $625,969  
          
Revenue by Geographic Area         
Americas $128,252  $121,116  $363,977  $337,050  
EMEA  85,009   79,934   264,469   205,191  
APAC  32,314   27,644   96,912   83,728  
Total $245,575  $228,694  $725,358  $625,969  
          
Revenue Ex-Currency Adjustment  3,064      6,961     
Total $248,639  $228,694  $732,319  $625,969  
          

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 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 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 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, and non-GAAP earnings per diluted share by adjusting GAAP net income and GAAP earnings per diluted share to remove the impact of amortization of acquisition-related intangibles, stock-based compensation expense, restructuring and other expenses, acquisition-related transaction expenses, costs to integrate such acquisitions into our business, changes in the fair value of contingent consideration, litigation settlement charges, and non-cash interest expense related to our 0.75% convertible senior notes ("Notes").  We use a static 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 and non-GAAP net income by using historical exchange rates in effect during the comparable prior year period and removing the balance sheet currency remeasurement impact from interest income and other income (expense), net, 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: 

  • Intangible assets acquired to date are being amortized on a straight-line basis.

  • Stock-based compensation expense of $29.7 and $29.4 million during the nine months ended September 30, 2016 and 2015, respectively, consists of $26.9 and $28.0 million of stock-based compensation expense recognized in accordance with ASC 718, Stock Compensation, and the non-cash settlement of $2.7 and $1.4 million of vacation liabilities settled through the issuance of RSUs during the nine months ended September 30, 2016 and 2015, which is not included in the GAAP presentation of our stock-based compensation expense.

  • Restructuring and other expenses 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.

    • Expenses incurred to integrate businesses acquired of $0.6 and $1.5 million for the three and nine months ended September 30, 2016, respectively, and $0.1 and $0.2 million for the three and nine months ended September 30, 2015, respectively.

  • Acquisition-related transaction costs associated with businesses acquired and anticipated transactions of $0.4 and $1.7 million for the three and nine months ended September 30, 2016, respectively, and $1.6 and $4.2 million for the three and nine months ended September 30, 2015, 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.

  • Litigation settlements. We settled or accrued reserves related several litigation claims of $0.9 and $0.6 million during the nine months ended September 30, 2016 and 2015 respectively.

  • We use a static 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 $10.3 million of previously unrecognized tax benefits associated with the 2012 sale of our Foster City building and land which we recognized in the three and nine months ended September 30, 2016.

            

For more information:
Marc Olin
Chief Financial Officer
EFI
650-357-3500

Investor Relations:
JoAnn Horne
Market Street Partners 
415-445-3238


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