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8-K - FORM 8-K - ELECTRONICS FOR IMAGING INCd284263d8k.htm

Exhibit 99.1

 

For more information:     Investor Relations:
Marc Olin     JoAnn Horne
Chief Financial Officer     Market Street Partners
EFI     415-445-3238
650-357-3500    

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

Fremont, Calif. – October 24, 2016 – 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)

 

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 “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.

 

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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.

 

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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.

 

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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.

 

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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.

 

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Electronics For Imaging, Inc.

Revenue by Operating Segment and Geographic Area

(in thousands)

(unaudited)

 

     Three Months Ended      Nine Months Ended  
     September 30,      September 30,  
     2016      2015      2016      2015  

Revenue by Operating Segment

           

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   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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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.

 

8


    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.

 

9