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Exhibit 99.1

 

For more information:       Investor Relations:
Marc Olin       JoAnn Horne
Chief Financial Officer       Market Street Partners
EFI       415-445-3235
650-357-3500      

EFI REPORTS THIRD QUARTER 2017 RESULTS

Fremont, Calif. – October 26, 2017 – Electronics For Imaging, Inc. (Nasdaq: EFII), a world leader in customer-focused digital printing innovation, today announced its results for the third quarter of 2017.

For the quarter ended September 30, 2017, the Company reported record third quarter revenue of $248.4 million, up 1% compared to third quarter 2016 revenue of $245.6 million. GAAP net income was $1.9 million, down 89% compared to $17.7 million for the same period in 2016 or $0.04 per diluted share, down 89% compared to $0.37 per diluted share for the same period in 2016. Non-GAAP net income was $22.7 million, down 18% compared to non-GAAP net income of $27.6 million for the same period in 2016 or $0.48 per diluted share, down 17% compared to $0.58 per diluted share for the same period in 2016. Cash flow from operating activities was $3.4 million, down 86% compared to $24.0 million during the same period in 2016.

For the nine months ended September 30, 2017, the Company reported revenue of $724.1 million, down 0.2% year-over-year compared to $725.4 million for the same period in 2016. GAAP net income was $9.4 million or $0.20 per diluted share, compared to $25.0 million or $0.52 per diluted share for the same period in 2016. Non-GAAP net income was $74.0 million or $1.57 per diluted share, compared to non-GAAP net income of $80.5 million or $1.68 per diluted share for the same period in 2016. Cash flow from operating activities for the nine months ended September 30, 2017, was $42.4 million, down 24% compared to $55.8 million during the same period in 2016.

“We are clearly disappointed in the third quarter results, which fell below our expectations largely due to delayed deals in our direct business,” said Guy Gecht, CEO of EFI. “To reaccelerate growth, we are reallocating budget and talent toward our largest opportunities, in textile and packaging, along with making organizational changes and adding senior positions to improve focus and execution.”

Conference Call

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

About EFI

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

 

1


Safe Harbor for Forward Looking Statements

Certain statements in this press release are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Statements other than statements of historical fact including words such as “address”, “anticipate”, “believe”, “consider”, “continue”, “develop”, “estimate”, “expect”, “further”, “look”, “plan”, and “progress” and statements in the future tense are forward looking statements. The statements in this press release that could be deemed forward-looking statements include statements regarding EFI’s strategy, plans, expectations regarding its revenue growth, introduction of new products, product portfolio, productivity, future opportunities for EFI and its customers, demand for products, and any statements or assumptions underlying any of the foregoing.

Forward-looking statements are subject to certain risks and uncertainties that could cause our actual future results to differ materially, or cause a material adverse impact on our results. Potential risks and uncertainties include, but are not necessarily limited to, intense competition in each of our businesses, including competition from products developed by EFI’s customers; our ability to remediate the material weaknesses identified in EFI’s internal control over financial reporting; the uncertainty of the outcome of the pending securities lawsuits against EFI; unforeseen expenses; fluctuations in currency exchange rates; the difficulty of aligning expense levels with revenue; management’s ability to forecast revenues, expenses and earnings; our ability to successfully integrate acquired businesses; changes in the mix of products sold; the uncertainty of market acceptance of new product introductions; challenge of managing asset levels, including inventory and variations in inventory levels; the uncertainty of continued success in technological advances; the challenges of obtaining timely, efficient and quality product manufacturing and supply of components; any world-wide financial and economic difficulties and downturns; adverse tax-related matters such as tax audits, changes in our effective tax rate or new tax legislative proposals; the unpredictability of development schedules and commercialization of products by the leading printer manufacturers and declines or delays in demand for our related products; the impact of changing consumer preferences on demand for our textile products; litigation involving intellectual property rights or other related matters; the uncertainty regarding the amount and timing of future share repurchases by EFI and the origin of funds used for such repurchases; the market prices of EFI’s common stock prior to, during and after the share repurchases; 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. Amounts are subject to rounding.

For further information regarding risks and uncertainties associated with EFI’s businesses, please refer to the section entitled “Risk Factors” in the Company’s SEC filings, including, but not limited to, its annual report on Form 10-K and its quarterly reports on Form 10-Q, copies of which may be obtained by contacting EFI’s Investor Relations Department by phone at 650-357-3828 or by email at investor.relations@efi.com or EFI’s Investor Relations website at www.efi.com.

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, 2017 and 2016 is provided below. In addition, an explanation of how management uses non-GAAP financial information to evaluate its business, the substance behind management’s decision to use this non-GAAP financial information, the material limitations associated with the use of non-GAAP financial information, the manner in which management compensates for those limitations, and the substantive reasons management believes that this non-GAAP financial information provides useful information to investors is included under “About our Non-GAAP Net Income and Adjustments” after the tables below.

Our non-GAAP measures 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.

 

2


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,  
     2017     2016     2017     2016  

Revenue

   $ 248,359     $ 245,575     $ 724,097     $ 725,358  

Cost of revenue

     123,315       120,381       348,272       356,720  
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     125,044       125,194       375,825       368,638  

Operating expenses:

        

Research and development

     40,568       36,933       119,184       111,731  

Sales and marketing

     42,269       43,060       129,018       127,360  

General and administrative

     23,901       24,088       66,065       66,366  

Amortization of identified intangibles

     12,299       10,395       34,829       29,360  

Restructuring and other

     833       1,308       5,422       5,733  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     119,870       115,784       354,518       340,550  
  

 

 

   

 

 

   

 

 

   

 

 

 

Income from operations

     5,174       9,410       21,307       28,088  

Interest expense

     (4,912     (4,510     (14,538     (13,243

Interest income and other income, net

     1,760       915       2,802       1,114  
  

 

 

   

 

 

   

 

 

   

 

 

 

Income before income taxes

     2,022       5,815       9,571       15,959  

Benefit from (provision for) income taxes

     (142     11,847       (146     9,041  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income

   $ 1,880     $ 17,662     $ 9,425     $ 25,000  
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted EPS calculation

        

Net income

   $ 1,880     $ 17,662     $ 9,425     $ 25,000  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income per diluted common share

   $ 0.04     $ 0.37     $ 0.20     $ 0.52  
  

 

 

   

 

 

   

 

 

   

 

 

 

Shares used in diluted per share calculation

     46,937       47,621       47,102       47,791  
  

 

 

   

 

 

   

 

 

   

 

 

 

 

3


Electronics For Imaging, Inc.

Reconciliation of GAAP Net Income to Non-GAAP Net Income

(in thousands, except per share data)

(unaudited)

 

     Three Months Ended     Nine Months Ended  
     September 30,     September 30,  
                 Ex-Currency                 Ex-Currency  
     2017     2016     2017     2017     2016     2017  

Net income

   $ 1,880     $ 17,662     $ 1,880     $ 9,425     $ 25,000     $ 9,425  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cost of revenue related to fair value inventory adjustment

     77       —         77       1,260       —         1,260  

Ex-currency adjustment

     —         —         (295     —         —         1,126  

Stock based compensation – Cost of revenue

     486       643       486       1,985       2,187       1,985  

Stock based compensation – Research and development

     1,640       2,061       1,640       7,556       8,631       7,556  

Stock based compensation – Sales and marketing

     1,108       2,284       1,108       5,176       6,669       5,176  

Stock based compensation – General and administrative

     1,414       3,590       1,414       7,824       12,214       7,824  

Amortization of identified intangibles

     12,299       10,395       12,299       34,829       29,360       34,829  

Restructuring and other

     833       1,308       833       5,422       5,733       5,422  

General and administrative:

            

Acquisition-related transaction costs

     637       434       637       1,820       1,700       1,820  

Changes in fair value of contingent consideration

     410       4,252       410       2,187       6,310       2,187  

Revenue recognition review costs and litigation settlements

     3,651       71       3,651       3,929       912       3,929  

Interest income and other income, net

            

Non-cash interest expense related to our convertible notes

     3,293       3,155       3,293       9,713       9,237       9,713  

Foreign exchange fluctuation related to contingent consideration

     131       5       131       45       461       45  

Balance sheet currency remeasurement impact

     —         —         (350     —         —         1,343  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Tax effect of non-GAAP adjustments

     (5,178     (18,309     (5,056     (17,205     (27,922     (17,674
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Non-GAAP net income

   $ 22,681     $ 27,551     $ 22,158     $ 73,966     $ 80,492     $ 75,966  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Non-GAAP net income per diluted common share

   $ 0.48     $ 0.58     $ 0.47     $ 1.57     $ 1.68     $ 1.61  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Shares used in diluted per share calculation

     46,937       47,621       46,937       47,102       47,791       47,102  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

4


Electronics For Imaging, Inc.

Condensed Consolidated Balance Sheets

(in thousands)

(unaudited)

 

     September 30,      December 31,  
     2017      2016  

Assets

     

Cash and cash equivalents

   $ 175,830      $ 164,313  

Short-term investments

     217,923        295,428  

Accounts receivable, net

     236,709        220,813  

Inventories

     130,122        99,075  

Other current assets

     49,424        36,637  
  

 

 

    

 

 

 

Total current assets

     810,008        816,266  

Property and equipment, net

     106,641        103,304  

Goodwill

     387,001        359,841  

Intangible assets, net

     126,567        122,997  

Restricted investments and cash equivalents

     27,753        6,252  

Other assets

     76,727        72,836  
  

 

 

    

 

 

 

Total assets

   $ 1,534,697      $ 1,481,496  
  

 

 

    

 

 

 

Liabilities & Stockholders’ equity

     

Accounts payable

   $ 133,322      $ 114,287  

Accrued and other liabilities

     168,224        139,318  

Income taxes payable

     7,302        10,256  
  

 

 

    

 

 

 

Total current liabilities

     308,848        263,861  

Convertible senior notes, net

     315,255        304,484  

Imputed financing obligation related to build-to-suit lease

     14,087        14,152  

Noncurrent contingent and other liabilities

     31,068        42,786  

Deferred tax liabilities

     13,763        16,351  

Noncurrent income taxes payable

     12,439        12,030  
  

 

 

    

 

 

 

Total liabilities

     695,460        653,664  

Total stockholders’ equity

     839,237        827,832  
  

 

 

    

 

 

 

Total liabilities and stockholders’ equity

   $ 1,534,697      $ 1,481,496  
  

 

 

    

 

 

 

 

5


Electronics For Imaging, Inc.

Condensed Consolidated Statements of Cash Flows

(in thousands)

(unaudited)

 

     Nine Months Ended  
     September 30,  
     2017     2016  

Cash flows from operating activities:

    

Net income

   $ 9,425     $ 25,000  

Adjustments to reconcile net income to net cash provided by operating activities:

    

Depreciation and amortization

     47,894       40,734  

Deferred taxes

     (8,317     (22,127

Stock-based compensation, net of cash settlements

     22,541       26,743  

Provision for inventory obsolescence

     6,056       4,492  

Provision for bad debts and sales-related allowances

     10,868       7,558  

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

     11,211       9,991  

Other non-cash charges and gains

     3,253       5,920  

Changes in operating assets and liabilities, net of effect of acquired businesses

     (60,490     (42,487
  

 

 

   

 

 

 

Net cash provided by operating activities

     42,441       55,824  
  

 

 

   

 

 

 

Cash flows from investing activities:

    

Purchases of short-term investments

     (87,623     (195,904

Proceeds from sales and maturities of short-term investments

     164,979       223,206  

Purchases of restricted investments and cash equivalents

     (21,459     (3,745

Purchases, net of proceeds from sales, of property and equipment

     (8,745     (17,611

Businesses purchased, net of cash acquired

     (16,739     (19,614
  

 

 

   

 

 

 

Net cash provided by (used for) investing activities

     30,413       (13,668
  

 

 

   

 

 

 

Cash flows from financing activities:

    

Proceeds from issuance of common stock

     11,730       10,359  

Purchases of treasury stock and net share settlements

     (56,937     (65,354

Repayment of debt assumed through business acquisitions and debt issuance costs

     (10,786     (8,539

Contingent consideration payments related to businesses acquired

     (9,512     (1,868
  

 

 

   

 

 

 

Net cash used for financing activities

     (65,505     (65,402
  

 

 

   

 

 

 

Effect of foreign exchange rate changes on cash and cash equivalents

     4,168       2,158  
  

 

 

   

 

 

 

Increase (decrease) in cash and cash equivalents

     11,517       (21,088

Cash and cash equivalents at beginning of period

     164,313       164,091  
  

 

 

   

 

 

 

Cash and cash equivalents at end of period

   $ 175,830     $ 143,003  
  

 

 

   

 

 

 

 

6


Electronics For Imaging, Inc.

Revenue by Operating Segment and Geographic Area

(in thousands)

(unaudited)

 

     Three Months Ended      Nine Months Ended  
     September 30,      September 30,  
     2017     2016      2017      2016  

Revenue by Operating Segment

          

Industrial Inkjet

   $ 142,930     $ 143,004      $ 407,886      $ 408,926  

Productivity Software

     37,171       39,663        111,292        108,554  

Fiery

     68,258       62,908        204,919        207,878  
  

 

 

   

 

 

    

 

 

    

 

 

 

Total

   $ 248,359     $ 245,575      $ 724,097      $ 725,358  
  

 

 

   

 

 

    

 

 

    

 

 

 

Revenue by Geographic Area

          

Americas

   $ 129,488     $ 128,252      $ 353,397      $ 363,977  

EMEA

     85,089       85,009        274,635        264,469  

APAC

     33,782       32,314        96,065        96,912  
  

 

 

   

 

 

    

 

 

    

 

 

 

Total

   $ 248,359     $ 245,575      $ 724,097      $ 725,358  
  

 

 

   

 

 

    

 

 

    

 

 

 

Revenue Ex-Currency Adjustment

     (3,622     —          1,652        —    
  

 

 

   

 

 

    

 

 

    

 

 

 

Total

   $ 244,737     $ 245,575      $ 725,749      $ 725,358  
  

 

 

   

 

 

    

 

 

    

 

 

 

 

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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, incremental cost of revenue due to the fair value adjustment to inventories acquired in business combinations, changes in the fair value of contingent consideration, revenue recognition review costs and litigation settlement charges, and non-cash interest expense related to our 0.75% convertible senior notes (“Notes”). We use a constant non-GAAP tax rate of 19%, which we believe reflects the long term average tax rate based on our international structure and geographic distribution of revenue and profit.

Ex-Currency. To better understand trends in our business, we believe it is helpful to adjust our statement of operations to exclude the impact of year-over-year changes in the translation of foreign currencies into U.S. dollars. This is a non-GAAP measure that is calculated by adjusting revenue and non-GAAP net income by using historical exchange rates in effect during the comparable prior year period and removing the balance sheet currency re-measurement impact from interest income and other income (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:

 

    Inventory acquired in the acquisition of the Free Flow Print Server business (“FFPS”) is required to be recorded at fair value rather than historical cost in accordance with ASC 805. The fair value of FFPS inventory reflects the manufacturing cost plus a portion of the expected gross profit. We have adjusted our cost of revenue to reflect the expected gross profit that was included in the inventory valuation under ASC 805. We believe this adjustment is useful to investors to understand the gross profit trends of our ongoing business.

 

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

 

    Stock-based compensation expense of $22.5 and $29.7 million during the nine months ended September 30, 2017 and 2016, respectively, consists of $22.5 and $26.9 million of stock-based compensation expense recognized in accordance with ASC 718, Stock Compensation, and the non-cash settlement of $2.8 million of vacation liabilities settled through the issuance of RSUs during the nine months ended September 30, 2016, which is not included in the GAAP presentation of our stock-based compensation expense.

 

8


    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 $0.2 and $1.0 million for the three and nine months ended September 30, 2017, respectively, and $0.6 and $1.5 million for the three and nine months ended September 30, 2016 respectively.

 

    Acquisition-related transaction costs associated with businesses acquired during the periods reported and anticipated transactions of $0.6 and $1.8 million for the three and nine months ended September 30, 2017, respectively, and $0.4 and $1.7 million for the three and nine months ended September 30, 2016, respectively.

 

    Changes in fair value of contingent consideration. Our management determined that we should analyze the total return provided by the investment when evaluating operating results of an acquired entity. The total return consists of operating profit generated from the acquired entity compared to the purchase price paid, including the final amounts paid for contingent consideration without considering any post-acquisition adjustments related to changes in the fair value of the contingent consideration. Because our management believes the final purchase price paid for the acquisition reflects the accounting value assigned to both contingent consideration and to the intangible assets, we exclude the GAAP impact of any adjustments to the fair value of acquisition-related contingent consideration from the operating results of an acquisition in subsequent periods, including the related foreign exchange fluctuation impact. We believe this approach is useful in understanding the long-term return provided by our acquisitions and that investors benefit from a supplemental non-GAAP financial measure that excludes the impact of this adjustment

 

    Non-cash interest expense on our Notes. Our Notes may be settled in cash on conversion. We are required to separately account for the liability (debt) and equity (conversion option) components of the Notes in a manner that reflects our non-convertible debt borrowing rate. Accordingly, for GAAP purposes, we are required to amortize a debt discount equal to the fair value of the conversion option as interest expense on our $345 million of 0.75% convertible senior notes that were issued in a private placement in September 2014 over the term of the Notes.

 

    Revenue recognition review costs and litigation settlements. As described in “Item 9A, Controls and Procedures” of our annual report on Form 10-K, for the year ended December 31, 2016, as amended, our management concluded that we had material weaknesses in our internal control over financial reporting as of December 31, 2016 related to revenue recognition practices and therefore did not maintain effective internal control over financial reporting or effective disclosure controls and procedures, both of which are requirements of the Securities Exchange Act of 1934, as of that date. The review of our revenue recognition practices has required that we expend significant management time and incur significant accounting, legal, and other expenses totaling $3.6 million during the three and nine months ended September 30, 2017, and we expect to incur additional costs in the future periods.

We settled or accrued reserves related to several litigation claims of $0.1 and $0.4 million for the three and nine months ended September 30, 2017, respectively, and $0.1 and $0.9 million during the three and nine months ended September 30, 2016, respectively.

 

    Tax effect of non-GAAP adjustments. We use a constant non-GAAP tax rate of 19%, which we believe reflects the long-term average tax rate based on our international structure and geographic distribution of revenue and profit. The long-term average tax rate is calculated in accordance with the principles of ASC 740, Income Taxes, to estimate the non-GAAP income tax provision in each jurisdiction in which we operate after excluding the tax effect of the non-GAAP items described above.

 

9