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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 Record First Quarter Revenue For Q1 2018

Industrial Inkjet Increases by 15%; Productivity Software Grows by 25%

Fremont, Calif. – April 30, 2018 – Electronics For Imaging, Inc. (Nasdaq: EFII), a world leader in customer-focused digital printing innovation, today announced its results for the first quarter of 2018.

For the quarter ended March 31, 2018, the Company reported record first quarter revenue of $239.9 million, up 5% compared to first quarter 2017 revenue of $228.7 million. GAAP net loss was $3.6 million compared to GAAP net income of $4.8 million for the same period in 2017 or $(0.08) per diluted share compared to $0.10 per diluted share for the same period in 2017. Non-GAAP net income was $17.2 million, down 33% compared to non-GAAP net income of $25.8 million for the same period in 2017 or $0.38 per diluted share, down 31% compared to $0.55 per diluted share for the same period in 2017. Cash flow from operating activities was $6.3 million compared to $14.9 million during the same period in 2017.

“We began 2018 with a very strong Q1, as our direct business*, which grew 17% and now comprises 77% of our sales, drove revenues above expectations. We also met our goals for Nozomi in Q1, and with increasing traction in the packaging market, look for sequential growth in unit shipments through the year,” said Guy Gecht, CEO of EFI. “With Nozomi and the solid lineup of new products planned for the second half of the year, the entire EFI team is excited and energized about the significant opportunities in 2018 and beyond.”

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)

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 “accelerate”. “address”, “ahead”, “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.

 

 

* EFI defines its “direct business” as its Industrial Inkjet and Productivity Software segments.

 

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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 and are subject to revision until the Company will have filed its Quarterly Report on Form 10-Q for the three months ended March 31, 2018. 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.

Impact of the Tax Cuts and Jobs Act of 2017

On December 22, 2017, the Tax Cuts and Jobs Act, which will have wide-ranging impacts on EFI including, but not limited to, a Deemed Repatriation Transition Tax and the revaluation of current U.S. deferred tax assets and liabilities, was enacted. We have recorded a $27.3 million charge in the fourth quarter of 2017 as a provisional estimate related to the aforementioned items. In the current quarter, we have recorded an additional $1.2 million charge related to the state tax impact associated with the Deemed Repatriation Transition Tax. The SEC staff issued Staff Accounting Bulletin (“SAB”) 118, which allows companies to record a provisional estimate of the income tax effects in the quarter in which it can make reasonable estimates of the effects of the new law. While we have calculated a reasonable estimate of the impact of the U.S. tax rate reduction and the amount of the Deemed Repatriation Transition Tax, we are still gathering additional information to refine and finalize our calculation of the impacts of the new tax law on our U.S. deferred tax assets and liabilities, the Deemed Repatriation Transition Tax, and other provisions associated with the Tax Cuts and Jobs Act. As we obtain additional information, we may record material adjustments in current or subsequent quarters, and will finalize the income tax effects in the fourth quarter of 2018, or in an earlier quarter if our analysis is complete.

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 months ended March 31, 2018 and 2017 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, including ex-currency 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, revenue, gross profit, operating expenses, 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  
     March 31,  
     2018     2017  

Revenue

   $ 239,866     $ 228,691  

Cost of revenue

     120,759       105,161  
  

 

 

   

 

 

 

Gross profit

     119,107       123,530  

Operating expenses:

    

Research and development

     38,279       39,627  

Sales and marketing

     46,680       43,035  

General and administrative

     19,421       21,029  

Amortization of identified intangibles

     12,138       10,778  

Restructuring and other

     4,654       918  
  

 

 

   

 

 

 

Total operating expenses

     121,172       115,387  
  

 

 

   

 

 

 

Income (loss) from operations

     (2,065     8,143  

Interest expense

     (4,954     (4,660

Interest income and other income, net of expenses

     1,289       287  
  

 

 

   

 

 

 

Income (loss) before income taxes

     (5,730     3,770  

Benefit from income taxes

     2,135       1,017  
  

 

 

   

 

 

 

Net income (loss)

   $ (3,595   $ 4,787  
  

 

 

   

 

 

 

Diluted EPS calculation

    

Net income (loss)

   $ (3,595   $ 4,787  

Net income (loss) per diluted common share

   $ (0.08   $ 0.10  

Shares used in diluted per share calculation

     45,030       47,208  

 

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Electronics For Imaging, Inc.

Reconciliation of GAAP Net Income (Loss) to Non-GAAP Net Income

(in thousands, except per share data)

(unaudited)

 

     Three Months Ended  
     March 31,  
                 Ex-Currency  
     2018     2017     2018  

Net income (loss)

   $ (3,595   $ 4,787     $ (3,595
  

 

 

   

 

 

   

 

 

 

Cost of revenue related to fair value inventory adjustment

     —         1,024       —    

Ex-currency adjustment

     —         —         (2,221

Stock based compensation – Cost of revenue

     768       834       768  

Stock based compensation – Research and development

     2,355       3,570       2,355  

Stock based compensation – Sales and marketing

     1,799       2,295       1,799  

Stock based compensation – General and administrative

     1,848       3,581       1,848  

Amortization of identified intangibles

     12,138       10,778       12,138  

Restructuring and other

     4,654       918       4,654  

General and administrative:

      

Acquisition-related transaction costs

     679       729       679  

Changes in fair value of contingent consideration

     (1,228     1,283       (1,228

Revenue recognition and accounting review costs

     611       19       611  

Interest income and other income, net of expenses

      

Non-cash interest expense related to our convertible notes

     3,383       3,171       3,383  

Foreign exchange fluctuation related to contingent consideration

     —         (105     —    

Balance sheet currency remeasurement impact

     —         —         307  

Tax effect of non-GAAP adjustments

     (6,178     (7,072     (5,815
  

 

 

   

 

 

   

 

 

 

Non-GAAP net income

   $ 17,234     $ 25,812     $ 15,683  
  

 

 

   

 

 

   

 

 

 

Non-GAAP net income per diluted common share

   $ 0.38     $ 0.55     $ 0.34  

Shares used in diluted per share calculation

     45,540       47,208       45,540  

 

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Electronics For Imaging, Inc.

Condensed Consolidated Balance Sheets

(in thousands)

(unaudited)

 

     March 31,      December 31,  
     2018      2017  

Assets

     

Cash and cash equivalents

   $ 163,077      $ 170,345  

Short-term investments

     140,659        148,697  

Accounts receivable, net

     251,227        244,416  

Inventories

     123,824        125,813  

Other current assets

     64,172        50,564  
  

 

 

    

 

 

 

Total current assets

     742,959        739,835  

Property and equipment, net

     99,333        98,762  

Goodwill

     406,876        403,278  

Intangible assets, net

     111,812        123,008  

Restricted cash equivalents

     35,733        32,531  

Other assets

     68,177        60,587  
  

 

 

    

 

 

 

Total assets

   $ 1,464,890      $ 1,458,001  
  

 

 

    

 

 

 

Liabilities & Stockholders’ equity

     

Accounts payable

   $ 119,842      $ 123,935  

Accrued and other liabilities

     166,569        153,923  

Income taxes payable

     5,427        5,309  
  

 

 

    

 

 

 

Total current liabilities

     291,838        283,167  

Convertible senior notes, net

     322,709        318,957  

Imputed financing obligation related to build-to-suit lease

     13,912        13,944  

Noncurrent contingent and other liabilities

     24,748        28,801  

Deferred tax liabilities

     10,375        11,652  

Noncurrent income taxes payable

     19,666        20,169  
  

 

 

    

 

 

 

Total liabilities

     683,248        676,690  

Total stockholders’ equity

     781,642        781,311  
  

 

 

    

 

 

 

Total liabilities and stockholders’ equity

   $ 1,464,890      $ 1,458,001  
  

 

 

    

 

 

 

 

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Electronics For Imaging, Inc.

Condensed Consolidated Statements of Cash Flows

(in thousands)

(unaudited)

 

     Three Months Ended  
     March 31,  
     2018     2017  

Cash flows from operating activities:

    

Net income (loss)

   $ (3,595   $ 4,787  

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

    

Depreciation and amortization

     17,106       14,929  

Deferred taxes

     10,638       (899

Provision for bad debts and sales-related allowances

     (1,219     2,822  

Provision for inventory obsolescence

     1,650       752  

Stock-based compensation

     6,770       10,280  

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

     3,802       3,672  

Other non-cash charges and gains

     172       2,486  

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

     (29,031     (23,931
  

 

 

   

 

 

 

Net cash provided by operating activities

     6,293       14,898  
  

 

 

   

 

 

 

Cash flows from investing activities:

    

Purchases of short-term investments

     —         (35,149

Proceeds from sales and maturities of short-term investments

     7,318       38,235  

Purchases of restricted investments

     —         (1,038

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

     (4,214     (3,789

Businesses purchased, net of cash acquired and disposition

     (252     (5,700
  

 

 

   

 

 

 

Net cash provided by (used for) investing activities

     2,852       (7,441
  

 

 

   

 

 

 

Cash flows from financing activities:

    

Proceeds from issuance of common stock

     5,010       5,855  

Purchases of treasury stock and net share settlements

     (17,601     (22,455

Repayment of debt assumed through business acquisitions

     (254     (411

Contingent consideration payments related to businesses acquired

     (698     (1,265
  

 

 

   

 

 

 

Net cash used for financing activities

     (13,543     (18,276
  

 

 

   

 

 

 

Effect of foreign exchange rate changes on cash, cash equivalents, and restricted cash equivalents

     332       969  
  

 

 

   

 

 

 

Decreases in cash, cash equivalents, and restricted cash equivalents

     (4,066     (9,850

Cash, cash equivalents, and restricted cash equivalents at beginning of period

     202,876       165,455  
  

 

 

   

 

 

 

Cash, cash equivalents, and restricted cash equivalents at end of period

   $ 198,810     $ 155,605  
  

 

 

   

 

 

 

Restricted Cash. ASU 2016-18, Statement of Cash Flows: Restricted Cash, which we adopted in Q1 2018, requires that the statement of cash flows explain the change in cash, cash equivalents, and restricted cash equivalents. Therefore, restricted cash equivalents are included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown above. This presentation is required to be presented retrospectively to prior periods.

 

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Electronics For Imaging, Inc.

Revenue by Operating Segment and Geographic Area

(in thousands)

(unaudited)

 

     Three Months Ended  
     March 31,  
     2018     2017  

Revenue by Operating Segment

    

Industrial Inkjet

   $ 142,209     $ 123,263  

Productivity Software

     43,775       35,058  

Fiery

     53,882       70,370  
  

 

 

   

 

 

 

Total

   $ 239,866     $ 228,691  
  

 

 

   

 

 

 

Revenue by Geographic Area

    

Americas

   $ 117,385     $ 109,895  

EMEA

     88,175       88,033  

APAC

     34,306       30,763  
  

 

 

   

 

 

 

Total

   $ 239,866     $ 228,691  
  

 

 

   

 

 

 

Revenue Ex-Currency Adjustment

     (10,622     2,747  
  

 

 

   

 

 

 

Total

   $ 229,244     $ 231,438  
  

 

 

   

 

 

 

 

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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, asset impairment, incremental cost of revenue due to the fair value adjustment to inventories acquired in business acquisitions, changes in the fair value of contingent consideration including the related foreign exchange fluctuation impact, revenue recognition and accounting review costs, 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, gross profit, and operating expenses 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, net of expenses, 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:

 

    Cost of revenue related to fair value adjustment 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, Business Combinations. The fair value of FFPS inventory reflects the manufacturing cost plus a portion of the expected gross profit. In 2017, we 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.

 

    Amortization of identified intangibles. Intangible assets acquired to date are being amortized on a straight-line basis.

 

    Stock-based compensation expense of $6.8 and $10.3 million during the three months ended March 31, 2018 and 2017, respectively, were recognized in accordance with ASC 718, Stock Compensation.

 

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    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.

 

    Integration-related expenses were $1.1 and $0.5 million for the three months ended March 31, 2018 and 2017, respectively, consisted of expenses incurred to integrate business acquired and depreciation resulted from assets required to integrate acquired businesses. We have acquired 18 businesses in the last 5 years, which have required significant information technology investment to integrate them into our business.

 

    Acquisition-related transaction costs associated with businesses acquired during the periods reported and anticipated transactions of $0.7 million for each of the three months ended March 31, 2018 and 2017.

 

    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 and accounting review costs. As described in “Item 9A, Controls and Procedures” of our annual report on Form 10-K, for the year ended December 31, 2017, as amended, our management concluded that we had material weaknesses in our internal control over financial reporting as of December 31, 2017 related to revenue recognition practices and the valuation of certain textile digital inkjet printer inventories. Therefore, we 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 of $0.6 million during the three months ended March 31, 2018, and we expect to incur additional costs in the future periods.

 

    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 and $1.2 million of tax charges recognized in Q1 2018 as a result of the 2017 Tax Act, which was enacted on December 22, 2017. In Q4 2017, we previously excluded a $27.5 million charge as a result of the 2017 Tax Act, which was enacted on December 22, 2017.

 

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