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8-K - 8-K - ELECTRONICS FOR IMAGING INCd327062d8k.htm

Exhibit 99.1

 

For more information:

Marc Olin

Chief Financial Officer

EFI

650-357-3500

    

Investor Relations:

JoAnn Horne

Market Street Partners

415-445-3238

EFI Reports Record Fourth Quarter, Full Year 2016 Results

 

    Q4 GAAP EPS $0.43, up 105%, Non-GAAP EPS $0.77, up 26%

 

    Q4 Cash Flow From Operations of $65 Million, up 141%

Fremont, Calif. – January 25, 2017 – Electronics For Imaging, Inc. (Nasdaq: EFII), a world leader in customer-focused digital printing innovation, today announced preliminary results for the fourth quarter and year ended December 31, 2016.

For the quarter ended December 31, 2016, the Company reported record fourth quarter revenue of $266.7 million, up 4% compared to fourth quarter 2015 revenue of $256.5 million. GAAP net income was $20.5 million, up 99% compared to $10.3 million for the same period in 2015 or $0.43 per diluted share, up 105% compared to $0.21 per diluted share for the same period in 2015. Non-GAAP net income was $36.3 million, up 23% compared to non-GAAP net income of $29.4 million for the same period in 2015 or $ 0.77 per diluted share, up 26% compared to $0.61 per diluted share for the same period in 2015. Cash flow from operating activities was $65.2 million, up 141% compared to $27.1 million during the same period in 2015

For the year ended December 31, 2016, the Company reported revenue of $992.1 million, up 12% year-over-year compared to $882.5 million for the same period in 2015. GAAP net income was $45.5 million, up 36% compared to $33.5 million for the same period in 2015 or $0.95 per diluted share, up 36% compared to $0.70 per diluted share for the same period in 2015. Non-GAAP net income was $116.8 million, up 19% compared to non-GAAP net income of $97.9 million for the same period in 2015 or $2.44 per diluted share, up 20% compared to $2.03 per diluted share for the same period in 2015. Cash flow from operating activities was $121.1 million, up 77% compared to $68.3 million during the same period in 2015.

“EFI delivered another record revenue quarter and our team’s execution drove significant improvements in margins, cash flow, and earnings per share, despite the negative impact of foreign currency,” said Guy Gecht, CEO of EFI. “As we start the New Year we are even more excited about the road ahead, especially with our upcoming introduction of the Nozomi platform targeted at digital printing for packaging.”

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, 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, potential differences between the results disclosed in this release and the Company’s final results when disclosed in its Annual Report on Form 10-K as a result of developments that may arise between now and the disclosure of the final results; intense competition in each of our businesses, including competition from products developed by EFI’s customers; 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 Annual Report on Form 10-K for the fiscal year ended December 31,2016. 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 twelve months ended December 31, 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.

 

2


Electronics For Imaging, Inc.

Condensed Consolidated Statements of Operations

(in thousands, except per share data)

(unaudited)

 

     Three Months Ended     Years Ended  
     December 31,     December 31,  
     2016     2015     2016     2015  

Revenue

   $ 266,707      $ 256,544      $ 992,065      $ 882,513   

Cost of revenue

     126,655        127,288        483,375        423,129   
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     140,052        129,256        508,690        459,384   

Operating expenses:

        

Research and development

     39,461        37,451        151,192        141,364   

Sales and marketing

     41,682        42,222        169,042        156,339   

General and administrative

     19,248        18,587        85,614        72,797   

Amortization of identified intangibles

     10,200        8,390        39,560        26,510   

Restructuring and other

     996        3,187        6,729        5,731   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     111,587        109,837        452,137        402,741   
  

 

 

   

 

 

   

 

 

   

 

 

 

Income from operations

     28,465        19,419        56,553        56,643   

Interest expense

     (4,473     (4,494     (17,716     (17,364

Interest income and other (income) expense, net

     (569     (711     545        (1,757
  

 

 

   

 

 

   

 

 

   

 

 

 

Income before income taxes

     23,423        14,214        39,382        37,522   

Benefit from (provision for) income taxes

     (2,877     (3,885     6,164        (3,982
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income

   $ 20,546      $ 10,329      $ 45,546      $ 33,540   
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted EPS calculation

        

Net income

   $ 20,546      $ 10,329      $ 45,546      $ 33,540   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income per diluted common share

   $ 0.43      $ 0.21      $ 0.95      $ 0.70   
  

 

 

   

 

 

   

 

 

   

 

 

 

Shares used in diluted per share calculation

     47,460        48,447        47,797        48,150   
  

 

 

   

 

 

   

 

 

   

 

 

 

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     Years Ended  
     December 31,     December 31,  
                 Ex-Currency                 Ex-Currency  
     2016     2015     2016     2016     2015     2016  

Net income

   $ 20,546      $ 10,329      $ 20,546      $ 45,546      $ 33,540      $ 45,546   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Amortization of identified intangibles

     10,200        8,390        10,200        39,560        26,510        39,560   

Ex-currency adjustment

     —         —         1,287        —         —         1,722   

Stock based compensation – Cost of revenue

     1,065        481        1,065        3,252        2,951        3,252   

Stock based compensation – Research and development

     2,065        1,657        2,065        10,696        9,910        10,696   

Stock based compensation – Sales and marketing

     1,573        1,141        1,573        8,242        7,926        8,242   

Stock based compensation – General and administrative

     482        2,705        482        12,696        14,637        12,696   

Restructuring and other

     996        3,187        996        6,729        5,731        6,729   

General and administrative:

            

Acquisition-related transaction costs

     541        1,258        541        2,241        5,494        2,241   

Changes in fair value of contingent consideration

     629        295        629        6,939        (2,135     6,939   

Litigation settlements

     115        15        115        1,027        584        1,027   

Interest income and other (income) expense, net

            

Non-cash interest expense related to our convertible notes

     3,163        2,997        3,163        12,400        11,781        12,400   

Foreign exchange fluctuation related to contingent consideration

     588        —         588        1,049        —         1,049   

Balance sheet currency remeasurement impact

     —         —         1,029        —         —         2,767   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Tax effect of non-GAAP adjustments

     (5,643     (3,020     (6,082     (33,565     (18,990     (34,417
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Non-GAAP net income

   $ 36,320      $ 29,435      $ 38,197      $ 116,812      $ 97,939      $ 120,449   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Non-GAAP net income per diluted common share

   $ 0.77      $ 0.61      $ 0.80      $ 2.44      $ 2.03      $ 2.52   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Shares used in diluted per share calculation

     47,460        48,447        47,460        47,797        48,150        47,797   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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.

 

4


Electronics For Imaging, Inc.

Condensed Consolidated Balance Sheets

(in thousands)

(unaudited)

 

     December 31,
2016
     December 31,
2015
 

Assets

     

Cash and cash equivalents

   $ 164,313       $ 164,091   

Short-term investments

     295,428         333,276   

Accounts receivable, net

     220,813         193,121   

Inventories

     98,712         106,378   

Other current assets

     36,637         30,148   
  

 

 

    

 

 

 

Total current assets

     815,903         827,014   

Property and equipment, net

     103,304         97,779   

Goodwill

     359,841         338,793   

Intangible assets, net

     122,997         135,552   

Other assets

     78,322         51,013   
  

 

 

    

 

 

 

Total assets

   $ 1,480,367       $ 1,450,151   
  

 

 

    

 

 

 

Liabilities & Stockholders’ equity

     

Accounts payable

   $ 113,924       $ 113,541   

Accrued and other liabilities

     139,317         123,192   

Income taxes payable

     9,492         3,594   
  

 

 

    

 

 

 

Total current liabilities

     262,733         240,327   

Convertible senior notes, net

     304,484         290,734   

Imputed financing obligation related to build-to-suit lease

     14,152         13,480   

Noncurrent contingent and other liabilities

     42,786         51,101   

Deferred tax liabilities

     16,351         19,003   

Noncurrent income taxes payable

     12,030         11,312   
  

 

 

    

 

 

 

Total liabilities

     652,536         625,957   

Total stockholders’ equity

     827,831         824,194   
  

 

 

    

 

 

 

Total liabilities and stockholders’ equity

   $ 1,480,367       $ 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)

 

     Years Ended
December 31,
 
     2016     2015  

Cash flows from operating activities:

    

Net income

   $ 45,546      $ 33,540   

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

    

Depreciation and amortization

     55,081        40,124   

Deferred taxes

     (10,188     (7,384

Tax benefit from employee stock plans

     —         5,368   

Stock-based compensation, net of cash settlements

     31,726        33,741   

Provision for inventory obsolescence

     5,187        5,193   

Provision for bad debts and sales-related allowances

     10,678        7,536   

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

     13,489        12,957   

Other non-cash charges and gains

     5,443        3,843   

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

     (35,958     (66,561
  

 

 

   

 

 

 

Net cash provided by operating activities

     121,004        68,357   
  

 

 

   

 

 

 

Cash flows from investing activities:

    

Purchases of short-term investments

     (216,349     (328,911

Proceeds from sales and maturities of short-term investments

     252,856        311,508   

Purchases of restricted investments

     (6,252     —    

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

     (22,373     (18,449

Businesses purchased, net of cash acquired

     (19,932     (74,766
  

 

 

   

 

 

 

Net cash used for investing activities

     (12,050     (110,618
  

 

 

   

 

 

 

Cash flows from financing activities:

    

Proceeds from issuance of common stock

     11,100        11,450   

Purchases of treasury stock and net share settlements

     (83,292     (76,447

Repayment of debt assumed through business acquisitions and debt issuance costs

     (8,803     (22,592

Contingent consideration payments related to businesses acquired

     (28,111     (4,093
  

 

 

   

 

 

 

Net cash used for financing activities

     (109,106     (91,682
  

 

 

   

 

 

 

Effect of foreign exchange rate changes on cash and cash equivalents

     374        (99
  

 

 

   

 

 

 

Decrease in cash and cash equivalents

     222        (134,042

Cash and cash equivalents at beginning of period

     164,091        298,133   
  

 

 

   

 

 

 

Cash and cash equivalents at end of period

   $ 164,313      $ 164,091   
  

 

 

   

 

 

 

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 $3.3 million increase in cash flows provided by operating activities during the year ended December 31, 2015, and a corresponding decrease in cash flows provided by financing activities.

 

6


Electronics For Imaging, Inc.

Revenue by Operating Segment and Geographic Area

(in thousands)

(unaudited)

 

     Three Months Ended
December 31,
     Years Ended
December 31,
 
     2016      2015      2016      2015  

Revenue by Operating Segment

           

Industrial Inkjet

   $ 153,657       $ 141,890       $ 562,583       $ 447,705   

Productivity Software

     43,183         38,853         151,737         135,350   

Fiery

     69,867         75,801         277,745         299,458   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 266,707       $ 256,544       $ 992,065       $ 882,513   
  

 

 

    

 

 

    

 

 

    

 

 

 

Revenue by Geographic Area

           

Americas

   $ 136,434       $ 136,549       $ 500,411       $ 473,599   

EMEA

     95,836         85,912         360,305         291,103   

APAC

     34,437         34,083         131,349         117,811   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 266,707       $ 256,544       $ 992,065       $ 882,513   
  

 

 

    

 

 

    

 

 

    

 

 

 

Revenue Ex-Currency Adjustment

     2,967            9,928         —    
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 269,674       $ 256,544       $ 1,001,993       $ 882,513   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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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 $34.9 and $35.4 million during the twelve months ended December 31, 2016 and 2015, respectively, consist of $31.8 and $34.0 million of stock-based compensation expense recognized in accordance with ASC 718, Stock Compensation, and the non-cash settlement of $3.1 and $1.4 million of vacation liabilities settled through the issuance of RSUs during the twelve months ended December 31, 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 $0.7 and $2.1 million for the three and twelve months ended December 31, 2016, respectively, and $1.5 and $1.8 million for the three and twelve months ended December 31, 2015, respectively.

 

8


    Acquisition-related transaction costs associated with businesses acquired and anticipated transactions of $0.5 and $2.2 million for the three and twelve months ended December 31, 2016, respectively, and $1.3 and $5.5 million for the three and twelve months ended December 31, 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 $1.0 and $0.6 million during the twelve months ended December 31, 2016 and 2015 respectively.

 

    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 $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 twelve months ended December 31, 2016.

 

9