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8-K - FORM 8-K - ELECTRONICS FOR IMAGING INCd27926d8k.htm

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 Revenue of $229M, up 16%

Fremont, Calif. – October 20, 2015 Electronics For Imaging, Inc. (Nasdaq: EFII), a world leader in customer-focused digital printing innovation, today announced its results for the third quarter of 2015.

For the quarter ended September 30, 2015, the Company reported record revenue of $228.7 million, up 16% compared to third quarter 2014 revenue of $197.7 million. Non-GAAP net income was $24.1 million or $0.50 per diluted share, compared to non-GAAP net income of $20.6 million or $0.43 per diluted share for the same period in 2014. GAAP net income was $10.3 million or $0.21 per diluted share, compared to $4.8 million or $0.10 per diluted share for the same period in 2014.

For the nine months ended September 30, 2015, the Company reported revenue of $626.0 million, up 8% year-over-year compared to $579.3 million for the same period in 2014. Non-GAAP net income was $68.5 million or $1.42 per diluted share, compared to non-GAAP net income of $61.9 million or $1.28 per diluted share for the same period in 2014. GAAP net income was $23.2 million or $0.48 per diluted share, compared to $21.8 million or $0.45 per diluted share for the same period in 2014.

“EFI delivered another solid quarter, overcoming the negative impact from various foreign currencies and weak emerging markets,” said Guy Gecht, CEO of EFI. “I’m proud of the way our teams planned and are quickly executing on the integration of Reggiani and Matan. We are particularly excited about the progress and cross selling activities with our new Regginai products reinforcing the tremendous opportunity for digital printing on textile.”

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)

 

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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”, “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, 2015 and 2014 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,  
             2015                     2014                     2015                     2014          

Revenue

   $ 228,694      $ 197,674      $ 625,969      $ 579,327   

Cost of revenue

     112,409        88,877        295,841        263,782   
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     116,285        108,797        330,128        315,545   

Operating expenses:

        

Research and development

     36,125        33,840        103,913        100,563   

Sales and marketing

     39,814        36,113        114,117        107,902   

General and administrative

     18,223        17,617        54,210        49,973   

Amortization of identified intangibles

     8,759        5,284        18,120        15,266   

Restructuring and other

     584        3,021        2,544        5,662   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     103,505        95,875        292,904        279,366   
  

 

 

   

 

 

   

 

 

   

 

 

 

Income from operations

     12,780        12,922        37,224        36,179   

Interest expense

     (4,634     (1,142     (12,870     (1,707

Interest income and other expense, net

     (645     (4,928     (1,046     (4,648
  

 

 

   

 

 

   

 

 

   

 

 

 

Income before income taxes

     7,501        6,852        23,308        29,824   

Benefit from (provision for) income taxes

     2,756        (2,047     (97     (8,025
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income

   $ 10,257      $ 4,805      $ 23,211      $ 21,799   
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted EPS calculation

        

Net income

   $ 10,257      $ 4,805      $ 23,211      $ 21,799   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income per diluted common share

   $ 0.21      $ 0.10      $ 0.48      $ 0.45   
  

 

 

   

 

 

   

 

 

   

 

 

 

Shares used in diluted per share calculation

     48,501        48,184        48,161        48,304   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

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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,  
             2015                     2014                     2015                     2014          

Net income

   $ 10,257      $ 4,805      $ 23,211      $ 21,799   
  

 

 

   

 

 

   

 

 

   

 

 

 

Amortization of identified intangibles

     8,759        5,284        18,120        15,266   

Stock based compensation – Cost of revenue

     785        780        2,470        1,894   

Stock based compensation – Research and development

     2,397        2,316        8,253        6,482   

Stock based compensation – Sales and marketing

     1,891        1,486        6,785        4,069   

Stock based compensation – General and administrative

     4,455        4,452        11,932        12,706   

Restructuring and other

     584        3,021        2,544        5,662   

General and administrative:

        

Acquisition-related transaction costs

     1,563        552        4,236        1,226   

Changes in fair value of contingent consideration

     (1,129     (626     (2,430     (2,220

Litigation settlements

     19        660        569        897   

Interest income and other expense, net

        

Non-cash interest expense related to our convertible notes

     2,989        665        8,784        665   
  

 

 

   

 

 

   

 

 

   

 

 

 

Tax effect of non-GAAP adjustments

     (8,420     (2,787     (15,970     (6,506
  

 

 

   

 

 

   

 

 

   

 

 

 

Non-GAAP net income

   $ 24,150      $ 20,608      $ 68,504      $ 61,940   
  

 

 

   

 

 

   

 

 

   

 

 

 

Non-GAAP net income per diluted common share

   $ 0.50      $ 0.43      $ 1.42      $ 1.28   
  

 

 

   

 

 

   

 

 

   

 

 

 

Shares used in diluted per share calculation

     48,501        48,184        48,161        48,304   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

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Electronics For Imaging, Inc.

Condensed Consolidated Balance Sheets

(in thousands)

(unaudited)

 

     September 30,      December 31,  
     2015      2014  

Assets

     

Cash and cash equivalents

   $ 198,952       $ 298,133   

Short-term investments

     312,226         318,599   

Accounts receivable, net

     188,193         155,421   

Inventories

     111,751         72,132   

Other current assets

     50,442         34,422   
  

 

 

    

 

 

 

Total current assets

     861,564         878,707   

Property and equipment, net

     96,002         86,197   

Goodwill

     328,617         245,443   

Intangible assets, net

     133,165         62,571   

Other assets

     41,403         31,642   
  

 

 

    

 

 

 

Total assets

   $ 1,460,751       $ 1,304,560   
  

 

 

    

 

 

 

Liabilities & Stockholders’ equity

     

Accounts payable

   $ 111,552       $ 86,940   

Accrued and other liabilities

     127,431         105,110   

Income taxes payable and deferred tax liabilities

     5,957         1,759   
  

 

 

    

 

 

 

Total current liabilities

     244,940         193,809   

Convertible senior notes, net

     293,516         284,818   

Imputed financing obligation related to build-to-suit lease

     13,134         12,472   

Noncurrent contingent and other liabilities

     48,645         5,440   

Noncurrent deferred tax liabilities

     26,324         3,820   

Noncurrent income taxes payable

     10,809         15,512   
  

 

 

    

 

 

 

Total liabilities

     637,368         515,871   

Total stockholders’ equity

     823,383         788,689   
  

 

 

    

 

 

 

Total liabilities and stockholders’ equity

   $ 1,460,751       $ 1,304,560   
  

 

 

    

 

 

 

 

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Electronics For Imaging, Inc.

Condensed Consolidated Statements of Cash Flows

(in thousands)

(unaudited)

 

     Nine Months Ended  
     September 30,  
             2015                     2014          

Cash flows from operating activities:

    

Net income

   $ 23,211      $ 21,799   

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

    

Depreciation and amortization

     27,902        22,682   

Deferred taxes

     (7,933     (10,257

Tax benefit from employee stock plans

     1,820        10,176   

Excess tax benefit from stock-based compensation

     (298     (11,314

Stock-based compensation, net of cash settlements

     27,777        25,151   

Non-cash settlement of vacation liabilities by issuing restricted stock units (“RSUs”)

     1,353        —    

Provision for inventory obsolescence

     3,627        3,799   

Provision for bad debts and sales-related allowances

     3,724        2,520   

Contingent consideration payments related to businesses acquired

     —         (1,428

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

     9,692        1,387   

Other non-cash charges and gains

     1,220        (2,638

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

     (51,106     (15,138
  

 

 

   

 

 

 

Net cash provided by operating activities

     40,989        46,739   
  

 

 

   

 

 

 

Cash flows from investing activities:

    

Purchases of short-term investments

     (243,065     (70,587

Proceeds from sales and maturities of short-term investments

     247,821        90,349   

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

     (13,146     (12,938

Businesses purchased, net of cash acquired

     (65,480     (20,745
  

 

 

   

 

 

 

Net cash used for investing activities

     (73,870     (13,921
  

 

 

   

 

 

 

Cash flows from financing activities:

    

Proceeds from issuance of common stock

     11,352        16,196   

Proceeds from issuance of convertible notes, net of issuance cost payments

     (58     337,207   

Purchase of convertible note hedges

     —         (63,928

Proceeds from issuance of warrants

     —         34,535   

Purchases of treasury stock and net share settlements

     (50,892     (88,816

Repayment of debt assumed through business acquisitions

     (22,531     (525

Contingent consideration payments related to businesses acquired

     (3,034     (9,359

Excess tax benefit from stock-based compensation

     298        11,314   
  

 

 

   

 

 

 

Net cash provided by (used for) financing activities

     (64,865     236,624   
  

 

 

   

 

 

 

Effect of foreign exchange rate changes on cash and cash equivalents

     (1,435     (1,152
  

 

 

   

 

 

 

Decrease in cash and cash equivalents

     (99,181     268,290   

Cash and cash equivalents at beginning of period

     298,133        177,084   
  

 

 

   

 

 

 

Cash and cash equivalents at end of period

   $ 198,952      $ 445,374   
  

 

 

   

 

 

 

 

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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,  
             2015                      2014                      2015                      2014          

Revenue by Operating Segment

           

Industrial Inkjet

   $ 122,566       $ 95,472       $ 305,815       $ 277,315   

Productivity Software

     31,706         33,622         96,497         96,075   

Fiery

     74,422         68,580         223,657         205,937   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 228,694       $ 197,674       $ 625,969       $ 579,327   
  

 

 

    

 

 

    

 

 

    

 

 

 

Revenue by Geographic Area

           

Americas

   $ 121,116       $ 116,137       $ 337,050       $ 318,685   

EMEA

     79,934         54,212         205,191         181,652   

APAC

     27,644         27,325         83,728         78,990   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 228,694       $ 197,674       $ 625,969       $ 579,327   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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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 non-cash expenses 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 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.

These excluded items are described below:

 

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

 

    Stock-based compensation expense of $9.5 and $29.4 million during the three and nine months ended September 30, 2015, respectively, consists of $9.5 and $28.0 million of stock-based compensation expense recognized in accordance with ASC 718, Stock Compensation and the non-cash settlement of $1.4 million of vacation liabilities settled through the issuance of RSUs during the nine months ended September 30, 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 during the periods reported.

 

    Acquisition-related transaction costs associated with businesses acquired during the periods reported and anticipated transactions.

 

    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. 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.

 

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    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 to, several litigation claims of $0.6 and $0.9 million during the nine months ended September 30, 2015 and 2014, respectively.

 

    Tax effect of non-GAAP adjustments are as follows:

 

    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, after excluding the tax effect of the non-GAAP items described above, to estimate the non-GAAP income tax provision in each jurisdiction in which we operate.

 

    The long-term average tax rate assumes that the U.S. federal research and development tax credit will be retroactively re-enacted as of January 1, 2015.

 

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