EFI Reports Record Second Quarter Revenue of $246M, Up 21%

by | Jul 25, 2016 | Globe Newswire

FREMONT, Calif., July 25, 2016 (GLOBE NEWSWIRE) — Electronics For Imaging, Inc. (Nasdaq:EFII), a world leader in customer-focused digital printing innovation, today announced its results for the second quarter of 2016. 

For the quarter ended June 30, 2016, the Company reported record second quarter revenue of $245.7 million, up 21% compared to second quarter 2015 revenue of $202.7 million. GAAP net income was $5.2 million or $0.11 per diluted share, compared to $7.7 million or $0.16 per diluted share for the same period in 2015. Non-GAAP net income was $26.7 million or $0.56 per diluted share, compared to non-GAAP net income of $22.9 million or $0.48 per diluted share for the same period in 2015.

For the six months ended June 30, 2016, the Company reported revenue of $479.8 million, up 21% year-over-year compared to $397.3 million for the same period in 2015. GAAP net income was $7.3 million or $0.15 per diluted share, compared to $13.0 million or $0.27 per diluted share for the same period in 2015.  Non-GAAP net income was $52.9 million or $1.11 per diluted share, compared to non-GAAP net income of $44.4 million or $0.92 per diluted share for the same period in 2015.

“The EFI team delivered a solid quarter despite the disruption caused by global events during the last week of the quarter,” said Guy Gecht, CEO of EFI.  “At the same time, EFI’s market position at the drupa tradeshow validated both our strategy and product roadmap, and we’re particularly encouraged by the exceptional reception to our new Nozomi platform. The drupa momentum is feeding into the strength we are seeing in the Industrial Inkjet and Productivity Software segments which keep us on track to deliver our stated goal of $1 billion in revenues for the year.”

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)

Safe Harbor for Forward Looking Statements

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

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

The statements in this press release are made as of the date of this press release. EFI undertakes no obligation to update information contained in this press release. For further information regarding risks and uncertainties associated with EFI’s businesses, please refer to the section entitled “Risk Factors” in the Company’s SEC filings, including, but not limited to, its annual report on Form 10-K and its quarterly reports on Form 10-Q, copies of which may be obtained by contacting EFI’s Investor Relations Department by phone at 650-357-3828 or by email at [email protected] 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 six months ended June 30, 2016 and 2015 is provided below. In addition, an explanation of how management uses non-GAAP financial information to evaluate its business, the substance behind management’s decision to use this non-GAAP financial information, the material limitations associated with the use of non-GAAP financial information, the manner in which management compensates for those limitations, and the substantive reasons management believes that this non-GAAP financial information provides useful information to investors is included under “About our Non-GAAP Net Income and Adjustments” after the tables below.

These non-GAAP measures are not in accordance with or an alternative to GAAP and may be materially different from other non-GAAP measures, including similarly titled non-GAAP measures, used by other companies.  The presentation of this additional information should not be considered in isolation from, as a substitute for, or superior to, net income or earnings per diluted share prepared in accordance with GAAP.  Non-GAAP financial measures have limitations in that they do not reflect certain items that may have a material impact upon our reported financial results. We expect to continue to incur expenses of a nature similar to the non-GAAP adjustments described above, and exclusion of these items from our non-GAAP net income and non-GAAP earnings per diluted share should not be construed as an inference that these costs are unusual, infrequent, or non-recurring.

Electronics For Imaging, Inc.
Condensed Consolidated Statements of Operations
(in thousands, except per share data)
(unaudited)
         
  Three Months Ended Six Months Ended
  June 30, June 30,
         
    2016     2015     2016     2015  
         
Revenue $   245,650   $   202,721   $   479,783   $   397,275  
                         
Cost of revenue     120,603       94,318       236,339       183,432  
Gross profit     125,047       108,403       243,444       213,843  
Operating expenses:        
Research and development     37,676       34,077       74,798       67,788  
Sales and marketing     42,770       37,133       84,300       74,303  
General and administrative     21,446       18,337       42,278       35,987  
Amortization of identified intangibles     9,736       4,557       18,965       9,361  
Restructuring and other     1,710       931       4,425       1,960  
                         
Total operating expenses     113,338       95,035       224,766       189,399  
Income from operations     11,709       13,368       18,678       24,444  
                         
Interest expense     (4,375 )     (4,137 )     (8,733 )     (8,236 )
Interest income and other (income) expense, net     420       258       199       (401 )
Income before income taxes     7,754       9,489       10,144       15,807  
Provision for income taxes     (2,519 )     (1,772 )     (2,806 )     (2,853 )
Net income $   5,235   $   7,717   $   7,338   $   12,954  
         
Diluted EPS calculation        
Net income $   5,235   $   7,717   $   7,338   $   12,954  
Net income per diluted common share $   0.11   $   0.16   $   0.15   $   0.27  
Shares used in diluted per share calculation     47,830       48,073       47,930       48,096  
         
         
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.
         

 

Electronics For Imaging, Inc.
Reconciliation of GAAP Net Income to Non-GAAP Net Income
(in thousands, except per share data)
(unaudited)
             
  Three Months Ended Six Months Ended
  June 30, June 30,
      Ex-Currency     Ex-Currency
    2016     2015     2016     2016     2015     2016  
             
Net income $   5,235   $   7,717   $   5,235   $   7,338   $   12,954   $   7,338  
Amortization of identified intangibles     9,736       4,557       9,736       18,965       9,361       18,965  
Ex-currency adjustment     —     —       (42 )   —     —       (525 )
Stock based compensation – Cost of revenue     534       748       534       1,544       1,685       1,544  
Stock based compensation – Research and development     1,886       2,687       1,886       6,570       5,856       6,570  
Stock based compensation – Sales and marketing     1,550       2,184       1,550       4,385       4,894       4,385  
Stock based compensation – General and administrative     3,135       4,048       3,135       8,624       7,477       8,624  
Restructuring and other     1,710       931       1,710       4,425       1,960       4,425  
General and administrative:            
Acquisition-related transaction costs     788       2,012       788       1,266       2,673       1,266  
Changes in fair value of contingent consideration     2,263       (1,286 )     2,263       2,058       (1,301 )     2,058  
Litigation settlements   521       10       521       841       550       841  
Interest income and other (income) expense, net            
Non-cash interest expense related to our convertible notes   3,078       2,917       3,078       6,082       5,795       6,082  
Foreign exchange fluctuation related to contingent consideration   (51 )    —       (51 )     456      —       456  
Balance sheet currency remeasurement impact    —      —       836      —      —       1,538  
Tax effect of non-GAAP adjustments     (3,733 )     (3,604 )     (3,884 )     (9,613 )     (7,550 )     (9,804 )
Non-GAAP net income $   26,652   $   22,921   $   27,295   $   52,941   $   44,354   $   53,763  
             
Non-GAAP net income per diluted common share $   0.56   $   0.48   $   0.57   $   1.11   $   0.92   $   1.12  
Shares used in diluted per share calculation     47,830       48,073       47,830       47,930       48,096       47,930  
             
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.
             

Electronics For Imaging, Inc.  
Condensed Consolidated Balance Sheets  
(in thousands)  
(unaudited)  
       
  June 30, December 31,  
    2016     2015    
       
Assets      
Cash and cash equivalents $   143,648   $   164,091    
Short-term investments     305,616       333,276    
Accounts receivable, net     211,223       193,121    
Inventories     111,014       106,378    
Other current assets     39,651       30,148    
Total current assets     811,152       827,014    
Property and equipment, net     101,927       97,779    
Goodwill     367,587       338,793    
Intangible assets, net     141,548       135,552    
Other assets     55,129       51,013    
Total assets $   1,477,343   $   1,450,151    
       
Liabilities & Stockholders’ equity      
Accounts payable $   104,070   $   113,541    
Accrued and other liabilities     150,506       123,192    
Income taxes payable     5,322       3,594    
Total current liabilities     259,898       240,327    
Convertible senior notes, net     297,478       290,734    
Imputed financing obligation related to build-to-suit lease     14,001       13,480    
Noncurrent contingent and other liabilities     53,279       51,101    
Deferred tax liabilities     21,065       19,003    
Noncurrent income taxes payable     12,334       11,312    
Total liabilities     658,055       625,957    
Total stockholders’ equity     819,288       824,194    
Total liabilities and stockholders’ equity $   1,477,343   $   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.  

 

Electronics For Imaging, Inc.
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
       
  Six Months Ended
  June 2016
       
    2016       2015  
Cash flows from operating activities:      
Net income  $   7,338     $   12,954  
Adjustments to reconcile net income to net cash provided by operating activities:      
Depreciation and amortization   26,503       15,411  
Deferred taxes   (6,409 )     (7,766 )
Stock-based compensation, net of cash settlements     18,216       18,559  
Provision for inventory obsolescence     3,240       2,289  
Provision for bad debts and sales-related allowances     5,737       306  
Non-cash accretion of interest expense on convertible notes and imputed financing obligation     6,574       6,239  
Other non-cash charges and gains     (1,329 )     2,877  
Changes in operating assets and liabilities, net of effect of acquired businesses     (28,010 )     (18,807 )
Net cash provided by operating activities     31,860         32,062  
       
Cash flows from investing activities:      
Purchases of short-term investments   (137,323 )     (179,058 )
Proceeds from sales and maturities of short-term investments   165,634       121,623  
Purchases, net of proceeds from sales, of property and equipment   (13,694 )     (8,721 )
Businesses purchased, net of cash acquired   (19,614 )     16  
Net cash used for investing activities     (4,997 )       (66,140 )
       
Cash flows from financing activities:      
Proceeds from issuance of common stock   4,982       4,910  
Purchases of treasury stock and net share settlements   (43,923 )     (26,501 )
Repayment of debt assumed through business acquisitions and debt issuance costs   (8,312 )     (83 )
Contingent consideration payments related to businesses acquired   (1,868 )     (2,702 )
Net cash used for financing activities     (49,121 )       (24,376 )
       
Effect of foreign exchange rate changes on cash and cash equivalents     1,815         (1,207 )
Decrease in cash and cash equivalents     (20,443 )       (59,661 )
Cash and cash equivalents at beginning of period     164,091         298,133  
Cash and cash equivalents at end of period $   143,648     $   238,472  
       
       
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 reclassification of $0.2 million in the first quarter of 2016 has been reversed upon adoption. The retrospective application to prior periods resulted in a $0.3 million increase in cash flows provided by operating activities during the six months ended June 30, 2015, and a corresponding decrease in cash flows provided by financing activities. 
       

 

Electronics For Imaging, Inc.
Revenue by Operating Segment and Geographic Area
(in thousands)
(unaudited)
         
  Three Months Ended Six Months Ended
  June 30, June 30,
         
Revenue by Operating Segment   2016     2015     2016     2015  
Industrial Inkjet $   140,124   $   95,642   $   265,922   $   183,249  
Productivity Software     36,351       33,684       68,891       64,791  
Fiery     69,175       73,395       144,970       149,235  
Total $   245,650   $   202,721   $   479,783   $   397,275  
         
Revenue by Geographic Area        
Americas $   115,459   $   108,220   $   235,725   $   215,934  
EMEA     95,877       65,129       179,460       125,257  
APAC     34,314       29,372       64,598       56,084  
Total $   245,650   $   202,721   $   479,783   $   397,275  
         
Revenue Ex-Currency Adjustment   (288 )    —     3,897      —  
Total $   245,362   $   202,721   $   483,680   $   397,275  


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.

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 $21.1 and $19.9 million during the six months ended June 30, 2016 and 2015, respectively, consists of $18.4 and $18.5 million of stock-based compensation expense recognized in accordance with ASC 718, Stock Compensation, and the non-cash settlement of $2.7 and $1.4 million of vacation liabilities settled through the issuance of RSUs during the six months ended June 30, 2016 and 2015, which is not included in the GAAP presentation of our stock-based compensation expense.
  • Restructuring and other expenses consists of:
    • Restructuring charges incurred as we consolidate the number and size of our facilities and, as a result, reduce the size of our workforce.
    • Expenses incurred to integrate businesses acquired of $0.7 and $0.9 million for the three and six months ended June 30, 2016, respectively, and $0.2 million for the three and six months ended June 30, 2015.
  • Acquisition-related transaction costs associated with businesses acquired and anticipated transactions of $0.8 and $1.3 million for the three and six months ended June 30, 2016, respectively, and $2.0 and $2.7 million for the three and six months ended June 30, 2015, respectively.
  • Changes in fair value of contingent consideration. Our management determined that we should analyze the total return provided by the investment when evaluating operating results of an acquired entity. The total return consists of operating profit generated from the acquired entity compared to the purchase price paid, including the final amounts paid for contingent consideration without considering any post-acquisition adjustments related to changes in the fair value of the contingent consideration. Because our management believes the final purchase price paid for the acquisition reflects the accounting value assigned to both contingent consideration and to the intangible assets, we exclude the GAAP impact of any adjustments to the fair value of acquisition-related contingent consideration from the operating results of an acquisition in subsequent periods, including the related foreign exchange fluctuation impact. We believe this approach is useful in understanding the long-term return provided by our acquisitions and that investors benefit from a supplemental non-GAAP financial measure that excludes the impact of this adjustment.
  • Non-cash interest expense on our Notes. Our Notes may be settled in cash on conversion. We are required to separately account for the liability (debt) and equity (conversion option) components of the Notes in a manner that reflects our non-convertible debt borrowing rate. Accordingly, for GAAP purposes, we are required to amortize a debt discount equal to the fair value of the conversion option as interest expense on our $345 million of 0.75% convertible senior notes that were issued in a private placement in September 2014 over the term of the Notes.
  • Litigation settlements. We settled or accrued reserves related several litigation claims of $0.8 and $0.6 million during the six months ended June 30, 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, 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. 
CONTACT: For more information:
Marc Olin
Chief Financial Officer
EFI
650-357-3500

Investor Relations:
JoAnn Horne
Market Street Partners 
415-445-3235