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TMCNet:  EFI Reports First Quarter 2017 Results

[April 20, 2017]

EFI Reports First Quarter 2017 Results

FREMONT, Calif., April 20, 2017 (GLOBE NEWSWIRE) -- Electronics For Imaging, Inc. (Nasdaq:EFII), a world leader in customer-focused digital printing innovation, today announced its results for the first quarter of 2017. 

For the quarter ended March 31, 2017, the Company reported revenue of $228.7 million, down 2% compared to first quarter 2016 revenue of $234.1 million.  GAAP net income was $5.5 million, up 160% compared to $2.1 million for the same period in 2016 or $0.12 per diluted share, up 200% compared to $0.04 per diluted share for the same period in 2016.  Non-GAAP net income was $25.8 million, down 2% compared to non-GAAP net income of $26.3 million for the same period in 2016 or $0.55 per diluted share, flat compared to $0.55 per diluted share for the same period in 2016.  Cash flow from operating activities was $14.9 million, up 66% compared to $9.0 million during the same period in 2016.

“We are pleased that our financial discipline allowed EFI to achieve the midpoint of our non-GAAP EPS outlook despite a slow start to the year,” said Guy Gecht, CEO of EFI.  “To address the challenges we faced in Q1 we are taking steps to better execute on our pipeline, while further leveraging the solid growth in the textile printing business, the start of the Nozomi beta rollout and our new product introductions in the back half of 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

Our first quarter 2017 GAAP EPS results of $0.12 excludes a stock-based compensation expense of approximately $1.2 million that is currently under review for determination of whether to include that expense in the first or second quarter of 2017. The resolution of this review could negatively impact our reported first quarter 2017 GAAP EPS results by up to 3 cents per share.

Certain statements in this press release are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Statements other than statements of historical fact including words such as “address”, “anticipate”, “believe”, “consider”, “continue”, “develop”, “estimate”, “expect”, “further”, “look”, 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 Quarterly Report on Form 10-Q 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 Quarterly Report on Form 10-Q for the quarter ended March 31,2017. 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 months ended March 31, 2017 and 2016 is provided below. In addition, an explanation of how management uses non-GAAP financial information to evaluate its business, the substance behind management's decision to use this non-GAAP financial information, the material limitations associated with the use of non-GAAP financial information, the manner in which management compensates for those limitations, and the substantive reasons management believes that this non-GAAP financial information provides useful information to investors is included under "About our Non-GAAP Net Income and Adjustments" after the tables below.

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 
  March 31, 
      
   2017   2016  
      
Revenue $228,691  $234,133  
          
Cost of revenue  105,026   115,736  
Gross profit  123,665   118,397  
Operating expenses:     
Research and development  38,907   37,122  
Sales and marketing  42,804   41,530  
General and administrative  20,883   20,832  
Amortization of identified intangibles  10,778   9,229  
Restructuring and other  918   2,715  
          
Total operating expenses  114,290   111,428  
Income from operations  9,375   6,969  
Interest expense  (4,660)  (4,358) 
Interest income and other (income) expense, net  287   (221) 
Income before income taxes  5,002   2,390  
Benefit from (provision for) income taxes  463   (287) 
Net income $5,465  $2,103  
      
Diluted EPS calculation     
Net income $5,465  $2,103  
Net income per diluted common share $0.12  $0.04  
Shares used in diluted per share calculation  47,208   47,923  
      
      
Stock Based Compensation. As permitted by ASU 2016-09, Stock Compensation – Improvements to Employee Share Based Payment Accounting, which we 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 
  March 31, 
        
      Ex-Currency 
   2017   2016   2017  
        
Net income $5,465  $2,103  $5,465  
Cost of revenue related to fair value inventory adjustment  1,024      1,024  
Ex-currency adjustment        1,157  
Stock based compensation – Cost of revenue  698   1,010   698  
Stock based compensation – Research and development  2,850   4,684   2,850  
Stock based compensation – Sales and marketing  2,063   2,835   2,063  
Stock based compensation – General and administrative  3,435   5,489   3,435  
Amortization of identified intangibles  10,778   9,229   10,778  
Restructuring and other  918   2,715   918  
General and administrative:       
Acquisition-related transaction costs  729   478   729  
Changes in fair value of contingent consideration  1,283   (205)  1,283  
Litigation settlements  19   320   19  
Interest income and other (income) expense, net       
Non-cash interest expense related to our convertible notes  3,171   3,004   3,171  
Foreign exchange fluctuation related to contingent consideration  (103)  507   (103) 
Balance sheet currency remeasurement impact        1,059  
Tax effect of non-GAAP adjustments  (6,518)  (5,880)  (6,939) 
Non-GAAP net income $25,812  $26,289  $27,607  
        
Non-GAAP net income per diluted common share $0.55  $0.55  $0.58  
Shares used in diluted per share calculation  47,208   47,923   47,208  
        
Stock Based Compensation. As permitted by ASU 2016-09, Stock Compensation – Improvements to Employee Share Based Payment Accounting, which we 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)   
    
 March 31, December 31,
   2017  2016
    
Assets   
Cash and cash equivalents$151,096 $164,313
Short-term investments 292,403  295,428
Accounts receivable, net 225,529  220,813
Inventories 113,810  99,075
Other current assets 40,013  36,637
Total current assets 822,851  816,266
Property and equipment, net 103,181  103,304
Goodwill 371,674  359,841
Intangible assets, net 136,458  122,997
Other assets 85,258  79,088
Total assets$1,519,422 $1,481,496
    
Liabilities & Stockholders’ equity   
Accounts payable$109,835 $114,287
Accrued and other liabilities 164,333  139,318
Income taxes payable 10,256  10,256
Total current liabilities 284,424  263,861
Convertible senior notes, net 308,000  304,484
Imputed financing obligation related to build-to-suit lease 14,024  14,152
Noncurrent contingent and other liabilities 54,048  42,786
Deferred tax liabilities 14,940  16,351
Noncurrent income taxes payable 11,882  12,030
Total liabilities 687,318  653,664
Total stockholders’ equity 832,104  827,832
Total liabilities and stockholders’ equity$1,519,422 $1,481,496
    


Electronics For Imaging, Inc.    
Condensed Consolidated Statements of Cash Flows    
(in thousands)    
(unaudited)    
      
   Three Months Ended
   March 31,
      
    2017   2016 
Cash flows from operating activities:    
Net income $  5,465  $  2,103 
Adjustments to reconcile net income to net cash provided by operating activities:    
 Depreciation and amortization  14,929   13,008 
 Deferred taxes  (1,010)  (3,827)
 Stock-based compensation, net of cash settlements    9,046     11,265 
 Provision for inventory obsolescence    752     2,272 
 Provision for bad debts and sales-related allowances    2,822     4,140 
 Non-cash accretion of interest expense on convertible notes and imputed financing obligation    3,672     3,273 
 Other non-cash charges and gains    2,486     2,878 
Changes in operating assets and liabilities, net of effect of acquired businesses    (23,264)    (26,147)
Net cash provided by operating activities    14,898     8,965 
      
Cash flows from investing activities:    
 Purchases of short-term investments  (35,149)  (58,323)
 Proceeds from sales and maturities of short-term investments  38,235   110,417 
 Purchases of restricted investments and cash equivalents  (4,405)    —  
 Purchases, net of proceeds from sales, of property and equipment  (3,789)  (5,213)
 Businesses purchased, net of cash acquired  (5,700)  (7,982)
Net cash provided by (used for) investing activities    (10,808)    38,899 
      
Cash flows from financing activities:    
 Proceeds from issuance of common stock  5,855   4,909 
 Purchases of treasury stock and net share settlements  (22,455)  (23,092)
 Repayment of debt assumed through business acquisitions and debt issuance costs  (411)  (4,492)
 Contingent consideration payments related to businesses acquired  (1,265)  (1,443)
Net cash used for financing activities    (18,276)    (24,118)
      
 Effect of foreign exchange rate changes on cash and cash equivalents    969     2,319 
 Decrease in cash and cash equivalents    (13,217)    26,065 
 Cash and cash equivalents at beginning of period    164,313     164,091 
Cash and cash equivalents at end of period $  151,096  $  190,156 
      
 Stock Based Compensation. ASU 2016-09, Stock Compensation – Improvements to Employee Share Based Payment Accounting, which we adopted in Q2 2016, 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 $0.2 million increase in cash flows provided by operating activities for the quarter ended March 31,2016, and a corresponding decrease in cash flows provided by financing activities. As permitted by ASU 2016-09, 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 required a retroactive net income adjustment of $0.2 million in the first quarter of 2016, and adjustments to stock-based compensation, deferred taxes, and net income in the Condensed Consolidated Statement of Cash Flows.
      


Electronics For Imaging, Inc.   
Revenue by Operating Segment and Geographic Area
   
(in thousands)   
(unaudited)   
        
  Three Months Ended   
  March 31,   
        
Revenue by Operating Segment  2017  2016   
Industrial Inkjet $123,263 $125,798   
Productivity Software  35,058  32,540   
Fiery  70,370  75,795   
Total $228,691 $234,133   
        
Revenue by Geographic Area       
Americas $109,895 $120,266   
EMEA  88,033  83,583   
APAC  30,763  30,284   
Total $228,691 $234,133   
        
Revenue Ex-Currency Adjustment  2,747     
Total $231,438 $234,133   
        

About our Non-GAAP Net Income and Adjustments

Use of Non-GAAP Financial Information

To supplement our condensed consolidated financial results prepared in accordance with GAAP, we use non-GAAP measures of net income and earnings per diluted share that are GAAP net income and GAAP earnings per diluted share adjusted to exclude certain costs, expenses, and gains.

We believe that the presentation of non-GAAP net income and non-GAAP earnings per diluted share provides important supplemental information regarding certain costs, expenses, gains, and significant items that we believe are important to understanding financial and business trends relating to our financial condition and results of operations. Non-GAAP net income and non-GAAP earnings per diluted share are among the primary indicators used by management as a basis for planning and forecasting future periods and by management and our Board of Directors to determine whether our operating performance has met specified targets and thresholds. Management uses non-GAAP net income and non-GAAP earnings per diluted share when evaluating operating performance because it believes the exclusion of the items described below, for which the amounts and/or timing may vary significantly depending on our activities and other factors, facilitates comparability of our operating performance from period to period. We have chosen to provide this information to investors so they can analyze our operating results in the same way that management does and use this information in their assessment of our business and the valuation of our Company.

Use and Economic Substance of Non-GAAP Financial Measures

We compute non-GAAP net income, and non-GAAP earnings per diluted share by adjusting GAAP net income and GAAP earnings per diluted share to remove the impact of amortization of acquisition-related intangibles, stock-based compensation expense, restructuring and other expenses, acquisition-related transaction expenses, costs to integrate such acquisitions into our business, incremental cost of revenue due to the fair value adjustment to inventories acquired in business combinations, changes in the fair value of contingent consideration, 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:

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

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

  • Stock-based compensation expense of $9.0 and $14.0 million during the three months ended March 31, 2017 and 2016, respectively, consists of $9.0 and $11.3 million of stock-based compensation expense recognized in accordance with ASC 718, Stock Compensation, and the non-cash settlement of $2.7 million of vacation liabilities settled through the issuance of RSUs during the three months ended March 31, 2016, 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 $0.5 and $0.1 million for the three months ended March 31, 2017 and 2016 respectively.

  • Acquisition-related transaction costs associated with businesses acquired during the periods reported and anticipated transactions of $0.7 and $0.5 million for the three months ended March 31, 2017 and 2016 respectively.

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

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

  • Litigation settlements. We settled or accrued reserves related several litigation claims of $0.3 million during the three months ended March 31, 2016.

  • 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.
For more information:

Marc Olin
Chief Financial Officer
EFI
650-357-3500

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

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