EFI Reports Record Third Quarter With Revenue of $179M, Up 16%

Electronics For Imaging, Inc. Logo

FOSTER CITY, Calif., Oct. 17, 2013 (GLOBE NEWSWIRE) -- Electronics For Imaging, Inc. (Nasdaq:EFII), a world leader in customer-focused digital printing innovation, today announced its results for the third quarter of 2013.

For the quarter ended September 30, 2013, the Company reported record third quarter revenue of $178.8 million, up 16% compared to third quarter 2012 revenue of $154.1 million. Third quarter 2013 non-GAAP net income was $18.7 million or $0.39 per diluted share, up 41% and 39%, respectively, compared to non-GAAP net income of $13.3 million or $0.28 per diluted share for the same period in 2012. GAAP net income was $16.1 million or $0.33 per diluted share, up 20% and 18%, respectively, compared to $13.4 million or $0.28 per diluted share for the same period in 2012.

For the nine months ended September 30, 2013, the Company reported revenue of $530.5 million, up 11% year-over-year compared to $478.0 million for the same period in 2012. Non-GAAP net income was $52.8 million or $1.09 per diluted share, up 27% and 25%, respectively, compared to non-GAAP net income of $41.7 million or $0.87 per diluted share for the same period in 2012. GAAP net income was $33.9 million or $0.70 per diluted share, also up 27% and 25%, respectively, compared to GAAP net income of $26.7 million or $0.56 per diluted share for the same period in 2012.

"The EFI team delivered a very strong third quarter with record revenue and a terrific increase in profitability," said Guy Gecht, CEO of EFI. "With new breakthrough products across our portfolio, we expect the demand to continue as EFI's innovation helps customers around the globe win new business and boost productivity."

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™ (www.efi.com) is a worldwide provider of products, technology, and services leading the transformation of analog to digital imaging. Based in Silicon Valley with offices around the globe, the company's powerful integrated product portfolio includes digital front-end servers; superwide, wide-format, label, and ceramic inkjet presses and inks; production workflow, web-to-print, and business automation software; and office, enterprise, and mobile cloud solutions. These products allow users to produce, communicate and share information in an easy and effective way, and enable businesses to increase their profits, productivity, and efficiency.

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", "estimate", "expect", "consider" 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, unforeseen expenses; the difficulty of aligning expense levels with revenue; management's ability to forecast revenues, expenses and earnings; 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; changes in the mix of products sold; the uncertainty of market acceptance of new product introductions; intense competition in each of our businesses, including competition from products developed by EFI's customers; 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; litigation involving intellectual property rights or other related matters; our ability to successfully integrate acquired businesses; 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; any disruptions in our operations, the difficulty to retain employees, and additional expenses that we may incur as a result of our relocation from the Foster City campus; the compliance with the new requirements regarding the "conflict minerals," if they are found to be used in our products, 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 (loss), as the case may be, and earnings per diluted share that are GAAP net income (loss), as the case may be, and GAAP earnings per diluted share adjusted to exclude certain recurring and non-recurring costs, expenses and gains. A reconciliation of the adjustments to GAAP results for the three and nine months ended September 30, 2013 and 2012 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 (loss), as the case may be, or earnings per diluted share prepared in accordance with GAAP.

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,
2013 2012 2013 2012
Revenue $ 178,823 $ 154,074 $ 530,480 $ 478,031
Cost of revenue 81,610 70,997 241,424 217,495
Gross profit 97,213 83,077 289,056 260,536
Operating expenses:
Research and development 32,021 29,068 95,180 90,194
Sales and marketing 34,885 30,329 102,133 93,480
General and administrative 10,468 12,775 37,509 36,831
Amortization of identified intangibles 4,767 4,619 14,640 13,434
Restructuring and other 960 2,280 4,097 4,530
Total operating expenses 83,101 79,071 253,559 238,469
Income from operations 14,112 4,006 35,497 22,067
Interest and other income (expense), net 882 1,555 (2,464) 800
Income before income taxes 14,994 5,561 33,033 22,867
Benefit from income taxes 1,147 7,850 894 3,783
Net income $ 16,141 $ 13,411 $ 33,927 $ 26,650
Fully Diluted EPS calculation
Net income $ 16,141 $ 13,411 $ 33,927 $ 26,650
Net income per diluted common share $ 0.33 $ 0.28 $ 0.70 $ 0.56
Shares used in diluted per share calculation 48,622 48,009 48,387 47,670
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,
2013 2012 2013 2012
Net income $ 16,141 $ 13,411 $ 33,927 $ 26,650
Amortization of identified intangibles 4,767 4,619 14,640 13,434
Stock based compensation – Cost of revenue 484 293 1,335 826
Stock based compensation – Research and development 1,986 1,365 5,524 4,189
Stock based compensation – Sales and marketing 1,303 790 3,138 2,404
Stock based compensation – General and administrative 2,494 2,457 8,712 6,919
Restructuring and other 960 2,280 4,097 4,530
General and administrative:
Acquisition-related transaction costs 145 384 836 1,208
Change in fair value of contingent consideration 403 (403) (1,404)
Litigation settlements (3,277) 506 (3,277) 255
Sublease income related to our deferred property sale (1,022) (2,739)
Depreciation expense related to our deferred property sale 410 1,230
Interest and other income (expense), net:
Interest expense related to our deferred property sale 308 1,799
Relocation expenses related to deferred property sale 236 346
Tax effect of non-GAAP adjustments (6,591) (12,797) (16,380) (17,355)
Non-GAAP net income $ 18,747 $ 13,308 $ 52,785 $ 41,656
Non-GAAP net income per diluted common share $ 0.39 $ 0.28 $ 1.09 $ 0.87
Shares used in per share calculation 48,622 48,009 48,387 47,670
Electronics For Imaging, Inc.
Condensed Consolidated Balance Sheets
(in thousands)
(unaudited)
September 30, December 31,
2013 2012
Assets
Cash and cash equivalents $ 200,730 $ 283,996
Short-term investments 161,904 80,966
Accounts receivable, net 126,083 135,110
Inventories 73,739 58,343
Other current assets 94,976 74,877
Total current assets 657,432 633,292
Property and equipment, net 141,051 86,582
Goodwill 225,552 219,456
Intangible assets, net 68,350 80,244
Other assets 61,105 55,397
Total assets $ 1,153,490 $ 1,074,971
Liabilities & Stockholders' equity
Accounts payable $ 81,277 $ 63,446
Deferred proceeds from property transaction 182,870 180,216
Accrued and other liabilities 130,339 119,247
Income taxes payable 5,809 7,562
Total current liabilities 400,295 370,471
Imputed financing obligation 11,267
Contingent and other liabilities 9,398 17,742
Deferred tax liabilities 6,691 6,210
Long term taxes payable 33,513 29,755
Total liabilities 461,164 424,178
Total stockholders' equity 692,326 650,793
Total liabilities and stockholders' equity $ 1,153,490 $ 1,074,971
Note: In accordance with ASC 805, we revised previously issued financial information to reflect adjustments
to the accounting for business acquisitions as if they occurred on the acquisition date. Accordingly, we have
increased goodwill and accrued and other liabilities by $1.2 million at December 31, 2012 to reflect opening
balance sheet adjustments related to our acquisitions of Cretaprint, OPS, and Technique.
Electronics For Imaging, Inc.
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
Nine Months Ended
September 30,
2013 2012
Cash flows from operating activities:
Net income $ 33,927 $ 26,650
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 21,479 19,558
Deferred taxes (13,996) 1,317
Tax benefit from employee stock plans 6,958 281
Excess tax benefit from stock-based compensation (7,130) (1,186)
Stock-based compensation 18,708 14,338
Provisions for inventory obsolescence 3,939 2,574
Provisions for bad debts and sales-related allowances 5,252 1,689
Contingent consideration payment related to business acquired (619)
Other non-cash charges and adjustments 271 1,897
Changes in operating assets and liabilities (10,849) (41,508)
Net cash provided by operating activities 57,940 25,610
Cash flows from investing activities:
Purchases of short-term investments (120,821) (34,611)
Proceeds from sales and maturities of short-term investments 39,379 50,851
Purchases, net of proceeds from sales, of property and equipment (32,725) (5,319)
Businesses purchased, net of cash acquired (4,533) (45,133)
Proceeds from notes receivable of acquired businesses 5,216
Net cash used for investing activities (118,700) (28,996)
Cash flows from financing activities:
Proceeds from issuance of common stock 11,980 18,557
Purchases of treasury stock and net settlement of restricted stock (28,852) (18,392)
Repayment of acquired business debt (1,693) (6,817)
Contingent consideration payments related to businesses acquired (9,998) (382)
Excess tax benefit from stock-based compensation 7,130 1,186
Net cash used for financing activities (21,433) (5,848)
Effect of foreign exchange rate changes on cash and cash equivalents (1,073) 46
Increase (decrease) in cash and cash equivalents (83,266) (9,188)
Cash and cash equivalents at beginning of year 283,996 120,058
Cash and cash equivalents at end of period $ 200,730 $ 110,870
Note: If we excluded $5.5 million of taxes paid related to the sale of our corporate headquarters facility, then our
net cash provided by operating activities would be $63.4 million for the nine months ended September 30, 2013.
Electronics For Imaging, Inc.
Revenue by Operating Segment and Geographic Area
(in thousands)
(unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
Revenue by Operating Segment 2013 2012 2013 2012
Industrial Inkjet $ 87,117 $ 79,096 $ 255,423 $ 234,008
Productivity Software 28,532 24,252 84,770 74,043
Fiery 63,174 50,726 190,287 169,980
Total $ 178,823 $ 154,074 $ 530,480 $ 478,031
Revenue by Geographic Area
Americas $ 102,393 $ 86,445 $ 296,806 $ 251,351
EMEA 52,189 41,137 152,219 147,823
APAC 24,241 26,492 81,455 78,857
Japan 4,349 7,471 17,383 22,290
APAC, ex Japan 19,892 19,021 64,072 56,567
Total $ 178,823 $ 154,074 $ 530,480 $ 478,031

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 recurring and non-recurring 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 recurring and non-recurring 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 the Company's activities and other factors, facilitates comparability of the Company's 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 recurring amortization of acquisition-related intangibles and stock-based compensation expense, as well as restructuring-related and non-recurring charges and gains and the tax effect of these adjustments. Such non-recurring charges and gains include acquisition-related transaction expenses and the costs to integrate such acquisitions into our business, changes in the fair value of contingent consideration, litigation settlement charges and credits, corporate headquarters relocation expenses, and imputed interest expense and depreciation, net of accrued sublease income and capitalized interest, related to the sale of our corporate headquarters facility and related land.

These excluded items are described below:

  • Recurring charges and gains, including:
  • Amortization of acquisition-related intangibles. Intangible assets acquired to date are being amortized on a straight-line basis. Post-acquisition non-competition agreements are amortized over their term.
  • Stock-based compensation expense recognized in accordance with ASC 718, Stock-based Compensation.
  • Non-recurring charges and gains, including:
  • Restructuring and other 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.
    -- Acquisition-related executive deferred compensation costs, which are dependent on the continuing employment of a former shareholder of an acquired company, are being amortized on a straight-line basis.
    -- 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 each 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.
  • Imputed net expenses related to sale of building and land. On November 1, 2012, we sold the 294,000 square foot building located at 303 Velocity Way in Foster City, California, which serves as our corporate headquarters, along with approximately four acres of land and certain other assets related to the property, to Gilead Sciences, Inc. for $179.7 million. We will continue to use the facility until November 1, 2013, for which rent is not required to be paid. This constitutes a form of continuing involvement that prevents gain recognition. Until we vacate the building, the proceeds from the sale will be recognized as deferred proceeds from property transaction on our condensed consolidated balance sheet, which is currently $182.9 million, including imputed interest costs. Imputed interest expense and depreciation, net of accrued sublease income, of $1.5 million has been accrued at September 30, 2013, related to the deferred property transaction, partially offset by capitalized interest of $0.9 million related to the Fremont facility.
  • Expenses incurred during the period related to the upcoming relocation of our corporate headquarters facility.
  • In conjunction with our acquisition of Cretaprint, which closed on January 10, 2012, we assumed a contingent liability related to the alleged infringement of certain patents owned by Jose Vicente Tomas Claramonte, the President of Kerajet. Because the former owners of Cretaprint agreed to indemnify EFI against any potential liability in the event that Mr. Claramonte were to prevail in his action against Cretaprint, we accrued a contingent liability based on a reasonable estimate of the legal obligation that was probable as of the acquisition date and we accrued a contingent asset based on the portion of any liability for which the former Cretaprint owners would indemnify EFI. The net obligation accrued in the opening balance sheet on the acquisition date was EU 2.5 million (or approximately $3.3 million). The Spanish Court of Appeal reached a final determination on July 15, 2013, which resulted in EFI having no liability related to any potential infringement of the Claramonte patent. Because this matter is no longer subject to appeal, we have reversed this liability by recognizing a credit against general and administrative expense during the three months ended September 30, 2013.
  • During the third quarter of 2012, we incurred $0.5 million in settlement of a dispute with the lessor of a facility in the U.K., which was partially offset by the receipt, during the second quarter of 2012, of an additional $0.3 million in insurance proceeds, net of legal fees and costs, related to our previously disclosed settlement of the shareholder derivative litigation concerning our historical stock option granting practices.
  • Tax effect of non-GAAP adjustments
  • After excluding the items described above, we apply the principles of ASC 740, Income Taxes, to estimate the non-GAAP income tax provision in each jurisdiction in which we operate. The expected annual non-GAAP income tax rate for the three and nine months ended September 30, 2012, assumed the achievement of the operational efficiencies related to our foreign operations that were implemented during the fourth quarter of 2012.
  • To facilitate comparability of our operating performance between 2013 and 2012, we have excluded the following from our non-GAAP net income:

    -- Tax charge of $0.3 million resulting from the filing of tax returns by foreign subsidiaries for periods prior to their acquisition by EFI for the nine months ended September 30, 2013.
    -- Tax benefit of $3.2 and $0.2 million from the retroactive renewal of both the 2012 U.S. federal research and development tax credit and certain international tax provisions, respectively, on January 2, 2013, for the nine months ended September 30, 2013. The tax benefit for these items had been previously recognized in our non-GAAP net income for the year ended December 31, 2012.
    -- We excluded the recognition of previously unrecognized tax benefits from our non-GAAP net income of $3.2 million for the three and nine months ended September 30, 2013 and $9.7 million for the three and nine months ended September 30, 2012 to facilitate comparability of our operating performance between the periods. These tax benefits primarily resulted from the release of previously unrecognized tax benefits resulting from the expiration of U.S. federal statutes of limitations.
    -- Interest expense accrued on prior year tax reserves of $0.1 and $0.3 million for the three and nine months ended September 30, 2013 and 2012, respectively, as well as other tax benefits of $0.3 million for the nine months ended September 30, 2013.

Usefulness of Non-GAAP Financial Information to Investors

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 as 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.

CONTACT: For more information: Marc Olin Interim Chief Financial Officer EFI 650-357-3500 Investor Relations: JoAnn Horne Market Street Partners 415-445-3235

Source:Electronics For Imaging, Inc.