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EFI Reports Record Revenue of $198M for Third Quarter, Up 11%

FREMONT, Calif., Oct. 21, 2014 (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 2014.

For the quarter ended September 30, 2014, the Company reported record revenue of $197.7 million, up 11% compared to third quarter 2013 revenue of $178.8 million. Non-GAAP operating income was $30.8 million compared to $22.8 million for the same period in 2013. Non-GAAP net income was $20.6 million or $0.43 per diluted share, compared to non-GAAP net income of $18.7 million or $0.39 per diluted share for the same period in 2013. GAAP operating income was $12.9 million compared to $13.9 million for the same period in 2013. GAAP net income was $4.8 million or $0.10 per diluted share, compared to $16.1 million or $0.33 per diluted share for the same period in 2013.

For the nine months ended September 30, 2014, the Company reported revenue of $579.3 million, up 9% year-over-year compared to $530.5 million for the same period in 2013. Non-GAAP operating income was $82.2 million compared to $68.6 million for the same period in 2013. Non-GAAP net income was $61.9 million or $1.28 per diluted share, compared to non-GAAP net income of $52.8 million or $1.09 per diluted share for the same period in 2013. GAAP operating income was $36.2 million compared to $35.2 million for the same period in 2013. GAAP net income was $21.8 million or $0.45 per diluted share, compared to $33.9 million or $0.70 per diluted share for the same period in 2013.

"In the third quarter the EFI team raised the bar on execution with revenues growing 11% to all-time record levels, increasing our confidence in achieving $1 billion in revenue by the end of 2016," said Guy Gecht, CEO of EFI. "We remain sharply focused on that goal as we are helping more and more customers around the world become increasingly competitive and productive."

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", "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, 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; the compliance with the requirements regarding the "conflict minerals," 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 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, 2014 and 2013 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 Nine Months Ended
September 30, September 30,
2014 2013 2014 2013
Revenue $ 197,674 $ 178,823 $ 579,327 $ 530,480
Cost of revenue 88,877 81,610 263,782 241,424
Gross profit 108,797 97,213 315,545 289,056
Operating expenses:
Research and development 33,840 32,021 100,563 95,180
Sales and marketing 36,113 34,885 107,902 102,133
General and administrative 17,617 10,468 49,973 37,509
Amortization of identified intangibles 5,284 4,767 15,266 14,640
Restructuring and other 3,021 1,196 5,662 4,443
Total operating expenses 95,875 83,337 279,366 253,905
Income from operations 12,922 13,876 36,179 35,151
Interest expense (1,070) (416) (1,635) (1,968)
Interest income and other income (expense), net (5,000) 1,534 (4,720) (150)
Income before income taxes 6,852 14,994 29,824 33,033
Benefit from (provision for) income taxes (2,047) 1,147 (8,025) 894
Net income $ 4,805 $ 16,141 $ 21,799 $ 33,927
Diluted EPS calculation
Net income $ 4,805 $ 16,141 $ 21,799 $ 33,927
Net income per diluted common share $ 0.10 $ 0.33 $ 0.45 $ 0.70
Shares used in diluted per share calculation 48,184 48,622 48,304 48,387
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,
2014 2013 2014 2013
Net income $ 4,805 $ 16,141 $ 21,799 $ 33,927
Amortization of identified intangibles 5,284 4,767 15,266 14,640
Stock based compensation – Cost of revenue 780 484 1,894 1,335
Stock based compensation – Research and development 2,316 1,986 6,482 5,524
Stock based compensation – Sales and marketing 1,486 1,303 4,069 3,138
Stock based compensation – General and administrative 4,452 2,494 12,706 8,712
Restructuring and other 3,021 1,196 5,662 4,443
General and administrative:
Acquisition-related transaction costs 552 145 1,226 836
Change in fair value of contingent consideration (626) 403 (2,220) (403)
Litigation settlements 660 (3,277) 897 (3,277)
Sublease income related to our deferred property sale (1,022) (2,739)
Depreciation expense related to our deferred property sale 410 1,230
Interest income and other income (expense), net
Interest expense related to our deferred property sale 308 1,799
Non-cash interest expense related to our convertible notes 665 665
Tax effect of non-GAAP adjustments (2,787) (6,591) (6,506) (16,380)
Non-GAAP net income $ 20,608 $ 18,747 $ 61,940 $ 52,785
Non-GAAP net income per diluted common share $ 0.43 $ 0.39 $ 1.28 $ 1.09
Shares used in diluted per share calculation 48,184 48,622 48,304 48,387
Electronics For Imaging, Inc.
Reconciliation of GAAP Income from Operations to Non-GAAP Income from Operations
(in thousands, except per share data)
(unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
2014 2013 2014 2013
Income from operations $ 12,922 $ 13,876 $ 36,179 $ 35,151
Amortization of identified intangibles 5,284 4,767 15,266 14,640
Stock based compensation – Cost of revenue 780 484 1,894 1,335
Stock based compensation – Research and development 2,316 1,986 6,482 5,524
Stock based compensation – Sales and marketing 1,486 1,303 4,069 3,138
Stock based compensation – General and administrative 4,452 2,494 12,706 8,712
Restructuring and other 3,021 1,196 5,662 4,443
General and administrative:
Acquisition-related transaction costs 552 145 1,226 836
Change in fair value of contingent consideration (626) 403 (2,220) (403)
Litigation settlements 660 (3,277) 897 (3,277)
Sublease income related to our deferred property sale (1,022) (2,739)
Depreciation expense related to our deferred property sale 410 1,230
Non-GAAP income from operations $ 30,847 $ 22,765 $ 82,161 $ 68,590
Electronics For Imaging, Inc.
Condensed Consolidated Balance Sheets
(in thousands)
(unaudited)
September 30, December 31,
2014 2013
Assets
Cash and cash equivalents $ 445,374 $ 177,084
Short-term investments 156,579 177,957
Accounts receivable, net 148,371 130,717
Inventories 80,666 68,345
Other current assets 52,305 46,461
Total current assets 883,295 600,564
Property and equipment, net 84,344 84,829
Goodwill 249,142 233,203
Intangible assets, net 67,433 68,722
Other assets 24,329 39,066
Total assets $ 1,308,543 $ 1,026,384
Liabilities & Stockholders' equity
Accounts payable $ 87,506 $ 75,132
Accrued and other liabilities 107,675 121,084
Income taxes payable 5,193 4,654
Total current liabilities 200,374 200,870
Convertible senior notes, net 282,015
Imputed financing obligation 12,229 11,500
Contingent and other liabilities 8,478 6,815
Deferred tax liabilities 6,134 6,738
Long term taxes payable 16,269 33,011
Total liabilities 525,499 258,934
Total stockholders' equity 783,044 767,450
Total liabilities and stockholders' equity $ 1,308,543 $ 1,026,384
Electronics For Imaging, Inc.
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
Nine Months Ended
September 30,
2014 2013
Cash flows from operating activities:
Net income $ 21,799 $ 33,927
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 22,682 21,479
Deferred taxes (10,257) (13,996)
Tax benefit from employee stock plans 10,176 6,958
Excess tax benefit from stock-based compensation (11,314) (7,130)
Stock-based compensation 25,151 18,709
Provisions for inventory obsolescence 3,799 3,939
Provisions for bad debts and sales-related allowances 2,520 5,252
Contingent consideration payments related to businesses acquired (1,428) (619)
Non-cash accretion of interest expense on convertible notes and imputed financing obligation 1,387 67
Other non-cash charges and gains (2,638) 203
Changes in operating assets and liabilities, net of effect of acquired businesses (15,138) (10,849)
Net cash provided by operating activities 46,739 57,940
Cash flows from investing activities:
Purchases of short-term investments (70,587) (120,821)
Proceeds from sales and maturities of short-term investments 90,349 39,379
Purchases, net of proceeds from sales, of property and equipment (12,938) (32,725)
Businesses purchased, net of cash acquired (20,745) (4,533)
Net cash used for investing activities (13,921) (118,700)
Cash flows from financing activities:
Proceeds from issuance of common stock 16,196 11,980
Proceeds from issuance of convertible notes, net of issuance cost payments 337,207
Purchase of convertible note hedges (63,928)
Proceeds from issuance of warrants 34,535
Purchases of treasury stock and net share settlements (88,816) (28,852)
Repayment of debt assumed through business acquisitions (525) (1,693)
Contingent consideration payments related to businesses acquired (9,359) (9,998)
Excess tax benefit from stock-based compensation 11,314 7,130
Net cash provided by (used for) financing activities 236,624 (21,433)
Effect of foreign exchange rate changes on cash and cash equivalents (1,152) (1,073)
Increase (decrease) in cash and cash equivalents 268,290 (83,266)
Cash and cash equivalents at beginning of quarter 177,084 283,996
Cash and cash equivalents at end of quarter $ 445,374 $ 200,730
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 2014 2013 2014 2013
Industrial Inkjet $ 95,472 $ 87,117 $ 277,315 $ 255,423
Productivity Software 33,622 28,532 96,075 84,770
Fiery 68,580 63,174 205,937 190,287
Total $ 197,674 $ 178,823 $ 579,327 $ 530,480
Revenue by Geographic Area
Americas $ 116,137 $ 102,393 $ 318,685 $ 296,806
EMEA 54,212 52,189 181,652 152,219
APAC 27,325 24,241 78,990 81,455
Japan 6,720 4,349 18,307 17,383
APAC, ex Japan 20,605 19,892 60,683 64,072
Total $ 197,674 $ 178,823 $ 579,327 $ 530,480

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 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, non-cash interest expense related to our 0.75% convertible senior notes ("Notes"), 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, and the tax effects of those adjustments. Effective in the first quarter of 2014, 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 recognized in accordance with ASC 718, Stock Compensation.
  • 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.
    • Acquisition-related executive deferred compensation costs, which are dependent on the continuing employment of a former shareholder of an acquired company, were being amortized on a straight-line basis during 2013.
    • 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.
  • 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.
  • 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 at that time served as our corporate headquarters, along with approximately four acres of land and certain other assets related to the property, to Gilead for $179.7 million. We used the facility until October 31, 2013, for which period rent was not required to be paid. This constituted a form of continuing involvement that prevented gain recognition until the fourth quarter of 2013. Until we vacated the building, the proceeds from the sale were recognized as deferred proceeds from property transaction on our Condensed Consolidated Balance Sheet. Imputed interest expense and depreciation, net of accrued sublease income and capitalized interest, of $0.3 million was accrued during the nine months ended September 30, 2013, related to the deferred property transaction.
  • In conjunction with our acquisition of Cretaprint, 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.
  • Tax effect of non-GAAP adjustments
    • Effective in the first quarter and continuing for the balance of 2014, we will be using 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, 2014.
    • In addition to excluding the tax effect of the non-GAAP items described above, we have excluded the following from our non-GAAP net income for the three and nine months ended September 30, 2013:
      • Tax charge of $0.3 million resulting from the filing of tax returns by foreign subsidiaries for periods prior to their acquisition by EFI.
      • 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. The tax benefit for these items had been previously recognized in our non-GAAP net income for the year ended December 31, 2012.
      • 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, respectively, as well as other tax benefits of $0.3 million for the nine months ended September 30, 2013.
      • Recognition of previously unrecognized tax benefits from our non-GAAP net income of $3.5 million for the three and nine months ended September 30, 2013 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.
CONTACT: For more information: Jeremy Anderson Sr Director, Finance & Investor Relations EFI 650-357-3500 Investor Relations: JoAnn Horne Market Street Partners 415-445-3235

Source:Electronics For Imaging, Inc.