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EFI Reports Record Fourth Quarter, Full Year 2016 Results

  • Q4 GAAP EPS $0.43, up 105%, Non-GAAP EPS $0.77, up 26%
  • Q4 Cash Flow From Operations of $65 Million, up 141%

FREMONT, Calif., Jan. 25, 2017 (GLOBE NEWSWIRE) -- Electronics For Imaging, Inc. (Nasdaq:EFII), a world leader in customer-focused digital printing innovation, today announced preliminary results for the fourth quarter and year ended December 31, 2016.

For the quarter ended December 31, 2016, the Company reported record fourth quarter revenue of $266.7 million, up 4% compared to fourth quarter 2015 revenue of $256.5 million. GAAP net income was $20.5 million, up 99% compared to $10.3 million for the same period in 2015 or $0.43 per diluted share, up 105% compared to $0.21 per diluted share for the same period in 2015. Non-GAAP net income was $36.3 million, up 23% compared to non-GAAP net income of $29.4 million for the same period in 2015 or $ 0.77 per diluted share, up 26% compared to $0.61 per diluted share for the same period in 2015. Cash flow from operating activities was $65.2 million, up 141% compared to $27.1 million during the same period in 2015

For the year ended December 31, 2016, the Company reported revenue of $992.1 million, up 12% year-over-year compared to $882.5 million for the same period in 2015. GAAP net income was $45.5 million, up 36% compared to $33.5 million for the same period in 2015 or $0.95 per diluted share, up 36% compared to $0.70 per diluted share for the same period in 2015. Non-GAAP net income was $116.8 million, up 19% compared to non-GAAP net income of $97.9 million for the same period in 2015 or $2.44 per diluted share, up 20% compared to $2.03 per diluted share for the same period in 2015. Cash flow from operating activities was $121.1 million, up 77% compared to $68.3 million during the same period in 2015.

"EFI delivered another record revenue quarter and our team's execution drove significant improvements in margins, cash flow, and earnings per share, despite the negative impact of foreign currency,” said Guy Gecht, CEO of EFI. “As we start the New Year we are even more excited about the road ahead, especially with our upcoming introduction of the Nozomi platform targeted at digital printing for packaging.”

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, 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 Annual Report on Form 10-K 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 Annual Report on Form 10-K for the fiscal year ended December 31,2016. EFI undertakes no obligation to update information contained in this press release.

For further information regarding risks and uncertainties associated with EFI’s businesses, please refer to the section entitled “Risk Factors” in the Company’s SEC filings, including, but not limited to, its annual report on Form 10-K and its quarterly reports on Form 10-Q, copies of which may be obtained by contacting EFI’s Investor Relations Department by phone at 650-357-3828 or by email at investor.relations@efi.com or EFI’s Investor Relations website at www.efi.com.

Use of Non-GAAP Financial Information

To supplement our condensed consolidated financial results prepared under generally accepted accounting principles, or GAAP, we use non-GAAP measures of net income and earnings per diluted share that are GAAP net income and GAAP earnings per diluted share adjusted to exclude certain costs, expenses, and gains. A reconciliation of the adjustments to GAAP results for the three and twelve months ended December 31, 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 Years Ended
December 31, December 31,
2016 2015 2016 2015
Revenue$ 266,707 $ 256,544 $ 992,065 $ 882,513
Cost of revenue 126,655 127,288 483,375 423,129
Gross profit 140,052 129,256 508,690 459,384
Operating expenses:
Research and development 39,461 37,451 151,192 141,364
Sales and marketing 41,682 42,222 169,042 156,339
General and administrative 19,248 18,587 85,614 72,797
Amortization of identified intangibles 10,200 8,390 39,560 26,510
Restructuring and other 996 3,187 6,729 5,731
Total operating expenses 111,587 109,837 452,137 402,741
Income from operations 28,465 19,419 56,553 56,643
Interest expense (4,473) (4,494) (17,716) (17,364)
Interest income and other (income) expense, net (569) (711) 545 (1,757)
Income before income taxes 23,423 14,214 39,382 37,522
Benefit from (provision for) income taxes (2,877) (3,885) 6,164 (3,982)
Net income$ 20,546 $ 10,329 $ 45,546 $ 33,540
Diluted EPS calculation
Net income$ 20,546 $ 10,329 $ 45,546 $ 33,540
Net income per diluted common share$ 0.43 $ 0.21 $ 0.95 $ 0.70
Shares used in diluted per share calculation 47,460 48,447 47,797 48,150
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 Years Ended
December 31, December 31,
Ex-Currency Ex-Currency
2016 2015 2016 2016 2015 2016
Net income$ 20,546 $ 10,329 $ 20,546 $ 45,546 $ 33,540 $ 45,546
Amortization of identified intangibles 10,200 8,390 10,200 39,560 26,510 39,560
Ex-currency adjustment 1,287 1,722
Stock based compensation – Cost of revenue 1,065 481 1,065 3,252 2,951 3,252
Stock based compensation – Research and development 2,065 1,657 2,065 10,696 9,910 10,696
Stock based compensation – Sales and marketing 1,573 1,141 1,573 8,242 7,926 8,242
Stock based compensation – General and administrative 482 2,705 482 12,696 14,637 12,696
Restructuring and other 996 3,187 996 6,729 5,731 6,729
General and administrative:
Acquisition-related transaction costs 541 1,258 541 2,241 5,494 2,241
Changes in fair value of contingent consideration 629 295 629 6,939 (2,135) 6,939
Litigation settlements 115 15 115 1,027 584 1,027
Interest income and other (income) expense, net
Non-cash interest expense related to our convertible notes 3,163 2,997 3,163 12,400 11,781 12,400
Foreign exchange fluctuation related to contingent consideration 588 588 1,049 1,049
Balance sheet currency remeasurement impact 1,029 2,767
Tax effect of non-GAAP adjustments (5,643) (3,020) (6,082) (33,565) (18,990) (34,417)
Non-GAAP net income$ 36,320 $ 29,435 $ 38,197 $ 116,812 $ 97,939 $ 120,449
Non-GAAP net income per diluted common share$ 0.77 $ 0.61 $ 0.80 $ 2.44 $ 2.03 $ 2.52
Shares used in diluted per share calculation 47,460 48,447 47,460 47,797 48,150 47,797
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)
December 31, December 31,
2016 2015
Assets
Cash and cash equivalents$ 164,313 $ 164,091
Short-term investments 295,428 333,276
Accounts receivable, net 220,813 193,121
Inventories 98,712 106,378
Other current assets 36,637 30,148
Total current assets 815,903 827,014
Property and equipment, net 103,304 97,779
Goodwill 359,841 338,793
Intangible assets, net 122,997 135,552
Other assets 78,322 51,013
Total assets$ 1,480,367 $ 1,450,151
Liabilities & Stockholders’ equity
Accounts payable$ 113,924 $ 113,541
Accrued and other liabilities 139,317 123,192
Income taxes payable 9,492 3,594
Total current liabilities 262,733 240,327
Convertible senior notes, net 304,484 290,734
Imputed financing obligation related to build-to-suit lease 14,152 13,480
Noncurrent contingent and other liabilities 42,786 51,101
Deferred tax liabilities 16,351 19,003
Noncurrent income taxes payable 12,030 11,312
Total liabilities 652,536 625,957
Total stockholders’ equity 827,831 824,194
Total liabilities and stockholders’ equity$ 1,480,367 $ 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)
Years Ended
December 31,
2016 2015
Cash flows from operating activities:
Net income $ 45,546 $ 33,540
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 55,081 40,124
Deferred taxes (10,188) (7,384)
Tax benefit from employee stock plans 5,368
Stock-based compensation, net of cash settlements 31,726 33,741
Provision for inventory obsolescence 5,187 5,193
Provision for bad debts and sales-related allowances 10,678 7,536
Non-cash accretion of interest expense on convertible notes and imputed financing obligation 13,489 12,957
Other non-cash charges and gains 5,443 3,843
Changes in operating assets and liabilities, net of effect of acquired businesses (35,958) (66,561)
Net cash provided by operating activities 121,004 68,357
Cash flows from investing activities:
Purchases of short-term investments (216,349) (328,911)
Proceeds from sales and maturities of short-term investments 252,856 311,508
Purchases of restricted investments (6,252)
Purchases, net of proceeds from sales, of property and equipment (22,373) (18,449)
Businesses purchased, net of cash acquired (19,932) (74,766)
Net cash used for investing activities (12,050) (110,618)
Cash flows from financing activities:
Proceeds from issuance of common stock 11,100 11,450
Purchases of treasury stock and net share settlements (83,292) (76,447)
Repayment of debt assumed through business acquisitions and debt issuance costs (8,803) (22,592)
Contingent consideration payments related to businesses acquired (28,111) (4,093)
Net cash used for financing activities (109,106) (91,682)
Effect of foreign exchange rate changes on cash and cash equivalents 374 (99)
Decrease in cash and cash equivalents 222 (134,042)
Cash and cash equivalents at beginning of period 164,091 298,133
Cash and cash equivalents at end of period $ 164,313 $ 164,091
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 retrospective application to prior periods resulted in a $0.3 million increase in cash flows provided by operating activities for the year ended December 31, 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 Years Ended
December 31, December 31,
Revenue by Operating Segment 2016 2015 2016 2015
Industrial Inkjet$ 153,657 $ 141,890 $ 562,583 $ 447,705
Productivity Software 43,183 38,853 151,737 135,350
Fiery 69,867 75,801 277,745 299,458
Total$ 266,707 $ 256,544 $ 992,065 $ 882,513
Revenue by Geographic Area
Americas$ 136,434 $ 136,549 $ 500,411 $ 473,599
EMEA 95,836 85,912 360,305 291,103
APAC 34,437 34,083 131,349 117,811
Total$ 266,707 $ 256,544 $ 992,065 $ 882,513
Revenue Ex-Currency Adjustment 2,967 9,928
Total$ 269,674 $ 256,544 $ 1,001,993 $ 882,513

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, 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 static 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:

oIntangible assets acquired to date are being amortized on a straight-line basis.
oStock-based compensation expense of $34.9 and $35.4 million during the twelve months ended December 31, 2016 and 2015, respectively, consist of $31.8 and $34.0 million of stock-based compensation expense recognized in accordance with ASC 718, Stock Compensation, and the non-cash settlement of $3.1 and $1.4 million of vacation liabilities settled through the issuance of RSUs during the twelve months ended December 31, 2016 and 2015, which is not included in the GAAP presentation of our stock-based compensation expense.
oRestructuring 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 $2.1 million for the three and twelve months ended December 31, 2016, respectively, and $1.5 and $1.8 million for the three and twelve months ended December 31, 2015, respectively.
oAcquisition-related transaction costs associated with businesses acquired and anticipated transactions of $0.5 and $2.2 million for the three and twelve months ended December 31, 2016, respectively, and $1.3 and $5.5 million for the three and twelve months ended December 31, 2015, respectively.
oChanges 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.
oNon-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.
oLitigation settlements. We settled or accrued reserves related several litigation claims of $1.0 and $0.6 million during the twelve months ended December 31, 2016 and 2015 respectively.
oWe 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 and $10.3 million of previously unrecognized tax benefits associated with the 2012 sale of our Foster City building and land which we recognized in the twelve months ended December 31, 2016.

For more information: Marc Olin Chief Financial Officer EFI 650-357-3500 Investor Relations: JoAnn Horne Market Street Partners 415-445-3238

Source:Electronics For Imaging, Inc.