EFI reports Q1 2014 net income of US$20.4M, up 29% year-over-year, helped by 10% increase in net sales to US$188.7M

FREMONT, California , April 16, 2014 (press release) – Recurring Revenue up 16% Driven by 25% Growth in UV Ink Volume and Continued Strength in Software Bookings

Electronics For Imaging, Inc. (Nasdaq:EFII), a world leader in customer-focused digital printing innovation, today announced its results for the first quarter of 2014.

For the quarter ended March 31, 2014, the Company reported record first quarter revenue of $188.7 million, up 10% compared to first quarter 2013 revenue of $171.4 million. First quarter 2014 non-GAAP net income was $20.4 million or $0.42 per diluted share, up 29% and 27%, respectively, compared to non-GAAP net income of $15.8 million or $0.33 per diluted share for the same period in 2013. GAAP net income was $10.1 million or $0.21 per diluted share, up 21% and 24%, respectively, compared to $8.4 million or $0.17 per diluted share for the same period in 2013.

"The EFI team kicked off 2014 with another very strong quarter, delivering revenue and profitability above our expectations," said Guy Gecht, CEO of EFI. "With upcoming product innovations across the portfolio we expect to see solid demand throughout the year as our technology continues to help customers around the world drive growth and productivity in their businesses."

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", 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 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 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 months ended March 31, 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.

Electronics For Imaging, Inc.
Condensed Consolidated Statements of Operations
(in thousands, except per share data)
(unaudited)
     
  Three Months Ended
  March 31,
     
  2014 2013
     
Revenue  $ 188,688  $ 171,359
Cost of revenue  85,713  77,499
Gross profit  102,975  93,860
 Operating expenses:    
 Research and development 33,073 31,067
 Sales and marketing 36,304 32,736
 General and administrative 16,847 13,698
 Amortization of identified intangibles  4,870  4,927
 Restructuring and other  1,094  1,978
 Total operating expenses  92,188  84,406
Income from operations  10,787  9,454
Interest and other expense, net  (126)  (2,848)
Income before income taxes  10,661  6,606
Benefit from (provision for) income taxes  (579)  1,756
 Net income  $ 10,082  $ 8,362
     
Fully Diluted EPS calculation    
Net income  $ 10,082  $ 8,362
 Net income per diluted common share  $ 0.21  $ 0.17
Shares used in diluted per share calculation  48,357  47,986
     
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,
     
  2014 2013
     
Net income  $ 10,082  $ 8,362
Amortization of identified intangibles 4,870 4,927
Stock based compensation - Cost of revenue 532 469
Stock based compensation - Research and development 2,235 1,867
Stock based compensation - Sales and marketing 1,411 888
Stock based compensation - General and administrative 4,286 3,420
Restructuring and other 1,094 1,978
General and administrative:    
 Acquisition-related transaction costs 505 19
 Change in fair value of contingent consideration (557) (262)
 Litigation settlements 115 — 
 Sublease income related to our deferred property sale —  (720)
 Depreciation expense related to our deferred property sale —  410
Interest and other expense, net    
 Interest expense related to our deferred property sale —  880
Tax effect of non-GAAP adjustments (4,201) (6,487)
Non-GAAP net income  $ 20,372  $ 15,751
     
Non-GAAP net income per diluted common share  $ 0.42  $ 0.33
Shares used in per share calculation  48,357  47,986
     
     
Electronics For Imaging, Inc.
Condensed Consolidated Balance Sheets
(in thousands)
(unaudited)
     
  March 31, December 31,
  2014 2013
     
Assets    
Cash and cash equivalents  $ 149,690  $ 177,084
Short-term investments  165,994  177,957
Accounts receivable, net  144,378  130,717
Inventories  70,802  68,345
Other current assets  48,998  46,461
 Total current assets  579,862  600,564
Property and equipment, net  85,337  84,829
Goodwill  236,708  233,203
Intangible assets, net  65,586  68,722
Other assets  14,688  39,066
 Total assets  $ 982,181  $ 1,026,384
     
Liabilities & Stockholders' equity    
Accounts payable  $ 70,451  $ 75,132
Accrued and other liabilities  122,534  121,084
Income taxes payable  3,241  4,654
 Total current liabilities  196,226  200,870
Imputed financing obligation  11,708  11,500
Contingent and other liabilities  5,671  6,815
Deferred tax liabilities  6,425  6,738
Long term taxes payable  7,234  33,011
 Total liabilities  227,264  258,934
Total stockholders' equity  754,917  767,450
 Total liabilities and stockholders' equity  $ 982,181  $ 1,026,384
     
     
Electronics For Imaging, Inc.
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
     
  Three Months Ended
  March 31,
  2014 2013
     
Cash flows from operating activities:    
Net income  $10,082  $ 8,362
Adjustments to reconcile net income to net cash provided by operating activities:    
Depreciation and amortization 7,277 7,158
Deferred taxes (5,557) (5,366)
Tax benefit from employee stock plans 6,092 1,885
Excess tax benefit from stock-based compensation (6,095) (2,013)
Stock-based compensation 8,463 6,644
Provisions for inventory obsolescence  1,620 1,842
Provisions for bad debts and sales-related allowances 71 1,337
Contingent consideration payment related to business acquired —  (618)
Other non-cash charges and adjustments, net of effect of acquired companies 77 306
Changes in operating assets and liabilities (16,144) 3,081
Net cash provided by operating activities 5,886 22,618
     
Cash flows from investing activities:    
Purchases of short-term investments (12,281) (12,288)
Proceeds from sales and maturities of short-term investments 23,634 9,860
Purchases, net of proceeds from sales, of property and equipment (7,664) (2,269)
Acquisition of SmartLinc, Inc., net of cash acquired (2,344)  — 
Net cash provided by (used for) investing activities 1,345 (4,697)
     
Cash flows from financing activities:    
Proceeds from issuance of common stock 10,196 7,621
Purchases of treasury stock and net share settlements (48,449) (11,567)
Repayment of debt assumed through business acquisitions (494) (354)
Contingent consideration payments related to businesses acquired (2,000) (349)
Excess tax benefit from stock-based compensation 6,095 2,013
Net cash used for financing activities (34,652) (2,636)
     
Effect of foreign exchange rate changes on cash and cash equivalents 27 (1,030)
Increase (decrease) in cash and cash equivalents (27,394) 14,255
Cash and cash equivalents at beginning of quarter 177,084 283,996
Cash and cash equivalents at end of quarter $149,690  $ 298,251
     
     
Electronics For Imaging, Inc.
Revenue by Operating Segment and Geographic Area
(in thousands)
(unaudited)
     
  Three Months Ended
  March 31,
     
Revenue by Operating Segment 2014 2013
 Industrial Inkjet  $ 87,944  $ 80,303
 Productivity Software  31,693  27,729
 Fiery  69,051  63,327
 Total  $ 188,688  $ 171,359
     
Revenue by Geographic Area    
 Americas  $ 100,981  $ 93,897
 EMEA  60,541  50,046
 APAC  27,166  27,416
 Japan  5,817  7,219
 APAC, ex Japan   21,349  20,197
 Total  $ 188,688  $ 171,359
     
 
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 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, including:

-- Amortization of acquisition-related intangibles. 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.

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 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.

-- 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, of $0.6 million was accrued during the three months ended March 31, 2013, related to the deferred property transaction.

Tax effect of non-GAAP adjustments
-- Effective in the first quarter of 2014 and continuing for the balance of the year, 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 profits. The long-term average tax 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 benefit (provision) in each jurisdiction in which we operate.

-- We have excluded the following from our non-GAAP net income for the three months ended March 31, 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.

* All content is copyrighted by Industry Intelligence, or the original respective author or source. You may not recirculate, redistrubte or publish the analysis and presentation included in the service without Industry Intelligence's prior written consent. Please review our terms of use.