EFI Reports Record First Quarter Revenue of $234M, Up 20%

For the quarter ended March 31, 2016, the Company reported record first quarter revenue of $234.1 million, up 20% compared to first quarter 2015 revenue of $194.6 million.  Non-GAAP operating income was $33.5 million compared to $28.3 million for the same period in 2015.  Non-GAAP net income was $26.3 million or $0.55 per diluted share, which includes an unfavorable balance sheet currency translation impact of $0.01 per share, compared to non-GAAP net income of $21.4 million or $0.45 per diluted share for the same period in 2015.  GAAP operating income was $6.7 million compared to $11.1 million for the same period in 2015.  GAAP net income was $1.9 million or $0.04 per diluted share, compared to $5.2 million or $0.11 per diluted share for the same period in 2015. 

"Our team's execution drove another quarter of solid performance across the EFI portfolio, led by good growth in our Industrial Inkjet segment," said Guy Gecht, CEO of EFI.  "At the upcoming drupa tradeshow we expect to introduce entirely new platforms in every segment of our business, including an expansion into the vast packaging space.  We expect products based on these powerful and versatile new platforms to fuel our growth in the coming years."

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. (

Electronics For Imaging, Inc.
Condensed Consolidated Statements of Operations
(in thousands, except per share data)
(unaudited)
		Three Months Ended
		March 31,
			2016				2015
Revenue		$	234,133			$	194,554
Cost of revenue			115,761				89,114
Gross profit			118,372				105,440
Operating expenses:
Research and development			37,178				33,711
Sales and marketing			41,574				37,170
General and administrative			20,980				17,650
Amortization of identified intangibles			9,229				4,804
Restructuring and other			2,715				1,029
Total operating expenses			111,676				94,364
Income from operations			6,696				11,076
Interest expense			(4,358	)			(4,099	)
Interest income and other expense, net			(221	)			(659	)
Income before income taxes			2,117				6,318
Provision for income taxes			(263	)			(1,081	)
Net income		$	1,854			$	5,237
Diluted EPS calculation
Net income		$	1,854			$	5,237
Net income per diluted common share		$	0.04			$	0.11
Shares used in diluted per share calculation			47,923				47,856

Electronics For Imaging, Inc.
Reconciliation of GAAP Net Income to Non-GAAP Net Income
(in thousands, except per share data)
(unaudited)
	Three Months Ended
	March 31,
									Ex-Currency
		2016				2015				2016
Net income	$	1,854			$	5,237			$	1,854
Amortization of identified intangibles		9,229				4,804				9,229
Ex-currency adjustment		—				—				(483	)
Stock based compensation — Cost of revenue		1,035				937				1,035
Stock based compensation — Research and development		4,740				3,169				4,740
Stock based compensation — Sales and marketing		2,879				2,710				2,879
Stock based compensation — General and administrative		5,637				3,429				5,637
Restructuring and other		2,715				1,029				2,715
General and administrative:
Acquisition-related transaction costs		478				661				478
Changes in fair value of contingent consideration		(205	)			(15	)			(205	)
Litigation settlements		320				540				320
Interest income and other expense, net
Non-cash interest expense related to our convertible notes		3,004				2,878				3,004
Foreign exchange fluctuation related to contingent consideration		507				—				507
Balance sheet currency remeasurement impact		—				—				702
Tax effect of non-GAAP adjustments		(5,904	)			(3,946	)			(5,945	)
Non-GAAP net income	$	26,289			$	21,433			$	26,467
Non-GAAP net income per diluted common share	$	0.55			$	0.45			$	0.55
Shares used in diluted per share calculation		47,923				47,856				47,923

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
	March 31,
		2016				2015
Income from operations	$	6,696			$	11,076
Amortization of identified intangibles		9,229				4,804
Stock based compensation — Cost of revenue		1,035				937
Stock based compensation — Research and development		4,740				3,169
Stock based compensation — Sales and marketing		2,879				2,710
Stock based compensation — General and administrative		5,637				3,429
Restructuring and other		2,715				1,029
General and administrative:
Acquisition-related transaction costs		478				661
Changes in fair value of contingent consideration		(205	)			(15	)
Litigation settlements		320				540
Non-GAAP income from operations	$	33,524			$	28,340

Electronics For Imaging, Inc.
Condensed Consolidated Balance Sheets
(in thousands)
(unaudited)
	March 31,				December 31,
		2016				2015
Assets
Cash and cash equivalents	$	190,156			$	164,091
Short-term investments		281,471				333,276
Accounts receivable, net		205,447				193,121
Inventories		121,666				106,378
Other current assets		36,375				30,148
Total current assets		835,115				827,014
Property and equipment, net		101,079				97,779
Goodwill		344,369				338,793
Intangible assets, net		133,730				135,552
Other assets		50,738				51,013
Total assets	$	1,465,031			$	1,450,151
Liabilities & Stockholders' equity
Accounts payable	$	110,775			$	113,541
Accrued and other liabilities		126,199				123,192
Income taxes payable and deferred tax liabilities		3,592				3,594
Total current liabilities		240,566				240,327
Convertible senior notes, net		294,065				290,734
Imputed financing obligation related to build-to-suit lease		13,738				13,480
Noncurrent contingent and other liabilities		55,374				51,101
Deferred tax liabilities		20,240				19,003
Noncurrent income taxes payable		11,650				11,312
Total liabilities		635,633				625,957
Total stockholders' equity		829,398				824,194
Total liabilities and stockholders' equity	$	1,465,031			$	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)
			Three Months Ended
			March 31,
				2016				2015
Cash flows from operating activities:
Net income			$	1,854			$	5,237
Adjustments to reconcile net income to net cash provided by operating activities:
	Depreciation and amortization			13,008				7,803
	Deferred taxes			(3,894	)			(5,066	)
	Tax benefit (expense) from employee stock plans			43				(155	)
	Excess tax benefit from stock-based compensation			(164	)			(127	)
	Stock-based compensation, net of cash settlements			11,538				8,892
	Provision for inventory obsolescence			2,272				1,450
	Provision for (releases of) bad debts and sales-related allowances			4,140				(1,080	)
	Non-cash accretion of interest expense on convertible notes and imputed financing obligation			3,273				3,097
	Other non-cash charges and gains			2,878				(306	)
Changes in operating assets and liabilities, net of effect of acquired businesses				(26,147	)			(12,662	)
Net cash provided by operating activities				8,801				7,083
Cash flows from investing activities:
	Purchases of short-term investments			(58,323	)			(162,363	)
	Proceeds from sales and maturities of short-term investments			110,417				70,123
	Purchases, net of proceeds from sales, of property and equipment			(5,213	)			(4,915	)
	Businesses purchased, net of cash acquired			(7,982	)			(10	)
Net cash provided by (used for) investing activities				38,899				(97,165	)
Cash flows from financing activities:
	Proceeds from issuance of common stock			4,909				4,864
	Purchases of treasury stock and net share settlements			(23,092	)			(13,539	)
	Repayment of debt assumed through business acquisitions and debt issuance costs			(4,492	)			(79	)
	Contingent consideration payments related to businesses acquired			(1,443	)			(2,032	)
	Excess tax benefit from stock-based compensation			164				127
Net cash used for financing activities				(23,954	)			(10,659	)
	Effect of foreign exchange rate changes on cash and cash equivalents			2,319				(1,652	)
	Decrease in cash and cash equivalents			26,065				(102,393	)
	Cash and cash equivalents at beginning of period			164,091				298,133
Cash and cash equivalents at end of period			$	190,156			$	195,740

Electronics For Imaging, Inc.
Revenue by Operating Segment and Geographic Area
(in thousands)
(unaudited)
		Three Months Ended
		March 31,
Revenue by Operating Segment			2016				2015
Industrial Inkjet		$	125,798			$	87,607
Productivity Software			32,540				31,107
Fiery			75,795				75,840
Total		$	234,133			$	194,554
Revenue by Geographic Area
Americas		$	120,266			$	107,714
EMEA			83,583				60,128
APAC			30,284				26,712
Total		$	234,133			$	194,554
Revenue Ex-Currency Adjustment		$	4,185				—
Total		$	238,318			$	194,554

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 operating income, non-GAAP net income, and non-GAAP earnings per diluted share provides important supplemental information regarding non-cash expenses 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 operating income, 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 operating income, 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 operating income, non-GAAP net income, and non-GAAP earnings per diluted share by adjusting GAAP operating income, 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 constant non-GAAP tax rate of 19%, which we believe reflects the long term average tax rate based on our international structure and geographic distribution of revenue and profit.

Ex-Currency.  To better understand trends in our business, we believe it is helpful to adjust our statement of operations to exclude the impact of year-over-year changes in the translation of foreign currencies into U.S. dollars. This is a non-GAAP measure that is calculated by adjusting revenue, non-GAAP operating income, 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 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.