Electronics For Imaging, Inc. (Nasdaq:EFII), a world leader in
customer-focused digital printing innovation, today announced its
results for the fourth quarter and year ended December 31,
2017.
For the quarter ended December 31, 2017, the Company reported
record fourth quarter revenue of $269.2 million, up 1% compared to
fourth quarter 2016 revenue of $266.7 million. GAAP net loss
was $25.4 million compared to GAAP net income of $19.9 million for
the same period in 2016 or $(0.55) per diluted share compared to
$0.42 per diluted share for the same period in 2016. Non-GAAP
net income was $24.0 million, down 33% compared to non-GAAP net
income of $35.7 million for the same period in 2016 or $0.52 per
diluted share, down 31% compared to $0.75 per diluted share for the
same period in 2016. Cash flow from operating activities was
$8.9 million, down 86% compared to $65.2 million during the same
period in 2016.
For the year ended December 31, 2017, the Company reported
revenue of $993.3 million, up 0.1% year-over-year compared to
$992.1 million for the same period in 2016. GAAP net loss was
$14.4 million or $(0.31) per diluted share, compared to GAAP net
income of $44.9 million or $0.94 per diluted share for the same
period in 2016. Non-GAAP net income was $100.7 million or
$2.14 per diluted share, compared to non-GAAP net income of $116.2
million or $2.43 per diluted share for the same period in
2016. Cash flow from operating activities was
$51.3 million, down 58% compared to $121.0 million during
the same period in 2016.
“The performance of our direct business drove record quarterly
and full year revenue for EFI. We look for this growth from inkjet
and software to accelerate in the first quarter,” said Guy Gecht,
CEO of EFI. “Having just finished a very exciting Connect
Users’ Conference, the EFI team is energized as we enter 2018, with
a year full of new product introductions across the Company and
Nozomi on track for a strong first year in the corrugated
market. We are well positioned to help customers transform
their businesses,” concluded Mr. Gecht.
Conference Call
EFI will discuss the Company’s financial results by conference
call at 5:00 pm ET/2:00 pm PT 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 “accelerate”. “address”, “anticipate”,
“believe”, “consider”, “continue”, “develop”, “estimate”, “expect”,
“further”, “look”, “plan”, and “progress” 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, intense competition in each of our
businesses, including competition from products developed by EFI’s
customers; our ability to remediate the material weaknesses
identified in EFI’s internal control over financial reporting; the
uncertainty of the outcome of the pending securities lawsuits
against EFI; 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 year ended
December 31,2017. EFI undertakes no obligation to update
information contained in this press release. Amounts are
subject to rounding.
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.
Impact of the Tax Cuts and Jobs Act of
2017
On December 22, 2017, the Tax Cuts and Jobs Act
was enacted, which will have wide-ranging impacts on EFI including,
but not limited to, a Deemed Repatriation Transition Tax and the
revaluation of current U.S. deferred tax assets and
liabilities. We have recorded a $27.3 million charge in the
current quarter as a provisional estimate related to the
aforementioned items. The SEC staff issued Staff Accounting
Bulletin (“SAB”) 118, which allows companies to record a
provisional estimate of the income tax effects in the quarter in
which it can make reasonable estimates of the effects of the new
law. While we have calculated a reasonable estimate of the
impact of the U.S. tax rate reduction and the amount of the Deemed
Repatriation Transition Tax, we are still gathering additional
information to refine and finalize our calculation of the impacts
of the new tax law on our U.S. deferred tax assets and liabilities,
the Deemed Repatriation Transition Tax, and other provisions
associated with the Tax Cuts and Jobs Act. As we obtain
additional information, we may record material adjustments in
current or subsequent quarters, and will finalize the income tax
effects in the fourth quarter of 2018, or in an earlier quarter if
our analysis is complete.
Use of Non-GAAP Financial InformationTo
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, 2017 and 2016 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.
Our non-GAAP measures, including ex-currency 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, revenue, gross
profit, operating expenses, 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 |
|
|
Twelve Months Ended |
|
December 31, |
|
|
December 31, |
|
|
|
|
|
|
|
|
|
|
|
2017 |
|
|
|
2016 |
|
|
|
|
2017 |
|
|
|
2016 |
|
|
|
|
|
|
|
|
|
|
Revenue |
$ |
269,163 |
|
|
$ |
266,707 |
|
|
|
$ |
993,260 |
|
|
$ |
992,065 |
|
Cost of revenue |
|
140,947 |
|
|
|
127,180 |
|
|
|
|
486,804 |
|
|
|
483,900 |
|
Gross
profit |
|
128,216 |
|
|
|
139,527 |
|
|
|
|
506,456 |
|
|
|
508,165 |
|
Operating
expenses: |
|
|
|
|
|
|
|
|
Research
and development |
|
39,157 |
|
|
|
39,664 |
|
|
|
|
157,358 |
|
|
|
151,395 |
|
Sales and
marketing |
|
44,679 |
|
|
|
41,682 |
|
|
|
|
173,697 |
|
|
|
169,042 |
|
General
and administrative |
|
24,498 |
|
|
|
19,252 |
|
|
|
|
91,737 |
|
|
|
85,618 |
|
Amortization of identified intangibles |
|
12,510 |
|
|
|
10,200 |
|
|
|
|
47,339 |
|
|
|
39,560 |
|
Restructuring and other |
|
2,140 |
|
|
|
998 |
|
|
|
|
7,562 |
|
|
|
6,731 |
|
Total
operating expenses |
|
122,984 |
|
|
|
111,796 |
|
|
|
|
477,693 |
|
|
|
452,346 |
|
Income from
operations |
|
5,232 |
|
|
|
27,731 |
|
|
|
|
28,763 |
|
|
|
55,819 |
|
Interest expense |
|
(4,967 |
) |
|
|
(4,473 |
) |
|
|
|
(19,505 |
) |
|
|
(17,716 |
) |
Interest income and
other income, net |
|
1,286 |
|
|
|
(569 |
) |
|
|
|
4,088 |
|
|
|
545 |
|
Income before
income taxes |
|
1,551 |
|
|
|
22,689 |
|
|
|
|
13,346 |
|
|
|
38,648 |
|
Benefit from (provision
for) income taxes |
|
(26,975 |
) |
|
|
(2,740 |
) |
|
|
|
(27,770 |
) |
|
|
6,301 |
|
Net income (loss) |
$ |
(25,424 |
) |
|
$ |
19,949 |
|
|
|
$ |
(14,424 |
) |
|
$ |
44,949 |
|
|
|
|
|
|
|
|
|
|
Diluted EPS
calculation |
|
|
|
|
|
|
|
|
Net (loss) income |
$ |
(25,424 |
) |
|
$ |
19,949 |
|
|
|
$ |
(14,424 |
) |
|
$ |
44,949 |
|
Net
(loss) income per diluted common share |
$ |
(0.55 |
) |
|
$ |
0.42 |
|
|
|
$ |
(0.31 |
) |
|
$ |
0.94 |
|
Shares used in diluted
per share calculation |
|
46,345 |
|
|
|
47,460 |
|
|
|
|
47,066 |
|
|
|
47,797 |
|
|
|
|
|
|
|
|
|
|
Electronics For
Imaging, Inc. |
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of GAAP Net Income (Loss) to Non-GAAP
Net Income |
|
|
|
|
|
|
|
|
|
|
|
(in thousands,
except per share data) |
|
|
|
|
|
|
|
|
|
|
|
|
(unaudited) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Twelve Months Ended |
|
December 31, |
|
|
December 31, |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ex-Currency |
|
|
|
|
|
|
Ex-Currency |
|
|
2017 |
|
|
|
2016 |
|
|
|
2017 |
|
|
|
|
2017 |
|
|
|
2016 |
|
|
|
2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
(loss) |
$ |
(25,424 |
) |
|
$ |
19,949 |
|
|
$ |
(25,424 |
) |
|
|
$ |
(14,424 |
) |
|
$ |
44,949 |
|
|
$ |
(14,424 |
) |
Cost of revenue related
to fair value inventory adjustment |
|
123 |
|
|
|
— |
|
|
|
123 |
|
|
|
|
1,383 |
|
|
|
— |
|
|
|
1,383 |
|
Ex-currency
adjustment |
|
— |
|
|
|
— |
|
|
|
(890 |
) |
|
|
|
— |
|
|
|
— |
|
|
|
94 |
|
Stock based
compensation – Cost of revenue |
|
576 |
|
|
|
1,065 |
|
|
|
576 |
|
|
|
|
2,561 |
|
|
|
3,252 |
|
|
|
2,561 |
|
Stock based
compensation – Research and development |
|
1,621 |
|
|
|
2,065 |
|
|
|
1,621 |
|
|
|
|
9,177 |
|
|
|
10,696 |
|
|
|
9,177 |
|
Stock based
compensation – Sales and marketing |
|
1,407 |
|
|
|
1,573 |
|
|
|
1,407 |
|
|
|
|
6,583 |
|
|
|
8,242 |
|
|
|
6,583 |
|
Stock based
compensation – General and administrative |
|
387 |
|
|
|
482 |
|
|
|
387 |
|
|
|
|
8,211 |
|
|
|
12,696 |
|
|
|
8,211 |
|
Amortization of
identified intangibles |
|
12,510 |
|
|
|
10,200 |
|
|
|
12,510 |
|
|
|
|
47,339 |
|
|
|
39,560 |
|
|
|
47,339 |
|
Restructuring and
other |
|
2,140 |
|
|
|
998 |
|
|
|
2,140 |
|
|
|
|
7,562 |
|
|
|
6,731 |
|
|
|
7,562 |
|
General and
administrative: |
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition-related transaction costs |
|
237 |
|
|
|
541 |
|
|
|
237 |
|
|
|
|
2,057 |
|
|
|
2,241 |
|
|
|
2,057 |
|
Changes
in fair value of contingent consideration |
|
3,069 |
|
|
|
629 |
|
|
|
3,069 |
|
|
|
|
5,256 |
|
|
|
6,939 |
|
|
|
5,256 |
|
Revenue
recognition review costs and litigation settlements |
|
1,776 |
|
|
|
115 |
|
|
|
1,776 |
|
|
|
|
6,879 |
|
|
|
1,027 |
|
|
|
6,879 |
|
Asset
impairment |
|
880 |
|
|
|
— |
|
|
|
880 |
|
|
|
|
880 |
|
|
|
— |
|
|
|
880 |
|
Interest income and
other income, net |
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash
interest expense related to our convertible notes |
|
3,336 |
|
|
|
3,163 |
|
|
|
3,336 |
|
|
|
|
13,049 |
|
|
|
12,400 |
|
|
|
13,049 |
|
Foreign
exchange fluctuation related to contingent consideration |
|
— |
|
|
|
588 |
|
|
|
— |
|
|
|
|
45 |
|
|
|
1,049 |
|
|
|
45 |
|
Balance
sheet currency remeasurement impact |
|
— |
|
|
|
— |
|
|
|
235 |
|
|
|
|
— |
|
|
|
— |
|
|
|
1,579 |
|
Tax effect of non-GAAP
adjustments |
|
21,348 |
|
|
|
(5,642 |
) |
|
|
21,530 |
|
|
|
|
4,147 |
|
|
|
(33,564 |
) |
|
|
3,831 |
|
Non-GAAP net
income |
$ |
23,986 |
|
|
$ |
35,726 |
|
|
$ |
23,513 |
|
|
|
$ |
100,705 |
|
|
$ |
116,218 |
|
|
$ |
102,062 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-GAAP net income per
diluted common share |
$ |
0.52 |
|
|
$ |
0.75 |
|
|
$ |
0.51 |
|
|
|
$ |
2.14 |
|
|
$ |
2.43 |
|
|
$ |
2.17 |
|
Shares used in diluted
per share calculation |
|
46,345 |
|
|
|
47,460 |
|
|
|
46,345 |
|
|
|
|
47,066 |
|
|
|
47,797 |
|
|
|
47,066 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Electronics For
Imaging, Inc. |
|
|
|
Condensed
Consolidated Balance Sheets |
|
|
|
(in
thousands) |
|
|
|
(unaudited) |
|
|
|
|
|
|
|
|
December 31, |
|
|
2017 |
|
|
2016 |
|
|
|
|
Assets |
|
|
|
Cash and cash
equivalents |
$ |
170,345 |
|
$ |
164,313 |
Short-term
investments |
|
148,697 |
|
|
295,428 |
Accounts receivable,
net |
|
244,416 |
|
|
220,813 |
Inventories |
|
125,813 |
|
|
96,338 |
Other current
assets |
|
50,178 |
|
|
36,637 |
Total
current assets |
|
739,449 |
|
|
813,529 |
Property and equipment,
net |
|
98,762 |
|
|
103,474 |
Goodwill |
|
397,133 |
|
|
359,841 |
Intangible assets,
net |
|
123,008 |
|
|
122,997 |
Restricted investments
and cash equivalents |
|
32,531 |
|
|
6,252 |
Other assets |
|
60,292 |
|
|
72,836 |
Total
assets |
$ |
1,451,175 |
|
$ |
1,478,929 |
|
|
|
|
Liabilities
& Stockholders’ equity |
|
|
|
Accounts payable |
$ |
123,548 |
|
$ |
114,287 |
Accrued and other
liabilities |
|
157,322 |
|
|
139,318 |
Income taxes
payable |
|
5,309 |
|
|
10,256 |
Total
current liabilities |
|
286,179 |
|
|
263,861 |
Convertible senior
notes, net |
|
318,957 |
|
|
304,484 |
Imputed financing
obligation related to build-to-suit lease |
|
13,975 |
|
|
14,152 |
Noncurrent contingent
and other liabilities |
|
24,156 |
|
|
42,786 |
Deferred tax
liabilities |
|
11,652 |
|
|
15,601 |
Noncurrent income taxes
payable |
|
20,169 |
|
|
12,030 |
Total
liabilities |
|
675,088 |
|
|
652,914 |
Total stockholders’
equity |
|
776,087 |
|
|
826,015 |
Total
liabilities and stockholders’ equity |
$ |
1,451,175 |
|
$ |
1,478,929 |
|
|
|
|
Electronics For Imaging, Inc. |
|
|
|
|
Condensed Consolidated Statements of Cash
Flows |
|
|
|
|
(in
thousands) |
|
|
|
|
(unaudited) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Months Ended |
|
|
|
December 31, |
|
|
|
|
|
|
|
|
|
|
2017 |
|
|
|
2016 |
|
Cash flows from operating activities: |
|
|
|
|
Net income
(loss) |
|
$ |
(14,424 |
) |
|
$ |
44,949 |
|
Adjustments
to reconcile net income (loss) to net cash provided by operating
activities: |
|
|
|
|
|
Depreciation and amortization |
|
|
65,647 |
|
|
|
55,081 |
|
|
Deferred
taxes |
|
|
9,221 |
|
|
|
(11,091 |
) |
|
Stock-based compensation, net of cash settlements |
|
|
26,532 |
|
|
|
31,726 |
|
|
Provision
for inventory obsolescence |
|
|
6,312 |
|
|
|
5,716 |
|
|
Provision
for bad debts and sales-related allowances |
|
|
12,416 |
|
|
|
10,678 |
|
|
Contingent consideration payments related to businesses
acquired |
|
|
(5,906 |
) |
|
|
— |
|
|
Non-cash
accretion of interest expense on convertible notes and imputed
financing obligation |
|
|
14,981 |
|
|
|
13,489 |
|
|
Other
non-cash charges and gains |
|
|
11,320 |
|
|
|
5,443 |
|
Changes in
operating assets and liabilities, net of effect of acquired
businesses |
|
|
(74,804 |
) |
|
|
(34,987 |
) |
Net cash
provided by operating activities |
|
|
51,295 |
|
|
|
121,004 |
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
Purchases
of short-term investments |
|
|
(87,623 |
) |
|
|
(216,349 |
) |
|
Proceeds
from sales and maturities of short-term investments |
|
|
233,633 |
|
|
|
252,856 |
|
|
Purchases
of restricted investments and cash equivalents |
|
|
(26,274 |
) |
|
|
(6,252 |
) |
|
Purchases, net of proceeds from sales, of property and
equipment |
|
|
(13,754 |
) |
|
|
(22,373 |
) |
|
Businesses purchased, net of cash acquired and disposition |
|
|
(29,559 |
) |
|
|
(19,932 |
) |
Net cash
provided by (used for) investing activities |
|
|
76,423 |
|
|
|
(12,050 |
) |
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
Proceeds
from issuance of common stock |
|
|
12,074 |
|
|
|
11,100 |
|
|
Purchases
of treasury stock and net share settlements |
|
|
(101,844 |
) |
|
|
(83,292 |
) |
|
Repayment
of debt assumed through business acquisitions and debt issuance
costs |
|
|
(11,094 |
) |
|
|
(8,803 |
) |
|
Contingent consideration payments related to businesses
acquired |
|
|
(25,018 |
) |
|
|
(28,111 |
) |
Net cash
used for financing activities |
|
|
(125,882 |
) |
|
|
(109,106 |
) |
|
|
|
|
|
|
|
Effect of
foreign exchange rate changes on cash and cash equivalents |
|
|
4,196 |
|
|
|
374 |
|
|
Increase
in cash and cash equivalents |
|
|
6,032 |
|
|
|
222 |
|
|
Cash and
cash equivalents at beginning of period |
|
|
164,313 |
|
|
|
164,091 |
|
Cash and cash equivalents at end of period |
|
$ |
170,345 |
|
|
$ |
164,313 |
|
|
|
|
|
|
|
Electronics For
Imaging, Inc. |
|
|
|
|
|
|
|
|
Revenue by Operating Segment and Geographic
Area |
|
|
|
|
|
|
|
(in
thousands) |
|
|
|
|
|
|
|
|
(unaudited) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Twelve Months Ended |
|
December 31, |
|
|
December 31, |
|
|
|
|
|
|
|
|
|
Revenue by
Operating Segment |
|
2017 |
|
|
|
2016 |
|
|
|
2017 |
|
|
|
2016 |
Industrial Inkjet |
$ |
162,802 |
|
|
$ |
153,657 |
|
|
$ |
570,688 |
|
|
$ |
562,583 |
Productivity Software |
|
45,269 |
|
|
|
43,183 |
|
|
|
156,561 |
|
|
|
151,737 |
Fiery |
|
61,092 |
|
|
|
69,867 |
|
|
|
266,011 |
|
|
|
277,745 |
Total |
$ |
269,163 |
|
|
$ |
266,707 |
|
|
$ |
993,260 |
|
|
$ |
992,065 |
|
|
|
|
|
|
|
|
|
Revenue by
Geographic Area |
|
|
|
|
|
|
|
|
Americas |
$ |
134,571 |
|
|
$ |
136,434 |
|
|
$ |
487,968 |
|
|
$ |
500,411 |
EMEA |
|
94,975 |
|
|
|
95,836 |
|
|
|
369,610 |
|
|
|
360,305 |
APAC |
|
39,617 |
|
|
|
34,437 |
|
|
|
135,682 |
|
|
|
131,349 |
Total |
$ |
269,163 |
|
|
$ |
266,707 |
|
|
$ |
993,260 |
|
|
$ |
992,065 |
|
|
|
|
|
|
|
|
|
Revenue
Ex-Currency Adjustment |
|
(7,346 |
) |
|
|
— |
|
|
|
(5,694 |
) |
|
|
— |
Total |
$ |
261,817 |
|
|
$ |
266,707 |
|
|
$ |
987,566 |
|
|
$ |
992,065 |
|
|
|
|
|
|
|
|
|
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,
asset impairment, incremental cost of revenue due to the fair value
adjustment to inventories acquired in business acquisitions,
changes in the fair value of contingent consideration including the
related foreign exchange fluctuation impact, revenue recognition
review costs and 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, gross profit, and
operating expenses by using historical exchange rates in effect
during the comparable prior year period and removing the balance
sheet currency re-measurement 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:
- Inventory acquired in the acquisition of the Free Flow Print
Server business (“FFPS”) is required to be recorded at fair value
rather than historical cost in accordance with ASC 805, Business
Combinations. The fair value of FFPS inventory reflects the
manufacturing cost plus a portion of the expected gross profit. We
have adjusted our cost of revenue to reflect the expected gross
profit that was included in the inventory valuation under ASC 805.
We believe this adjustment is useful to investors to understand the
gross profit trends of our ongoing business.
- Intangible assets acquired to date are being amortized on a
straight-line basis.
- Stock-based compensation expense of $26.5 and $34.9 million
during the twelve months ended December 31, 2017 and 2016,
respectively, consists of $26.5 and $31.8 million of stock-based
compensation expense recognized in accordance with ASC 718, Stock
Compensation, and the non-cash settlement of $3.1 million of
vacation liabilities settled through the issuance of RSUs during
the twelve months ended December 31, 2016, which is not included in
the GAAP presentation of our stock-based compensation expense.
- 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.
- Expenses incurred to integrate businesses acquired of $1.2 and
$2.2 million for the three and twelve months ended December 31,
2017, respectively, and $0.7 and $2.1 million for the three and
twelve months ended December 31, 2016 respectively.
- Integration depreciation of $0.3 million was recognized during
the year ended December 31, 2017, which resulted from assets
required to integrate acquired businesses. We have acquired 18
businesses in the last 5 years, which have required significant
information technology investment to integrate them into our
business. Depreciation related to assets purchased to integrate
businesses acquired during the periods reported have been included
in the integration expenses that we have excluded from non-GAAP
operating results.
- Acquisition-related transaction costs associated with
businesses acquired during the periods reported and anticipated
transactions of $0.2 and $2.1 million for the three and twelve
months ended December 31, 2017, respectively, and $0.5 and $2.2
million for the three and twelve months ended December 31, 2016,
respectively.
- 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, 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.
- 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.
- Revenue recognition review costs and litigation settlements.
As described in “Item 9A, Controls and Procedures” of our
annual report on Form 10-K, for the year ended December 31, 2016,
as amended, our management concluded that we had material
weaknesses in our internal control over financial reporting as of
December 31, 2016 related to revenue recognition practices and
therefore did not maintain effective internal control over
financial reporting or effective disclosure controls and
procedures, both of which are requirements of the Securities
Exchange Act of 1934, as of that date. The review of our revenue
recognition practices has required that we expend significant
management time and incur significant accounting, legal, and other
expenses totaling $1.7 and $6.4 million during the three and twelve
months ended December 31, 2017, respectively, and we expect to
incur additional costs in the future periods. We settled or
accrued reserves related to several litigation claims of $0.1 and
$0.4 million for the three and twelve months ended December 31,
2017, respectively, and $0.1 and $1.0 million during the three and
twelve months ended December 31, 2016, respectively.
- Asset impairment. During the fourth quarter of 2017, our
management approved a plan to sell approximately 31.5 acres of land
and the related buildings (“facility”) located in Meredith, New
Hampshire. Assets previously recorded within property and
equipment, net, of $5.1 million have been reclassified to assets
held for sale within other current assets in our Condensed
Consolidated Balance Sheet as of December 31, 2017. The fair
value of the facility based on the expected sales proceeds, less
cost to sell, will be less than the carrying amount of the
assets. As a result, an impairment loss of approximate $0.9
million was recognized for the three and twelve months ended
December 31, 2017.
- Tax effect of non-GAAP adjustments. 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. 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, $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, and $27.3 million of tax charges
recognized in Q4 2017 as a result of the US Tax Cuts and Jobs Act,
which was enacted on December 22, 2017.
For more
information:
Marc OlinChief Financial OfficerEFI 650-357-3500
Investor Relations: JoAnn HorneMarket Street
Partners 415-445-3235
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