EFI Reports Q3 2009 Results

October 28, 2009 4:06 PM EDT

Sequential Revenue Growth Reported In All Three Divisions;

Inkjet Revenues Increased 22% Over Prior Quarter

FOSTER CITY, Calif.--(BUSINESS WIRE)-- Electronics For Imaging, Inc. (Nasdaq: EFII), a world leader in customer-focused digital printing innovation, today announced its results for the third quarter of 2009. For the quarter ended September 30, 2009, the Company reported revenues of $100.9 million, compared to third quarter 2008 revenue of $144.7 million.

GAAP net loss was $(12.2) million or $(0.25) per diluted share in the third quarter of 2009, compared to a GAAP net loss of $(3.6) million or $(0.07) per diluted share for the same period in 2008.

GAAP net income was $1.2 million or $0.02 per diluted share for the nine months ended September 30, 2009, compared to a GAAP net loss of $(8.9) million or $(0.17) per diluted share for the same period in 2008.

Non-GAAP net loss was $(2.6) million or $(0.05) per diluted share in the third quarter of 2009, compared to non-GAAP net income of $10.4 million or $0.20 per diluted share for the same period in 2008.

Non-GAAP net loss was $(13.1) million or $(0.26) per diluted share for the nine months ended September 30, 2009, compared to non-GAAP net income of $34.5 million or $0.61 per diluted share for the same period in 2008.

"We are pleased with the sequential revenue increases in all our lines of business, led by 22% growth in our inkjet business driven by several new inkjet product introductions," said Guy Gecht, CEO of EFI. "We will continue to bring industry-leading innovation to the market and expect our positive momentum to continue which combined with strict cost controls should result in our return to profitability in the current quarter."

Separately, the Company announced today that its Board of Directors has approved the use of the balance, in the amount of $70 million, of its previously authorized $100 million share repurchase program.

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 our Non-GAAP Net Income and Adjustments

To supplement our 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.

We believe that the presentation of non-GAAP net income and non-GAAP earnings per diluted share provides important supplemental information to management and investors regarding non-cash expenses, significant recurring and non-recurring items that we believe are important to understanding our 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 that the exclusion of the items described below, for which the amounts and/or timing may vary significantly depending upon 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.

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, 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 project abandonment costs, asset impairment charges, costs related to our stock option review completed in 2008, certain legal settlements, and our sale of certain real estate assets. Examples of these excluded items are described below:

 Amortization of acquisition-related intangibles. Intangible assets acquired to
 date are being amortized on a straight-line basis.

 Stock-based compensation expense is recognized in accordance with FASB
 Accounting Standards Codification, Topic 718, Stock Compensation (formerly,
 SFAS 123R).

 Non-recurring charges and gains, including:

  Restructuring related charges. We have incurred restructuring charges as we
  reduce the number and size of our facilities and the size of our workforce.

  Asset impairment costs consist of equipment and non-cancellable purchase
  orders incurred relating to a planned product that was cancelled.

  Gain on sale of building and land. On January 29, 2009, we sold a portion of
  the Foster City, California campus for a final amount of $137.3 million to
  Gilead Sciences, Inc., resulting in a gain on sale of approximately $80
  million.

 Tax effect of these adjustments.

These non-GAAP measures are not in accordance with or an alternative for 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.

For more information on the non-GAAP adjustments, please see the table captioned "Reconciliation of GAAP Net Income to Non-GAAP Net Income" included in this press release.

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", "estimate", "expect", "consider" 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 opportunities for the inkjet segment, our planned industry-leading new products, continuation of our positive momentum, return to profitability, 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, inaccurate data or assumptions; unforeseen expenses; the difficulty of aligning expense levels with revenue changes; execution of actions to reduce our operational costs and ability to maintain effective costs control measures; unexpected declines in revenues or increases in expenses; management's ability to forecast revenues, expenses and earnings, especially on a quarterly basis; the market prices of the Company's common stock; the uncertainty regarding the amount and timing of future share repurchases by the Company and the origin of funds used for such repurchases; current world-wide financial, economic and political difficulties and downturns, including the ongoing contraction in credit markets, and adverse variations in foreign exchange rates, that could affect demand for our products, and increase the volatility of our profitability, as well as the risk of bank failures, insolvency or illiquidity of other financial institutions and other adverse conditions in financial markets that could cause a loss of our cash deposits and invested cash and cash equivalents; uncertainty to accurately predict the outcome of foreign tax audits and determine our tax provisions; uncertainty regarding our effective tax rate in the future that may be impacted by various factors, including but not limited to new U.S. tax legislative proposals; failure to retain key employees; product cancellation costs; a significant decline or delay in demand for our products by any of our important OEM partners; the unpredictability of development schedules and commercialization of the products manufactured and sold by our OEM partners; variations in growth rates or declines in the printing and imaging markets across various geographic regions; changes in historic customer order patterns, including changes in customer and channel inventory levels; changes in the mix of products sold leading to variations in operating results; the uncertainty of market acceptance of new product introductions; delays in product deliveries that cause quarterly revenues and income to fall significantly short of anticipated levels; competition and/or market factors, which may adversely affect margins; competition in each of our businesses, including competition from products internally developed by EFI's customers; challenge of managing assets levels, including inventory and variations in inventory valuation; intense competition in the industrial and commercial digital inkjet market; the uncertainty of continued success in technological advances, including development and implementation of new processes and strategic products; the challenges of obtaining timely, efficient and quality product manufacturing and components supplying; litigation involving intellectual property rights or other related matters; our ability to successfully integrate acquired businesses, without operational disruption to our existing businesses; the potential that investments in new business strategies and initiatives could disrupt the Company's ongoing businesses and may present risks not originally contemplated; the potential loss of sales, unexpected costs or adverse impact on relations with customers or suppliers as a result of acquisitions; differences between the financial results as filed with the SEC and the preliminary results included in our earnings or other press releases due to the complexity in accounting rules; 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 "Factors That Could Adversely Affect Performance" in the Company's SEC filings, including, but not limited to, its annual report on Form 10-K, as amended, 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.

About EFI

EFI (www.efi.com) is a world leader in customer-focused digital printing innovation. EFI's award-winning solutions, integrated from creation to print, deliver increased performance, cost savings and productivity. The company's robust product portfolio includes Fiery(R) digital color print servers; VUTEk(R) superwide digital inkjet printers, UV and solvent inks; Rastek UV wide-format inkjet printers; Jetrion(R) industrial inkjet printing systems; print production workflow and management information software; and corporate printing solutions. EFI maintains 23 offices worldwide.

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,

                                2009         2008         2009         2008

Revenue                       $ 100,855    $ 144,666    $ 287,110    $ 425,116

Cost of revenue                 48,665       62,601       135,221      183,846

Gross profit                    52,190       82,065       151,889      241,270

Operating expenses:

Research and development        27,128       33,782       84,236       106,157

Sales and marketing             25,691       30,249       75,584       90,650

General and administrative      9,147        13,597       26,037       40,620

Amortization of identified
intangibles and

in-process research &           3,078        9,560        15,501       23,952
development

Restructuring and other         2,206        3,496        12,166       8,710

Total operating expenses        67,250       90,684       213,524      270,089

Loss from operations            (15,060 )    (8,619  )    (61,635 )    (28,819 )

Interest and other income,                                             -
net:

Interest and other income,      1,185        222          2,708        12,259
net

Gain on sale of building &      --           --           79,991       --
land

Total interest and other        1,185        222          82,699       12,259
income, net

                                                                       -

Income (loss) before income     (13,875 )    (8,397  )    21,064       (16,560 )
taxes

Benefit from (provision for)    1,706        4,753        (19,828 )    7,629
income taxes

Net income (loss)             $ (12,169 )  $ (3,644  )  $ 1,236      $ (8,931  )

Fully Diluted EPS calculation

Net income (loss)             $ (12,169 )  $ (3,644  )  $ 1,236      $ (8,931  )

Net income (loss) per diluted $ (0.25   )  $ (0.07   )  $ 0.02       $ (0.17   )
common share

Shares used in diluted per      49,400       52,167       50,564       52,919
share calculation

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,

                                 2009         2008        2009         2008

Net income (loss)              $ (12,169 )  $ (3,644 )  $ 1,236      $ (8,931  )

Amortization of identified       3,078        7,560       15,501       21,952
intangibles

In-process research and          --           2,000       --           2,000
development

Stock based compensation         253          560         807          2,023
expense - Cost of revenue

Stock based compensation
expense - Research and           1,797        3,002       4,744        10,408
development

Stock based compensation         995          1,430       3,188        4,840
expense - Sales and marketing

Stock based compensation
expense - General and            1,844        3,277       4,590        9,527
administrative

Option review & Legal costs      --           463         (82     )    1,926

Restructuring and other          2,206        3,496       12,166       8,710

Gain on sale of building &       --           --          (79,991 )    --
land

Tax effect of non-GAAP           (634    )    (7,699 )    24,761       (17,965 )
adjustments

Non-GAAP net income (loss)     $ (2,630  )  $ 10,446    $ (13,080 )  $ 34,490

After-tax adjustment of
convertible debt-related         --           --          --           1,262
expense

Income (loss) for purposes of
computing diluted non-GAAP     $ (2,630  )  $ 10,446    $ (13,080 )  $ 35,752

net income (loss) per share

Non-GAAP net income (loss) per $ (0.05   )  $ 0.20      $ (0.26   )  $ 0.61
diluted common share

Shares used in per share         49,400       53,199      49,990       58,808
calculation

Electronics For Imaging, Inc.

Condensed Consolidated Balance Sheets

(in thousands)

(unaudited)

                                                  September 30,  December 31,

                                                    2009           2008

Assets

Cash, cash equivalents and short-term investments $ 270,064      $ 189,351

Accounts receivable, net                            79,467         97,286

Inventories, net                                    43,474         48,785

Assets held for sale                                --             55,367

Other current assets                                18,139         20,013

Total current assets                                411,144        410,802

Property and equipment, net                         29,839         35,225

Restricted investments                              56,850         56,850

Goodwill                                            121,162        122,581

Intangible assets, net                              57,471         72,992

Other assets                                        54,019         53,498

Total assets                                      $ 730,485      $ 751,948

Liabilities & Stockholders' equity

Accounts payable                                  $ 34,528       $ 44,634

Accrued and other liabilities                       54,037         70,386

Income taxes payable                                11,735         1,952

Total current liabilities                           100,300        116,972

Long term taxes payable                             37,884         33,758

Total liabilities                                   138,184        150,730

Total stockholders' equity                          592,301        601,218

Total liabilities and stockholders' equity        $ 730,485      $ 751,948

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       2009       2008       2009       2008

Fiery                              $ 42,004   $ 68,036   $ 131,319  $ 208,547

Inkjet                               44,336     60,805     112,897    172,185

Professional printing applications   14,515     15,825     42,894     44,384

Total                              $ 100,855  $ 144,666  $ 287,110  $ 425,116

Revenue by Geographic Area

Americas                           $ 58,184   $ 77,274   $ 167,349  $ 220,830

EMEA                                 30,083     49,885     85,307     152,468

Japan                                8,879      13,755     24,897     38,224

Other international locations        3,709      3,752      9,557      13,594

Total                              $ 100,855  $ 144,666  $ 287,110  $ 425,116

    Source: Electronics For Imaging, Inc.

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