EFI Reports Third Quarter 2007 Results

EFI (Nasdaq: EFII), the world leader in customer-focused digital printing, announced today its results for the third quarter of 2007. For the quarter ended September 30, 2007, the Company reported revenues of $158.3 million, up approximately 15% when compared to third quarter 2006 revenue of $138.2 million. For the nine months ended September 30, 2007 revenues were $468.6 million, up approximately 14% when compared to $411.2 million in the same period in 2006. Non-GAAP net income was $22.3 million or $0.34 per diluted share in the third quarter of 2007, up approximately 17% when compared to $18.5 million or $0.29 per diluted share for the same period in 2006. Non-GAAP net income was $63.5 million or $0.96 per diluted share for the nine months ended September 30, 2007, up 14% from $55.0 million or $0.84 per diluted share for the same period in 2006. GAAP net income was $8.1 million or $0.13 per diluted share in the third quarter of 2007, compared to a net loss of $27.7 million or $0.49 per diluted share for the same period in 2006. GAAP net income was $19.8 million or $0.32 per diluted share for the nine months ended September 30, 2007, compared to a net loss of $3.7 million or $0.07 per diluted share for the same period in 2006. Non-GAAP net income is computed by adjusting GAAP net income by the impact of recurring amortization of acquisition-related intangibles, stock-based compensation expenses, certain tax charges, as well as other non-recurring charges and gains. "While we are pleased that we were able to achieve 15% year-over-year revenue growth in the third quarter, the revenue shift to the lower margin inkjet business negatively impacted our earnings per share,” said Guy Gecht, CEO of EFI. "Our inkjet business, which grew 36% year-over-year, including a record quarter for ink revenues largely offset the Fiery business, which came in below revenue expectations. We look for this trend to continue in Q4, as we maintain the strong growth in our inkjet business, putting continued pressure on margins.” Mr. Gecht continued, "We are pleased that we have concluded the restatement of our financials and are now current with our SEC filings, allowing us to resume our share buyback activity.” Outlook for Q4 2007 For the fourth quarter of 2007, the Company expects revenues in the range of $160 million to $165 million. For the fourth quarter of 2007, the Company expects non-GAAP earnings per share of $0.35 to $0.38. For the fourth quarter of 2007, the Company expects GAAP earnings per share of $0.23 to $0.26. For fiscal 2007, the Company expects a non-GAAP tax rate of 24% to 25%. GAAP net income outlook includes an estimated charge related to stock-based compensation expense in accordance with FAS 123R. This estimate is subject to change. Both the non-GAAP and the GAAP earnings estimates include the 9.1 million shares related to the Company’s contingently convertible debt when dilutive to earnings. Reconciliation of non-GAAP to GAAP EPS estimates   Three Months Ended December 31, 2007   Non-GAAP EPS estimate $0.35 $0.38 Amortization of acquisition-related intangibles – pre tax $(0.13) $(0.13) Amortization of stock based compensation – pre tax $(0.07) $(0.07) Tax effect of non-GAAP adjustments $0.08 $0.08 GAAP EPS estimate $0.23 $0.26 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 a non-GAAP measure of net income that is GAAP net income adjusted to exclude certain recurring and non-recurring costs, expenses and gains. Our non-GAAP net income gives an indication of our baseline performance before gains, losses or other charges that are considered by management to be outside our core operating results. In addition, non-GAAP net income is among the primary indicators management uses as a basis for planning and forecasting future periods. These measures are not in accordance with or an alternative for GAAP and may be materially different from non-GAAP measures used by other companies. We compute non-GAAP net income by adjusting GAAP net income with the impact of recurring amortization of acquisition-related intangibles, stock-based compensation expenses, certain tax charges, as well as non-recurring charges and gains. The presentation of this additional information should not be considered in isolation or as a substitute for net income prepared in accordance with GAAP. 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. These statements in this press release include "Our inkjet business, which grew 36% year-over-year, including a record quarter for ink revenues largely offset the Fiery business, which came in below revenue expectations… We look for this trend to continue in Q4, as we maintain the strong growth in our inkjet business, putting continued pressure on margins… For the fourth quarter of 2007, the Company expects revenues in the range of $160 million to $165 million… For the fourth quarter of 2007, the Company expects non-GAAP earnings per share of $0.35 to $0.38… For the fourth quarter of 2007, the Company expects GAAP earnings per share of $0.23 to $0.26… For fiscal 2007, the Company expects a non-GAAP tax rate of 24% to 25%… GAAP net income outlook includes an estimated charge related to stock-based compensation expense in accordance with FAS 123R. This estimate is subject to change.” Past performance is not necessarily indicative of future results. 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, which include, but are not necessarily limited to, the following: (1) management's ability to forecast revenues, expenses and earnings, especially on a quarterly basis; (2) unexpected declines in revenues or increases in expenses; (3) any additional costs and expenses related to the investigation into the Company’s past stock option grants and stock option grant practices; (4) the restatement of or significant adjustments to the Company's reported historical results for prior periods; (5) the potential adverse impact of litigation relating to the Company’s past stock grants and stock option practices; (6) the possibility of additional litigation and governmental actions relating to our past stock grants and stock option practices; (7) current world-wide financial, economic and political difficulties and downturns, including adverse variations in foreign exchange rates, that could affect demand for our products; (8) a significant decline or delay in demand for our products by any of our important OEM partners; (9) the unpredictability of development schedules and commercialization of the products manufactured and sold by our OEM partners; (10) variations in growth rates or declines in the printing and imaging markets across various geographic regions; (11) changes in historic customer order patterns, including changes in customer and channel inventory levels; (12) changes in the mix of products sold leading to variations in operating results; (13) the uncertainty of market acceptance of new product introductions; (14) delays in product deliveries that cause quarterly revenues and income to fall significantly short of anticipated levels; (15) competition and/or market factors, which may adversely affect margins; (16) competition in each of our businesses, including competition from products internally developed by EFI's customers; (17) excess or obsolete inventory and variations in inventory valuation; (18) intense competition in the industrial and commercial digital inkjet market; (19) the uncertainty of continued success in technological advances, including development and implementation of new processes and strategic products; (20) the challenges of obtaining timely, efficient and quality product manufacturing; (21) litigation involving intellectual property rights or other related matters; (22) our ability to adequately and timely service our debt; (23) our ability to successfully integrate acquired businesses, without operational disruption to our existing businesses; (24) the potential that investments in new business strategies and initiatives could disrupt the Company’s ongoing businesses and may present risks not originally contemplated; (25) the potential loss of sales, unexpected costs or adverse impact on relations with customers or suppliers as a result of acquisitions; (26) differences between the financial results as filed with the SEC and the preliminary results included in our earnings press releases due to the complexity in accounting rules; and (27) any other risk factors that may be included from time to time in the Company's SEC reports. 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 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 http://www.efi.com. About Electronics for Imaging, Inc. / EFI EFI (www.efi.com) is the 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® digital color print servers; VUTEk® superwide digital inkjet printers, UV and solvent inks; Jetrion® 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 Income   Nine Months Ended September 30, Three Months Ended September 30, (in thousands, except per share data) (unaudited) 2007   2006 2007   2006 Revenue $468,567 $411,199 $158,295 $138,212 Cost of revenue 192,291 164,888 66,089 56,036 Gross profit 276,276 246,311 92,206 82,176 Operating expenses: Research and development 107,630 94,190 36,957 32,282 Sales and marketing 89,903 72,462 30,117 23,711 General and administrative 53,660 31,071 15,723 12,511 Acquisition and intangible amortization costs 26,085 26,821 8,655 8,767 Total operating expenses 277,278 224,544 91,452 77,271 Income (loss) from operations (1,002) 21,767 754 4,905 Interest and other income, net: Interest and other income 22,216 16,878 7,709 6,730 Gain on sale of product line -- 6,995 -- -- Interest expense (3,751) (3,754) (1,250) (1,251) Total interest and other income, net 18,465 20,119 6,459 5,479 Income before income taxes 17,463 41,886 7,213 10,384 Provision for income taxes 2,384 (45,562) 892 (38,112) Net income $19,847 $(3,676) $8,105 $(27,728) Fully Diluted EPS calculation Net income $19,847 $(3,676) $8,105 $(27,728) After-tax adjustment of convertible debt-related costs 2,250 -- 750 -- Income for purposes of computing diluted net income per share $22,097 $(3,676) $8,855 $(27,728) Net income per diluted common share $0.32 $(0.07) $0.13 $(0.49) Shares used in diluted per share calculation 68,598 56,518 68,725 56,267 Electronics for Imaging, Inc. Reconciliation of GAAP Net Income to Non-GAAP Net Income   Nine Months EndedSeptember 30,   Three Months EndedSeptember 30, (In thousands, except per share data) (unaudited) 2007   2006 2007   2006 Net income $19,847 $(3,676) $8,105 $(27,728) Acquisition and intangible amortization costs 26,085 26,821 8,655 8,767 Write-off of abandoned acquisition costs 1,393 -- -- -- Adjustment to allowance for bad debt -- (3,773) -- -- Gain on sale of product line -- (6,995) -- -- Special committee investigation costs 14,463 -- 3,122 -- Stock based compensation expense – Cost of revenue 1,681 1,162 572 490 Stock based compensation expense – Research and development 9,642 5,661 4,348 2,301 Stock based compensation expense – Sales and marketing 3,589 2,178 1,260 898 Stock based compensation expense – General and administrative 7,762 7,446 2,649 2,855 Severance costs 1,501 -- 1,501 -- Tax effect of non-GAAP adjustments (22,444) 26,195 (7,929) 30,917 Non-GAAP net income $63,519 $55,019 $22,283 $18,500 After-tax adjustment of convertible debt-related expense 2,250 2,250 750 750 Income for purposes of computing diluted non-GAAP net income per share $65,769 $57,269 $23,033 $19,250   Non-GAAP net income per diluted common share $0.96 $0.84 $0.34 $0.29 Shares used in per share calculation 68,598 68,429 68,725 66,663 Electronics for Imaging, Inc. Condensed Consolidated Balance Sheets (unaudited)   (in thousands)   September 30, 2007 December 31, 2006 Assets Cash, cash equivalents and short-term investments $549,963 $510,171 Accounts receivable, net 97,245 96,252 Inventories, net 37,438 35,225 Other current assets 26,618 13,199 Total current assets 711,264 654,847 Property and equipment, net 56,985 52,646 Restricted investments 88,580 88,580 Goodwill 211,624 212,992 Intangible assets, net 94,097 120,030 Other assets 36,489 15,557 Total assets $1,199,039 $1,144,652 Liabilities & Stockholders’ equity Current Portion of Long-term obligations $240,000 $240,000 Accounts payable 44,358 41,834 Accrued and other liabilities 82,172 89,415 Income taxes payable 13,082 21,823 Total current liabilities 379,612 393,072 Long term taxes payable 23,032 -- Total liabilities 402,644 393,072 Total stockholders’ equity 796,395 751,580 Total liabilities and stockholders’ equity $1,199,039 $1,144,652 Revenue Break-Down (in thousands) (unaudited)   Nine Months EndedSeptember 30,   Three Months EndedSeptember 30, Revenue by Product 2007   2006 2007   2006 Controller products $243,741 $229,700 $78,952 $78,199 Inkjet products 159,987 125,760 57,057 42,083 Professional printing applications 64,839 55,739 22,286 17,930 Total $468,567 $411,199 $158,295 $138,212 Revenue by Geographic Area Americas $250,232 $217,062 $84,609 $71,639 Europe 161,667 126,726 53,808 37,825 Japan 42,977 51,121 14,768 23,224 Rest of World 13,691 16,290 5,110 5,524 Total $468,567 $411,199 $158,295 $138,212