EFI Q Earnings Call. October 21, 2014

Transcription

1 EFI Q Earnings Call October 21, 2014

2 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, look, and plan and statements in the future tense are forward looking statements. The statements in this presentation that could be deemed forwardlooking 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 requirements regarding the conflict minerals, and any other risk factors that may be included from time to time in the Company s SEC reports. The statements in this presentation are made as of the date of this presentation. EFI undertakes no obligation to update information contained in this presentation. 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 or by at investor.relations@efi.com or EFI s Investor Relations website at 2

3 Q Financial Summary Record revenue of $198M, up 11% YoY Solid growth across all business segments; double-digit Americas & APAC growth Record recurring revenue of $57M, up 18% YoY; 29% of total revenue UV Ink volume up 26% Non-GAAP Gross Margin of 55.4% (+80 bps YoY) Non-GAAP Operating Profit of $31M, up 36%; 15.6% of revenue Non-GAAP EBITDA of $33M, up 35%; 16.9% of revenue Non-GAAP EPS up 10% to $0.43 compared to $0.39 in Q Includes a ($0.09) non-operational currency loss in Q compared to a $0.02 gain in Q Cash flow from operating activities of $13M for the quarter vs $16M last year $78M over last twelve months, 91% of Non-GAAP Net Income Share buyback of $21M (+320% YoY) for the quarter and $66M YTD (+163% YoY) Issued a $345M, 5-year convertible bond; net cash proceeds of $308M Non-GAAP numbers have been adjusted to exclude certain items. See GAAP to Non-GAAP reconciliation & our description of our use of non-gaap information. 3

4 Q and FY 2014 Guidance Revenue Guidance ($M) Q414 FY 2014 Total Revenue $ $ YoY % 6-8% 8-9% Industrial Inkjet YoY % Productivity Software YoY % Fiery YoY % Mid- to High- Single Digit Q4 14 revenue guidance includes approximately 1-2% negative YoY growth from currency Q4 14 Non-GAAP Operating Margin of approximately 14-15% of revenue FY 2014 operating income growth of 15-17% YoY Q4 14 Non-GAAP EPS of $ , up 4-10% High Single- Digit ~10% ~12% Mid-Single Digit High Single- Digit FY 2014 Non-GAAP EPS of $ , up 13-15% YoY Includes $0.01 impact for the interest payment on the convertible debt Non-GAAP numbers have been adjusted to exclude certain items. See GAAP to Non-GAAP reconciliation & our description of our use of non-gaap information. 4

5 Q P&L Summary $M Q Q QoQ % Q YoY % Revenue $ $ % $ % NON-GAAP Operating Profit % % Operating Profit % 15.6% 13.5% +2.1 pts 12.7% +2.9 pts Net Income (2%) % EPS $ 0.43 $ 0.44 (2%) $ % GAAP GAAP Net Income (30%) 16.1 (70%) GAAP EPS $ 0.10 $ 0.14 (29%) $ 0.33 (70%) Non-GAAP numbers have been adjusted to exclude certain items. See GAAP to Non-GAAP reconciliation & our description of our use of non-gaap information. 5

6 LTM Consolidated P&L Non-GAAP Non-GAAP Consolidated P&L ($M) 2014 YTD 2013 YTD YoY % LTM* Sep 2014 LTM* Sep 2013 YoY % Revenue $ $ % $ $ % GM % 54.8% 54.7% +10 bps 54.6% 54.6% - bps Operating Expenses % % Operating Profit % % Operating Profit % 14.2% 12.9% +1.3 pts 14.4% 13.2% +1.2 pts EBITDA % % Other Income/Expense (5.7) (0.3) na (5.1) 0.5 na Tax Rate 19.0% 22.7% -3.7 pts 19.7% 22.5% -2.8 pts Net Income % % EPS $ 1.28 $ % $ % Diluted Sharecount (000's) 48,304 48,387 (0%) 48,326 48,107 +0% * Last twelve months ending September 30 of the year indicated Non-GAAP numbers have been adjusted to exclude certain items. See GAAP to Non-GAAP reconciliation & our description of our use of non-gaap information. 6

7 Q Non-GAAP Key Performance Metrics * * Non-GAAP numbers have been adjusted to exclude certain items. See GAAP to Non-GAAP reconciliation & our description of our use of non-gaap information. Revenue and Cash Flow from Ops are determined in accordance with GAAP. 7

8 Revenue by Segment & Region Revenue ($M) Q Q QoQ % Q YoY % Industrial Inkjet % % % of Total 48% 49% 49% Productivity Software % % % of Total 17% 16% 16% Fiery % % % of Total 35% 35% 35% Americas % % % of Total 59% 52% 57% EMEA (19%) % % of Total 27% 35% 29% APAC % % % of Total 14% 13% 14% Japan % % % of Total 3% 3% 3% APAC ex Japan % % % of Total 11% 10% 11% EFI $ $ % $ % 8

9 LTM Revenue by Segment & Region LTM* LTM* Revenue ($M) 2014 YTD 2013 YTD YoY % YoY % Sep 2014 Sep 2013 Inkjet % % % of Total 48% 48% 48% 49% Productivity Software % % % of Total 17% 16% 17% 16% Fiery % % % of Total 35% 36% 35% 35% Americas % % % of Total 55% 56% 56% 57% EMEA % % % of Total 31% 29% 30% 28% APAC (3%) % % of Total 14% 15% 14% 15% Japan % (0%) % of Total 3% 3% 3% 3% APAC ex Japan (5%) % % of Total 11% 12% 11% 12% EFI $ $ % $ $ % * Last twelve months ending September 30 of the year indicated 9

10 Gross Margin by Business Segment Non-GAAP Non-GAAP Gross Margin % Q Q QoQ % Q YoY % Industrial Inkjet 39.5% 38.5% +100 bps 39.8% -30 bps Productivity Software 72.3% 72.1% +20 bps 71.5% +80 bps Fiery 69.4% 67.4% +200 bps 67.5% +190 bps EFI 55.4% 54.1% +130 bps 54.6% +80 bps Non-GAAP numbers have been adjusted to exclude certain items. See GAAP to Non-GAAP reconciliation & our description of our use of non-gaap information. 10

11 Operating Expenses Non-GAAP Non-GAAP Operating Expenses ($M) Q Q QoQ % Q YoY % Research & Development (1%) % % of Revenue 15.9% 16.4% -50 bps 16.8% -90 bps Sales & Marketing % % % of Revenue 17.5% 17.8% -30 bps 18.8% -130 bps General & Administrative % % % of Revenue 6.4% 6.4% - bps 6.3% +10 bps EFI % % % of Revenue 39.8% 40.6% -80 bps 41.9% -210 bps Non-GAAP numbers have been adjusted to exclude certain items. See GAAP to Non-GAAP reconciliation & our description of our use of non-gaap information. 11

12 Q GAAP to Non-GAAP Opex Bridge Operating Expenses ($M) GAAP Stock Based Comp Exp Amort of Identifited Intangibles Acquisition Related Transaction Costs Restructuring and Other Non-GAAP Research & Development 33.8 (2.3) % of Revenue 17.1% (1%) % Sales & Marketing 36.1 (1.5) % of Revenue 18.3% (1%) % General & Administrative 17.6 (4.4) - (0.6) % of Revenue 8.9% (2.2%) - (0.3%) - 6.4% Amortization of Intangibles (5.3) % of Revenue 2.7% - (2.7%) Restructuring & Other (3.0) - % of Revenue 1.5% (1.5%) - EFI 95.9 (8.2) (5.3) (0.6) (3.0) 78.7 % of Revenue 48.5% (4.1%) (2.7%) (0.3%) (1.5%) 39.8% Non-GAAP numbers have been adjusted to exclude certain items. See GAAP to Non-GAAP reconciliation & our description of our use of non-gaap information. 12

13 Consolidated P&L Non-GAAP Non-GAAP Consolidated P&L ($M) Q Q QoQ % Q YoY % Revenue $ $ % $ % GM % 55.4% 54.1% +130 bps 54.6% +80 bps Operating Expenses % % Operating Profit % % Operating Profit % 15.6% 13.5% +2.1 pts 12.7% +2.9 pts EBITDA % % Other Income/Expense (5.4) (0.2) na 1.4 na Tax Rate 19.0% 19.0% - pts 22.5% -3.5 pts Net Income (2%) % EPS $ 0.43 $ 0.44 (2%) $ % Diluted Sharecount (000's) 48,184 47,987 +0% 48,622 (1%) Non-GAAP numbers have been adjusted to exclude certain items. See GAAP to Non-GAAP reconciliation & our description of our use of non-gaap information. 13

14 Q GAAP to Non-GAAP P&L Bridge GAAP to Non-GAAP Bridge ($M) GAAP Stock Based Comp Exp Amort of Identified Intangibles Acquisition Related Transaction Costs Restructuring and Other Non-Cash Interest Non-GAAP Revenue $ $ Cost of Sales 88.9 (0.8) GM % 55.0% 55.4% Operating Expenses (Gains) 95.9 (8.2) (5.3) (0.6) (3.0) Operating Profit % 6.5% 15.6% Other Income/Expense (6.1) 0.7 (5.4) Pre-Tax Income Tax Rate 29.9% 19.0% Net Income EPS $ 0.10 $ 0.43 Diluted Sharecount (000's) 48,184 48,184 Non-GAAP numbers have been adjusted to exclude certain items. See GAAP to Non-GAAP reconciliation & our description of our use of non-gaap information. 14

15 Key Balance Sheet Figures Key Balance Sheet Figures ($M) Q Q Q Total Cash & Investments $ 602 $ 325 $ 363 Cash Conversion Cycle (CCC) Accounts Receivable (net) $ 148 $ 148 $ 126 DSO Inventory, net $ 81 $ 71 $ 74 Inventory Turns Total Assets $ 1,309 $ 993 $ 1,154 Convertible Debt $ $ - $ - 15

16 Key Cash and Valuation Metrics Cash Metrics ($M) Q Q QoQ % Q YoY % Cash Flow From Operations $ 13.4 $ 27.5 (51%) $ 16.3 (18%) LTM* Cash Flow From Operations (4%) 85.7 (9%) Cash Per Share % % Valuation Metrics Enterprise Value (EV)** $ 1,808.0 $ 1,844.0 (2%) $ 1, % EV Multiple of LTM EBITDA (9%) % EV Multiple of LTM Cash Flow From Operations % % EV Multiple of LTM Revenue (4%) %.* Last 12 months ending the third calendar month of the quarter indicated ** Calculated using closing common stock share price on last trading day of the quarter indicated 16

17 Convertible Debt Offering Summary Issuer: Electronics For Imaging, Inc. Security: Convertible Senior Notes due 2019 Ranking: Senior Unsecured Maturity 5 years Call Protection: Non-Call 5 Coupon: 0.75% Conversion Premium: 22.5% Size: $300MM Greenshoe: $45MM Approximate Conversion Price (1) $52.72 Approximate Shares Underlying Convertible 6.5MM Bond Hedge Strike (%) / Bond Hedge Cost ($) 22.5% / $63.9MM Warrant Strike (%) / Warrant Proceeds ($) 60% / $34.5MM Net Premium / % of Proceeds $29.4MM / 8.52% Net Proceeds $308MM Effective Pre-tax Interest Rate on Proceeds (incl. BH+W Cost) 2.58% Effective After-tax Interest Rate on Proceeds (2) 1.50% Offering: 144A / One-Day Marketed Bookrunners: Morgan Stanley and Goldman Sachs Notes 1. Reference price of $ Assumes 23% tax rate 17

18 Convertible Debt Sharecount Impact Share Price Impact to Diluted Sharecount (000's) $ Price at Offering Date $ $ $ $ % Conversion Premium $ $ $ % Hedged Conversion Premium No sharecount dilution until the stock exceeds the 22.5% conversion premium amount of $

19 Appendix

20 2013 Revenue by Business Segment 20

21 2012 Revenue by Business Segment 21

22 2011 Revenue by Business Segment 22

23 2013 Gross Margin by Business Segment Non-GAAP Non-GAAP numbers have been adjusted to exclude certain items. See GAAP to Non-GAAP reconciliation & the description of our use of non-gaap information in the press release for the relevant period. 23

24 2012 Gross Margin by Business Segment Non-GAAP Non-GAAP numbers have been adjusted to exclude certain items. See GAAP to Non-GAAP reconciliation & the description of our use of non-gaap information in the press release for the relevant period. 24

25 2011 Gross Margin by Business Segment Non-GAAP Non-GAAP numbers have been adjusted to exclude certain items. See GAAP to Non-GAAP reconciliation & the description of our use of non-gaap information in the press release for the relevant period. 25

26 Reconciliation of GAAP to Non-GAAP GAAP to Non-GAAP Reconciliation ($M) Q113 Q213 Q313 Q413 FY13 Q114 Q214 Q314 Q414 FY14 YTD GAAP Net Income (Loss) EPS $ 0.17 $ 0.20 $0.33 $ 1.54 $ 2.26 $ 0.21 $ 0.14 $ 0.10 $ - $ 0.45 ADJUSTMENTS COGS: Stock Based Compensation Expense OPEX: Stock Based Compensation Expense OPEX: Amortization of Identified Intangibles OPEX: Acquisition-Related Transaction Costs OPEX: Litigation Settlement - - (3.3) 0.2 (3.1) OPEX: Change in FV of Contingent Consideration (0.3) (0.5) 0.4 (5.4) (5.8) (0.6) (1.0) (0.6) - (2.2) OPEX: Restructuring and Other OPEX: Building Sale Related OPEX: Gain on Sale of Building and Land OI&E: Non-cash Interest Expense Tax Effect of Non-GAAP Adjustments NON-GAAP (0.3) (0.6) (0.6) (0.2) (1.7) (117.6) (117.2) (6.4) (3.2) (6.6) (4.2) 0.5 (2.8) - (6.5) Non-GAAP Net Income (Loss) $ 15.8 $ 18.3 $ 18.7 $ 23.8 $ 61.9 $ 20.4 $ 21.0 $ 20.6 $ - $ 62.0 Non-GAAP EPS $ 0.33 $ 0.38 $0.39 $ 0.49 $ 1.28 $ 0.42 $ 0.44 $ 0.43 $ - $ 1.29 Non-GAAP numbers have been adjusted to exclude certain items. 26

27 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 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, non-cash interest expense related to our 0.75% convertible senior notes ( Notes ), 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, and the tax effects of those adjustments. Effective in the first quarter of 2014, 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. These excluded items are described below: o Intangible assets acquired to date are being amortized on a straight-line basis. o Stock-based compensation expense recognized in accordance with ASC 718, Stock Compensation. o Restructuring and other expenses consist 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, were being amortized on a straight-line basis during Expenses incurred to integrate businesses acquired during the periods reported. o Acquisition-related transaction costs associated with businesses acquired during the periods reported and anticipated transactions. o 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. 27

28 About our Non-GAAP Net Income and Adjustments (continued) o 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. o 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 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 and capitalized interest, of $0.3 million was accrued during the nine months ended September 30, 2013, related to the deferred property transaction. o In conjunction with our acquisition of Cretaprint, we assumed a contingent liability related to the alleged infringement of certain patents owned by Jose Vicente Tomas Claramonte, the President of Kerajet. Because the former owners of Cretaprint agreed to indemnify EFI against any potential liability in the event that Mr. Claramonte were to prevail in his action against Cretaprint, we accrued a contingent liability based on a reasonable estimate of the legal obligation that was probable as of the acquisition date and we accrued a contingent asset based on the portion of any liability for which the former Cretaprint owners would indemnify EFI. The net obligation accrued in the opening balance sheet on the acquisition date was EU 2.5 million (or approximately $3.3 million). The Spanish Court of Appeal reached a final determination on July 15, 2013, which resulted in EFI having no liability related to any potential infringement of the Claramonte patent. Because this matter is no longer subject to appeal, we have reversed this liability by recognizing a credit against general and administrative expense during the three months ended September 30, o Tax effect of non-gaap adjustments Effective in the first quarter and continuing for the balance of 2014, 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 profit. The long-term average tax rate 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 provision in each jurisdiction in which we operate. The long term average tax rate assumes that the U.S. federal research and development tax credit will be retroactively re-enacted as of January 1, In addition to excluding the tax effect of the non-gaap items described above, we have excluded the following from our non-gaap net income for the three and nine months ended September 30, 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, The tax benefit for these items had been previously recognized in our non-gaap net income for the year ended December 31, Interest expense accrued on prior year tax reserves of $0.1 and $0.3 million for the three and nine months ended September 30, 2013, respectively, as well as other tax benefits of $0.3 million for the nine months ended September 30, Recognition of previously unrecognized tax benefits from our non-gaap net income of $3.5 million for the three and nine months ended September 30, 2013 to facilitate comparability of our operating performance between the periods. These tax benefits primarily resulted from the release of previously unrecognized tax benefits resulting from the expiration of U.S. federal statutes of limitations. Usefulness of Non-GAAP Financial Information to Investors 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. 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 28